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U.S. Securities and Exchange Commission Washington, D.C. 20549
 Form 10-QSB  þ
    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2005  o
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT For the transition period from __________ to __________ Commission file number 0-49764 SinoFresh HealthCare, Inc.  Florida
    
    65-1082270(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification Number)
 516 Paul Morris Drive
Englewood, Florida 34223
(Address of principal executive offices) 941-681-3100
(Issuers telephone number) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the
Exchange Act during the past 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o The number of shares outstanding of each of the issuers classes of common equity as of April 19,
2005: Common Stock, No Par Value 14,247,120 shares Transitional Small Business Disclosure Format (check one): Yes o No þ




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Table of Contents SINOFRESH HEALTHCARE, INC. Index PagePart I. Financial InformationItem 1. Financial StatementsCondensed Consolidated Balance Sheet as of March 31, 2005 (unaudited)
    
    
    2Condensed Consolidated Statements of Operations  for the three months ended
March 31, 2005 and 2004 (unaudited)
    
    
    3Condensed Consolidated Statements of Cash Flows for the three months ended March
31, 2005 and 2004 (unaudited)
    
    
    4Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    5Item 2. Managements Discussion and Analysis of Financial Condition and Results
of Operations
    
    
    9Item 3. Controls and Procedures
    
    
    13Part II. Other Information
    
    
    14Item 1. Legal Proceedings
    
    
    14Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    16Item 6. Exhibits
    
    
    16Signatures
    
    
    17Certifications
    
    
    18EX-4.1: WARRANT ISSUED TO ADSOUTH PARTNERS, INC.EX-4.2: REGISTRATION RIGHTS AGREEMENTEX-31.1: SECTION 302 CERTIFICATION OF CEOEX-31.2: SECTION 302 CERTIFICATION OF CFOEX-32: SECTION 906 CERTIFICATION OF CEO AND CFO
  i




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PART I -  FINANCIAL STATEMENTS SINOFRESH HEALTHCARE, INC. 
  March 31, 2005(Unaudited)ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    441,090Accounts receivable, net of allowances of $14,244
    
    
    245,446Inventory
    
    
    92,795Deferred debt issuance costs, current
    
    
    205,068Other current assets
    
    
    260,422TOTAL CURRENT ASSETS
    
    
    1,244,821FURNITURE AND EQUIPMENT, NET
    
    
    102,446PATENTS, NET
    
    
    2,461,557GOODWILL
    
    
    2,409,401DEFERRED DEBT ISSUANCE COSTS, NET
    
    
    136,727OTHER ASSETS
    
    
    6,418TOTAL ASSETS
    
    $
    6,361,370LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIES:Current portion of capital leases
    
    $
    24,989Short-term notes payable
    
    
    20,483Accounts payable
    
    
    1,801,439Accrued expenses
    
    
    414,848TOTAL CURRENT LIABILITIES
    
    
    2,261,759CONVERTIBLE DEBENTURES, NET OF UNAMORTIZED DEBT DISCOUNTS
    
    
    1,321,668CAPITAL LEASES, NET OF CURRENT MATURITIES
    
    
    55,855TOTAL LIABILITIES
    
    
    3,639,282COMMITMENTS AND CONTINGENCIESSTOCKHOLDERS EQUITY:Common stock, no par value; 500,000,000 shares authorized; 14,247,120 shares
issued and outstanding
    
    
    5,731,863Preferred stock, no par value; $2 liquidation value per share 200,000,000 shares authorized:Series A convertible preferred stock, voting; 858,170 shares authorized, 823,795
shares issued and outstanding
    
    
    1,647,589Series B convertible preferred stock, voting; 1,500,000 shares authorized, issued
and outstanding
    
    
    3,000,000Series C convertible preferred stock, voting; 1,250,000 shares authorized; 894,500 shares
issued and outstanding
    
    
    1,605,681Accumulated deficit
    
    
    (9,046,756
    )Deferred stock-based compensation
    
    
    (84,289
    )Subscriptions receivable
    
    
    (132,000
    )TOTAL STOCKHOLDERS EQUITY
    
    
    2,722,088TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    6,361,370
 See notes to condensed consolidated financial statements. 2




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SINOFRESH HEALTHCARE, INC. 
  Three Months Ended March 31,2005
    
    
    2004REVENUE, net
    
    $
    487,856
    
    
    $
    1,931,569COST OF REVENUE
    
    
    149,779
    
    
    
    408,556GROSS PROFIT
    
    
    338,077
    
    
    
    1,523,013OPERATING EXPENSESSalaries and other compensation expense
    
    
    271,811
    
    
    
    307,480Professional fees
    
    
    290,729
    
    
    
    396,555Other general and administrative expenses
    
    
    126,829
    
    
    
    133,624Marketing and advertising expenses
    
    
    458,653
    
    
    
    308,942Research and development expenses
    
    
    28,181
    
    
    
    90,617Depreciation and amortization
    
    
    65,448
    
    
    
    65,352TOTAL OPERATING EXPENSES
    
    
    1,241,651
    
    
    
    1,302,570INCOME (LOSS) FROM OPERATIONS
    
    
    (903,574
    )
    
    
    220,443OTHER INCOME (EXPENSE):Interest, net
    
    
    (157,829
    )
    
    
    (15,529
    )Other income, net
    
    
    2,104
    
    
    
    40,413TOTAL OTHER INCOME (EXPENSE)
    
    
    (155,725
    )
    
    
    24,884NET INCOME (LOSS)
BEFORE INCOME TAXES
    
    
    (1,059,299
    )
    
    
    245,327PROVISION FOR INCOME TAXES
    
    
    
    
    
    
    NET INCOME (LOSS)
    
    $
    (1,059,299
    )
    
