Annual Report (10-k)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_____________________

FORM 10-K

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
	For the fiscal year ended June 30, 2014.

	OR

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

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)

444 Washington Blvd, Suite 3338, Jersey City, NJ 07310

(Address of principal executive offices)

Issuer's Telephone Number, including Area Code: 646-367-1747

Securities Registered Pursuant to Section 12(b) of the Act:

Title of Each Class	Name of Exchange Where Registered
Common Stock, $.001 par value	NYSE MKT

Securities Registered Pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 406 of the Securities Act. Yes __ No √

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes __ No √

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 √ 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 √ No ___

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]

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 ___ Smaller 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 √

The aggregate market value of the Registrant’s common stock, $.001 par value, held by non-affiliates as of December 31, 2013, the last business day of the second fiscal quarter, was $5,349,154.

As of September 29, 2014 the number of shares outstanding of the Registrant’s common stock was 61,737,100 with $.001 par value.

DOCUMENTS INCORPORATED BY REFERENCE: None.

FORWARD-LOOKING STATEMENTS: NO ASSURANCES INTENDED

This Annual Report on Form 10-K (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 represents management’s assumptions based on the information currently available to management. Although forward-looking statements in this Annual Report on Form 10-K 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 including those set forth in Item 1A of this report. Other unknown, unidentified or unpredictable factors could materially and adversely impact our future results. 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.

We file reports with the Securities and Exchange Commission (“SEC” or “Commission”). You can read and copy any materials we file with the Commission at its Public Reference Room at 100 F Street, NE, Washington, DC 20549. You can obtain additional information about the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330. In addition, the Commission maintains an Internet site (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the Commission, including our reports.

Our fiscal year ends on June 30, and any references herein to “Fiscal 2014” mean the year ended June 30, 2014, and references to other “Fiscal” years mean the year ending June 30 of the year indicated.

PART 1

Item 1. Business

Aoxing Pharmaceutical Company, Inc.’s (“Aoxing Pharma” or “Company”) has one operating subsidiary, Hebei Aoxing Pharmaceutical Co., Inc. (“Hebei Aoxing”), which is organized under the laws of the People’s Republic of China (“PRC”). Since 2002, Hebei Aoxing has been engaged in developing narcotics and pain management products. In 2008 Hebei Aoxing supplemented its product lines by acquiring Shijiazhuang Lerentang Pharmaceutical Company, Ltd. (“LRT”), a specialty pharmaceutical company focusing on herbal pain related therapeutics. The Company owns 95% of the equity in Hebei Aoxing. The remaining 5% is owned by our Chairman, Zhenjiang Yue, and his family.

History of the Company

The Company was incorporated in the State of Florida on January 23, 1996. In 2006 the Company liquidated its previous business assets and acquired 60% of Hebei Aoxing. On July 6, 2006, the Company changed its name to “China Aoxing Pharmaceutical Company, Inc.” to better reflect the nature of its business. On May 1, 2008 the Company completed the acquisition of an additional 35% interest in Hebei Aoxing from its Chairman and Chief Executive Officer, Mr. Zhenjiang Yue.

On April 16, 2008, Hebei Aoxing completed the acquisition of 100% of the registered capital of Shijiazhuang Lerentang Pharmaceutical Company Limited (“LRT”). LRT was engaged in the manufacture and distribution of Chinese traditional medicines focusing on pain management related therapeutics within China. In exchange for transfer of ownership of LRT to Hebei Aoxing, the Company paid to the shareholders of LRT 80 million RMB and related expenses (approximately $12.4 million in total) and issued 4 million shares of common stock. Subsequently the Company undertook the integration of LRT’s business and operations into Hebei Aoxing, which resulted in a requirement that our manufacturing facilities be relicensed by the government. In April 2011, the combined Hebei Aoxing and LRT manufacturing facility received GMP certification from the Chinese State Food and Drug Administration (SFDA) for its pre-treatment, extraction, tincture, and pill workshops. The certification marked the completion of the integration of LRT into Hebei Aoxing.

On April 14, 2010, Aoxing Pharma’s common stock began trading on the NYSE Amex, a subsidiary of NYSE Euronext, under the ticker symbol "AXN." In anticipation of the listing, on March 29, 2010 the Company changed the name of the corporation to "Aoxing Pharmaceutical Company, Inc.," to better reflect its global brand extension, and effected a one-for-two reverse split of its common stock.

On April 26, 2010, Aoxing Pharma and Johnson Matthey Plc entered into an agreement to establish a joint venture focused on research, development, manufacturing and marketing of active pharmaceutical ingredients ("API') for narcotics and neurological drugs for the China market. 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 will contribute capital, fixed assets and related API manufacturing licenses. The joint venture company is called Hebei Aoxing API Pharmaceutical Company, Ltd. Hebei Aoxing has a 51% stake in the joint venture, while Macfarlan Smith (Hong Kong) Ltd (a wholly owned subsidiary of Johnson Matthey Pacific Ltd) holds 49%. Each joint venturer has 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 southwest of Beijing. The total capital investment was projected to be approximately $15 million during the first five years at the time of establishment.. Approximately $1 million of capital resources had been invested in the joint venture as of June 30, 2014.

The slower than planned investment is mainly because of the pending API manufacturing licenses and the Company’s focus on marketing current approved products.

Pharmaceutical Market in China

The market for pharmaceutical products in China has been growing dramatically during the past decade. 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. Nevertheless, the pharmaceutical market in China is highly fragmented. 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, and we are one of them.

Narcotics and Pain Management

Since its inception in 2002, Hebei Aoxing has been focusing on research, development, manufacturing and distribution of a variety of narcotics and pain management pharmaceutical products in China. A significant portion of its facility is dedicated to conducting the narcotic drug business with GMP manufacturing capability for drugs in tablet, capsule, injectable, oral solution and granulated formulations - the remainder of the facility is dedicated to the herbal pharmaceutical products acquired from LRT. Over the years, the company has developed a compelling pipeline in narcotics and pain management drugs, including Naloxone, Oxycodone, Tilidine, Codeine Phosphate, Pholcodine, and Buprenorphine.

Narcotics, also known as opioids, are chemical substances that have a morphine-like action in the body. They are prescribed when other pain medications and therapies fail to work. Opioids are used mostly for their analgesic properties to treat severe pain (fentanyl, hydromorphone, methadone, morphine and pethidine), moderate to severe pain (buprenorphine18 and oxycodone) and mild to moderate pain (codeine, dihydrocodeine and dextropropoxyphene), as well as to induce or supplement anaesthesia (fentanyl and fentanyl analogues such as alfentanil and remifentanil). They are also used as cough suppressants (codeine, dihydrocodeine and, to a lesser extent, pholcodine and ethylmorphine), to treat gastrointestinal disorders, mainly diarrhoea (codeine and diphenoxylate), and in the treatment of addiction to opioids (buprenorphine and methadone). Certain analgesic opioids, such as hydrocodone or oxycodone, are compounded in mixtures with non-opiate drugs to provide analgesic action (analgesic-antipyretic preparations). These drugs are often used in combination with other medications such as antidepressants, anticonvulsants, and non-narcotic pain relievers. Opioids are the strongest pain medicines available and may become addictive if used on a long-term basis.

Scientific research suggests that opioids relieve pain in two ways. First, they attach to opioid receptors, which are specific proteins on the surface of cells in the brain, spinal cord and gastrointestinal tract. These drugs interfere with the transmission of pain messages to the brain. Second, they work in the brain to alter the sensation of pain. These drugs do not take the pain away, but they do reduce and alter the patient’s perception of the pain. There are four broad classes of narcotics: (1) endogenous opioid peptides (opioids produced naturally in the body); (2) opiates, such as the naturally occurring alkaloids, morphine, codeine, thebaine, papaverine, and the non-alkaloid heroin (processed morphine); (3) semi-synthetic opioids, created from the natural opioids, such as hydromorphone, hydrocodone, and oxycodone; and (4) fully synthetic opioids, such as fentanyl, pethidine, methadone, and propoxyphene.

Opioid drugs have been associated with illicit drug abuse and drug related crime since the onset of their medical use. The United Nations and its member States coordinate responses to this problem through international drug control conventions. Over 95 per cent of the Member States of the United Nations are now parties to the international drug control conventions, or the “Single Convention on Narcotic Drugs, 1961,” organized by International Narcotics Control Board (“INCB”). The conventions contain the basic legal structure, obligations, tools and guidance that are needed for all States to achieve the main aims of the international drug control system: controlled universal availability of narcotic drugs and psychotropic substances for medical and scientific purposes only; prevention of drug abuse, drug trafficking and other forms of drug-related crime; and the undertaking of effective remedial action when prevention does not fully succeed. As such, the conventions constitute the world’s agreed proportionate response to the global problems of illicit drug abuse and trafficking and the world’s agreed legal framework for international drug control.

China entered the “Single Convention on Narcotic Drugs, 1961” in 1985, which resulted in the gradual loosening of government policy toward the control of analgesic supplies. Before 2000, the average consumption of analgesics in China was less than 1% of the consumption in industrialized countries. There were only six varieties of analgesics available in production. By 2010, Chinese government had approved the production of 25 varieties of analgesics. In the near future, patients in China will find 30 varieties and over 80 specifications of different types of analgesics. Worldwide, there are about 123 varieties of narcotics and pain medicines.

Marketed Products

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.

We have more than 100 products under licenses from Chinese SFDA. The following is a brief description of the two products that generate most of our revenue.

Zhongtongan: It is a capsule of herbal extraction manufactured under modern GMP standard for the indication of oral and dental pain. We expanded its use to include gynecological and orthopedic application in 2011. It is currently our main product and accounted for more than 90% of our total sales in 2014.

Bismuth Potassium Citrate: An oral solution containing bismuth subcitrate potassium, for the treatment of chronic gastritis and stomachache due to excessive stomach acid.

Research and Development

We have an in-house state-of-art facility which allows our multi-discipline team to conduct pharmaceutical research and development. Our research and development (“R&D”) team consists of chemists, biologists, pharmacologists and other technical experts. The team works on multiple projects, ranging from early stage discovery to advanced clinical studies. Our team is capable of performing chemical synthesis, analytic analysis, pharmacology, toxicology as well as other technical tasks related to pharmaceutical industry. During our fiscal year 2014, we invested $569,699 in R&D efforts. Our R&D expenditures during fiscal 2013 and 2012 were $1,480,217 and 577,951, respectively. In addition, we rely on arrangements with universities, our collaborators, contract research organizations and clinical research sites for a significant portion of our product development efforts.

The five principal product lines under development by our R&D staff (and the progress of development) are described below:

Tilidine Tablets (under production preparation). Tilidine hydrochloride is an orally-absorbed synthetic narcotic analgesic. Tilidine hydrochloride is used in 50mg or 100mg dosage strength for relief of acute, moderate to severe pain, and chronic cancer-related pain. It is mainly used in European countries, including Germany, Belgium, Ireland, Italy, Switzerland, etc. It is not available in China at the moment.

It is estimated that there are at least 50 million operation procedures performed in Chinese hospitals and clinical centers every year, and 50% of these procedures require acute post-operative pain treatment. In addition, there are estimated to be over 2.2 million newly diagnosed cancer patients every year, and 60% of them are unable to receive necessary pain management under the current treatment paradigm. According to the New England Journal of Medicine, cancer has become the No. 1 cause of death, contributing to 20% of adult deaths in China.

In April 2007, Hebei Aoxing received clearance from the China SFDA for the clinical study of Tilidine Hydrochloride tablets for the treatment of moderate to severe post-operative and cancer pain in adult patients. Tilidine tablets drug is not currently available in China. To the best of our knowledge, Hebei Aoxing is currently the only domestic manufacturer authorized to develop Tilidine tablets in China.

