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EXCEL - IDEA: XBRL DOCUMENT - AOXING PHARMACEUTICAL COMPANY, INC.Financial_Report.xls
EX-32.1 - CERTIFICATE OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C.SS.1350. - AOXING PHARMACEUTICAL COMPANY, INC.aoxing10qa1exh321.htm
EX-31.2 - CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SOX OF 2002. - AOXING PHARMACEUTICAL COMPANY, INC.aoxing10qa1exh312.htm
EX-32.2 - CERTIFICATE OF CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C.SS.1350. - AOXING PHARMACEUTICAL COMPANY, INC.aoxing10qa1exh322.htm
EX-31.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SOX OF 2002. - AOXING PHARMACEUTICAL COMPANY, INC.aoxing10qa1exh311.htm



United States
Securities and Exchange Commission
Washington, D. C. 20549
 
FORM 10-Q/A
(Amendment No. 1)

[X]
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2011

[ ]
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____

Commission File No. 1-32674

AOXING PHARMACEUTICAL COMPANY, INC.
(Exact Name of Registrant as Specified in its Charter)

Florida
65-0636168
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer ID Number)

15 Exchange Place, Suite 500, Jersey City, NJ 07302
(Address of Principal Executive Offices)

Issuer's Telephone Number: (646) 367-1747

Indicate  by check mark  whether the  Registrant  (1) has filed all reports required to be filed by Sections 13 or 15(d) of the  Securities Exchange Act of 1934  during  the  preceding  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  X       No _____
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.)  Yes  X    No _____

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One)
 
Large accelerated filer              Accelerated filer  _____  Non-accelerated filer                Small reporting company X

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes _____    No   X

APPLICABLE ONLY TO CORPORATE ISSUERS:  Indicate the number of shares outstanding of each of the Registrant's classes of common stock, as of the latest practicable date:

As of November 14, 2011, the Company had 49,196,090 shares of its common stock issued and outstanding.

 
 

 
 
AOXING PHARMACEUTICALCOMPANY, INC.
QUARTERLY REPORT ON FORM 10Q/A
FOR THE FISCAL QUARTER ENDED SEPTEMBER 30, 2011
 

TABLE OF CONTENTS

   
Page No
Part I
Financial Information
 
 
Explanatory Note
1
Item 1.
Financial Statements:
 
 
Restated Consolidated Balance Sheet – September 30, 2011 (unaudited) and  June 30, 2011
2
 
Restated Consolidated Statements of Operations and Other Comprehensive Income (Loss) – for the Three Months Ended September 30, 2011 and 2010 (Unaudited)
3
 
Restated Consolidated Statements of Cash Flows – for the Three Months Ended September 30, 2011 and 2010 (Unaudited)
4
 
Notes to Restated Consolidated Financial Statements (Unaudited)
5
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
14
Item 3
Quantitative and Qualitative Disclosures about Market Risk
19
Item 4.
Controls and Procedures
19
     
Item 6
Exhibits
19
 
Signatures
20

 
 

 

EXPLANATORY NOTE

The management of Aoxing Pharmaceutical Company, Inc. (the “Company”) has concluded that we should restate our financial statements as of and for the three months ended September 30, 2011. The conclusion was reached by management because they determined that a deferred tax asset in the amount of $2,776,111 was improperly valued as an asset as of September 30, 2011 and that a valuation allowance for 100% of the balance of the deferred tax asset should be recorded.  Upon review, management decided that the Company did not have sufficient competent evidence to support its conclusion that the Company would earn taxable income in the future against which it could realize the benefit of its net operating loss carryforwards.

The restatement has resulted in changes to the financial statements identified in Note 3 to the restated Consolidated Financial Statements.  The restatement has also resulted in the addition of Note 3 (Restatement) and a modification to Note 12 (Income Taxes) to the Consolidated Financial Statements, as well as appropriate changes to Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”  In addition, as a result of discovering the need to restate, we have modified the disclosure in Item 4, “Controls and Procedures.”
 
Except as discussed above, we have not modified or updated disclosures presented in the original quarterly report on Form 10-Q. Accordingly, this Form 10-Q/A does not reflect events occurring after the filing of our original Form 10-Q or modify or update those disclosures affected by subsequent events, except as specifically referenced herein. Accordingly, this Form 10-Q/A should be read in conjunction with our periodic filings made with the SEC subsequent to the date of the original filing, including any amendments to those filings, as well as any Current Reports filed on Form 8-K subsequent to the date of the original filing.


 
1

 

AOXING PHARMACEUTICAL CO., INC. AND SUBSIDIARIES
 
CONSOLIDATED BALANCE SHEETS
 
   
   
September 30,
   
June 30,
 
    2011     2011  
   
(Unaudited)
   
(Restated)
 
   
(Restated)
       
 ASSETS            
             
CURRENT ASSETS:
           
     Cash
  $ 2,479,180     $ 2,770,744  
     Accounts receivable, net of allowance for doubtful accounts of $548,980 and $543,697, respectively
    2,249,966       2,008,024  
     Inventory
    1,401,998       1,469,417  
     Prepaid expenses and other current assets
    1,133,095       1,130,010  
TOTAL CURRENT ASSETS
    7,264,239       7,378,195  
                 
LONG-TERM ASSETS:
               
     Property and equipment, net of accummulated depreciation
    26,664,028       26,669,156  
     Goodwill
    20,082,523       19,916,128  
     Other intangible assets
    1,372,214       1,388,704  
     Investment in joint venture
    484,533       521,541  
TOTAL LONG-TERM ASSETS
    48,603,298       48,495,529  
                 
TOTAL ASSETS
  $ 55,867,537     $ 55,873,724  
                 
LIABILITIES AND SHAREHOLDERS' EQUITY
               
                 
CURRENT LIABILITIES:
               
     Short-term borrowings
  $ 234,309     $ 232,055  
     Accounts payable
    2,588,649       2,659,727  
     Loan payable - bank
    8,591,334       8,508,663  
     Current portion of loan payable - related parties
    5,793       5,793  
     Current portion of loan payable - other
    96,847       23,515  
     Accrued expenses and other current liabilities
    3,584,746       3,206,009  
TOTAL CURRENT LIABILITIES
    15,101,678       14,635,762  
                 
