This Quarterly Report on Form 10-Q (including the section regarding Management's Discussion and Analysis) 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. 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. Although we believe that our expectations are based on reasonable assumptions, we can give no assurance that our expectations will materialize. You should read the following discussion and analysis in conjunction with our 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 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 occurring 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 "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 Chinese 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 is called Hebei Aoxing API Pharmaceutical Company, Ltd. Hebei Aoxing holds a 51% stake in API, while Macfarlan Smith (Hong Kong) Ltd, (a wholly owned subsidiary of Johnson Matthey Pacific Ltd), holds 49%. Each company has equal representation on a board of directors that oversees 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 MoxDuoŽIVand MoxDuoŽIRfor 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 demonstratedthat QRxPharma'sDual-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 was expected to be about $880 billion and expected to grow 5-7% in 2011 while the Chinese pharmaceutical market was expected to grow 25-27% in 2011 to about $50 billion, making it the third largest pharmaceutical market behind the United States and Japan. Some estimates (such as the Pharma Letter) even suggest that China may replace Japan to become the second largest pharmaceutical market by 2014. The growth in the 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 $133 billion, for a three year program to make medical services and products more affordable and accessible to the whole population.

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 the near future. However, based on recent statistics provided by the Chinese 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 one or more therapeutic indications. Our products are produced in various formulations, such as injection, tablets, capsules, pills, tincture, 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 is restating its financial statements for the three and nine months ended March 31, 2012 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 as of and for the year ended June 30, 2011. The effect of the error is to decrease net loss for the affected periods by $2,614,817 of income tax expense and adjust opening accumulated deficit for $2,484,076 to reflect the impact of the adjustment made at June 30, 2011 in the March 31, 2012 financial statements.

A more complete discussion of the restatement can be found in Item 8 Note 3 to the financial statements and in the Company's Current Report on Form 8-K filed with the Commission on August 10, 2012.

Certain 2011 amounts have been reclassified to conform to the current year's financial statements presentation. These reclassification shad no impact on the previously reported financial position, results of operations or cash flows.

Sales for the three months ended March 31, 2012 were $1,807,284, representing an11% increase over the revenues of $1,628,627 realized during the same period in 2011. In the recent quarter, foreign currency translation added 3.4% to sales growth. Sales of the Company's main product, Zhongtongan, increased significantly from the same period in 2011, mainly due to increased promotional efforts.

For the nine months ended March 31, 2012, revenues were $5,461,685, a 2.9% increase from revenues of $5,309,839 realized during the same period in 2011. Sales in local currency were essentially flat in comparison to the same period in 2011. Sales of Zhongtongan increased significantly from the same period in 2011, but the increase was offset by the decline in sales of other products. The Company has reduced promotional efforts on certain non-proprietary products since the beginning of 2011.

Cost of sales was $796,681 for the three months ended March 31, 2012, 1.3% less than $807,492 in costs incurred during the same period in 2011. Gross profit was $1,010,603 during the three months ended March 31, 2012, 23.1% higher than the same period a year earlier, reflecting increased sales as well as better gross margin. Gross margin was 55.9% during the three months ended March 31, 2012, significantly higher than the gross margin of 50.4% for the same period a year earlier. For the nine months ended March 31, 2012, cost of sales was$2,302,576, 4.5% lower than the $2,410,633 in costs incurred during the same period in 2011. Gross profit was $3,159,109 during the nine months ended March 31, 2012, 9% higher than the same period a year earlier. Gross margin was 57.8% during the nine months ended March 31, 2012, 3.2% higher than the gross margin of 54.6% for the same period a year earlier. During the nine months ended March 31, 2012, gross margin has been negatively influenced by higher raw material costs. However, the effect was more than offset by product mix shift (lower sales of low margin products) as well as overall manufacturing efficiency enhancement.