Our Phase III clinical study of Tilidine Hydrochloride tablets was a multi-center, randomized, double-blind and active-control study which covered two pivotal trials: (1) a trial of 200 patients with post-operative pain for the indication of acute moderate to severe pain; and (2) a trial of 120 patients with cancer pain for the indication of chronic moderate to severe pain. The study was conducted at 9 metropolitan hospitals in China. The primary endpoints used to evaluate the efficacy were the sum of pain score differences, measured by Pain Intensity Difference (PID). The Company had submitted the New Drug Application (NDA) for the final production clearance to the China SFDA and has received its final approval. The China SFDA is currently reviewing the Company’s GMP facilities for the production of Tilidine and we expect to start production by the end of 2014. Tilidine is designated as a Class III New Medicine with at least three-year market exclusivity protection upon clearance by the China SFDA.

Codeine Phosphate Compound Oral Solution (under review phase). In June 2007, Hebei Aoxing received formal approval from the SFDA for the clinical study of Codeine Phosphate Compound Medicine for cold and flu treatment. While Codeine Phosphate is widely used and considered effective in cold and flu treatment in Western countries, it only became available in China in 2006. To the best of our knowledge, Hebei Aoxing is one of only two domestic pharmaceutical manufacturers developing this medicine in China.

In June 2009 the Company completed the registration trial with Codeine Phosphate. This registration trial is a randomized, multi-center, double-blind, positive-controlled study designed to evaluate the efficacy of compound oral solution of codeine phosphate in 215 patient subjects with acute moderate to severe cough. We have submitted the trial results and they are now under review by the China SFDA.

Buprenorphine/Naloxone (entering review phase). In November 2007, the China SFDA granted Hebei Aoxing and its partner, the National Institute of Drug Dependence at Beijing University, an important research and development license for Buprenorphine/Naloxone sublingual combo tablet to treat opioid dependence. This project has been a joint effort of scientists from our Company and Beijing University since April 2005. This new combo therapy is expressly designed to combine the proven effectiveness and tolerability of buprenorphine with a lower potential for misuse, underlining our commitment to this therapy area. There is much peer-reviewed evidence of superior efficacy and safety profile for this therapy.

In August 2010, the China SFDA granted the Company authority to initiate the registration clinical trial of Buprenorphine/Naloxone sublingual tablets for opioid addiction treatment. The approval enables Aoxing Pharma to move forward to the final development stage with this therapy, which is novel in China as it is not yet available to patients. The registration trial is administered by the National Institute on Drug Dependence of China at Beijing University, the co-development partner of Aoxing Pharma. The patient enrollment takes place in at least three Compulsory Drug Dependence Treatment Centers. The clinical trial was collaborated by Kunming General Hospital of Chengdu Military Region as leader unit, and Shanghai Mental Health Center and Guangzhou psychiatric hospital as member units since April, 2004; the phase I and phase II clinical trial was completed. (This project doesn't require phase III clinical trial). The trial is designed to establish the safety and efficacy of the Buprenorphine/Naloxone sublingual tablet therapy among patients who are suffering from opioid dependence. The registration trial is a multi-center, randomized, double-blind and active-control study, which is planned to enroll approximately 280 patients registered at Compulsory Drug Dependence Treatment Centers. Subjects are randomized during a brief induction phase, a multi-week maintenance phase and a detoxification phase. The Company is currently applying for the production licenses.

Based on Chinese government data, drug abuse and addiction has become a serious social problem and the situation has been getting worse over the last two decades. As of November 2011 there were 1.79 million registered drug addicts in China, which is 50% more than in 2010. Up to May 2014, registered drug addicts in China increased to 2.22 million.

However, the real population of drug addicts is estimated to be about 10 times of the registered number in the country. The Chinese government has taken comprehensive measures to address this problem, including centralized compulsory treatment camp, community clinics, psychological consulting and pharmacological therapies. In 2009 approximately 200,000 individuals received compulsory drug addiction treatment at over 80 centralized treatment centers and other centers managed by the Chinese government. The direct cost of illegal heroin purchase in China was estimated at $6 billion, and the overall cost in connection with illegal drug purchase in China was estimated at $74 billion in 2011.

Tongjingshule Capsules for Primary Dysmenorrha (temporarily on hold). In May 2009 the Company acquired all rights to Tong Jing Shu Le (“TJSL”), a novel drug for menstrual pain in adult women. Phase II (240 cases) and phase III (480 cases) clinical trials were completed in March 2012. The application for production of this product was submitted to SFDA and the site GMP inspection was determined as qualified. The SFDA raised the production standards of TJSL at the final review stage and the Company is looking for a cost effective way to meet the new standards. The current development of this drug is on hold.

Oxycodone & Acetaminophen Tablets and Capsules (under clinical development). Oxycodone & Acetaminophen Tablets and Capsules are compound tablets and compound capsules consisting of Oxycodone HCL and Acetaminophen which is used to treat acute and chronic pain. Oxycodone and Acetaminophen are categorized as class II psychotropic drugs which are not subject to the rules of the Single Convention on Narcotic Drugs. Oxycodone & Acetaminophen Tablets and Capsules are currently being imported from Mallinckrodt into China. Aoxing will be the first Chinese company to produce this generic product.

We obtained clinical trial approval of this product in September 2012. This product only requires trial on bioequivalence and needs 24 cases for each trial, no phase II trial or phase III trial is required. We have completed the clinical trials and the trials results are under review by the SFDA.

Employees

The Company currently has approximately 481 employees. There are 72 employees in administrative and management, 12 employees in R&D, 18 employees in quality assurance and quality control, 197 employees in production, and 182 employees in sales and marketing.

We consider our employee relations to be good.

Item 1A Risk Factors

Our business, financial condition, operating results and prospects are subject to the following risks. Additional risks and uncertainties not presently foreseeable to us may also impair our business operations. If any of the following risks actually occurs, our business, financial condition or operating results could be materially adversely affected. In such case, the trading price of our common stock could decline, and our stockholders may lose all or part of their investment in the shares of our common stock. You should carefully consider the risks described below before buying our common stock. If any of the risks described below actually occurs, that event could cause the market value of our common stock to decline, and you could lose all or part of your investment.

Our independent accountants have included an explanatory paragraph in their audit report raising substantial doubt as to the Company’s ability to continue as a going concern due to the Company’s history of losses, negative cash flow from operations, and its working capital deficiency.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company incurred a $8.6 million loss from operations during the year ended June 30, 2014. Our operations in the year ended June 30, 2014 resulted in a net use of cash of $7.7 million. At June 30, 2014 we had a $23.3 million working capital deficiency. These matters raise substantial doubt about the Company’s ability to continue as a going concern. That doubt is expressed in the audit report of our independent auditor for the year ended June 30, 2014. If our Company is unable to continue as a going concern, investors in the Company will incur a loss.

Our sales revenue remains small and mainly derived from a few products. A disruption in, or a compromise of, our manufacturing or sales operations, or distribution channels related to any of these products could materially and adversely affect our financial condition and results of operations.

We only reached a modest level of sales for the year ended June 30, 2014, mainly derived from a few products approved by the China SFDA. We expect these products will continue to account for a majority of our sales in the next one or two years until our new products are approved, launched and become accepted by the market. Because of our dependence on a few products, any disruption in, or compromise of, our manufacturing operations, sales operations or distribution channels, relating to any of these products could result in our failure to meet shipping and delivery deadlines or meet quality standards, which in turn could result in the cancellation of purchase orders, refusal to accept deliveries or a reduction in purchase prices, any of which could have a material adverse effect on our financial condition and results of operations.

We pledged the registered trademarks and renewal certificates relating to our principal product, Zhontongan, to secure a loan of $3,247,966 that is due on November 11, 2014. In each of the past three fiscal years, sales of Zhongtongan represented over 90% of our annual sales revenue. If we are unable to satisfy the secured debt, the creditor, Shijiazhuang Construction Investment Group, will be entitled to foreclose on that collateral. If, in that event, we lose our ability to use those trademarks and certificates in connection with the sale of Zhongtongan, our sales revenue will be drastically reduced.

We lack sufficient capital to fully carry out our business plan.

In order to make our operations cost-efficient, it is necessary that we expand our operations. At the present time, however, our capital resources are sparse. We are exploring various alternatives to improve our financial position and secure other sources of financing. Such possibilities include a new credit facility, new equity raise, new arrangements to license intellectual property, the sales of selected property rights. If we are unable to secure the necessary capital, we may be unable to achieve the size of operations necessary for profitable operations.

Intense competition from existing and new companies may adversely affect our revenues and profitability.

We compete with other companies, many of whom are developing, or can be expected to develop, products similar to ours. Some of our competitors are more established than we are, have greater brand recognition of products that compete with ours, have more financial, technical, marketing and other resources than we presently possess and a larger customer base. These competitors may be able to respond more quickly to new or changing opportunities and customer requirements and may be able to undertake more extensive promotional activities, offer more attractive terms to customers or adopt more aggressive pricing policies. Our commercial opportunity will be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer side effects, are less expensive or have more attractive product characteristics than our current products or products that we may develop in the future. We cannot assure you that we will be able to compete effectively with current or future competitors or that the competitive pressures we face will not harm our business.

Most of our pipeline products contain narcotic ingredients. As a result of reports of misuse or abuse of prescription narcotics, the sale of such drugs may be subject to new regulation, which may prove difficult or expensive to comply with, and we and other pharmaceutical companies may face lawsuits.

Most of our core pipeline products contain narcotic ingredients. Misuse or abuse of such drugs can lead to physical or other harm. For example, recently, reportedly widespread misuse or abuse of OxyContin®, a product of Purdue Pharma L.P., or Purdue, containing the narcotic oxycodone, resulted in the strengthening of warnings on its labeling. In addition, Purdue, the manufacturer of OxyContin®, faces or did face numerous lawsuits, including class action lawsuits, related to OxyContin® misuse or abuse. We may be subject to litigation similar to the OxyContin® suits related to our generic version of oxycodone or any other narcotic containing product that we market.

The China SFDA and Department of Health may impose new regulations concerning the research and development, manufacture, storage, transportation and sale of prescription narcotics. Such regulations may include new labeling requirements, the development and implementation of formal risk minimization action plans, restrictions on prescription and sale of these products. The Chinese government and its agencies could require companies to formulate risk evaluation and mitigation strategies to ensure a drug’s benefits outweigh its risks. In addition, the government and its agencies have authority to regulate distribution and may modify their regulations with respect to prescription narcotics in an attempt to curb abuse. In either case, any such new regulations or requirements may be difficult and expensive for us to comply with, may delay our introduction of new products, may adversely affect our net sales and may have a material adverse effect on our business, results of operations and financial condition.

We depend on our key management personnel and the loss of their services could adversely affect our business.

Our success depends in part on our continued ability to attract, retain and motivate highly qualified management. We place substantial reliance upon the efforts and abilities of our executive officers. The loss of services of any of these individuals or one or more other members of our senior management could delay or prevent the successful execution of our business objectives and could have a material adverse effect on our operations.

Replacing key employees may be difficult and costly and may take an extended period of time because of the limited number of individuals in our industry with the breadth of skills and experience required to develop and commercialize products successfully. We do not maintain “key person” insurance policies on the lives of these individuals or the lives of any of our other employees. The Company has entered into employment agreements with these individuals. We will need to hire additional personnel as we expand our commercial activities. We may not be able to attract or retain qualified management on acceptable terms in the future due to the intense competition for qualified personnel in our industry. If we are not able to attract and retain the necessary personnel to accomplish our business objectives, we may experience constraints that will impede these objectives.

We cannot assure you that we will be able to complete acquisitions or successfully integrate new businesses into our own.