    $
    245,327NET INCOME (LOSS)
PER COMMON SHARE-basic
    
    $
    (0.07
    )
    
    $
    0.02-diluted
    
    $
    (0.07
    )
    
    $
    0.01WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING-basic
    
    
    14,192,676
    
    
    
    13,312,263-diluted
    
    
    14,192,676
    
    
    
    20,504,018
 See notes to condensed consolidated financial statements. 3




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SINOFRESH HEALTHCARE, INC. 
  Three Months Ended March 31,2005
    
    
    2004CASH FLOWS FROM OPERATING ACTIVITIES:Net income (loss)
    
    $
    (1,059,299
    )
    
    $
    245,327Adjustments to reconcile net income (loss) to net cash
provided by (used in) operations:Stock, options and warrants issued for services
    
    
    6,844
    
    
    
    21,875Amortization and depreciation
    
    
    65,448
    
    
    
    65,352Stock issued for settlement cost
    
    
    37,500
    
    
    
    Amortization of debt discount
    
    
    76,251
    
    
    
    Amortization of deferred debt issuance costs
    
    
    51,267
    
    
    
    Changes in assets and liabilities:Accounts receivable
    
    
    (16,173
    )
    
    
    61,988Inventory
    
    
    (49,671
    )
    
    
    85,482Other current assets
    
    
    82,031
    
    
    
    14,020Other assets
    
    
    
    
    
    
    800Accounts payable
    
    
    (4,597
    )
    
    
    143,737Accrued expenses
    
    
    (75,536
    )
    
    
    25,646NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
    
    
    (885,935
    )
    
    
    664,227INVESTING ACTIVITIES:Payments for furniture and equipment
    
    
    
    
    
    
    (2,946
    )NET CASH (USED IN) INVESTING ACTIVITIES
    
    
    
    
    
    
    (2,946
    )FINANCING ACTIVITIES:Payments received on warrant subscriptions receivable
    
    
    
    
    
    
    120,000Payments on long-term debt and capital leases
    
    
    (5,399
    )
    
    
    (307,257
    )NET CASH (USED IN) FINANCING ACTIVITIES
    
    
    (5,399
    )
    
    
    (187,257
    )NET INCREASE (DECREASE) IN CASH
    
    
    (891,334
    )
    
    
    474,024CASH AND CASH EQUIVALENTS  beginning of period
    
    
    1,332,424
    
    
    
    368,394CASH AND CASH EQUIVALENTS  end of period
    
    $
    441,090
    
    
    $
    842,418SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:Cash paid during the period for interest
    
    $
    34,595
    
    
    $
    6,128NON-CASH ACTIVITY:Conversion of accounts payable to a short term note payable
    
    $
    22,875
    
    
    $
    Warrants issued in connection with a services agreement
increasing other current assets and common stock
    
    $
    18,985
    
    
    $
    
 See notes to condensed consolidated financial statements. 4




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SinoFresh HealthCare, Inc. 
   Note 1. Basis of Presentation The accompanying unaudited financial statements of SinoFresh HealthCare, Inc. (the Company)
have been prepared in accordance with generally accepted accounting principles and the rules and
regulations of the United States Securities and Exchange Commission for interim financial
information. Accordingly, they do not include all of the information and footnotes necessary for a
comprehensive presentation of financial position and results of operation. The Companys business is subject to various risks and uncertainties. The Companys ability
to continue as a going concern is dependent on its ability to market and distribute its products,
utilize the technology underlying its patents, and further develop existing and new products. All
of these activities are capital intensive and will be dependent on cash flow from operations and/or
additional outside funding. While the Company has a working capital deficit at March 31, 2005 of
$1,016,938, management believes that it can secure additional outside funding; however, no
assurances can be provided that such outside funding will be secured or secured at terms agreeable
to the Company. The rate of the Companys future growth and success will be dependent on its
ability to generate the necessary resources through outside funding, product sales or otherwise.
The accompanying statements do not include any adjustments that might be necessary if the Company
is unable to continue as a going concern. In the opinion of management, all adjustments, consisting of normal recurring adjustments,
have been made in the March 31, 2005 and 2004 financial statements, which are necessary for a fair
financial statement presentation. The results for the three months ended March 31, 2005 and 2004
are not necessarily indicative of financial operations for the full year. For further information, refer to the financial statements and footnotes included in the
Companys Annual Report on Form 10-KSB as filed with the Securities and Exchange Commission for the
year ended December 31, 2004. The preparation of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at the date of the
condensed consolidated financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates. The Companys
significant estimates and assumptions primarily arise from risks and uncertainties associated
with potential future product returns, the uncollectibility of accounts and other receivables,
inventory obsolescence, valuation of acquired assets for purposes of allocating the purchase
price, including patents and goodwill, subsequent recoverability analysis, and estimated accruals
relating to legal contingencies. Note 2. Shareholders Equity During the three months ended March 31, 2005, the Company granted 216,500 stock options to
employees at an exercise price of $0.57 which was equal to the underlying common stock market
prices as of the date of the grants. The employee options expire in five years and vest over a
three-year period. In January, 2005, the Company issued 50,000 shares of common stock in order to settle an
existing law suit. The value of the shares on the date of issuance was $37,500. Also during the
first three months of 2005, holders of 50,000 shares of series C convertible preferred stock
converted their shares into 100,000 shares of common stock. Basic earnings per share is computed by dividing the net income (loss) available to common
shareholders for the relevant period, by the weighted average number of shares of common stock
issued, outstanding and issuable during the period. For purposes of calculating diluted earnings
per share, the denominator includes both the weighted average number of shares of common stock and
the number of dilutive common stock equivalents. The number of dilutive stock equivalents includes
the effect of stock options calculated using the treasury stock method and the number of issuable
shares upon the conversion of preferred stock and convertible debt outstanding. 5