Research and development expenses were $103,237 during the three months ended March 31, 2012, significantly higher than the $70,362 incurred during the same period in 2011. During the nine months ended March 31, 2012, research and development expenses were $364,177, essentially unchanged in local currency from $347,760 incurred during the same period in 2011. R&D expenses could fluctuate significantly from period to period, reflecting the progress and timing of various development projects.

General and administrative expenses were $699,678 in the three months ended March 31, 2012, 48.7% lower than $1,364,117 incurred in the same period a year earlier. For the nine months ended March 31, 2012, general and administrative expenses were $2,210,489, 41.6% lower than $3,785,867 incurred during the nine months a year earlier. The main reasons for the decrease were the Company's effort to reduce costs and lower bad debt expenses. During the nine months ended March 31, 2012, salary and benefits decreased by $314,375 due to reduced manager and staff levels and canceling of the current year management bonuses. In addition, the Company increased efforts in collecting outstanding receivables during the period. The result was a decrease in bad debt expenses by $235,676 and $693,027 for the three and nine months ended March 31, 2012 compared to the same periods in the prior year. Bad debt expense of $18,949 was recorded for the three months ended March 31, 2012. Other factors contributing to the decrease in general and administrative expenses included lower consulting fees and other office expenses.

Selling expenses in the amount of $496,192 incurred during the three months ended March 31, 2012 were about 40% higher than $354,600spent on selling during the same period in 2011. During the nine months ended March 31, 2012, selling expenses in the amount of $1,226,016 were slightly less than $1,228,492 spent on selling during the same period in 2011. The Company reduced marketing efforts for non-profitable products but increased promotional efforts for proprietary products during the three months ended March 31, 2012.

The Company had a loss from operations of$436,953 for the quarter ended March 31, 2012. In the same period a year earlier, it had a loss from operations of $1,123,905. For the nine months ended March 31, 2011, the Company had a loss from operations of $1,083,770, 62.9% lower than the $2,921,179 incurred during the same period a year earlier. The significant decrease in the loss was primarily due to lower general and administrative expenses and better gross margin.

Interest expense was $507,758 for the three months ended March 31, 2012, a 12.4% increase from the $451,782incurred during the same period a year earlier. For the nine month period, interest expense was $1,345,302, 11% higher than the $1,211,890 incurred during the same period in 2011. The increase in interest expense was due to higher interest rates upon renewal of loans and currency exchange rate change.

During the 2011 fiscal year, the volatility in the market price of the Company's common stock has a significant impact on the fair valuation of outstanding warrant liabilities. During the quarter ended March 31, 2011, this value decreased by $726,567, mainly due to a decline in volatility in the market price of the Company's common stock. The decrease was recorded as other income for the three months ended March 31, 2011. Similarly, a decrease in the value of the warrants led to other income of $1,843,590 for the nine months ended March 31, 2011. However, the warrants expired without exercise on September 28, 2011, with the result that we realized only $1,161 in other income attributable to the warrants during the nine months ended March 31, 2012, and none during the three months then ended.

During the three months ended March 31, 2012, we recorded other expenses of $27,527, which represented our 51% beneficial interest in the loss incurred in that period by our joint venture with Johnson Matthey PLC. Our portion of the joint venture's loss during the nine months ended March 31, 2012 was $106,457. The joint venture had no operations during the same periods of the prior year.

In the three months ended March 31, 2012, the Company's subsidiary in China, Hebei Aoxing, received three local government subsidies totaling RMB 2,230,000 (approximately $351,185). In the same period in 2011, there was no such income. These government subsidies have no restrictions and are for operating activities. We recorded the subsidies and grants as other income.

The Company realized a net loss of $621,052 for the three months ended March 31, 2012. However, because the Company owns only 95% of Hebei Aoxing, 5% of that company's loss was attributed to the minority interest. Therefore the net loss for the three months ended March 31, 2012 attributable to the shareholders of Aoxing Pharmaceutical was $605,492. In comparison, during the three months ended March 31, 2011, there was a net loss of $513,114 attributable to the Company's shareholders, after deducting loss attributable to the 5% minority interest in Hebei Aoxing. During the nine months ended March 31, 2012, net loss to the shareholders of Aoxing Pharmaceutical was $1,870,693, as compared to a net loss of $1,351,751 for the same period a year earlier, excluding the 5% minority interest.

