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.

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: MoxDuoŽIV, an intravenous formulation, as well as MoxDuoŽIR, 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-Opioid™ technology for the acute treatment of moderate to severe pain. Under the terms of the agreement, Aoxing Pharma will fund the development of MoxDuoŽIV and MoxDuoŽIR 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.

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.

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.

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.

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.