We intend to pursue opportunities to grow our business by acquiring businesses, products and technologies that are complementary or related to our existing product lines. Successful completion of an acquisition depends on a number of factors that are not entirely within our control, including our ability to negotiate acceptable terms, conclude satisfactory agreements and obtain all necessary regulatory approvals. We may not be able to locate suitable acquisition candidates at prices that we consider appropriate. If we do identify an appropriate acquisition candidate, we may face competition from other companies interested in acquiring the target company that has greater financial and other resources than we have. Acquisitions of businesses, products, technologies or other material operations may require debt financing or additional equity financing, resulting in leverage or dilution of ownership.

Even if we complete one or more strategic transactions, we may be unable to integrate or coordinate successfully the personnel and operations of a business. Integration of acquired business operations could disrupt our business by diverting management away from day-to-day operations. The difficulties of integration may be increased by the necessity of coordinating geographically dispersed organizations, integrating personnel with disparate business backgrounds and combining different corporate cultures. We also may not be able to maintain key employees or customers of an acquired business or realize cost efficiencies or synergies or other benefits we anticipated when selecting our acquisition candidates. In addition, we may incur non-recurring severance expenses, restructuring charges and change of control payments and may need to record write-downs from future impairments of intangible assets, which could reduce our future reported earnings. At times, acquisition candidates may have liabilities or adverse operating issues that we fail to discover through due diligence prior to the acquisition.

In addition to the above, acquisitions in China, including of state owned businesses, will be required to comply with laws of the PRC, to the extent applicable. There can be no assurance that any proposed acquisition will be able to comply with PRC requirements, rules and/or regulations, or that we will successfully obtain governmental approvals to the extent required, which may be necessary to consummate such acquisitions.

If we fail to manage our growth and current operations, we may not achieve future growth or our expected revenues.

In order to maximize potential growth in our current and potential markets, we believe that we must expand our manufacturing and marketing operations. To this end, we are and expect to continue to substantially increase our employee headcount which will place a significant strain on our management and on our operational, accounting, and information systems. Our need to manage our operations and growth effectively requires us to continue to expend funds to improve our financial controls, operating procedures, management information systems, reporting systems and procedures to manage our increased operations. If we are unable to implement improvements to our management information and control systems successfully in an efficient or timely manner, or if we encounter deficiencies in our existing systems and controls, then management may receive inadequate information to manage our day-to-day operations. We will also need to effectively train, motivate and manage our employees. Our failure to manage our growth could disrupt our operations and ultimately prevent us from generating the revenues we expect.

We may be unable to secure the government licenses that are necessary for us to engage in the sale of analgesic pharmaceuticals.

The manufacture and marketing of narcotic drugs is highly regulated in China. Prior to marketing any of our products, we are required to satisfy several government protocols, and receive several licenses from the national and local governments. Obtaining these licenses can be expensive and it is usually time consuming. If we are unable to obtain the necessary licenses when we need to have them, our business plan will be delayed. If the delays prevent us from generating positive cash flow or introducing a significant number of products, our business may fail.

We may have difficulty defending our intellectual property rights from infringement which may undermine our competitive position.

We have been designing and developing new technology. We rely on a combination of patents, trade secret laws, and restrictions on disclosure to protect our intellectual property rights. Unauthorized use of our technology could damage our ability to compete effectively. We regard our service marks, trademarks, trade secrets, patents and similar intellectual property as critical to our success. We rely on trademark, patent and trade secret law, as well as confidentiality agreements to protect our proprietary rights. Certain of our products have received trademark and patent protection in China. No assurance can be given that such patents and licenses will not be challenged, invalidated, infringed or circumvented, or that such intellectual property rights will provide a competitive advantage to us. Our trade secrets may otherwise become known or be independently discovered by our competitors. Policing the unauthorized use of proprietary technology can be difficult and expensive. Also, litigation may be necessary to enforce our intellectual property rights, protect our trade secrets or determine the validity and scope of the proprietary rights of others. The outcome of such potential litigation may not be in our favor and any success in litigation may not be able to adequately protect our rights. Such litigation may be costly and divert management attention away from our business. An adverse determination in any such litigation would impair our intellectual property rights and may harm our business, prospects and reputation. Enforcement of judgments in China is uncertain and even if we are successful in such litigation it may not provide us with an effective remedy. In addition, we have no insurance coverage against litigation costs and would have to bear all costs arising from such litigation to the extent we are unable to recover them from other parties. The occurrence of any of the foregoing could have a material adverse effect on our business, financial condition and results of operations. In addition, there can be no assurance that we will be able to obtain licenses from third-parties that we may need to conduct our business or that such licenses can be obtained at a reasonable cost.

In addition, third parties may file infringement claims against us asserting that we are infringing on their patents or trademarks. In the event that such claims are filed, regardless of the merit of such a claim, we may incur substantial costs and diversion of management as a result of our involvement in such proceedings.

We are dependent on third parties to supply all raw materials used in our products and to provide services for certain core aspects of our business. Any interruption or failure by these suppliers, distributors and collaboration partners to meet their obligations pursuant to various agreements with us could have a material adverse effect on our business, results of operations and financial condition.

We rely on third parties to supply all raw materials used in our products. In addition, we rely on third party suppliers, distributors and collaboration partners to provide services for certain core aspects of our business, including manufacturing, warehousing, distribution, customer service support, medical affairs services, clinical studies, sales and other technical and financial services. All third party suppliers and contractors are subject to the China SFDA, and government agency requirements. Our business and financial viability are dependent on the regulatory compliance of these third parties, and on the strength, validity and terms of our various contracts with these third party manufacturers, distributors and collaboration partners. Any interruption or failure by these suppliers, distributors and collaboration partners to meet their obligations pursuant to various agreements with us could have a material adverse effect on our business, financial condition and results of operations.

The government limits the availability of the active ingredients used in many of our current products and products in development and, as a result, our procurement quota may not be sufficient to meet commercial demand or complete clinical trials.

The Chinese government and SFDA regulate the access to supplies of the chemical compounds in some of our current products and products in development, including oxycodone, codeine, buprenorphine, Tilidine. Consequently, their manufacture, shipment, storage, sale and use are subject to a high degree of regulation.

Furthermore, the government limits the availability of the active ingredients used in many of our current products and products in development and, as a result, our procurement quota of these active ingredients may not be sufficient to meet commercial demand or complete clinical trials. We must annually apply to the government agencies for procurement quota in order to obtain these substances. Any delay or refusal by the agencies in establishing our procurement quota for controlled substances could delay or stop our clinical trials, product launches or could cause trade inventory disruptions for those products that have already been launched, which could have a material adverse effect on our business, financial position and results of operations.

Timing and results of clinical trials to demonstrate the safety and efficacy of products as well as the SFDA’s approval of products are uncertain.

Before obtaining regulatory approvals for the sale of our products, we must demonstrate through preclinical studies and clinical trials that the product is safe and effective for each intended use. Preclinical and clinical studies may fail to demonstrate the safety and effectiveness of a product. A failure to demonstrate safety and efficacy would result in our failure to obtain regulatory approvals.

The rate of patient enrollment sometimes delays completion of clinical studies. There is substantial competition to enroll patients in clinical, and such competition has delayed clinical development of our products in the past. Delays in planned patient enrollment can result in increased development costs and delays in regulatory approval. In addition, we rely on collaboration partners that may control or make changes in trial protocol and design enhancements that may also delay clinical trials. We cannot assure you that we will not experience delays or undesired results in these or any other of our clinical trials.

We cannot assure you that the SFDA or other regulatory agencies will approve any products developed by us, on a timely basis, if at all, or, if granted, that such approval will not subject the marketing of our products to certain limits on indicated use. Any limitation on use imposed by the SFDA or delay in or failure to obtain SFDA approvals of products developed by us would adversely affect the marketing of these products and our ability to generate product revenue, as well as adversely affect the price of our common stock.

Before obtaining regulatory approvals for certain generic products, we must conduct limited clinical or other trials to show comparability to the branded products. A failure to obtain satisfactory results in these trials would prevent us from obtaining required regulatory approvals.

We do not have product liability insurance and we could be exposed to substantial liability.

We face an inherent business risk of exposure to product liability claims in the event that the use of our products is alleged to have resulted in adverse side effects. Adverse side effects, marketing or manufacturing problems pertaining to any of our products could result in:

•	decreased demand for our products;

•	adverse publicity resulting in injury to our reputation;

•	product liability claims and significant litigation costs;

•	substantial monetary awards to or costly settlements with consumers;

•	product recalls;

•	loss of revenues; or

•	the inability to commercialize future products.

These risks will exist for those products in clinical development and with respect to those products that have received regulatory approval for commercial sale or any product we may acquire. To date, we have not experienced any product liability claims. However, that does not mean that we will not have any such claims with respect to our products in the future. We do not carry product liability insurance. The lack of product liability insurance exposes us to risks associated with potential product liability claims, which can be significant.

The pharmaceutical industry is heavily regulated, which creates uncertainty about our ability to bring new products to market and imposes substantial compliance costs on our business.

The China SFDA, as well as Department of Health, imposes substantial requirements on the development, manufacture, labeling, sale, distribution, marketing, advertising, promotion and introduction of therapeutic narcotic pharmaceutical products through lengthy and detailed laboratory and clinical testing and other costly and time-consuming procedures. The submission of a drug application alone does not guarantee that the SFDA will grant approval to market the product. Satisfaction of SFDA requirements typically takes a number of years, varies substantially based upon the type, complexity and novelty of the pharmaceutical product and is subject to uncertainty. The drug approval process varies in time, could take several years from the date of application. The timing for the approval process is difficult to estimate and can vary significantly.

The current SFDA standards of approving pharmaceutical products are more stringent than those that were applied in the past. These standards were not applied to many established products currently on the market, including certain narcotics products. We cannot assure you that the SFDA or other regulatory agencies will approve any products developed by us, on a timely basis, if at all, or, if granted, that approval will not entail limiting the indicated uses for which we may market the product, which could limit the potential market for any of these products.

The State Food and Drug Administration of China requires pharmaceutical manufacturers to obtain Good Manufacturing Practices, or GMP, certifications. We have received our certifications. However, should we fail to receive or maintain the GMP certifications in the future, we would no longer be able to manufacture pharmaceuticals in China, and our businesses would be materially and adversely affected. Moreover, the laws and regulations regarding acquisitions in the pharmaceutical industry in China may change, which could significantly impact our ability to grow through acquisitions.

Certain political and economic considerations relating to China could adversely affect our company.

China is transitioning from a planned economy to a market economy. While the PRC government has pursued economic reforms since its adoption of the open-door policy in 1978, a large portion of the Chinese economy is still operating under five-year plans and annual state plans. Through these plans and other economic measures, such as control on foreign exchange, taxation and restrictions on foreign participation in the domestic market of various industries, the PRC government exerts considerable direct and indirect influence on the economy. Many of the economic reforms carried out by the PRC government are unprecedented or experimental, and are expected to be refined and improved. Other political, economic and social factors can also lead to further readjustment of such reforms. This refining and readjustment process may not necessarily have a positive effect on our operations or future business development. Our operating results may be adversely affected by changes in China’s economic and social conditions as well as by changes in the policies of the PRC government, such as changes in laws and regulations, or the official interpretation thereof, which may be introduced to control inflation, changes in the interest rate or method of taxation, and the imposition of additional restrictions on currency conversion.

Accordingly, government actions in the future, including any decision not to continue to support recent economic reforms and to return to a more centrally planned economy or regional or local variations in the implementation of economic policies, could have a significant effect on economic conditions in China or particular regions thereof, and could require us to divest ourselves of any interest we then hold in Chinese properties or joint ventures.

Our operations in the PRC are subject to the laws and regulations of the PRC and any changes in the laws or policies of the PRC may have a material impact on our operations and financial performance.

As our drug products businesses are carried out in the PRC, we are subject to and have to operate within the framework of the PRC legal system. Any changes in the laws or policies of the PRC or the implementation thereof, for example in areas such as foreign exchange controls, tariffs, trade barriers, taxes, export license requirements and environmental protection, may have a material impact on our operations and financial performance.