LONG-TERM LIABILITIES:
               
     Loan payable - related parties
    3,730,451       3,696,210  
                         - others
    1,849,636       1,831,838  
    Warrant and derivative liabilities
    -       1,161  
TOTAL LONG-TERM LIABILITIES
    5,580,087       5,529,209  
                 
Common stock, par value $0.001, 100,000,000 shares authorized,
   49,196,090 and 49,158,955 shares issued and outstanding  
   on September 30 and June 30, 2011, respectively
    49,196       49,159  
Additional paid in capital
    57,516,219       57,382,109  
Accumulated deficit
    (23,932,352 )     (23,009,448 )
Other comprehensive income
    2,168,664       1,885,531  
TOTAL SHAREHOLDERS' EQUITY OF THE COMPANY
    35,801,727       36,307,351  
                 
NONCONTROLLING INTEREST IN SUBSIDIARIES
    (615,955 )     (598,598 )
TOTAL EQUITY
    35,185,772       35,708,753  
                 
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
  $ 55,867,537     $ 55,873,724  
 
 
See notes to financial statements
 

 
2

 
 
AOXING PHARMACEUTICAL CO., INC. AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME (LOSS)
 
(Unaudited)
 
             
   
For the Three Months Ended
 
   
September 30,
 
   
2011
   
2010
 
 
(Restated)
       
             
SALES
  $ 1,530,068     $ 1,740,673  
COST OF SALES
    662,550       827,295  
GROSS PROFIT
    867,518       913,378  
                 
OPERATING EXPENSES:
               
  Research and development expense
    106,399       85,448  
  General and administrative expenses
    746,243       909,057  
  Selling expenses
    363,293       511,821  
  Depreciation and amortization
    147,540       152,044  
      TOTAL OPERATING EXPENSES
    1,363,475       1,658,370  
                 
LOSS FROM OPERATIONS
    (495,957 )     (744,992 )
                 
OTHER INCOME (EXPENSE):
               
  Interest expense, net of interest income
    (418,431 )     (374,781 )
  Change in fair value of warrant and derivative liabilities
    1,161       222,717  
  Equity in loss of joint venture, net of tax
    (41,936 )     -  
                 
     TOTAL OTHER INCOME (EXPENSE)
    (459,206 )     (152,064 )
                 
LOSS BEFORE INCOME TAX
    (955,163 )     (897,056 )
                 
Income tax (credit)
    -       (202,596 )
NET LOSS
    (955,163 )     (694,460 )
                 
Net loss attributed to non-controlling interest in subsidiaries
    (32,259 )     (40,519 )
LOSS ATTRIBUTABLE TO SHAREHOLDERS OF THE COMPANY
    (922,904 )     (653,941 )
                 
OTHER COMPREHENSIVE INCOME :
               
  Foreign currency translation adjustment
    298,035       220,674  
                 
COMPREHENSIVE LOSS
    (624,869 )     (433,267 )
                 
Other comprehensive income attributable to non-controlling interest
    14,902       10,508  
                 
COMPREHENSIVE LOSS ATTRIBUTABLE TO THE COMPANY
  $ (639,771 )   $ (443,775 )
                 
                 
BASIC AND DILUTED LOSS PER COMMON SHARE
  $ (0.02 )   $ (0.01 )
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
    49,167,411       46,475,780  
 
See notes to financial statements
 

 
3

 
 
AOXING PHARMACEUTICAL CO., INC. AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
(Unaudited)
 
       
   
For the Three Months Ended
 
   
September 30,
 
   
2011
   
2010
 
 
(Restated)
       
             
OPERATING ACTIVITIES:
           
 Net loss
  $ (955,163 )   $ (694,460 )
  Adjustments to reconcile net loss to net cash used in operating activities:
               
      Depreciation and amortization
    293,883       283,679  
      Deferred income tax
    -       (202,596 )
      Common stock issued for services
    134,147       142,048  
      Change in fair value of warrants and derivative liability
    (1,161 )     (222,717 )
      Equity in loss of joint venture, net of tax
    41,936       -  
  Changes in operating assets and liabilities:
               
       Accounts receivable
    (221,694 )     (509,708 )
       Inventories
    81,425       192,954  
       Prepaid expenses and other current assets
    7,586       (59,890 )
       Accounts payable
    (72,468 )     108,312  
       Accrued expenses and other current liabilities
    338,583       (15,263 )
NET CASH USED IN OPERATING ACTIVITIES
    (352,926 )     (977,641 )
                 
INVESTING ACTIVITIES:
               
  Acquisition of property and equipment
    (24,762 )     (723,945 )
  Repayment from unrelated parties
    -       345,597  
NET CASH USED IN INVESTING ACTIVITIES
    (24,762 )     (378,348 )
                 
FINANCING ACTIVITIES:
               
  Proceeds from bank loans
    -       746,480  
  Proceeds from other borrowings
    72,862       -  
  Repayment of loans from related party
    (1,666 )     -  
NET CASH PROVIDED BY FINANCING ACTIVITIES
    71,196       746,480  
                 
EFFECT OF EXCHANGE RATE ON CASH
    14,928       74,446  
                 
DECREASE IN CASH
    (291,564 )     (535,063 )
CASH – BEGINNING OF PERIOD
    2,770,744       3,985,710  
CASH – END OF PERIOD
  $ 2,479,180     $ 3,450,647  
                 
                 
Supplemental disclosures of cash flow information:
               
     Cash paid for interest
  $ 515,574     $ 340,123  
     Cash paid for income taxes
  $ -     $ -  
 
See notes to financial statements
 

 
4

 
 
AOXING PHARMACEUTICAL CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2011
(Unaudited)



 1             BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and pursuant to the requirements for reporting on Form 10-Q. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for annual financial statements. However, the information included in these interim financial statements reflects all adjustments (consisting solely of normal recurring adjustments) which are, in the opinion of management, necessary for the fair presentation of the consolidated financial position and the consolidated results of operations. Results shown for interim periods are not necessarily indicative of the results to be obtained for a full year. The consolidated balance sheet as of June 30, 2011 was derived from the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K/A for the fiscal year 2011. These interim financial statements should be read in conjunction with that report.