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The following table reconciles the basic and dilutive earnings per share calculations
for the three months ended March 31,: 2005
    
    
    2004Net income (loss), as reported  basic
    
    $
    (1,059,299
    )
    
    $
    245,327Add back interest expense from the conversion of debt to
common shares
    
    
    
    
    
    
    11,935Net income (loss) available to common stockholders on a
dilutive basis
    
    $
    (1,059,299
    )
    
    $
    257,262Weighted average number of common shares outstanding  basic
    
    
    14,192,676
    
    
    
    13,312,263Effect of dilutive securities:Conversion of preferred stock, Series A, B and C
    
    
    
    
    
    
    6,295,592Conversion of debt
    
    
    
    
    
    
    282,242Assumed exercise of stock options
    
    
    
    
    
    
    613,921Weighted average number of common shares outstanding and
dilutive potential of common shares
    
    
    14,192,676
    
    
    
    20,504,018
 The Company has 1,584,010 options and warrants as of March 31, 2004 that have not been
included in the dilutive calculation because their effect was antidilutive. Additionally, there
were 6,295,990 options and warrants, preferred shares convertible into 5,612,795 shares of common
and outstanding debentures convertible into 3,327,274 shares of common as of March 31, 2005 that
were not included in the dilutive calculation due to the net loss incurred for the period. 6




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Note 3. Stock-based Compensation The Company accounts for employee stock-based compensation arrangements in accordance with
the provisions of Accounting Principles Board Opinion (APB) No. 25, Accounting for Stock Issued
to Employees, and complies with the disclosure provisions of Statement of Financial Accounting
Standards (SFAS) No. 123, Accounting for Stock-Based Compensation (SFAS No. 123). Under APB No.
25, compensation cost is determined based on the difference, if any, on the measurement date,
which is generally the grant date, between the fair value of the Companys stock and the amount an
employee must pay to acquire the stock. The fair value of each stock option or warrant grant issued to non-employees is estimated
on the measurement date using the fair value method of SFAS 123. The following table reflects proforma supplemental financial information related to stock-based
employee compensation, as required by SFAS No. 123 and SFAS 148 for the three months ended March
31,: 2005
    
    
    2004Net income (loss), as reported
    
    $
    (1,059,299
    )
    
    $
    245,327Additional stock-based employee compensation costs that would
have been included in the determination of net income (loss)
if the
fair value method (SFAS No. 123) had been applied to all awards
    

    
    (40,068
    )
    
    
    (201,647
    )Pro forma net income (loss), as if the fair value method had
been applied to all awards
    
    $
    (1,099,367
    )
    
    $
    43,680Net income (loss) per common share, as reported-basic
    
    $
    (0.07
    )
    
    $
    0.02-diluted
    
    $
    (0.07
    )
    
    $
    0.01Pro forma net income (loss) per common share, as if the fair
value method had been applied to all awards-basic
    
    $
    (0.08
    )
    
    $
    0.00-diluted
    
    $
    (0.08
    )
    
    $
    0.00
 Note 4:Related Party Information A director of the Company is the principal owner of a law firm that provided services to
the Company. The expenses incurred to that law firm were approximately $2,000 and $15,000 for the
three months March 31, 2005 and 2004, respectively. Accounts payable to this firm were
approximately $148,000 as of March 31, 2005. The Company leases its current facility from an entity controlled by two of the Companys
officers. Rent paid to these parties during the three months ended March 31, 2005 and 2004 was
approximately $19,000 and $19,000, respectively. Accounts payable to this entity were
approximately $22,000 as of March 31, 2005. The Company rented a condominium, on a month to month basis, from an officer and director at
the sum of $1,250 per month. The condominium was used as corporate housing by the Company. Total
rent expensed for the three months ended March 31, 2005 and 2004 was $0 and $3,750. This
arrangement was terminated in June 2004. Note 5:Contingencies As disclosed in the Companys Form 10-KSB filed for the year ended December 31, 2004, the
Company is involved in various litigation, primarily with two of its current directors and other
former consultants to the Company. In September 2003, the Company issued 10,768,490 shares of common stock, 858,170 shares of
Series A preferred stock, 1,500,000 shares of Series B preferred stock, and 1,218,711 shares of
Series C preferred stock in 7




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exchange for the outstanding shares of common stock and preferred stock held by shareholders
of the Companys predecessor, SinoFresh HealthCare, Inc., a Delaware corporation (HealthCare).
That transaction resulted in HealthCare merging into a wholly-owned subsidiary of the Company,
which subsidiary is now known as SinoFresh Corporation. In connection with that transaction, the
Company has been unable to obtain from either former counsel to the Company or former counsel to
HealthCare (a director of the Company), who was counsel to the Company and HealthCare,
respectively, at the time of the merger, information the Company presently believes is sufficient
to indisputably support one or more exemption(s) from registration that were relied upon in
connection with the issuance of the merger shares. If such information is not available, the
issuance of the shares of the Company in respect of the merger may not have been in compliance with
the registration provisions of the federal and state securities laws. There may have been a
violation of Section 5 of the Securities Act of 1933, as amended due to the unavailability of an
exemption from registration. As a result, the Company may be exposed to claims for rescission by
shareholders who received shares in the merger. Although the Company would vigorously defend
against any such actions, litigation may be costly and there is no assurance of the outcome. If
the Company lost its defense in any such litigation, the cost of repurchasing the shares could be
material to the Company. 8