The corporate affairs of our companies in the PRC are governed by their articles of association and the corporate and foreign investment laws and regulations of the PRC. The principles of the PRC laws relating to matters such as the fiduciary duties of directors and other corporate governance matters and foreign investment laws in the PRC are relatively new. Hence, the enforcement of investors' or shareholders' rights under the articles of association of a PRC company and the interpretation of the relevant laws relating to corporate governance matters remain largely untested in the PRC.

Our operations are carried out through our subsidiaries which are located in the PRC. As such, the laws of the PRC govern our businesses and operations. The PRC legal system is a codified system of written laws, regulations, circulars, administrative directives and internal guidelines. The PRC government is still in the process of developing its legal system to encourage foreign investment and to align itself with global practices and standards. As the PRC economy is undergoing development at a faster rate than the changes to its legal system, some degree of uncertainty exists in connection with whether and how existing laws and regulations apply to certain events and circumstances. Some of the laws and regulations and the interpretation, implementation and enforcement of such laws and regulations are also at an experimental stage and are subject to policy changes. Hence, precedents on the interpretation, implementation and enforcement of certain PRC laws are limited and court decisions in the PRC do not have binding effect on lower courts. Accordingly, the outcome of dispute resolutions and litigation may not be as consistent or predictable as in other more developed jurisdictions and it may be difficult to obtain swift and equitable enforcement of the laws in the PRC, or to obtain enforcement of a judgment by a court or another jurisdiction.

There is no assurance that these PRC authorities will not issue further directives, regulations, clarifications or implementation rules requiring us to obtain further approvals in relation to our public listing in the U.S.

Restrictions under PRC law on our PRC subsidiaries’ ability to make dividends and other distributions could materially and adversely affect our ability to grow, make investments or acquisitions that could benefit our business, pay dividends to you, and otherwise fund and conduct our business.

All of our sales are earned by our PRC subsidiaries. However, PRC regulations restrict the ability of our PRC subsidiaries to make dividends and other payments to their offshore parent company. PRC legal restrictions permit payments of dividends by our PRC subsidiaries only out of their accumulated after-tax profits, if any, determined in accordance with PRC accounting standards and regulations. Our PRC subsidiaries are also required under PRC laws and regulations to allocate at least 10% of their annual after-tax profits determined in accordance with PRC GAAP to a statutory general reserve fund until the amounts in said fund reaches 50% of our registered capital. Allocations to these statutory reserve funds can only be used for specific purposes and are not transferable to us in the form of loans, advances, or cash dividends. Any limitations on the ability of our PRC subsidiaries to transfer funds to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends and otherwise fund and conduct our business.

Furthermore, our PRC subsidiaries, which are foreign investment entities (“FIEs”), are subject to the PRC rules and regulations on currency conversion. In the PRC, the State Administration of Foreign Exchange (“SAFE”) regulates the conversion of the RMB into foreign currencies. Currently, foreign investment enterprises (including wholly foreign-owned enterprises) are required to apply to the SAFE for “Foreign Exchange Registration Certificates for FIEs”. With such registration certification (which have to be renewed annually), FIEs are allowed to open foreign currency accounts including the “current account” and “capital account”. Currently, transactions within the scope of the "current account" (for example, remittance of foreign currencies for payment of dividends) can be effected without requiring the approval of the SAFE. However, conversion of currency in the “capital account” (for example, for capital items such as direct investments, loans and securities) still requires the approval of the SAFE.

Anti-corruption measures taken by the government to correct corruptive practices in the pharmaceutical industry could adversely affect our sales and reputation.

The government has recently taken anti-corruption measures to correct corrupt practices in the pharmaceutical industry, including, among others, acceptance of kickbacks, bribery or other illegal gains or benefits by the hospitals and medical practitioners from pharmaceutical distributors in connection with the prescription of a certain drug. Substantially all of our sales to our ultimate customers are conducted through third-party distributors. We have no control over our third-party distributors, who may engage in corrupt practices to promote our products. While we maintain strict anti-corruption policies applicable to our internal sales force and third-party distributors, these policies may not be effective. If any of our third-party distributors engage in such practices and the government takes enforcement action, our products may be seized and our own practices and involvement in the distributors’ practices may be investigated. If this occurs, our sales and reputation may be materially and adversely affected.

We may never pay any dividends to our stockholders.

We have not paid any cash dividends on shares of our common stock. We currently intend to retain all available funds and future earnings, if any, to support our operations and finance the growth and development of our business. Our board of directors does not intend to distribute dividends in the foreseeable future. The declaration, payment and amount of future dividends, if any, will be made at the discretion of the board of directors, and will depend upon, among other things, the results of our operations, cash flows and financial condition, operating and capital requirements, and other factors the board of directors considers relevant. There is no assurance that future dividends will be paid, and if dividends are paid, there is no assurance with respect to the amount of any such dividend.

Capital outflow policies in China may hamper our ability to pay dividends to shareholders in the United States.

The People’s Republic of China has adopted currency and capital transfer regulations. These regulations require that we comply with complex regulations for the movement of capital. Although Chinese governmental policies were introduced in 1996 to allow the convertibility of RMB into foreign currency for current account items, conversion of RMB into foreign exchange for capital items, such as foreign direct investment, loans or securities, requires the approval of the State Administration of Foreign Exchange. We may be unable to obtain all of the required conversion approvals for our operations, and Chinese regulatory authorities may impose greater restrictions on the convertibility of the RMB in the future. Because most of our future revenues will be in RMB, any inability to obtain the requisite approvals or any future restrictions on currency exchanges will limit our ability to fund our business activities outside China or to pay dividends to our shareholders.

Our business development would be hindered if we lost the services of our Chairman.

Zhenjiang Yue is the Chief Executive Officer of Aoxing Pharma and of its operating subsidiary, Hebei Aoxing Pharmaceutical Group. Mr. Yue is responsible for strategizing not only our business plan but also the means of financing it. If Mr. Yue were to leave Hebei Aoxing or become unable to fulfill his responsibilities, our business would be imperiled. At the very least, there would be a delay in the development of Hebei Aoxing until a suitable replacement for Mr. Yue could be retained.

The Chinese government does not permit our auditor, or any other independent registered public accounting firm operating in China, to be inspected by the Public Company Accounting Oversight Board, so investors will be deprived of the benefits of such inspection.

The independent registered public accounting firm that issues the audit reports included in our annual reports filed with the SEC, as an auditor of companies that are traded publicly in the United States and a firm registered with the Public Company Accounting Oversight Board (United States), or PCAOB, is required by the laws of the United States to undergo regular inspections by PCAOB to assess its compliance with the laws of the United States and professional standards. Because our auditor is located in China, a jurisdiction where PCAOB is currently unable to conduct inspections without the approval of the PRC authorities, our auditor, like other independent registered public accounting firms operating in China, is currently not inspected by PCAOB. Inspections of other firms that PCAOB has conducted outside of China have, at times, identified deficiencies in those firms’ audit procedures and quality control procedures, which may be addressed as part of the inspection process to improve future audit quality. The inability of PCAOB to conduct inspections of independent registered public accounting firms operating in China makes it more difficult to evaluate the effectiveness of our auditor’s audit procedures or quality control procedures. As a result, investors will be deprived of the benefits of PCAOB inspections.

If we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results or prevent fraud.

The SEC, as required by Section 404 of the Sarbanes-Oxley Act of 2002, adopted rules requiring every public company to include a management report on such company’s internal controls over financial reporting in its annual report, which contains management’s assessment of the effectiveness of internal controls over financial reporting. During our annual assessment, we identified a material weakness in our internal controls, specifically related to our staff’s lack of expertise with respect to generally accepted accounting standards of the United States of America (“US GAAP”).

Our reporting obligations as a public company place a significant strain on our management and operational and financial resources and systems. Effective internal controls, particularly those related to valuation of assets, equity compensation and revenue recognition are necessary for us to produce reliable financial reports and are important to prevent fraud. As a result, our failure to achieve and maintain effective internal controls over financial reporting may result in the loss of investor confidence in the reliability of our financial statements, which in turn may harm our business and negatively impact the trading price of our stock. Furthermore, we anticipate that we will continue to incur considerable costs and use significant management time and other resources in an effort to comply with Section 404 and other requirements of the Sarbanes-Oxley Act.

The value of our securities will be affected by the foreign exchange rate between U.S. dollars and Renminbi.

The value of our common stock will be affected by the foreign exchange rate between U.S. dollars and Renminbi, and between those currencies and other currencies in which our sales may be denominated. For example, to the extent that we need to convert U.S. dollars into Renminbi for our operational needs and should the Renminbi appreciate against the U.S. dollar at that time, our financial position, the business of the company, and the price of our common stock may be harmed. Conversely, if we decide to convert our Renminbi into U.S. dollars for the purpose of declaring dividends on our common stock or for other business purposes and the U.S. dollar appreciates against the Renminbi, the U.S. dollar equivalent of our earnings from our subsidiaries in China would be reduced.

AOB has significant influence over the outcome of matters submitted to Shareholders for approval.

Currently, American Oriental Bioengineering, Inc. (“AOB”) owns approximately 27.2% of our outstanding common stock. As a result, AOB can exercise significant influence over all matters requiring shareholder approval, including the appointment of our directors and the approval of significant corporate transactions. AOB’s ownership and control may also have the effect of delaying or preventing a future change in control, impeding merger, consolidation, takeover or other business combination or discourage a potential acquirer from making a tender offer.

Negative publicity may adversely affect our share price.

Recently, U.S. public companies that have substantially all of their operations in China, particularly companies like Aoxing Pharma that have completed reverse merger transactions, have been the subject of intense scrutiny, criticism and negative publicity by investors, financial commentators and regulatory agencies, such as the Securities and Exchange Commission. Much of the scrutiny, criticism and negative publicity has centered on financial and accounting irregularities and mistakes, a lack of effective internal controls over financial accounting, inadequate corporate governance policies or a lack of adherence thereto and, in some cases, allegations of fraud. As a result of the scrutiny, criticism and negative publicity, the publicly traded stock of many U.S. listed Chinese companies has sharply decreased in value and, in some cases, has become virtually worthless. Many of these companies are now subject to shareholder lawsuits, SEC enforcement actions and are conducting internal and external investigations into the allegations.

It is not clear what effect this sector-wide scrutiny, criticism and negative publicity will have on our Company, our business and our stock price. If we become the subject of any unfavorable allegations, whether such allegations are proven to be true or untrue, we will have to expend significant resources to investigate such allegations and/or defend our Company. This situation will be costly and time consuming and distract our management from growing our Company. If such allegations are not proven to be groundless, our Company and business operations could be severely impacted and your investment in our stock could be rendered worthless.

Unless our financial condition improves, our common stock will be delisted from the NYSE MKT.

Our common stock is listed on the NYSE MKT. The NYSE MKT has notified us that, based upon our the financial statements contained in our recent SEC filings, Aoxing Pharma is not in compliance with the following sections of the NYSE MKT Company Guide:

·	Section 1003(a)(i) since it reported stockholders’ equity of less than $2,000,000 at December 31, 2013 and has incurred losses from continuing operations and/or net losses in two of its three most recent fiscal years ended June 30, 2013;

·	Section 1003(a)(ii) since it reported stockholders’ equity of less than $4,000,000 at September 30, 2013 and has incurred losses from continuing operations and/or net losses in three of its four most recent fiscal years ended June 30, 2013;

·	Section 1003(a)(iii) since it reported stockholders’ equity of less than $6,000,000 at June 30, 2013 and has incurred losses from continuing operations and/or net losses in its five most recent fiscal years then ended; and

·	Section 1003(a)(iv) since it has sustained losses that are so substantial in relation to its overall operations or its existing financial resources, or its financial condition has become so impaired that it appears questionable, in the opinion of the NYSE MKT, as to whether the Company will be able to continue operations and/or meet its obligations as they mature.