For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K/A for the fiscal year ended June 30, 2011 filed on September 28, 2012.

2              BUSINESS DESCRIPTION AND SIGNIFICANT ACCOUNTING POLICIES
  
Aoxing Pharmaceutical Co., Inc. (“the Company” or “Aoxing Pharma”) is a specialty pharmaceutical company specializing in research, development, manufacturing and distribution of a variety of narcotic, pain-management, and addiction treatment pharmaceutical products.

As of September 30, 2011, the Company had one operating subsidiary: Hebei Aoxing Pharmaceutical Co., Inc. (“Hebei Aoxing”), which is organized under the laws of the People’s Republic of China (“PRC”).  As of September 30, 2011, the Company owned 95% of the issued and outstanding common stock of Hebei Aoxing.

Since 2002, Hebei Aoxing has been engaged in developing narcotic, pain management, and addiction treatment pharmaceutical products, building its facilities and obtaining the requisite licenses from the Chinese Government.  Headquartered in Shijiazhuang City, the pharmaceutical capital of China, outside of Beijing, Hebei now has China's largest and the most advanced manufacturing facility for highly regulated narcotic medicines, addressing a very under-served and fast-growing market in China. Its facility is one of the few GMP facilities licensed for manufacturing narcotics medicines. The Company is working closely with the Chinese government and SFDA to assure the strictly regulated availability to medical professionals throughout China of its narcotic drugs and pain medicines.
 
In April, 2008, Hebei Aoxing completed the acquisition of 100% of the registered capital of LRT.  LRT is engaged in the manufacture and distribution of Chinese traditional medicines focusing on pain management related therapeutics within China.  As of June 30, 2009, LRT had been completely integrated into Hebei Aoxing.
 
Investment in Joint Venture (“JV”)

On April 26, 2010, Aoxing Pharma and Johnson Matthey Plc (‘JM”) entered into an agreement to establish a joint venture focused on research, development, manufacturing and marketing of active pharmaceutical ingredients for narcotics and neurological drugs for the China market. The joint venture represents a significant new opportunity for both companies to expand their business in the rapidly growing pharmaceutical market in China.  Under the terms of the agreement, Macfarlan Smith Ltd, a wholly owned subsidiary of Johnson Matthey Plc, headquartered in the United Kingdom, will contribute technology expertise and capital to the joint venture. Hebei will contribute capital, fixed assets and related active pharmaceutical ingredients manufacturing licenses. The joint venture company is called Hebei Aoxing API Pharmaceutical Company, Ltd. (“API”).  Hebei Aoxing has a 51% stake in the Company, while Macfarlan Smith (Hong Kong) Ltd (a wholly owned subsidiary of JM) holds 49%. Each company has equal representation on the board of directors that will oversee a management team responsible for corporate strategies and operations.  The new joint venture will be located on the Hebei Aoxing campus in Xinle City, 200 kilometers southwest of Beijing. The total capital investment is projected to be approximately $15 million during the first five years, which will be shared between the equity shareholders of the joint venture. On December 10, 2010, the joint venture obtained business license from the City Industry & Commercial Administrative Bureau. The Company accounts for its investment in the Joint Venture under the equity method of accounting.
 
 
5

 
 
AOXING PHARMACEUTICAL CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2011
(Unaudited)
 

Use of estimates in the preparation of financial statements

The preparation of the consolidated financial statements in conformity with generally accepted accounting principles in the United States of America 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 consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. Significant estimates reflected in the consolidated financial statements include, but are not limited to, the recoverability of the carrying amount and estimated useful lives of long-lived assets, allowance for accounts receivable, realizable values for inventories, valuation allowance of deferred tax assets, purchase price allocation of its acquisitions and share-based compensation expenses. Management makes these estimates using the best information available at the time the estimates are made; however, actual results when ultimately realized could differ significantly from those estimates.

Impairment of long lived assets

Long-lived assets are reviewed for impairment when circumstances indicate the carrying value of an asset may not be recoverable.  For assets that are to be held and used, impairment is recognized when the estimated undiscounted cash flows associated with the asset or group of assets is less than their carrying value. If impairment exists, an adjustment is made to write the asset down to its fair value, and a loss is recorded as the difference between the carrying value and fair value.  Fair values are determined based on quoted market values, discounted cash flows or internal and external appraisals, as applicable.  Assets to be disposed of are carried at the lower of carrying value or estimated net realizable value.
 
Derivative financial instruments

The Company’s derivative financial instruments consist of embedded derivatives related to the convertible debentures and warrants.  The accounting treatment of derivative financial instruments requires that the Company record the derivatives and related warrants at their fair values as of the inception date of the debt agreements and at fair value as of each subsequent balance sheet date.  Any change in fair value is recorded as non-operating, non-cash income or expense at each balance sheet date.  If the fair value of the derivatives was higher at the subsequent balance sheet date, the Company recorded a non-operating, non-cash charge. If the fair value of the derivatives was lower at the subsequent balance sheet date, the Company recorded non-operating, non-cash income.

For the three months ended September 30, 2011 and 2010, the Company recognized other income of $1,161 and $222,717, respectively, relating to recording the warrant and derivative liabilities at fair value.  On September 30, 2011 and June 30, 2011 there were $0 and $1,161 of warrant and derivative liabilities, respectively. All outstanding warrants expired without exercise during the current period.

 
6

 

AOXING PHARMACEUTICAL CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2011
(Unaudited)



 3             RESTATEMENT

We have determined that, in our Quarterly Report as originally filed, a deferred tax asset in the amount of $2,776,111 was improperly valued as an asset as of September 30, 2011 and that a valuation allowance for 100% of the balance of the deferred tax asset should be recorded.  Upon review, we decided that the Company did not have sufficient competent evidence to support its conclusion that the Company would earn taxable income in the future against which it could realize the benefit of its net operating loss carryforwards.