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations Forward-Looking Statements and Associated Risks THIS QUARTERLY REPORT ON FORM 10-QSB CONTAINS FORWARD-LOOKING STATEMENTS THAT
HAVE BEEN MADE PURSUANT TO THE PROVISIONS OF THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995. THESE FORWARD-LOOKING STATEMENTS ARE BASED ON MANAGEMENTS
CURRENT EXPECTATIONS, ESTIMATES AND PROJECTIONS, BELIEFS AND ASSUMPTIONS. WORDS
SUCH AS ANTICIPATES, EXPECTS, INTENDS, PLANS, BELIEVES, SEEKS,
ESTIMATES, VARIATIONS OF SUCH WORDS AND SIMILAR EXPRESSIONS ARE INTENDED TO
IDENTIFY SUCH FORWARD-LOOKING STATEMENTS. THESE STATEMENTS ARE NOT GUARANTEES OF
FUTURE PERFORMANCE AND ARE SUBJECT TO CERTAIN RISKS, UNCERTAINTIES AND
ASSUMPTIONS THAT ARE DIFFICULT TO PREDICT; THEREFORE, ACTUAL RESULTS MAY DIFFER
MATERIALLY FROM THOSE EXPRESSED OR FORECASTED IN ANY SUCH FORWARD-LOOKING
STATEMENTS. THESE RISKS AND UNCERTAINTIES INCLUDE THOSE DISCUSSED IN PART II  ITEM 6 -
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS  RISK
FACTORS CONTAINED IN THE COMPANYS FORM 10-KSB FOR THE YEAR ENDED DECEMBER 31, 2004, AS FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION. UNLESS REQUIRED BY LAW, THE COMPANY UNDERTAKES NO
OBLIGATION TO UPDATE PUBLICLY ANY FORWARD-LOOKING STATEMENTS, WHETHER AS A RESULT OF NEW
INFORMATION, FUTURE EVENTS OR OTHERWISE. INVESTORS SHOULD REVIEW THIS QUARTERLY REPORT IN
COMBINATION WITH THE COMPANYS ANNUAL REPORT ON FORM 10-KSB IN ORDER TO HAVE A MORE COMPLETE
UNDERSTANDING OF THE PRINCIPAL RISKS ASSOCIATED WITH AN INVESTMENT IN THE COMPANYS STOCK. Overview SinoFresh HealthCare, Inc. (referred to herein as SinoFresh, Company, we, our or us)
is a pharmaceutical company engaged in the research, development and marketing of novel therapies
to treat inflammatory and infectious diseases of the upper respiratory system. In 2004 and 2005,
all of our revenues were derived from the sale of our SinoFresh Nasal & Sinus Care product in the
United States. The principal outlets for this product currently include national drug and food
chain stores, mainly Wal-Mart, CVS, Osco Drug, Publix Super Markets, Rite Aid, Sav-on Drugs and
Walgreens. We will continue to expand our retail distribution network to include the remainder of
the chain stores we are already servicing, other national food and drug chain stores and a
significant number of independent pharmacies which we are endeavoring to reach through master
brokers. Using our existing distribution network, we anticipate shipments of our newest product,
SinoFresh Daily Throat Spray, to commence in late June or early July, 2005. The Companys SinoFresh Nasal & Sinus Care product has been marketed under the oral monograph
system of the U.S. Food and Drug Administration (FDA) that is applicable to certain
over-the-counter (OTC) drugs since the filing of a petition with the FDA in March 2003. In a
series of rulemakings begun in 1972, the FDA reviews data on classes of OTC drugs and issues final
rules in the form of monographs that set out the classes and conditions under which an OTC drug may
be marketed, and without the necessity of FDA pre-approval. The Companys petition requested that
the FDA reopen the tentative monograph for OTC oral antiseptic health care products to allow for
submission of additional data that, if the FDA accepted and incorporated into a final regulation,
would have allowed an OTC drug to: be administered nasally, contain the common antiseptic
ingredient cetylpyridinium chloride (CPC) in certain concentrations, and make claims that the drug
was an antiseptic. The FDA first issued a letter to the Company stating that the petition was
not a priority for the agency. Having petitioned for inclusion in the pending oral antiseptic
health care monograph, and based upon its understanding of FDA policies governing OTC drugs subject
to rulemakings that are not final, the Company proceeded to market its SinoFresh Nasal & Sinus
Care product as an OTC oral antiseptic drug product (in addition to emphasizing the products
cosmetic, cleansing and refreshing benefits). 9