We have submitted plans for regaining compliance to the NYSE MKT. Based on those plans, the NYSE MKT granted us an extension until April 27, 2015 to regain compliance with Sections 1003(a)(i), 1003(a)(ii) and 1003(a)(iii). The NYSE MKT also granted us an extension until September 21, 2014 to regain compliance with Section 1003(a)(iv). We will be subject to periodic review by the Staff of the NYSE MKT during the extension periods. Failure to make progress consistent with the plans or to regain compliance with the listing standards by the ends of the extension periods could result in our common stock being delisted from the NYSE MKT.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

The Company’s facilities are located in Xinle City, Shijiazhuang, Hebei province, about 143 miles from Beijing. We have land use rights that are granted and allocated to us by the People’s Republic of China (“PRC”) government to the land on which our manufacturing facilities are located. According to Chinese law, the government owns all the land in China and companies or individuals are authorized to use the land only through land use rights granted or allocated by, or leased from, the PRC government.

The headquarters of Hebei Aoxing currently cover 29.6 acres of the 49.4 acres leased by Hebei Aoxing. The land lease will expire in 2053. On that land, the Company has located a building complex that offers an aggregate of 32,268 m2 in floor space (approximately 347,330 square feet). The complex includes office facilities, research facilities, 13,000 square meters (approximately 139,931 square feet) of factory space, and a five story residential facility for employees.

The Company’s technology center is the 4,600 square meters (approximately 49,514 square feet) Aoxing Special Medicine Research Center. The Research Center is equipped with advanced pharmaceutical research facilities, including troche testing equipment, capsule testing equipment, injection testing equipment, composition testing equipment, chemical analysis equipment, and Chinese traditional medicine extraction testing equipment. The Center is equipped to conduct the research and pilot experimental production of new medicines. The central laboratory of the Research Center includes a precision instrument room, normal instrument room, heating chamber laboratory, chemical reagent room, bacteria inspection room, culture room, specimen room, and observation room. The facility is capable of conducting the entire quality-control supervision and inspection process of raw material, supplementary materials, crude and finished product. The employee training center located in the Research Center has advanced teaching facilities, and is capable of long-distance training and education. The Company has also established close relationships with the National Institute on Drug Dependence of Beijing University.

The Company’s factories are equipped with capsule filling machinery manufactured by the Bosch Group of Germany and automatic box filling equipment manufactured by the Uhlmann Company in Germany. The production capacity of the first stage analgesic project can reach 140 million capsules, 160 million pieces of troche, 100 million pieces of injection, 100 million pieces of oral liquid and 100 million bags of palletized granule. The supporting facilities, such as the extraction workshop, engine house, thermal workshop, storehouse, office building, and employee housing, have all been completed.

The executive and production facilities of Hebei Aoxing are located at No. 1 Industry District, Xinle City, Hebei Province, China 050700. Aoxing Pharma maintains its U.S. office at 444 Washington Blvd, Suite 3338, Jersey City, NJ 07310.

Item 3. Legal Proceedings

At present, the Company is not engaged in or the subject of any material legal proceedings.

Item 4. Mine Safety Disclosures

Not Applicable.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

The Company’s common stock is listed for trading on the NYSE Amex under the symbol “AXN” . Set forth below are the high and low close prices for each quarter in our past two fiscal years.

Quarter Ending	High		Low

September 30, 2012	$	0.50	$	0.22
December 31, 2012	$	0.36	$	0.18
March 31, 2013	$	0.41	$	0.19
June 30, 2013	$	0.27	$	0.19

September 30, 2013	$	0.33	$	0.21
December 31, 2013	$	0.35	$	0.22
March 31, 2014	$	0.61	$	0.23
June 30, 2014	$	0.54	$	0.26

Holders

Our shareholders list contained the names of 466 registered stockholders of record of the Company’s common stock as of September 26, 2014.

Dividends

The Company has never paid or declared any cash dividends on its Common Stock and does not foresee doing so in the foreseeable future. The Company intends to retain any future earnings for the operation and expansion of the business in the foreseeable future. Any decision as to future payment of dividends will depend on the available earnings, the capital requirements of the Company, its general financial condition and other factors deemed pertinent by the Board of Directors.

Issuer Purchases of Equity Securities

The Company did not make any stock repurchases during the last quarter of fiscal 2014.

Recent Sales of Unregistered Securities

The Company did not complete any unregistered sale of equity securities during the quarter ended June 30, 2014.

Securities Authorized for Issuance Under Equity Compensation Plans

The information set forth in the table below regarding equity compensation plans (which include individual compensation arrangements) was determined as of June 30, 2014.

	Number of securities to be issued upon exercise of outstanding options, warrants and rights		Weighted average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans

Equity compensation plans approved by security holders.		132,000	$	2.00		1,868,000	(1)
Equity compensation plans not approved by security holders		-		-		-
Total		132,000	$	2.00		1,868,000

_________________________

(1)

In 2006 the Board of Directors adopted the 2006 Stock and Stock Option Plan. The Plan authorizes the Board to issue up to 500,000 shares. The shares may be awarded to employees or directors of Aoxing Pharmaceutical Company or its subsidiaries as well as to consultants to those entities. The shares may be awarded as outright grants or in the form of options, restricted stock or performance shares. On June 28, 2011, the Company’s shareholders voted to increase the number of shares issuable to 2,000,000 shares.

Item 6. Selected Financial Data

Not applicable.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our combined and consolidated financial statements and the related notes included elsewhere in this Annual Report on Form 10-K. The discussion in this section contains forward-looking statements that involve risks and uncertainties. As a result of various factors, including those set forth under “Risk Factors” and elsewhere in this report, our actual future results may be materially different from what we expect.

Results of Operations-Comparison of the years ended June 30, 2014 and 2013

Revenue

Revenue for the year ended June 30, 2014 was $12,739,371, representing a 17.6% increase from the revenue of $10,829,839 for the year ended June 30, 2013. The increase in revenue was primarily attributed to the increase in sales price of our main product. Sales of Zhongtongan have two distribution channels: 1) sales agency and 2) direct customer. The sales price offered to direct customers is higher than the price to sale agencies. As such, the increase in average price of the products is due to the shift from sales agency to direct customers. The Group anticipates the average price of its products to increase substantially through the shift from sales agency to a direct-to-customer focused distribution.

The following table shows the dollar volume of sales of our primary product lines in each of the past two fiscal years:

	Fiscal 2014		Fiscal 2013
Herbal Therapeutics:
Zhongtongan		11,779,303		9,884,365
XiaoPiLing		79,835		129,576
Other		880,233		815,898

Total	$	12,739,371	$	10,829,839

Cost of Goods Sold; Gross Profit

Our cost of goods sold increased by 51.8% from fiscal 2013 to fiscal 2014, with the result that our gross margin decreased from 57.9% in fiscal 2013 to 45.6% in fiscal 2014. The decrease in gross margin was due to an increase in the cost of raw materials as a result of a poor harvest during the year. Although future prices for raw materials are difficult to predict, We expect the cost of goods sold to be reduced in the near future as we continue to reduce energy consumption and increase production capacity and efficiency.

Research & Development Expenses

Research and development (“R&D”) expenses were $569,699 for the year ended on June 30, 2014, representing a 61.5% decrease from the $1,480,217 expended in fiscal 2013. Our R&D expenses may fluctuate significantly from period to period, reflecting the progress and timing of our various drug development projects. A sharp increase in R&D expense occurred early in fiscal 2013 as we used the proceeds of a loan secured in August 2012 to make payments to third parties for the continuing development of our R&D projects, in particular Buprenorphine Sublingual Tablet, Compound of Tilidine Capsule, Terazosin Hydrochloride Film and Nimodipine Injection. As available cash diminished, the Company reduced its R&D expenses during fiscal 2014. We expect some new product approvals, but we continue to build our pipeline; so R&D expenses will continue to fluctuate.

General and Administrative Expenses

Our general and administrative expenses consist primarily of employee compensation and benefits payable to general management, finance and administrative staff, professional and legal fees, and bad debt expenses. In the year ended June 30, 2014, our general and administrative expenses were $3,613,657, an increase of 9.4% compared to the $3,303,824 incurred during the previous year.

The increase in general and administrative expenses in fiscal 2014 resulted from bad debt expenses of $896,441 recorded during the year. In addition to our policy of testing accounts receivable periodically for collectability, we maintain a strict policy of writing-off 50% of any receivable that is one year old and 100% after two years. The portion of our accounts receivable that became subject to automatic write-off during fiscal 2014 was the primary reason for the large bad debt expense recorded in that year.

Selling Expense

Selling expense for the year ended June 30, 2014 was $4,350,442 and was 41.6% lower than the selling expense of $7,447,141 for the year ended June 30, 2013. Early in fiscal 2013 we secured a loan and dedicated a portion of the proceeds to television advertising, which resulted in a particularly high level of selling expense in fiscal 2013. As the cash from that loan dissipated, we reduced selling expenses by terminating temporary sales person for XiaoPiLing and, especially, terminated the six advertising contracts with television stations.

Depreciation and amortization

Depreciation and amortization expense increased 5.0% from $585,695 in fiscal 2013 to $614,755 in fiscal 2014. The expense is stable because our fixed assets have relatively long useful lives and there was no material purchase or disposal of equipment during fiscal 2014.

Impairment Loss on Goodwill

The purchase prices that we paid for LRT and 35% of Hebei Aoxing in 2008 exceeded the fair market value of the net assets that we acquired, and we recorded the excess as goodwill on our balance sheet. At the end of the 2013 fiscal year, we engaged a valuation expert to assist us in evaluating our operating company and determining whether the goodwill on our balance sheet had been impaired. The Company, with the assistance of the valuation expert, performed the first step in the goodwill impairment test and determined that the carrying value exceeded the fair value. The second step determined the amount of the impairment by comparing the implied fair value to the carrying amount of the fair value. Using a discounted present value of our projections of long term cash flow, it was determined the carrying amount of the goodwill exceeded the implied fair value as of June 30, 2013 by $7,055,364. Accordingly, we reduced the goodwill on our balance sheet to nil, and recorded the reduction as an impairment loss on our statement of operations for the year ended June 30, 2013. We recorded no impairment loss during fiscal 2014 as no trigger events were noted.

Impairment loss on intangible assets

In accordance with Accounting Standards Codification (“ASC”) Topic 360-10-5, “Impairment or Disposal of Long-Lived Assets”, we must perform an intangible asset impairment tests when factors indicate impairment. During the year ended June 30, 2013, it was determined that some drug permits and licenses would not provide future benefits to the Company. Accordingly, an impairment provision of $616,947 was provided by the Company. During the year ended June 30, 2014, our intangible assets were mainly comprised of the registered document of approval of ZhongTongAn and XiaoPiLing, that are main productions and have positive profits, No further impairment loss was provided during the year ended June 30, 2014.

Loss from Operations

We recorded a loss from operations of $3,334,879 for the year ended June 30, 2014, compared with loss from operations of $6,549,135 in fiscal 2013. As noted above, the primary reasons for the decrease in net loss were the impairment losses recorded in fiscal 2013 as well as the increased research and development and selling expenses recorded in that year.

Other income (expense)

Two non-operating factors contributed to our net loss for the past two fiscal years:

·	Interest expense was $5,194,786 for fiscal year 2014, an increase of 73.9% compared to interest expense of $2,986,568 incurred in fiscal year 2013. The increase in interest expense is mainly due to the increase in average loan balances and higher interest rates for the long-term loans. The company obtained a one year RMB30 million (approximately $4.9 million) loan from Postal Savings Bank of China in July, 2014 which replaced higher interest loans and will help reduce our interest expense going forward.