Our business operates entirely in Chinese Renminbi, but we report our results in U.S. Dollars. The conversion of our accounts from RMB to Dollars results in translation adjustments. While our net income is included in the retained earnings on our balance sheet; the translation adjustments are included in a line item on our balance sheet labeled "other comprehensive income," since it is more reflective of changes in the relative values of U.S. and Chinese currencies than of the success of our business. During the first nine months of fiscal 2012, the effect of converting our financial results from RMB to U.S. Dollars was to increase our accumulated other comprehensive income by$792,496. During the first nine months of fiscal 2011, the effect of converting our financial results from RMB to U.S. Dollars was to increase accumulated other comprehensive income by $961,649.

Liquidity and Capital Resources

Operations during the nine months ended March 31, 2012 used $1,543,613 in cash, as compared to $2,513,482 used for operations during the nine months ended March 31, 2011. The primary reasons for the decreased use of cash were the efforts to reduce general and administrative expenses, higher government subsidies, and less increase in inventories, in comparison to the same period in 2011.

Investing activities used a net $195,472 in cash during the nine months ended March 31, 2012. During the nine months ended March 31, 2011 investing activities used $843,738 in cash, as the Company invested $1,136,634 in additional property and equipment. Proceeds from unrelated party increased the cash by $292,896.

Our cash flows from financing activities amounted to $2,863,735 during the nine months ended March 31, 2012. On December 5, 2011, the Company's operating subsidiary in China, Hebei Aoxing, executed a financing agreement with Shijiazhuang Construction Investment Group and China Construction Bank. Under the agreement, the Company obtained a loan of RMB 20 million ($3,137,944) from Shijiazhuang Construction Investment Group, disbursed through China Construction Bank. The Company also paid down RMB 1 million ($156,897) to Shijiazhuang Finance Bureau.

As a result of the several debt refinancing during fiscal 2011 and the first nine months of fiscal 2012, our debt service obligations on March 31, 2012 were as following:

Contractual                      Less than 1
Obligations        Total             Year          1-2 Years       2-3 Years        3-4 Years         4-5 Years        After 5 Years
Short-term
Borrowing       $  3,241,260     $  3,241,260     $         -     $         -     $           -     $           -     $             -
Banks              8,696,065               -        8,696,065               -                 -                 -                   -
Affiliates         3,710,570          213,569               -       3,497,001                 -                 -                   -
Others             1,850,839          161,905               -       1,688,934                 -                 -                   -
   TOTAL        $ 17,498,734     $  3,616,734     $ 8,696,065     $ 5,185,935     $           -     $           -     $             -

On March 31, 2012, the Company's short-term debt obligation was $12.3 million in total, primarily consisting of $8.7 million bank loans and $3.2 million term loan from Shijiazhuang Construction Investment Group. The bank loans were initially made in 2010 and secured by the Company's fixed assets as collateral. Even though the loans were for a one-year term, as is customary in Chinese banking arrangements, the Company has never had any difficulty in obtaining renewal in the past. In April 2012, these bank loans were renewed again and will mature in April 2013. The $3.2 million term loan matures in December 2012. Management currently anticipates that it will also be renewed.

For the next 12 months, management anticipates cash use from operations will decrease, because of increased product sales and efforts to preserve cash. Additionally, management does not expect any 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, without any major impact on its operations.

On March 31, 2012, the Company had cash of $3.9 million in bank accounts, which management believes will be sufficient to support the Company's operation in the next 12 months. The Company anticipates continued local governmental support. It may also take additional loans from related parties, if necessary. Furthermore, the Company will continue to seek financing to fund expansion of our operations, extend our reach to broader markets, or to acquire additional entities. We may rely on 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 could result in significant dilution to our current investors. Other options under consideration 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.