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On April 21, 2005, the FDA issued a letter to the Company denying the petition and concluding
that it would not include a CPC-containing nasal spray in the agencys pending rulemaking for OTC
oral antiseptic health care products. The result is that the Company can no longer make claims in
its marketing materials or labeling that its nasal spray is an OTC oral antiseptic that reduces
bacteria and mold in the sinus cavity. The Company does not anticipate that the foregoing will
have a material effect on the Companys marketing, operations or business. The Company is revising
its marketing materials and labeling and will be marketing its nasal spray only as a health and
beauty aid, focusing on the products cosmetic, cleansing and refreshing benefits. We do not
expect the change in marketing materials and re-labeling to interrupt the flow of our product to
our customers. Management believes that such changes will not have a negative impact on the sales of the
Companys product. The Company has periodically conducted marketing studies (e.g., focus groups),
and based on those findings, the Company concluded that consumers purchasing the Companys nasal
spray were not purchasing the product based on oral antiseptic claims, nor were they particularly
aware of the claims. Instead, the consumers of the Companys product appeared to focus on the
products cosmetic, cleansing and refreshing benefits. While the Company had hoped that the
ability to make the expanded claims permitted under the FDAs pending oral antiseptic monograph
would expand the potential market reach of the product, that has not been the case. First, it
appears that claims that the product has antiseptic qualities are not determinative of whether or
not consumers purchase the product. Second, the Company did not have the financial resources to
expand its marketing so as to educate consumers about the expanded claims. Thus, the Company is
merely revising product labeling and advertising to eliminate certain claims that research shows
had poor recognition among consumers, and were not important to consumers even if they were aware
of these product qualities. After evaluating the Companys options for the marketing of its nasal spray, management has
elected to follow a course similar to that of numerous successful health and beauty aid products
and emphasize the nasal sprays many non-therapeutic cleansing and moisturizing benefits. However,
that does not impact the Companys plans to market other of its drug products under FDA
requirements applicable to OTC drugs as appropriate. Additionally, the Company is continuing the
New Drug Application (NDA) process for a therapeutic nasal spray, requesting the FDA to approve a
nasal spray indicated for treatment of and/or reduction in the symptoms of certain diseases. The
Company recently filed data with the FDA and requested a meeting to discuss an Investigational New
Drug Application for a nasal spray  a prerequisite to the conduct of the clinical investigations
necessary to support a NDA. Assuming that the safety and efficacy of the nasal spray is
demonstrated in these clinical studies, the Company would seek FDA approval of the nasal spray
under an NDA. Conducting the clinical trials and obtaining FDA approval for any pharmaceutical
product requires substantial resources (including additional capital) and may take several years,
and, there is no assurance that FDA approval of an NDA will be achieved on a therapeutic nasal
spray or any other Company product. On December 7, 2004, we secured financing in the amount of $1,830,000 through the sale of
two-year 6% senior secured convertible debentures and warrants to purchase 1,983,645 shares of our
common stock in a private placement (including warrants to our placement agent). The financing was
arranged primarily to support our 2005 marketing and media plan. The plan features entertainer Ed
McMahon, himself a longtime sinus sufferer, in a variety of promotional vehicles including national
cable television commercials, radio and print advertising, and personal appearances at healthcare
industry events. These marketing efforts commenced during the middle of the first quarter of 2005. In April 2005 we reached an agreement to broaden our research collaboration with the
Lovelace Respiratory Research Institute (LRRI) by embarking on mammalian-based studies of the
anti-infective properties of our lead product, SinoFresh Nasal & Sinus Care. The new agreement
was prompted by preliminary in vitro study results demonstrating strong evidence that our lead
product can reduce the infectivity of common respiratory viruses including adenovirus and
respiratory syncytial virus (RSV). Our original collaboration with LRRI, initiated in May of 2004
was designed to assess the virucidal properties of SinoFresh. Viruses are widely recognized as
the most frequent cause of acute respiratory infections and are a leading cause of child
mortality worldwide. The Company outsources the manufacturing of its current product to an FDA approved
contract-manufacturing facility that also produces private-label drugs for a number of major U.S.
retail chains, including Wal-Mart. 10




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Our predecessor, SinoFresh HealthCare, Inc., a Delaware corporation (SinoFresh-Delaware),
was formed on October 15, 2002. It acquired certain assets of SinoFresh Laboratories, Inc., an
Alabama corporation, effective November 15, 2002. In September 2003, we acquired
SinoFresh-Delaware by merger of SinoFresh-Delaware into our wholly-owned subsidiary, SinoFresh
Acquisition Corp., a Florida corporation, which is now our operating subsidiary bearing the name
SinoFresh Corporation. As a result of the merger, the former shareholders of SinoFresh-Delaware
obtained a majority ownership and voting control of our outstanding capital stock. Further, a
majority of the former officers and directors of SinoFresh-Delaware also obtained management
control of our company. In connection with the merger transaction, we issued 10,768,490 shares of common stock,
858,170 shares of Series A preferred stock, 1,500,000 shares of Series B preferred stock, and
1,218,711 shares of Series C preferred stock in exchange for the outstanding shares of common stock
and preferred stock held by shareholders of SinoFresh-Delaware. We have been unable to obtain from
our former counsel or from the former counsel to SinoFresh-Delaware (a director of the Company),
who was counsel to the Company and SinoFresh-Delaware, respectively, at the time of the merger,
information we presently believe is sufficient to indisputably support one or more exemption(s)
from registration that were relied upon in connection with the issuance of the shares in the
merger. If such information is not available, the issuance of our shares in respect of the merger
may not have been in compliance with the registration provisions of the federal and state
securities laws. There may have been a violation of Section 5 of the Securities Act of 1933, as
amended due to the unavailability of an exemption from registration. As a result, our company may
be exposed to claims for rescission by shareholders who received shares in the merger. Although we
would vigorously defend against any such actions, litigation may be costly and there is no
assurance of the outcome. If we lost our defense in any such litigation, the cost of repurchasing
the shares could be material to our company. Our 2004 Form 10-KSB filed with the S.E.C. includes certain
risk factors relating to the unavailability of an exemption from a registration as described in the foregoing paragraph. Mr. David
Otto (independent director of the Company and principle owner of The Otto Law Group, PLLC) disagrees with the risk assessment. Mr
Otto believes that his firm performed reasonable investigations and provided adequate analysis regarding the availabilty of Rule
506, promulgated pursuant to Section 4 (2) of the Securities Act of 1933, as amended. We have been advised by legal counsel that the
inclusion of this risk factor was made at the request of the S.E.C. after their review of the analysis and conclusion provided to
them by Mr Otto's firm. Prior to our acquiring SinoFresh-Delaware, we operated as e-Book Network, Inc. and sold books
over the Internet. e-Book was originally a division of e-Miracle, Inc. e-Miracle, Inc. was
incorporated in July 1999 and was an online service provider and Internet shopping mall developer.
Due to under-capitalization and credit problems, e-Miracle filed a Chapter 11 Bankruptcy proceeding
in the United States Bankruptcy Court. We were a division of e-Miracle when e-Miracle filed
bankruptcy. Subsequently, we incorporated as a Florida corporation pursuant to and in accordance
with the Chapter 11 Plan of Reorganization. Company shares are traded on the Over-the-Counter-Bulletin Board under the symbol, SFSH.OB. Results of Operations Revenues decreased $1,443,713 from $1,931,569 to $487,856 for the three months ended March 31
2004 and 2005, respectively. This decrease from 2004 is a result of several factors. First, the
cough and cold season in 2005 was very mild compared to that of the previous year; second, there
was a heavy emphasis on advertising in the fourth quarter of 2003 and throughout the first quarter
of 2004 which greatly impacted revenues for the first quarter of 2004. In contrast, advertising in
the fourth quarter of 2004 and through mid-February of 2005 were virtually non-existent due to cash
constraints. Advertising resumed in mid-February of 2005 as a result of a cash infusion in
December 2004, however such advertising began too late to have any significant impact on the first
three months of 2005. Finally, revenues for 2004 were affected by the recognition of approximately
$800,000 in pay-to-scan type sales. Shipments for these products took place primarily in the last
quarter of 2003, but the sales recognition process had not been completed until 2004. We are no
longer subject to these contingent sales arrangements. 11