·	During the year ended June 30, 2014, we recorded an equity in loss of joint venture of $104,715, which represented our 51% (50% control right) beneficial interest in the loss incurred in that period by our joint venture with Johnson Matthey Plc. The equity in loss of joint venture was $114,744 during fiscal 2013. The losses related to the joint venture with Johnson Mathey Plc will continue at least until the joint venture commences revenue-producing operations.

Income taxes

Because Hebei Aoxing recorded a net loss from operations in both fiscal 2014 and fiscal 2013, we recorded no income tax for either year.

Net loss

The Company realized a net loss of $8,634,380 for the fiscal year ended June 30, 2014. However, because the Company owns only 95% of Hebei Aoxing, 5% of that company’s net loss was attributed to the minority interest. Therefore the net loss for the fiscal year attributable to the shareholders of Aoxing Pharmaceutical was $8,215,683. In comparison, during the fiscal year ended June 30, 2013, the Company’s net loss was $17,290,618 and, after deducting loss attributable to the 5% minority interest in Hebei Aoxing, net loss attributable to shareholders of Aoxing Pharmaceutical was $16,804,230.

Liquidity and Capital Resources

Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations and otherwise operate on an ongoing basis.

Our cash balance as of June 30, 2014 was $2,329,660, compared to $4,007,823 as of June 30, 2013. The decrease occurred because the $6,313,082 increase in our borrowings during the year was inadequate to offset our net cash used in operating activities of $7,729,977 and capital expenditures of $268,922.

Operations during the year ended June 30, 2014 used $7,729,977 in cash, as compared to $8,317,173 used for the year ended June 30, 2013. The primary reason for the decreased use of cash was the decrease in selling expenses discussed above, offset by the increase in accounts receivable during the year.

Our investing activities in fiscal 2014 consisted of $268,922 in cash used to purchase additional property and equipment, due to the remodeling of our facilities to achieve GMP certification.

Our financing activities provided $6,313,082 in cash during the year ended June 30, 2014. During fiscal 2014, the Company entered into financing agreements with China Merchant Bank and certain unrelated parties to obtain funding for operation purpose.

The loss that we incurred during fiscal 2014, coupled with the conversion of debts from long-term into short-tem, caused our working capital deficit to increase during fiscal 2014. Our working capital deficit on June 30, 2014 was $23,294,188, which was $13,482,876 more than the working capital deficit of $9,811,311 on June 30, 2013. The primary reason for our working capital deficit is the fact that there are $25.9 million short-term debts owed to banks, related and unrelated parties. In accordance with banking customs in China, our bank loans have, throughout our history, been written on a short-term basis. Our business has survived through the years because our banks have proven willing to renew or replace our short-term debt. That willingness continues since the end of the 2014 fiscal year, as we have obtained a loan from the Postal Savings Bank of China in July 2014.

As a result of several debts refinancing during fiscal 2014, our debt service obligations on June 30, 2014 were as following:

Contractual Obligations	Total		Less than 1 Year		1-2 Years		2-3 Years		3-4 Years		4-5 Years		After 5 Years

Banks	$	13,414,099	$	13,414,099		-		-		-		-		-
Affiliates		7,231,051		1,084,248	$	-		6,146,803		-		-		-
Short term borrowings		11,398,464		11,398,464		-		-		-		-		-
Other Lenders		1,345,810		-		-		1,354,810
TOTAL	$	33,398,424	$	25,896,811	$	-		7,501,613		-		-		-

For the next 12 months, management anticipates cash use from operations will decrease, because of increased product sales and efforts to preserve cash such as suspending non-essential research and development projects. 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.

In July 2014, six of our creditors, including our CEO, agreed to convert $4.6 million debt to shares at a conversion rate of $0.39 per share. That conversion has alleviated that portion of our debt obligations and will reduce our interest expense. The Board also directed our officers to apply for additional bank loan of $4.9 million to supplement the cash flow.

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 are also exploring potential strategic partnerships, which could provide a capital infusion to the Company.

We have incurred recurring operating losses and had an accumulated deficit of $63.8 million as of June 30, 2014. In addition, we had negative working capital of $23.3 million as of June 30, 2014. Our history of operating losses and lack of binding financing commitments raise substantial doubt as to our ability to continue as a going concern. Our management anticipates that we will generate sufficient cash flows to fund our operations for the next twelve months by increasing revenues and profit margins of our core product sales and continued support from our lenders. If future sales do not meet our forecasts, we may be required to fund operations by raising additional capital or seek external financing. As such, our ability to achieve our business plan is primarily dependent upon our ability to achieve our planned level of operations and/or obtain sufficient additional capital at acceptable costs. With respect to these objectives, we cannot provide any assurance that we will succeed. If events or circumstances occur such that we are unable to or do not meet our operating plan as expected and/or do not secure additional financing, we may be required to significantly curtail or cease operations.

Application of Critical Accounting Policies

In preparing our financial statements, we are required to formulate working policies regarding valuation of our assets and liabilities and to develop estimates of those values. In our preparation of the financial statements for fiscal year 2014, there were three estimates made which were (a) subject to a high degree of uncertainty and (b) material to our results. These were:

·	The determination, described in Note 2 to our Consolidated Financial Statements, to record an allowance for doubtful accounts in the amount of $1,562,109. The determination was based on our review of the credit history of the relevant customers and the results of our collection efforts.

·	The determination, described in Note 2 to our Consolidated Financial Statements, to record an allowance for obsolete inventory in the amount of $471,487. The determination was based on stating at the lower of cost and net realizable value.

·	Our determination, described in Note 16 to the financial statements, to record a 100% allowance for our deferred tax assets. The determination to record the allowance with respect to our U.S. deferred tax assets was based on the uncertainty that we would realize income taxable in the U.S. in future years. The determination with respect to our China deferred tax assets was based on the uncertainty that it is more likely than not that we would realize sufficient income within the requisite time period to utilize the deferred asset.

We made no material changes to our critical accounting policies in connection with the preparation of financial statements for fiscal year 2014.

Impact of Accounting Pronouncements

New accounting rules and disclosure requirements can significantly impact the comparability of our financial statements. There are no recent accounting pronouncements that have had a material effect on our financial statements. Please refer to Note 2 of our consolidated financial statements included in Item 8 of this Form 10-K.

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 8. Financial Statements and Supplementary Data

Index to the Consolidated Financial Statements

Page

F-1	Report of Independent Registered Public Accounting Firm

F-2	Consolidated Balance Sheets as of June 30, 2014 and 2013

F-3	Consolidated Statements of Operations and Other Comprehensive Loss for the Fiscal Years Ended June 30, 2014 and 2013

F-4	Consolidated Statements of Changes in Stockholders’ Equity for the Fiscal Years Ended June 30, 2014 and 2013

F-5	Consolidated Statements of Cash Flows for the Fiscal Years Ended June 30, 2014 and 2013

F-6 to F-21	Notes to Consolidated Financial Statements.

REPORT OF INDEPENDENT REGISTERED ACCOUNTING FIRM

Board of Directors

Aoxing Pharmaceutical Co., Inc. and Subsidiaries

We have audited the accompanying consolidated balance sheet of Aoxing Pharmaceutical Co., Inc. and Subsidiaries as of June 30, 2014 and 2013 and the related consolidated statements of operations and comprehensive loss, shareholders’ equity, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Aoxing Pharmaceutical Co., Inc. and Subsidiaries at June 30, 2014 and 2013, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the consolidated financial statements, the Company continues to incur losses from operations and has negative cash flow from operations, a working capital deficit that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified with respect to this matter.

/s/ BDO China Shu Lun Pan Certified Public Accountants LLP

Shanghai, People’s Republic of China

September 23, 2014

F - 1

AOXING PHARMACEUTICAL CO., INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

		June 30,			June 30,
		2014			2013
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	2,329,660		$	4,007,823
Accounts receivable, net of allowance for doubtful accounts of $1,562,109 and $663,983, respectively		3,890,550			2,842,703
Inventories, net		2,195,274			2,621,878
Prepaid expenses and other current assets		2,505,129			2,419,790
TOTAL CURRENT ASSETS		10,920,613			11,892,194

LONG-TERM ASSETS:
Property and equipment, net of accumulated depreciation		26,418,842			26,941,778
Other intangible assets, net		546,114			606,643
Investment in joint venture		189,185			292,265
TOTAL LONG-TERM ASSETS		27,154,141			27,840,686
TOTAL ASSETS	$	38,074,754		$	39,732,880

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
Short-term borrowings	$	11,398,464		$	3,312,757
Accounts payable		3,883,198			3,412,344
Loan payable – bank		3,247,966			8,467,729
Current portion of loan payable - related parties		1,084,248			2,101,998
Current portion of long-term bank loan		10,166,133			-
Accrued expenses and other current liabilities		4,434,790			4,408,676
TOTAL CURRENT LIABILITIES		34,214,799			21,703,504

LONG-TERM LIABILITIES:
Loan payable - related parties		6,146,803			1,561,013
- others		1,354,810			1,403,591
Long-term bank loans		-			10,116,027
Deferred income		367,020			365,211
TOTAL LONG-TERM LIABILITIES		7,868,633			13,445,842

Common stock, par value $0.001, 100,000,000 shares authorized, 49,874,822 and 49,814,822 shares issued and outstanding on June 30, 2014 and June 30, 2013		49,875			49,815
Additional paid in capital		58,315,446			58,296,906
Accumulated deficit		(63,849,681	)		(55,633,998	)
Accumulated other comprehensive income		2,979,235			2,956,846
TOTAL SHAREHOLDERS' EQUITY OF THE COMPANY		(2,505,125	)		5,669,569

NONCONTROLLING INTEREST IN SUBSIDIARIES		(1,503,553	)		(1,086,035	)
TOTAL EQUITY		(4,008,678	)		4,583,534

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	38,074,754		$	39,732,880

See accompanying notes to the consolidated financial statements

F - 2

AOXING PHARMACEUTICAL CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE LOSS

	For the year ended June 30
	2014			2013

SALES	$	12,739,371		$	10,829,839
COST OF SALES		6,925,697			4,562,096
GROSS PROFIT		5,813,674			6,267,743
OPERATING EXPENSES:
Research and development		569,699			1,480,217
General and administrative		3,613,657			3,303,824
Selling expenses		4,350,442			7,447,141
Depreciation and amortization		614,755			585,695
Impairment loss on intangible assets		-			616,947
Impairment loss on goodwill		-			7,055,364
TOTAL OPERATING EXPENSES		9,148,553			20,489,188
LOSS FROM OPERATIONS		(3,334,879	)		(14,221,445	)
OTHER INCOME (EXPENSE):
Interest expense, net of interest income		(5,194,786	)		(2,986,568	)
Equity in loss of joint venture, net		(104,715	)		(114,744	)
Subsidy income		-			32,139
TOTAL OTHER EXPENSE		(5,299,501	)		(3,069,173	)
LOSS BEFORE INCOME TAXES		(8,634,380	)		(17,290,618	)
Income taxes		-			-
NET LOSS		(8,634,380	)		(17,290,618	)

Net loss attributable to non-controlling interest in subsidiaries		(418,697	)		(486,388	)
NET LOSS ATTRIBUTABLE TO SHAREHOLDERS OF THE COMPANY		(8,215,683	)		(16,804,230	)

OTHER COMPREHENSIVE INCOME :
Foreign currency translation adjustment		28,055			314,260

COMPREHENSIVE LOSS		(8,187,628	)		(16,489,970	)
Other comprehensive income attributable to non-controlling interest		1,403			15,713

COMPREHENSIVE LOSS ATTRIBUTABLE TO THE COMPANY	$	(8,189,031	)	$	(16,505,683	)
BASIC AND DILUTED LOSS PER COMMON SHARE	$	(0.16	)	$	(0.34	)
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING		49,856,247			49,749,779