The September 30, 2011 balance sheet and the statements of operations and statements of cash flows for the three months ended September 30, 2011 have been restated as follows:

CONSOLIDATED BALANCE SHEETS
 
ASSETS
 
September 30, 2011
 
 
 
As Previously
             
   
Reported
   
Adjustments
   
As Restated
 
CURRENT ASSETS
                       
Cash
 
$
2,479,180
   
$
   
$
2,479,180
 
Accounts receivable, net of allowance for doubtful accounts of $548,980 and $543,697, respectively
   
2,249,966
     
     
2,249,966
 
Inventory
   
1,401,998
     
     
1,401,998
 
Prepaid expenses and other current assets
   
1,133,095
     
     
1,133,095
 
TOTAL CURRENT ASSETS
   
7,264,239
     
     
7,264,239
 
                         
LONG-TERM ASSETS:
                       
Property and equipment, net of accumulated depreciation
   
26,664,028
     
     
26,664,028
 
Deferred income tax
   
2,776,111
     
(2,776,111
   
 
Goodwill
   
20,082,523
     
     
20,082,523
 
Other intangible assets
   
1,372,214
     
     
1,372,214
 
Investment in joint venture
   
484,533
     
     
484,533
 
TOTAL LONG-TERM ASSETS
   
51,379,409
     
(2,776,111
   
48,603,298
 
                         
TOTAL ASSETS
 
$
58,643,648
   
$
(2,776,111
 
$
55,867,537
 
                         
LIABILITIES AND STOCKHOLDERS' DEFICIT
                       
                         
CURRENT LIABILITIES
                       
Short-term borrowings
 
$
234,309
   
$
   
$
234,309
 
Accounts payable
   
2,588,649
     
     
2,588,649
 
Loan payable - bank
   
8,591,334
     
     
8,591,334
 
Current portion of loan payable - related parties
   
5,793
     
     
5,793
 
Current portion of loan payable - other
   
96,847
     
     
96,847
 
Accrued expenses and other current liabilities
   
3,584,746
     
     
3,584,746
 
TOTAL CURRENT LIABILITIES
   
15,101,678
     
     
15,101,678
 
                         
LONG-TERM LIABILITIES:
                       
Loan payable - related parties
   
3,730,451
     
     
3,730,451
 
-others
   
1,849,636
     
     
1,849,636
 
TOTAL LONG-TERM LIABILITIES
   
5,580,087
     
     
5,580,087
 
                         
Common stock, par value $0.001, 100,000,000 shares authorized,
      49,196,090 and 49,158, 955 shares issued and outstanding on
      September 30 and June 30, 2011, respectively
   
49,196
     
     
49,196
 
Additional paid in capital
   
57,516,219
     
     
57,516,219
 
Accumulated deficit
   
(21,295,047
   
(2,637,305
)
   
(23,932,352
Other comprehensive income
   
2,168,664
     
     
2,168,664
 
TOTAL SHAREHOLDERS' EQUITY OF THE COMPANY
   
38,439,032
     
(2,637,305
)
   
35,801,727
 
                         
NONCONTROLLING INTEREST IN SUBSIDIARIES
   
(477,149
)
   
(138,806
)
   
(615,955
)
TOTAL EQUITY
   
37,961,833
     
(2,776,111
   
35,185,772
 
                         
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
 
$
58,643,648
   
$
(2,776,111
 
$
55,867,537
 


 
7

 


AOXING PHARMACEUTICAL CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2011
(Unaudited)


CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE LOSS

   
For the Three Months Ended September 30, 2011
 
   
As Previously
             
   
Reported
   
Adjustments
   
As Restated
 
                         
SALES
 
$
1,530,068
   
$
   
$
1,530,068
 
COST OF SALES
   
662,550
     
     
662,550
 
GROSS PROFIT
   
867,518
     
     
867,518
 
                         
OPERATING EXPENSES:
                       
Research and development expense
   
106,399
     
     
106,399
 
General and administrative expenses
   
746,243
     
     
746,243
 
Selling expenses
   
363,293
     
     
363,293
 
Depreciation and amortization
   
147,540
     
     
147,540
 
TOTAL OPERATING EXPENSES
   
1,363,475
     
     
1,363,475
 
                         
LOSS FROM OPERATIONS
   
(495,957
)
   
     
(495,957
)
                         
OTHER INCOME (EXPENSE)
                       
Interest expense, net of interest income
   
(418,431
   
     
(418,431
Change in fair value of warrant and derivative liabilities
   
1,161
     
     
1,161
 
Equity in loss of joint venture, net of tax
   
(41,396
   
     
(41,396
Total Other Income (Expense)
   
(459,206
)
   
     
(459,206
)
                         
LOSS BEFORE INCOME TAXES
   
(955,163
)
   
     
(955,163
)
                         
Income taxes (credit)
   
(161,294
   
161,294
     
 
NET LOSS
   
(793,869
)
   
(161,294
)
   
(955,163
)
                         
Net loss attributed to non-controlling interest in subsidiaries
   
(24,194
   
(8,065
   
(32,259
LOSS ATTRIBUTABLE TO THE SHAREHOLDERS OF THE COMPANY
   
(769,675
)
   
(153,229
)
 
$
(922,904
)
                         
OTHER COMPREHENSIVE INCOME:
                       
 Foreign currency translation adjustment
   
298,035 
     
     
298,035 
 
                         
COMPREHENSIVE LOSS
   
(471,640
)
   
(153,229
)
   
(624,869
)
                         
Other comprehensive income attributable to non-controlling interest
   
14,902
     
     
14,902
 
                         
COMPREHENSIVE LOSS ATTRIBUTABLE TO THE COMPANY
 
$
(486,542
)
 
$
(153,229
)
 
$
(639,771
)
                         
BASIC AND DILUTED LOSSES PER COMMON SHARE
 
$
(0.02
)
 
$
   
$
(0.02
)
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
   
49,167,411
     
     
49,167,411
 


 
8

 


AOXING PHARMACEUTICAL CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2011
(Unaudited)


CONSOLIDATED STATEMENTS OF CASH FLOWS

   
For the Three Months Ended September 30, 2011
 
   
As Previously
             
   
Reported
   
Adjustments
   
As Restated
 
                   
OPERATING ACTIVITIES:
                       
Net income (loss)
 
$
(793,869
)
 
$
(161,294
)
 