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Gross profit for the three months ended March 31, 2005 was $338,077 (or 69%), compared to
$1,523,013 (79%) for the three months ended March 31, 2004. The percentage decrease relates to
co-op charges which are offset against revenues. Co-op programs associated with large national
retailers are not necessarily a variable of revenues. Therefore, these charges will be a higher
percentage when revenues decrease resulting in a lower gross profit percentage. Salaries and other compensation expenses decreased $35,669, from $307,480 to $271,811 for the
three months ended March 31, 2004 and 2005, respectively. This decrease is a result of specific
reductions in personnel occurring in the latter part of 2004. Such reductions were made in order
to streamline the organization and to control administrative costs. Professional fees decreased $105,826, from $396,555 to $290,729 for the three months ended
March 31, 2004 and 2005, respectively. Professional fees in the first quarter of 2004 were higher
due to first year audit costs associated with our annual report Form 10-KSB and also due to certain
consulting arrangements which were ultimately terminated by the end of 2004. Professional fees
remain high due to several lawsuits that the Company is involved with. Other general and administrative expenses remained relatively consistent at $133,624 and
$126,829 for the three months ended March 31, 2004 and 2005, respectively. Marketing and advertising expenses increased $149,711, from $308,942 to $458,653 for the three
months ended March 31, 2004 and 2005, respectively. The increase is a result of an advertising
campaign initiated in mid-February, 2005 utilizing the proceeds obtained from the debenture
financing that was completed in December 2004. Research and development expenses decreased $62,436, from $90,617 in the first quarter of 2004
compared to $28,181 in the first quarter of 2005. Such activities were limited in 2005 due to lack
of financial resources. We will continue to limit R & D activities until such time that there is
sufficient cash from operations or financing is specifically obtained for these activities. We
will however proceed with certain studies to be conducted in accordance with our collaboration
agreement with the Lovelace Respiratory Research Institute. This agreement provides for certain
studies to be conducted beginning in the second quarter of 2005 and includes a provision for the
deferral of the payment for these studies until we have reached an agreed upon minimum level of
revenues. Depreciation and amortization totaled $65,352 and $65,448 for the three months ended March 31,
2004 and 2005, respectively. Total other income was $24,884 for the three months ended March 31, 2004 compared to other
expense of $155,725 for the three months ended March 31, 2005. The 2004 amount reflects the sale
of certain assets offset by interest expense associated with capital leases and notes payable. The
increase in interest expense in 2005 related to the interest and amortized debt issuance costs
associated with the outstanding debentures which were secured in the fourth quarter of 2004. SinoFresh had a net loss of $1,059,299 ($0.07 per share) compared to net income of $245,327
($0.02 per share) for the three months ended March 31, 2005 and 2004, respectively, as a result of
the factors discussed above. As of March 31, 2005, SinoFresh had total assets of $6.3 million, liabilities of $3.6 million
and stockholders equity of $2.7 million. Working capital deficit totaled approximately $1,017,000
as of March 31, 2005. Inflation and Currency Fluctuation Inflation and currency fluctuations have not previously had a material impact upon the results
of operations and are not expected to have a material impact in the near future. 12




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Cash and Sources of Liquidity SinoFresh historically has satisfied its operating cash requirements primarily through cash
flow from operations, from borrowings and from trade and equity financings. At March 31, 2005, we
had approximately $441,000 in cash on hand and approximately $245,000 in net accounts receivable. In connection with a December 2004 financing, we issued $1,830,000 of senior secured 6%
convertible debentures which have a maturity date of December 5, 2006. The debentures are
convertible into 3,327,273 shares of common stock at a conversion price of $0.55 per share. The
debentures contain anti-dilution provisions under which the number of shares issuable upon
conversion of the debentures and the conversion price will be adjusted upon the sale by us of
common stock or securities convertible into or exercisable for common stock at prices below the
then existing conversion price of the debenture, the occurrence of stock splits, stock
distributions, and other corporate events. We may, at our option, require the conversion of all of
the debentures into shares of common stock provided that the market price of our common stock
exceeds 300% of the conversion price of the debentures then in effect for at least 20 consecutive trading days and until delivery of a notice of
mandatory conversion in accordance with the terms of the debenture. Although we recently secured financing through the issuance of these convertible debentures,
it may be necessary to pursue additional financing if operational objectives are not met. There
can be no assurance, however, that such financing will be available or will be available on terms
that are in the best interest of our company. 
 Item 3. Controls and Procedures The Companys Chief Executive Officer and Chief Financial Officer evaluated the Companys
disclosure controls and procedures as of the end of the period covered by this quarterly report.
Based upon the evaluation, the Companys Chief Executive Officer and Chief Financial Officer
concluded that the Companys disclosure controls and procedures are effective in ensuring that
material information required to be disclosed is included in the reports that it files with the
Securities and Exchange Commission. During the quarterly period covered by this report, there were no changes in our internal
controls over financial reporting that materially affected, or are reasonable likely to materially
affect, our internal controls over financial reporting. 13