See accompanying notes to the consolidated financial statements

F - 3

CHINA AOXING PHARMACEUTICAL CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

	COMMON STOCK				PREFERRED STOCK				ADDITIONAL PAID-IN CAPITAL		(ACCUMULATED DEFICIT )			ACCUMULATED OTHER COMPREHENSIVE INCOME		TOTAL STOCKOLDERS' EQUITY			NON CONTROLLING INTEREST			TOTAL EQUITY
	SHARES		VALUE		SHARES		VALUE

Balance - June 30, 2012		49,615,013	$	49,615		-		-	$	58,002,239	$	(38,829,768	)	$	2,658,299	$	21,880,385		$	(615,360	)	$	21,265,025
Common stock issued for services		199,809		200						294,667							294,867						294,867
Translation adjustments															298,547		298,547			15,713			314,260
Net loss												(16,804,230	)				(16,804,230	)		(486,388	)		(17,290,618	)
Balance - June 30, 2013		49,814,822	$	49,815		-		-	$	58,296,906	$	(55,633,998	)	$	2,956,846	$	5,669,569		$	(1,086,035	)	$	4,583,534
Common stock issued for services		60,000		60						18,540							18,600						18,600
Translation adjustments															22,389		22,389			1,179			23,568
Net loss												(8,215,683	)				(8,215,683	)		(418,697	)		(8,634,380	)
Balance - June 30, 2014		49,874,822	$	49,875		-		-	$	58,315,446		(63,849,681	)		2,979,235		(2,505,125	)		(1,503,553	)		(4,008,678	)

See accompanying notes to the consolidated financial statements

F - 4

AOXING PHARMACEUTICAL CO., INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the Years Ended June 30
	2014			2013
OPERATING ACTIVITIES:
Net loss	$	(8,215,683	)	$	(16,804,230	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		990,128			1,114,156
Impairment charge on goodwill		-			7,055,364
Impairment charge on intangible assets		-			616,947
Inventory markdown		-			3,979
Provision for doubtful accounts		896,441			75,401
Common stock issued for services		18,600			294,867
Equity in loss of joint venture, net		104,715			114,744
Net loss attributable to non-controlling interests		(418,697	)		(486,388	)
Changes in operating assets and liabilities:
Accounts receivable		(1,932,061	)		(54,665	)
Inventories		440,379			(770,526	)
Prepaid expenses and other current assets		(73,425	)		(1,146,649	)
Accounts payable		454,767			584,457
Accrued expenses and other current liabilities		4,859			725,578
Deferred income		-			359,792
NET CASH USED IN OPERATING ACTIVITIES		(7,729,977	)		(8,317,173	)

INVESTING ACTIVITIES:
Acquisition of property and equipment		(268,922	)		(439,354	)
NET CASH USED IN INVESTING ACTIVITIES		(268,922	)		(439,354	)

FINANCING ACTIVITIES:

Proceeds from bank loans	3,247,966		10,348,012
Payment of bank loans	(8,537,332	)	(796,001	)
Short-term borrowings	8,083,766		-
Other borrowings, net of repayment	(37,606	)	(433,072	)
Loans from/(to) related party	3,556,288		(127,360	)

NET CASH PROVIDED BY FINANCING ACTIVITIES		6,313,082			8,991,579

EFFECT OF EXCHANGE RATE ON CASH		7,654			90,028

(DECREASE)/ INCREASE IN CASH		(1,678,163	)		325,080
CASH – BEGINNING OF PERIOD		4,007,823			3,682,743
CASH – END OF PERIOD	$	2,329,660		$	4,007,823

Supplemental disclosures of cash flow information:
Cash paid for interest	$	4,598,172		$	2,814,747
Cash paid for income taxes	$	-		$	-

See accompanying notes to the consolidated financial statements

F - 5

AOXING PHARMACEUTICAL CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014

1 BUSINESS DESCRIPTION

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 June 30, 2014, the Company had one operating subsidiary: Hebei Aoxing Pharmaceutical Co., Inc. (“Hebei”), which is organized under the laws of the People’s Republic of China (“PRC”). As of June 30, 2014, the Company owned 95% of the issued and outstanding common stock of Hebei.

Since 2002, Hebei 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 completed the acquisition of 100% of the registered capital of Lerentang (“LRT”). LRT was engaged in the manufacture and distribution of Chinese traditional medicines focusing on pain management related therapeutics within China. By 2011 the manufacturing operations of LRT had been completely integrated into Hebei. Currently over 80% of the Company’s revenues derive from one herbal extraction, obtained from the acquisition of LRT, which is used to alleviate oral/dental and bone pain.

Liquidity and Capital Resources

Currently and historically, the Company has managed to operate the business with negative net working capital. The Company’s negative working capital is primarily due to our net loss, which we funded by an increase in short-term bank loans, and the reclassification of $10.1 million in bank debt from long-term to current liabilities.

The Company is able to operate with a negative net working capital because of additional loans from unrelated and related parties. During the year ended June 30, 2014, the Company was able to obtain short-term and long-term loans from unrelated parties and use these funds to repay bank loans. The Company believes operating cash flows turning positive in the near-term, continued support from related parties, and the ability to continue to roll over short-term debt, taken together, provide adequate resources to fund ongoing operations in the foreseeable future. The Company believes that the increased market demand for its main product in the near term and sales from several new products in future years will produce substantial positive cash flow. If the Company’s short-term cash flows decrease significantly and the Company is unable to pay its short-term liabilities, the Company’s business, financial condition and results of operations could be materially affected.

We have incurred recurring operating losses and had an accumulated deficit of $63.8 million as of June 30, 2014. In addition, we had negative working capital of $23.3 million as of June 30, 2014. Our history of operating losses and lack of binding financing commitments raise substantial doubt as to our ability to continue as a going concern. Despite recent negative operating cash flow positions, our management anticipates that we will generate sufficient cash flows to fund our operations for the next twelve months by increasing revenues and profit margins of our core product sales and continued support from our lenders to rollover debt when it becomes due. If future sales do not meet our forecasts, we may be required to fund operations by raising additional capital or seek external financing. As such, our ability to achieve our business plan is primarily dependent upon our ability to grow our planned level of operations and/or obtain sufficient additional capital at acceptable costs. With respect to these objectives, we cannot provide any assurance that we will succeed. If events or circumstances occur such that we are unable to or do not meet our operating plan as expected and/or do not secure additional financing, we may be required to significantly curtail or cease operations.

F - 6

AOXING PHARMACEUTICAL CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014

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 API, 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 is located on the Hebei campus in Xinle City, 200 kilometers southwest of Beijing. On March 10, 2010, the joint venture obtained a 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.

2 SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant inter-company accounts and transactions have been eliminated. These consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. The Company’s functional currency is the Chinese Renminbi (RMB); however, the accompanying consolidated financial statements have been translated and presented in United States Dollars (USD).

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, impairment assessment of goodwill, 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.

Cash and cash equivalents

The Company maintains cash and cash equivalents with financial institutions in the PRC which are not insured or otherwise protected. Should any of these institutions holding the Company’s cash become insolvent, or if the Company is unable to withdraw funds for any reason, the Company could lose the cash on deposit with that institution. Cash and cash equivalents include cash on hand and cash in time deposits, certificates of deposit and all highly liquid debt instruments with original maturities of three months or less.

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AOXING PHARMACEUTICAL CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014

Accounts Receivable

Accounts receivables represent customer accounts receivables. The allowance for doubtful accounts is based on a combination of current sales, historical charge-offs and specific accounts identified as high risk. Uncollectible accounts receivable are charged against the allowance for doubtful accounts when all reasonable efforts to collect the amounts due have been exhausted. Such allowances, if any, would be recorded in the period the impairment is identified. The balances of allowance for doubtful accounts are $1,562,109 and $663,983 at June 30, 2014 and 2013 respectively. The Company recorded bad debt expense of $896,441 and $75,401 for the years ended June 30, 2014 and 2013, respectively.

Inventories, net

Inventories are stated at the lower of cost, determined using the weighted average cost method, and net realizable value. Net realizable value is the estimated selling price, in the ordinary course of business, less estimated costs to complete and dispose. The Company wrote-off $83,454 and $21,598 of obsolete inventory during the years ended June 30, 2014 and June 30, 2013, respectively. For the years ended June 30, 2014 and 2013, the Company’s allowance for obsolete inventory is $471,487 and $386,120, respectively.

Advances to Suppliers

The Company makes advances to certain vendors for purchase of its material and equipment. The advances to suppliers are interest free.

Property and equipment

Property and equipment are recorded at cost. Depreciation is provided in amounts sufficient to amortize the cost of the related assets over their useful lives using the straight line method for financial reporting purposes.

Construction in progress is stated at cost, which includes the cost of construction, acquisition of plant and equipment and other direct costs attributable to the construction. Construction in progress is not depreciated until such time as the assets are completed and put into operational use. No capitalized interest is incurred during the period of construction.

All land in the PRC is owned by the PRC government. The government in the PRC, according to the relevant PRC law, may sell the right to use the land for a specified period of time. Thus, all of the Company’s land purchases in the PRC are considered to be leasehold land and are stated at cost less accumulated amortization and any recognized impairment loss. Amortization is provided over the term of the land use right agreements on a straight-line basis, which is 50 years and they will expire in 2053.

Maintenance, repairs and minor renewals are charged to expense when incurred. Replacements and major renewals are capitalized.

Estimated useful lives are as follows:

Right to use land	50 years
Building and building improvements	35 years
Machinery and equipment	10 years
Furniture and office equipment	5 years
Automobiles	8 years

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AOXING PHARMACEUTICAL CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014

Goodwill and intangible assets

Goodwill was the result of the acquisition of LRT and 35% of Hebei Aoxing in 2008. Goodwill represents the cost of the acquired business in excess of the fair value of identifiable tangible and intangible net assets purchased. For the year ended June 30, 2013, the Company engaged an independent valuation expert to assist in determining the fair value of the net assets of its Hebei reporting unit, which includes identifiable intangible assets, property and equipment and goodwill. The Company recorded an impairment of $7,055,364 for the year ended June 30, 2013. The remaining goodwill balance as of June 30, 2014 is nil.

Definite lived intangible assets include drug permits recorded at cost less accumulated amortization and any recognized impairment loss. The drug permits were acquired in 2008 when the Company purchased LRT and are amortized over their estimated useful life of 15 years on a straight-line basis. An intangible asset that is subject to amortization shall be reviewed for impairment in accordance with the Impairment or Disposal of Long-Lived Assets ASC 360-10. In accordance with Accounting Standards Codification (“ASC”) Topic 360-10-5, “Impairment or Disposal of Long-Lived Assets”, the Company performs an intangible asset impairment test for its definite-lived intangibles whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. During the year ended June 30, 2013, it was determined some drug permits and licenses will not provide future benefits to the Company. Accordingly, an impairment provision of $616,947 was provided by the Company. The remaining intangible assets balance as of June 30, 2014 is $546,114.

Revenue Recognition

In accordance with the ASC Topic 605, “Revenue Recognition”, the Company recognizes revenue when persuasive evidence of an arrangement exists, transfer of title has occurred or services have been rendered, the selling price is fixed or determinable and collectability is reasonably assured. Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as advances from customers. The agreements with customers do not contain any rights of return other than for goods that fail to meet the specifications provided by the customer or other quality problems. The Company has not experienced any significant returns from customers and accordingly, in management’s opinion, no reserve for returns is provided.

The Company derives revenues from the sale of pharmaceutical products. The Company recognizes its revenues net of value-added taxes (“VAT”). The Company is subject to VAT which is levied on the majority of the products at the rate 17% on the invoiced value of sales. Output VAT is borne by customers in addition to the invoiced value of sales and input VAT is borne by the Company in addition to the invoiced value of purchases to the extent not refunded for export sales.