$
(955,163
)
Adjustments to reconcile net income (loss) to net cash used by operating activities:
                       
Depreciation and amortization
   
293,883
     
     
293,883
 
Deferred income tax
   
(161,294
   
161,294
     
 
Common stock issued for services
   
134,147
     
     
134,147
 
Change in fair value of warrants and derivative liability
   
(1,161
   
     
(1,161
Equity in loss of joint venture, net of tax
   
41,936
     
     
41,936
 
Changes in operating assets and liabilities:
                       
Accounts receivable
   
(221,694
   
     
(221,694
Inventories
   
81,425
     
     
81,425
 
Prepaid expenses and other current assets
   
7,586
     
     
7,586
 
Accounts payable
   
(72,468
)
   
     
(72,468
)
Accrued expenses and other current liabilities
   
338,583
     
     
338,583
 
NET CASH USED IN OPERATING ACTIVITIES
   
(352,926
)
   
     
(352,926
)
                         
INVESTING ACTIVITIES:
                       
Acquisition of property and equipment
   
(24,762
   
     
(24,762
NET CASH USED IN INVESTING ACTIVITIES
 
$
(24,762
)
 
$
   
$
(24,762
)
                         
FINANCING ACTIVITIES:
                       
Proceeds from other borrowings
 
$
72,862
   
$
   
$
72,862
 
Repayment of loans from related party
   
(1,666
   
     
(1,666
NET CASH PROVIDED BY FINANCING ACTIVITIES
   
71,196
     
     
71,196
 
                         
EFFECT OF EXCHANGE RATE ON CASH
   
14,928
     
     
14,928
 
                         
INCREASE (DECREASE) IN CASH
   
(291,564
)
   
     
(291,564
)
CASH – BEGINNING OF PERIOD
   
2,770,744
     
     
2,770,744
 
CASH – END OF PERIOD
 
$
2,479,180
   
 $
   
 $
2,479,180
 
                         
Supplemental disclosures of cash flow information:
                       
Cash paid for interest
 
$
515,574
   
   
$
515,574
 
Cash paid for income taxes
 
$
   
   
$
 

 
 
9

 
 
AOXING PHARMACEUTICAL CO., INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2011
(Unaudited)


4              INVENTORIES

Inventories consist of the following:
   
September 30,
   
June 30,
 
   
2011
   
2011
 
             
Work in process
 
$
630,424
   
$
159,388
 
Raw materials
   
494,391
     
1,017,658
 
Finished goods
   
277,183
     
292,371
 
   
$
1,401,998
   
$
1,469,417
 
   
5              EQUITY-METHOD INVESTMENT IN JOINT VENTURE

The Company account for its investment in API (see Note 2), under the equity method of accounting.

Summarized financial information for our investment in API assuming a 100% ownership interest is as follows:
   
For the Quarter
   
For the Year
 
 
 
Ended
   
Ended
 
   
September 30, 2011
   
June 30, 2011
 
 Current assets
  $ 34,254     $ 126,458  
 Noncurrent assets
    634,781       627,660  
 Current liabilities
  $ 141,931     $ 150,379  
 Noncurrent liabilities
    -       -  
 Equity
  $ 527,104     $ 603,739  
General and administrative expenses
  $ 82,227     $ -  
Net income (loss)
  $ (82,227 )   $ -  
 
6              SHORT-TERM BORROWING

Short-term borrowing is a non-interest bearing unsecured note payable to a local government, due on demand.

 
10

 


AOXING PHARMACEUTICAL CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2011
(Unaudited)



7              ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and taxes consist of the following:
 
   
September 30,
June 30,
 
   
2011
   
2011
 
Accrued salaries and benefits
 
$
641,869
   
$
555,617
 
Accrued interest
   
655,796
     
745,866
 
Accrued taxes
   
404,938
     
316,229
 
Deposit payable
   
609,784
     
505,977
 
Due to employee
   
44,964
     
44,532
 
Other accrued expenses and current liabilities
   
1,227,395
     
1,037,788
 
   
$
3,584,746
   
$
3,206,009
 

  8            LOAN PAYABLE - BANK

Loan payable – bank consist of the following loans collateralized by assets of the company:
   
September 30,
   
June 30,
 
   
2011
   
2011
 
Bank Note in the amount of 30 million RMB with Bank of Communications of China bearing an annual floating rate of  7.572%, set to be 20% higher than the interest rate of the China People Bank rate, initially made on April 29, 2010 for one year and renewed on April 15, 2011 for one year maturing on April 15, 2012
 
$
4,686,182
   
$
4,641,089
 
Bank Note in the amount of 25 million RMB with China Citic Bank bearing an annual floating rate of  6.941%, set to be 10% higher than the interest rate of the China People Bank rate, initially made on May 5, 2010 for one year and renewed on April 20, 2011 for one year maturing on April 20, 2012
   
3,905,152
     
  3,867,574
 
   
$
8,591,334
   
$
8,508,663
 

  

 
11

 


AOXING PHARMACEUTICAL CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2011
(Unaudited)


9             LOAN PAYABLE – OTHER

Loan payable – other consist of loans from unrelated third-parties, bearing interest at an average rate of 17.9% per annum.  Loans will mature as following:
 
Date
 
Amount
 
Within one year
 
$
96,847
 
2 - 3 years
   
1,849,636
 
Total
   
1,946,483
 
Less current portion
   
(96,847)
 
 
 
$
1,849,636
 
      
10           LOAN PAYABLE – RELATED PARTIES

Loan payable – related parties consists of loans from shareholders, officers and other related parties, bearing interest at an average rate of 15.13% per annum. Loans will mature as follows:

Date
 
Amount
 
Within one year
 
$
5,793
 
1 - 2 years
   
1,298,716
 
2 - 3 years
   
2,431,735
 
Total
   
3,736,244
 
Less current portion
   
(5,793)
 
 
 
$
3,730,451
 
 
11            ISSUANCE OF COMMON STOCK

During the three months ended September 30, 2011, the Company issued 37,135 shares of common stock to an independent director for services rendered. These shares were valued using the stock price at grant date. Total value of the compensation is $22,000.