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PART II -  OTHER INFORMATION 
 Item 1. Legal Proceedings Certain shareholders of SinoFresh, including Charles Fust, Stacey Maloney-Fust and P. Robert
DuPont who are also officers and directors of SinoFresh, voted by written consent to remove
Messrs. Bannon and Otto as directors and officers of SinoFresh (which attempt was unsuccessful as
discussed below). The decision to attempt to remove
Messrs. Bannon and Otto was made after it was believed (by
Messrs. Fust and DuPont, Ms. Maloney-Fust and certain shareholders) that they were not investigating certain improprieties that may have occurred as a result
of actions of Sargon Capital, Inc. (Sargon) and Andrew Badolato, a former officer and director of
SinoFreshs predecessor and a consultant to SinoFresh (Messrs.
Fust, DuPont and Ms. Maloney-Fust contend that upon their request, the Board earlier had formed a committee comprised of Messrs. Otto, Bannon
and DuPont to investigate the matters regarding Sargon Capital, Inc.
and Andrew Badolato Messrs. Otto and Bannon deny any such discussion
by the board regarding the investigation of these alleged
improprieties). Messrs.
Bannon and Otto were notified by letter dated January 30, 2004 that they had been removed as
directors. On February 9, 2004, Messrs. Fust, DuPont, Otto, Bannon and Ms. Maloney-Fust received a
letter from an attorney representing Andrew Badolato, Sargon Capital, Inc. and four shareholders
(including Michael Hawkins, a director or other affiliate of Sargon Capital, Inc.) alleging various
breaches of fiduciary duty and self-dealing purportedly committed by Messrs. Fust, DuPont and Ms.
Maloney-Fust, and demanding an investigation and a report within 30 days. In
connection with the attempted removal of Messrs. Bannon and Otto from
the board, SinoFresh filed a preliminary Information Statement on
Schedule 14C with the SEC with a view toward filing and sending
a definitive Information Statement to shareholders of record once the
SEC completed its review of the Schedule 14C. The actions of the
shareholders were challenged by Messrs. Otto and Bannon and SinoFresh
was unable to expeditiously get final clearance for the 14C
Information Statement. During the week of March 22, 2004, after
discussion with the reviewing staff at the SEC, it was determined
that, under applicable SEC rules relating to Information Statements,
the corporate action (e.g., the effectiveness of the removal of the
two directors) could not occur until the 20th day after the mailing
of a definitive information statement. Further, it was also
discovered during that time that there was a technical defect with
the shareholders written consents in that they were short
sufficient votes to clearly constitute a majority of the issued and
outstanding voting stock. As a result, it was decided to
retroactively reinstate Messrs. Bannon and Otto to the board (until
the next annual meeting of shareholders, or their earlier removal or
resignation). On February 20, 2004, a law suit was filed in the U.S. District Court, Middle District of
Florida, Ft. Myers Division, Case No. 04-CV-95-FTM-29 SPC, styled Hawkins, et al. vs. Charles Fust,
et al., and an amended complaint was filed on March 3, 2004 which merely changed allegations
directed toward the location where the action may be heard and noted that SinoFresh is a Florida
corporation. This legal proceeding was moved to the U.S. District Court located in Tampa, Florida.
The plaintiffs include Stephen Bannon and David Otto, directors of SinoFresh, as well as other
purported shareholders of SinoFresh. The defendants are Charles Fust, Stacey Maloney -Fust, P.
Robert DuPont, Russell R. Lee, III (the companys former CFO), and SinoFresh HealthCare, Inc. The
complaint alleges that it is a class action suit claiming federal securities law violations, breach
of fiduciary duty, rescission of certain acts and contracts of SinoFresh, and an accounting and
constructive trust, being brought by the lead plaintiffs on behalf of themselves and all persons in
a class (other than the defendants) who purchased SinoFreshs publicly traded shares between
January 1, 2003 and February 19, 2004; however, the lawsuit was not certified as a class action
suit. The complaint essentially contained the same allegations as in the above-described February
9, 2004 demand letter. In June 2004, the plaintiffs filed a corrected second amended complaint in the U.S. District
Court, Middle District of Florida, Tampa Division, Case No. 8:04-CV-490-T-30MSS. This complaint
notes SinoFresh as a nominal defendant and adds SinoFreshs corporate counsel as additional
defendants (seeking compensatory damages, including reimbursement of legal fees paid by SinoFresh).
The complaint alleges that it is a derivative suit, includes the same allegations as in the
original complaint, and also alleges, among other things, inadequate disclosure by the defendants
in SEC filings regarding related party transactions and regarding Mr. Fusts beneficial ownership
(wherein Mr. Fust reported ownership of the 1,000,000 shares Crown IV Holdings portends to own),
all for the alleged purpose of the defendants maintaining control of SinoFresh. In this complaint
the plaintiffs request, among other things, that the Court appoint a special monitor during the
pendency of the litigation with authority to conduct investigations and issue a report to the
Court; that the Court enjoin the defendant directors from committing certain violations of Federal
securities laws, and from taking certain actions, including using corporate funds for the defense
of the directors in the suit, conducting transactions in SinoFreshs stock and soliciting proxies
for a 2004 annual meeting. In June 2004, SinoFresh filed a motion with the Court (a) requesting the Court to appoint an
independent person to make a good faith determination, after conducting a reasonable investigation,
as to whether it is in the best interests of SinoFresh to maintain the shareholder derivative suit,
and (b) requesting a stay of all proceedings in the case until the results of the investigation are
provided to the Court. The interim stay was granted and the Court granted the motion for
appointment of an independent investigator. The independent investigator commenced his
investigation in September 2004 and filed his report with the Court on May 12, 2005. In summary, the
 report recommended that the maintenance of the derivative suit against the defendants (other than corporate
 counsel) is not in the best interest of the company and that nearly all of the allegations against the
 defendants were without merit.  Further more, with respect to any issues that appear to have merit, the amount or matter involved is too small or limited to warrant continued litigation. With respect to the
 allegations against corporate counsel, the report recommended that there is sufficient cause for
the derivative action to proceed with respect to the following
issues: (1) The failure to provide proper advice and counsel
with regard to the removals of Messrs. Bannon and Otto as directors; (2) The failure to recognize and act upon a conflict of interest
in representing all defendants in the lawsuit initially filed
February 19, 2004, and; (3) The failure to give proper
advice and counsel to the three remaining directors with regard to
supposed Board actions, in particular the removal of Scott Salberg
and the Company auditor. Although the Company is optimistic
regarding these recommendations, the final ruling is ultimately up to the Court to decide.  Accordingly,
there can be no assurance that Court will accept any or all of these
recommendations. In light of these recommendations however, the
Companys corporate counsel has expressed its intent to resign
from its duties to the Company effective May 12, 2005. The
Company is now in the process of seeking a new firm as general
counsel. 14