 12           TAXES - Restated
 
The Company’s Chinese subsidiaries are governed by the Income Tax Law of the People’s Republic of China concerning private-run enterprises, which are generally subject to tax at a statutory rate of 25% on income reported in the statutory financial statements after appropriate tax adjustments.

The reconciliation of income tax at the U.S. statutory rate to the Company’s effective tax rate is as follows:

 
12

 

AOXING PHARMACEUTICAL CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2011
(Unaudited)



   
Three Months Ended September 30,
 
   
2011
   
2010
 
   
(Restated)
       
Tax at U.S. Statutory rate
 
$
(334,307
)
 
$
(313,969
)
Tax rate difference between China and U.S.
   
64,518
     
81,038
 
Change in Valuation Allowance
   
269,789
     
30,335
 
Effective tax rate
 
$
-
   
$
(202,596)
 

The income tax credits are summarized as follows:

   
Three Months Ended September 30,
 
   
2011
   
2010
 
   
(Restated)
       
Current
 
$
-
   
$
-
 
Deferred - U.S.
   
(108,495)
     
(30,335
)
Deferred - China
   
(161,294)
     
(202,596
)
Valuation allowance
   
269,789
     
30,335
 
Total
 
$
-
   
$
(202,596)
 

 
The deferred tax assets are substantially related to loss carry forwards for the past 5 years under Chinese tax law.  Subsequently to the filing of the Form 10-Q, the Company determined the positive and negative evidence used to provide the full valuation allowance as of March 31, 2012 also existed as of June 30, 2011.  The Company concluded the full valuation allowance should have been recorded as of June 30, 2011 and restated its previously issued financial statements.  In this restated Form 10-Q, the Company adjusted income taxes and the net loss attributed to non-controlling interest in subsidiaries for the full valuation allowance originally recorded.
 
13           CONCENTRATIONS
 
Sales to two major customers accounted for 27% and 23% of total sales for the three months ended September 30, 2011.  Sales to two major customers were 26% and 12% of total sales for the three months ended September 30, 2010.  

Sales of two major products represented approximately 86% and 5% of total sales for the three months ended September 30, 2011. Sales of three major products represented approximately 77%, 5% and 5% of total sales for the three months ended September 30, 2010.

Accounts receivable balances of three customers represented for 35%, 13% and 11% of total accounts receivable balance as of September 30, 2011, respectively.

Accounts receivable balances of two customers represented for 23% and 18% of total accounts receivable balance as of June 30, 2011, respectively.
 
14           SUBSEQUENT EVENTS

In accordance with ASC 855, “Subsequent Events”, the Company has evaluated subsequent events that have occurred through the date of issuance of these financial statements and has determined that there was no other material event that occurred after the date of the balance sheets included in this report, except the special funding from Hebei Province of China, which was disclosed in an 8-K filing on November 4, 2011.


 
13

 
 
ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
This Quarterly Report on Form 10-Q/A (including the section regarding Management’s Discussion and Analysis of Financial Condition and Results of Operations) contains certain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, as well as information relating to Aoxing Pharmaceutical Company, Inc. that is based on management’s exercise of business judgment and assumptions made by and information currently available to management. Although forward-looking statements in this Quarterly Report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks and uncertainties and actual results and outcomes may differ materially from the results and outcomes discussed in or anticipated by the forward-looking statements. When used in this document and other documents, releases and reports released by us, the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “the facts suggest” and words of similar import, are intended to identify any forward-looking statements. You should not place undue reliance on these forward-looking statements. These statements reflect our current view of future events and are subject to certain risks and uncertainties as noted below. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, our actual results could differ materially from those anticipated in these forward-looking statements. Actual events, transactions and results may materially differ from the anticipated events, transactions or results described in such statements. Although we believe that our expectations are based on reasonable assumptions, we can give no assurance that our expectations will materialize. Many factors could cause actual results to differ materially from our forward looking statements. Other unknown, unidentified or unpredictable factors could materially and adversely impact our future results.  You should read the following discussion and analysis in conjunction with our restated  unaudited financial statements contained in this report , as well as the audited financial statements, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Risk Factors” contained in our Annual Report on Form 10-K/A for the fiscal year ended June 30, 2011.  We undertake no obligation and do not intend to update, revise or otherwise publicly release any revisions to our forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of any unanticipated events.
 
Outline of Our Business

Aoxing Pharmaceutical Company, Inc. (the “Company” or “Aoxing Pharma”) is a Florida incorporated specialty pharmaceutical company with its main operations in China, specializing in research, development, manufacturing and distribution of a variety of narcotic, pain-management, and addiction treatment pharmaceutical products.  Its common stock is currently trading on the NYSE AMEX under the ticker symbol of “AXN”.  Our product line is comprised of prescription and over-the-counter pharmaceutical products.  Our pharmaceutical products have been approved by the Chinese State Food and Drug Administration, or SFDA, based on demonstrated safety and efficacy. We sell our products primarily to hospitals, clinics, pharmacies and retail in most of the provinces of China, including rural areas and major cities.
 

 
14

 

In April 2010 Aoxing Pharma and Johnson Matthey Plc entered into an agreement to establish a joint venture through affiliated companies focused on research, development, manufacturing and marketing of active pharmaceutical ingredients (“API”) for narcotics and neurological drugs for the China market. The joint venture represents a significant new opportunity for both companies to expand their business in the rapidly growing pharmaceutical market in China.
 
Under the terms of the agreement, Macfarlan Smith Ltd, a wholly owned subsidiary of Johnson Matthey Plc, headquartered in the United Kingdom, will contribute technology expertise and capital to the joint venture.  Hebei Aoxing Pharmaceutical Group Company, Ltd (“Hebei Aoxing”), the operating subsidiary of Aoxing Pharma, will contribute capital, fixed assets and related API manufacturing licenses.  The joint venture company will be called Hebei Aoxing API Pharmaceutical Company, Ltd.  Hebei Aoxing will have a 51% stake in the Company, while Macfarlan Smith (Hong Kong) Ltd, (a wholly owned subsidiary of Johnson Matthey Pacific Ltd), will hold 49%.  Each company will have equal representation on a board of directors that will oversee a management team responsible for corporate strategies and operations.

The new joint venture is located on the Hebei Aoxing campus in Xinle City, 200 kilometers south west of Beijing.  The joint venture received a manufacturing license in November 2010 and a business license in January 2011 for its first product, Naloxone Hydrochloride.

In February 2010, Aoxing Pharma and QRxPharma Ltd. announced a strategic alliance to collaborate in the development of two proprietary narcotic drugs in China and ex-China markets: MoxDuo®IV, an intravenous formulation, as well as MoxDuo®IR, an immediate release capsule presently in pivotal Phase 3 studies in the United States.  Both products are based on QRxPharma’s patented morphine and oxycodone Dual-Opioidtechnology for the acute treatment of moderate to severe pain.  Under the terms of the agreement, Aoxing Pharma will fund the development of MoxDuo®IV and MoxDuo®IR for the China market in exchange for exclusive marketing rights in China.  QRxPharma will retain ownership of both products and may use the clinical work completed by Aoxing Pharma for product registration purposes outside of China.  Extensive clinical studies have demonstrated that QRxPharma’s Dual-Opioids™ provide as good or better pain relief than either morphine or oxycodone alone, but with significantly fewer side effects, giving doctors and patients more options in the treatment of moderate to severe pain from the hospital to the home.

Pharmaceutical Market in China
 
According to IMS health, the global pharmaceutical market in 2011 is expected to be about $880 billion and expected to grow 5-7% in 2011 while the Chinese pharmaceutical market is expected to grow 25-27% in 2011 to more than $50 billion, making it the third largest pharmaceutical market behind the United States and Japan.  The growth in Chinese pharmaceutical market is driven by several factors including improving standards of living and an increase in disposable income fueled by the growing economy, the aging population, the increasing participation in the State Basic Medical Insurance System and the increase in government spending on public health care. In January 2009, the Chinese government approved a healthcare reform plan and has budgeted RMB 850 billion, or $124 billion, for a three year program to make medical services and products more affordable and accessible to the whole population.

 
15

 

 Narcotics Industry in China
 
The pharmaceutical market in China is highly fragmented today. We believe there are over 3,000 small enterprises currently engaged in the development, manufacture and sale of pharmaceutical products, and we expect significant consolidation of pharmaceutical business, products and technologies in China in near future.  However, based on recent statistics provided by the China SFDA, there are only 13 pharmaceutical companies designated by the China SFDA as narcotic drug producers in China.
 
Regulatory and Quality Control
 
Each of our pharmaceutical products has certain medicinal functions and has demonstrated safety and efficacy in accordance with the China SFDA requirements for the treatment of at least one or more therapeutic indications.  Our products are produced in various formulations, such as injection, tablets, capsules, oral solution and powders.  Our manufacturing facility in China is GMP certified, fully integrated with manufacturing support systems including quality assurance, quality control and regulatory compliance. We have developed our own independent quality control systems in accordance with SFDA regulations. Our quality assurance team devotes significant attention to quality control for designing, manufacturing and testing our products, and is also responsible for ensuring that we are in compliance with all applicable national and local regulations and standards, as well as our internal policies. Our senior management team is also actively involved in setting quality assurance policies and managing internal and external quality performance. These support systems enable us to maintain high standards of quality for our products and deliver reliable products to our customers on a timely basis.
 
Results of Operations - Restated
 
The Company has restated its financial statements to correct an error related to the accounting for the Company’s valuation of deferred tax assets. The Company has amended its Annual Report on Form 10-K/A as of and for the year ended June 30, 2011. The effect of the error is on the financial statements included in this amended Quarterly Report is set forth in Note 3 to the Consolidated Financial Statements.
 
Revenues for the three months ended September 30, 2011 were $1,530,068, representing 12.1% decrease over the revenues of $1,740,673 realized during the three months ended September 30, 2010.  The decrease is mostly contributed to reduced promotional effort on certain non-proprietary products that have become non-profitable.  Most of them are those included in the government’s Essential Drug List, as discussed in previous period.  The significant increase in the price of raw materials since January 2011 combined with the pricing pressure from the biding process made those products non-profitable.
 
The Company’s top-selling, proprietary product, Zhongtongan, also declined modestly, due to the decision to restrict sales in certain provinces in which its price was substantially lower than the average price.  This issue is not company specific but industry wise.  Prices of pharmaceutical products in these provinces were generally much lower than their national averages.

Cost of sales was $662,550 for the three months ended September 30, 2011, which was 20% less than the $827,295 in costs incurred during the three months ended September 30, 2010.  The main factor for the decrease in cost of sales was lower sales.  Improved gross margin also reduced cost of sales.

Gross profit was $867,518 during the three months ended September 30, 2011, 5% lower than the same period a year earlier, reflecting the combined effect of lower sales and higher gross margin.  Gross margin was 56.7% during the three months ended September 30, 2011, a 4.2% improvement from the gross margin of 52.5% for the same period a year earlier.  The improvement in gross margin was due to modest price increase for Zhongtongan and manufacturing efficiency enhancements. Price of raw materials during the quarter ended September 30, 2011 was higher than the same period a year ago but flat sequentially.

 
16

 

Research and development expenses were $106,399 during the three months ended September 30, 2011, representing a 24.5% increase from $85,448 occurred during the three months ended September 30, 2010.  R&D expenses could fluctuate significantly from one period to another, reflecting the progress and timing of our various development projects.

General and administrative expenses were $746,243 in the three months ended September 30, 2011, 17.9% lower than $909,057 in the three months ended September 30, 2010.  The main reason for the decrease was Company’s effort to reduce cost.

Selling expenses in the amount of $363,293 incurred during the three months ended September 30, 2011 were 29% lower from $511,821 spent on selling during the three months ended September 30, 2010.  The decrease was mainly due to reduced marketing efforts for non-profitable products.

Loss from operations for the quarter ended September 30, 2011 decreased 33.4% to $495,957, from $744,992 incurred during the quarter ended September 30, 2010.  The significant decrease in the loss was primarily due to lower general, administrative, and selling expenses.