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In March 2004, SinoFresh declared null and void two contracts entered into with Sargon
Capital, Inc., a shareholder and an affiliate of a former director and officer, to-wit: an
Investment Banking Services Agreement dated October 24, 2002, and a Financial Consulting Services
Agreement originally dated in November 2002 which monthly payments under this consulting agreement
approximate $8,000 with $96,000 due for the years 2003 and 2004, and $80,000 due for 2005. The
consulting agreement was revised September 8, 2003 extending the term of September 2006 and
increasing compensation to include 0.5% of gross revenue and 0.6% of net income before taxes,
interest and amortization. Sargon claimed that SinoFresh owes approximately $173,000 for these
services. In April 2004, a lawsuit was filed in Circuit Court for the 12th Judicial Circuit
in and for Sarasota County, Florida, styled Sargon Capital, Inc. and Andrew Badolato vs. SinoFresh
HealthCare, Inc., Charles Fust and John Hallman, Case No. 2004 CA3732SC. The complaint alleges a
breach of the financial consulting services agreement by failing to pay certain fees to Sargon
Capital, Inc. The complaint also alleges defamation of the principal of Sargon Capital, Inc. and a
civil conspiracy to prevent Sargon Capital, Inc. from doing business in the State of Florida.
SinoFresh believes that the agreements were improperly approved, were breached by Sargon, and are
illegal because of the lack of appropriate licensure of Sargon. SinoFresh, on behalf of itself and
its officers and directors, intends to vigorously defend the suit. The condensed consolidated financial statements include accruals for fees owed to Sargon
through December 31, 2003 with respect to the financial consulting services agreement. However, no
adjustment or provision has been made related to the other foregoing matters, the ultimate outcome
of which cannot be presently determined. 15




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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. In January 2005, in settlement of a lawsuit wherein the plaintiff was pursuing a claim for
approximately $120,000, the Company agreed to issue 37,500 shares and 12,500 shares of common stock
to the plaintiff and his counsel, respectively, for which the Company claimed an exemption under
Section 4(2) of the Securities Act of 1933. The securities are not subject to resale except
pursuant to registration under the Securities Act or pursuant to an available exemption from
registration under the Securities Act and the certificates representing the securities bear a
restrictive legend accordingly. The investors had an opportunity to ask management questions about
the Company and were provided information, or had adequate access to information, about the
Company. The transactions did not involve the use of an underwriter and no commissions were paid
in connection with the issuance of the securities. In February 2005, the Company entered into an engagement letter with a service provider
pursuant to which the Company agreed to issue to the vendor a warrant for 100,000 shares of common
stock and to enter into a registration rights agreement affording the investor piggy-back
registration rights. The warrant is currently exercisable and has a per share exercise price of
$1.00. The warrant expires on February 24, 2010. The company claimed an exemption under Section
4(2) of the Securities Act of 1933. Neither the warrant nor the underlying shares of common stock
are subject to resale except pursuant to a registration under the Securities Act or pursuant to an
available exemption from registration under the Securities Act and the warrant agreement bears a
restrictive legend accordingly. The vendor had an opportunity to ask management questions about
the Company and was provided information, or had adequate access to information, about the Company.
The transaction did not involve the use of an underwriter and no commissions were paid in
connection with the issuance of the warrant. Item 6. Exhibits. ExhibitNumber
    
    Description4.1
    
    Warrant issued to AdSouth Partners, Inc., dated February 24, 20054.2
    
    Registration Rights Agreement with AdSouth Partners, Inc., dated February 24, 200531.1
    
    Certifications of CEO pursuant to Section 302 of the Sarbanes-Oxley Act31.2
    
    Certifications of CFO pursuant to Section 302 of the Sarbanes-Oxley Act32
    
    Certifications of CEO and CFO pursuant to Section 906 of the Sarbanes-Oxley Act
 16




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SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SINOFRESH HEALTHCARE, INC.May 13, 2005
    
    ByCharles A. Fust, Chairman of the Board and Chief
Executive Officer (principal executive officer)May 13, 2005
    
    ByScott M. Klein, Chief Financial Officer (principal
accounting officer)
 17