Net interest expense was $418,431 for the three months ended September 30, 2011, increased 11.6% from net interest expense of $374,781 for the three months ended September 30, 2010.  Increase in interest expense was due to higher interest rates upon renewal of loans, as a result of nationwide credit tightening in China, and currency exchange rate change.

The volatility in the market price of common stock has a significant impact on the fair valuation of our outstanding warrant liabilities.  During the quarter ended September 30, 2010, this value decreased by $222,717, primarily due to a decline in the market price of our common stock.  The decrease was recorded as other income for the three months ended September 30, 2010.  All outstanding warrants expired without exercise by the end of September 30, 2011, which resulted in other income of $1,161 for the quarter ended September 30, 2011.

During the quarter ended September 30, 2011, there was a loss of $41,936 in the JV with Johnson Mathey Plc.  The JV has no operation during the same period in previous year.

The Company realized a net loss of $955,163 for the three months ended September 30, 2011.  However, because the Company owns only 95% of Hebei Aoxing, 5% of that company’s income was attributed to the non-controlling interest.  Therefore the net loss for the three months ended September 30, 2011 was $922,904 attributable to the shareholders of Aoxing Pharmaceutical.  In comparison, during the three months ended September 30, 2010, the net loss attributable to the Company’s shareholders was $653,941, after deducting income attributable to the 5% non-controlling interest in Hebei Aoxing.

 
17

 

Liquidity and Capital Resources

Operations during the three months ended September 30, 2011 used $352,926 in cash, as compared to $977,641 used for operations during the three months ended September 30, 2010.  The primary reason for the decreased use of cash during the period is relatively less increase in accounts receivable than the increase in accounts receivable.  Increase in accrued expenses and other current liabilities also resulted in less cash use during the three months ended September 30, 2011.

Investing activities used $24,762 in cash during the three months ended September 30, 2011.   During the three months ended September 30, 2010 investing activities used $378,348 in cash, as the Company invested $723,945 in additional property and equipment.  Repayment from loans to unrelated party reduced the cash use by $345,597.

There was no significant financing activity during the three months ended September 2011.  In the same period from previous year, the Company completed a short-term loan financing of 5 mil RMB ($746,480).

As a result of the several debt refinancing during fiscal 2011 and the first quarter of fiscal 2012, our debt service obligations on September 30, 2011 were:

         
Less than
                           
After 5
 
Contractual Obligations
 
Total
   
1 Year
   
1-2 Years
   
2-3 Years
   
3-4 Years
   
4-5 Years
   
Years
 
Short-term Borrowing
  $ 234,309     $ 234,309     $ -     $ -     $ -     $ -     $ -  
Bank
    8,591,334       8,591,334                                          
Related Party
    3,736,244       5,793       1,298,716       2,431,735       -                  
Others
    1,946,483       96,847               1,849,636       -                  
TOTAL
  $ 14,508,370     $ 8,928,283     $ 1,298,716     $ 4,281,371     $ -     $ -     $ -  

On September 30, 2011, we had $2.48 million in cash.  Presently, the Company does not anticipate large capital expenditure projects in the next 12 months.  As a result, the Company will be able to operate at much lower cash burn rates, if needed, without major impact on its operations. The Company does anticipate that its current cash position will be insufficient to support the Company's operations at current capacity for the next 12 month period and, therefore, will need to seek additional financing of its operations.  The Company may also want to seek financing to fund expansion of our operations, extend our reach to broader markets, or to acquire additional entities.  We may rely on additional bank borrowing as well as capital raises.  We are actively exploring various proposals and alternatives in order to secure sources of financing and improve our financial position. We may raise such additional capital through the issuance of our equity securities, which may result in significant dilution to our current investors.  Other options considered include issuance of convertible debt, a new bridge loan, and arrangement to out-license intellectual property.  We are also exploring potential strategic partnerships, which could provide a capital infusion to the Company.

 
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Off-Balance Sheet Arrangements
 
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition or results of operations.

ITEM 3   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4.  CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures.

Under the supervision and with the participation of the Company’s management, including our Chief Executive Officer and Chief Financial Officer (the “Certifying Officers”), we carried out an evaluation of the effectiveness of our disclosure controls and procedures as of September 30, 2011.  The term “Disclosure controls and procedures” means controls and other procedures that are designed to insure that information required to be disclosed by us in the reports that we file with the Securities and Exchange Commission is recorded, processed, summarized and reported within the time limits specified in the Commission’s rules.  That evaluation revealed the following material weakness in our internal control over financial reporting: the Company is relatively inexperienced with certain complexities within US GAAP and SEC reporting causing a material weakness in internal controls, Based on the results of these self-assessments, our principal executive officer and principal financial officer concluded that Aoxing Pharma’s system of disclosure controls and procedures was not effective as of September 30, 2011 for the purposes described in this paragraph.

Changes in Internal Control over Financial Reporting.

There was no change in internal controls over financial reporting during our most recently completed fiscal quarter that has materially affected or is reasonably likely to materially affect Aoxing Pharmaceutical’s internal control over financial reporting.

Item 6. Exhibits

31.1
Certification of Chief Executive Officer pursuant to Section 302 of the SOX of 2002.
31.2
Certification of Chief Financial Officer pursuant to Section 302 of the SOX of 2002.
32.1
Certificate of Chief Executive Officer pursuant to 18 U.S.C.ss.1350.
32.2
Certificate of Chief Financial Officer pursuant to 18 U.S.C.ss.1350.
101 INS
XBRL Instance Document*
101 SCH
XBRL Schema Document*
101 CAL
XBRL Calculation Linkbase Document*
101 DEF
XBRL Definition Linkbase Document*
101 LAB
XBRL Labels Linkbase Document*
101 PRE
XBRL Presentation Linkbase Document*

*           The XBRL related information in Exhibit 101 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that section and shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing or document.
 
 
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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.

 
AOXING PHARMACEUTICAL COMPANY, INC.
   
Date: September 28, 2012
By: /s/ Zhenjiang Yue
 
Zhenjiang Yue, Chief Executive Officer
 
 (Principal Executive Officer)
   
Date: September 28, 2012
By: /s/ Guoan Zhang
 
Guoan Zhang, Chief Financial Officer
 
(Principal Accounting and Financial Officer)

 
 
 

 
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