The Company recognizes revenue from the sale of products upon customers’ receipt of the shipment at the customers’ facility or upon when the transfer of title and risk of loss has transferred to the customer. The Company has distributor arrangements with certain parties for sale of its pharmaceutical products. The distributor agreements do not provide chargeback, price protection, or stock rotation rights.

Research and Development

Research and development is charged to expense as incurred.

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AOXING PHARMACEUTICAL CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014

Share-Based Compensation

Share-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the requisite service period. The Company’s policy is to recognize compensation cost for awards with only service conditions and a graded vesting schedule on a straight-line basis over the requisite service period for the entire award.

Impairment of long lived assets

In accordance with the provisions of ASC Topic 360-10-5, “Impairment or Disposal of Long-Lived Assets,” all long-lived assets such as property, plant and equipment, land use rights and intangible assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount 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.

Income taxes

The Company uses the asset and liability method of accounting for income taxes in accordance with ASC Topic 740, “Income Taxes.” Under this method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current year and (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if based on the weight of the available positive and negative evidence, it is more likely than not some portion or all of the deferred tax assets will not be realized.

ASC Topic 740-10-30 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740-10-40 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. We have no material uncertain tax positions for any of the reporting periods presented.

Non-controlling interest

Non-controlling interests in our subsidiaries are recorded in accordance with the provisions of ASC Topic 810, “Consolidation”, and are reported as a component of our equity, separate from the parent’s equity. Purchase or sale of equity interests that do not result in a change of control are accounted for as equity transactions. Results of operations attributable to the non-controlling interests are included in our consolidated results of operations and, upon loss of control, the interest sold, as well as interest retained, If any, will be reported at fair value with any gain or loss recognized in earnings.

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AOXING PHARMACEUTICAL CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014

Under ASC 810-10-45-21, losses attributable to the parent and the non-controlling interest in a subsidiary may exceed their interests in the subsidiary’s equity. The excess, and any further losses attributable to the parent and the non-controlling interest, shall be attributed to those interests. That is, the non-controlling interest shall continue to be attributed its share of losses even if that attribution results in a deficit non-controlling interest balance

Currency translation

Since the Company operates primarily in the PRC, the Company’s functional currency is the Chinese Yuan (”RMB”). Revenue and expense accounts are translated at the average rates during the period, and balance sheet items are translated at year-end rates. Translation adjustments arising from the use of differing exchange rates from period to period are included as a separate component of shareholders’ equity. Gains and losses from foreign currency transactions are recognized in current operations.

	2014		2013

Year ended RMB: US$ exchange rate		6.1577		6.1882

Average yearly RMB: US$ exchange rate		6.1467		6.2814

The RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions. No representation is made that the RMB amounts could have been, or could be, converted into USD at the rates used in translation.

Fair value of financial instruments

The Company has adopted ASC Topic 820, ”Fair Value Measurement and Disclosure”, which defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. It does not require any new fair value measurements, but provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of the information. It establishes a three-level valuation hierarchy of valuation techniques based on observable and unobservable inputs, which may be used to measure fair value and include the following:

Level 1 - Quoted prices in active markets for identical assets or liabilities.

Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Classification within the hierarchy is determined based on the lowest level of input that is significant to the fair value measurement.

The carrying amount of cash and cash equivalents, accounts receivable, inventories, prepaid expenses and other current assets, accounts payable and accrued expenses are reasonable estimates of their fair value because of the short term nature of these items.

As of June 30, 2014, the Company does not have any assets or liabilities that are measured on a recurring basis at fair value. The Company’s short-term borrowings, loans payable, related party notes payable and unrelated party notes payable that are considered Level 2 financial instruments measured at fair value on a non-recurring basis as of June 30, 2014.

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AOXING PHARMACEUTICAL CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014

As of June 30, 2014, the Company does not have any level 3 financial instruments. The Company uses the discounted cash flow approach when determining fair values of its non-recurring fair value measurements when required. We determine the fair value of our goodwill for purposes of comparing to the carrying value on at least an annual basis. Our goodwill would be adjusted to fair value if it is deemed to be impaired. Certain unobservable units for these assets are offered quotes, lack of marketability, long-term revenue growth rates and discounts rates. For Level 3 measurements, significant increases or decreases in long-term growth rates or discount rates in isolation or in combination could result in a significantly lower or higher fair value measurement. In general, a change in the long-term growth rate of our Hebei Aoxing business unit could negatively affect the fair value of our goodwill.

Comprehensive income

ASC Topic 220, “Comprehensive Income”, establishes standards for reporting and display of comprehensive income or loss, its components and accumulated balances. Comprehensive income or loss as defined includes all changes in equity during a period from non-owner sources. Accumulated other comprehensive income or loss, as presented in the accompanying statement of changes in shareholders’ equity, consists of changes in unrealized gains and losses on foreign currency translation. This comprehensive income is not included in the computation of income tax expense or benefit

Earnings per share

Basic earnings per common share are computed on the basis of the weighted average number of common shares outstanding during the period. Diluted earnings per share are computed on the basis of the weighted average number of common shares and dilutive securities (such as warrants and convertible preferred stock) outstanding. Dilutive securities having an anti-dilutive effect on diluted earnings per share are excluded from the calculation.

Statement of cash flows

In accordance with the provisions of Accounting Standards Codification on “Statement of Cash Flows,” cash flows from the Company’s operations are calculated based upon the local currencies. As a result, amounts related to assets and liabilities reported on the statement of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheet.

Segment reporting

ASC Topic 280, “Segment Reporting” establishes standards for reporting information about operating segments on a basis consistent with the Company’s internal organization structure as well as information about geographical areas, business segments and major customers in financial statements. For the year ended June 30, 2014, ASC 280 has an immaterial effect on the Company’s financial statements, as the Company consists of one reportable business segment. All revenue is from customers in the PRC. The majority of the Company’s assets are located in the PRC.

Recent accounting pronouncements

The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and does not believe the future adoption of any such pronouncements may be expected to cause a material impact on its financial condition or the results of its operations.

In July 2013, the Financial Accounting Standard Board (“FASB”) issued Accounting Standards Update or ASU No. 2013-11, "Income Taxes (Topic740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carry forward, a Similar Tax Loss, or a Tax Credit Carry forward Exists (a consensus of the FASB Emerging Issues Task Force)." This ASU states that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carry forward, a similar tax loss, or a tax credit carry forward, except in certain situations. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. Early adoption and retrospective application are permitted. The amendments should be applied prospectively to all unrecognized tax benefits that exist at the effective date. The adoption of this amendment is not expected to have a material impact on the Company’s consolidated financial statements.

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AOXING PHARMACEUTICAL CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014

In April 2014, the FASB issued ASU No. 2014-08, "Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity" to reduce diversity in practice for reporting discontinued operations. Under the previous guidance, any component of an entity that was a reportable segment, an operating segment, a reporting unit, a subsidiary, or an asset group was eligible for discontinued operations presentation. The revised guidance only allows disposals of components of an entity that represent a strategic shift (e.g., disposal of a major geographical area, a major line of business, a major equity method investment, or other major parts of an entity) and that have a major effect on a reporting entity's operations and financial results to be reported as discontinued operations. The revised guidance also requires expanded disclosure in the financial statements for discontinued operations as well as for disposals of significant components of an entity that do not qualify for discontinued operations presentation. The updated guidance is effective for periods beginning after December 15, 2014. The Company currently does not have operations that are reported as discontinued operations and does not expect the adoption of this guidance to have a material effect the Company’s financial position, results of operations, or cash flows.

3 GOING CONCERN

The Company incurred a net loss of $8,634,380 and had $7,729,977 negative cash flow from operations during the year ended June 30, 2014. As of June 30, 2014, the Company’s current liabilities exceeded its current assets by $23,294,186. The Company had cash and cash equivalents of $2,329,660 as of June 30, 2014. The Company’s ability to continue as a going concern is dependent on many events outside of its direct control, including, among other things, the amount of working capital that the Company has available. The Company’s inability to generate cash flows from operations to meet its obligations and the uncertainty of raising the funds required for operations on reasonable terms, among other factors, raises substantial doubt as to the Company’s ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Management of the Company believes that the Company's large negative working capital will improve gradually during fiscal year 2015. Management expects the improvement to come from conversion of debt into equity, equity fund raising and improved operating results. Management anticipates that these improvements will enable the Company to sustain continuing high interest expenses and fund on-going operations.

The management of the Company has taken a number of actions and will continue to address this situation in order to restore the Company to a sound financial position with an appropriate business strategy going forward. During the year ended June 30, 2014, the Company obtained an extension of the short term borrowing of $3.2 million from Shijiazhuang Construction Investment Corporation for another 12 months. The loan was originally due on November 3, 2013 and the new due date is November 11, 2014. The Company further obtained a $3.2 million bank loan from China Merchant Bank during the year ended June 30, 2014. In addition, the Company terminated the advertising contracts with five television stations at the end of September 2013 in order to reduce costs.

In July 2014, six creditors agreed to convert $4.6 million in debt to shares at a conversion rate of $0.39 per share. At the same time, the Board of Directors instructed the officers to apply for additional loan of $4.9 million from bank to supplement the cash flow. In addition, the Company is reviewing possible adjustments to the sales team and marketing policies to make the sales profitable in a faster manner.

Considering that revenue for the year ended June 30, 2014 was higher than revenue during the prior year, management believes operating cash flows will turn positive in the near-term as a result of its new marketing campaign and increased sales force. Management believes that the increased market demand for its main product in the near term and sales from several new products that the Company is currently advertising will be sufficient to offset the increased selling expenses and generate substantial positive operating cash flows. Management also believes that the Company will have continued support from related parties, and will have the ability to continue to roll over short-term debt. Lastly, the Company also started the process of securing additional funds and adopted various cost-saving strategies.

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AOXING PHARMACEUTICAL CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014

4 INVENTORIES, NET

Inventories consist of the following:

	June 30,
	2014		2013

Work in process	$	642,842	$	1,041,267
Raw materials		669,880		509,209
Finished goods		882,552		1,071,402
	$	2,195,274	$	2,621,878

The allowance for obsolete inventory as of June 30, 2014 and 2013 was $471,487 and $386,120, respectively.

5 PROPERTY AND EQUIPMENT, NET

Property, plant and equipment, net, consisted of the following:

	June 30,
	2014		2013

Right to use land	$	8,122,480	$	8,082,447
Building and building improvements		19,297,882		13,514,738
Machinery and equipment		3,926,297		3,763,566
Furniture and office equipment		621,988		596,306
Automobiles		567,297		624,012
Construction in progress		266,260		5,792,345
		32,802,204		32,373,414
Accumulated depreciation and amortization		6,383,362		5,431,636
	$	26,418,842	$	26,941,778

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AOXING PHARMACEUTICAL CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014

Depreciation expense for the years ended June 30, 2014 and 2013 were $951,726 and $1,015,760, respectively.

6 EQUITY-METHOD INVESTMENT IN JOINT VENTURE

The Company accounts for its investment in API (see Note 1) under the equity method of accounting.

Summarized unaudited financial information for our investment in API, assuming a 100% ownership interest, is as follows:

	June 30,
	2014			2013

Current assets	$	23,144		$	8,964
Noncurrent assets		795,273			844,268
Current liabilities		506,354			338,761
Noncurrent liabilities		-			-
Equity		312,063			514,471
Revenues
General and administrative expenses		(205,323	)		(224,989	)
Net loss	$	(205,323	)	$	(224,989	)

The Company recorded a loss on investment of $104,715 and $114,744 for the years ended June 30, 2014 and 2013 respectively for its 51% (50% control right) share of API.

7 SHORT-TERM BORROWING

Short-term borrowing consists of the following:

	June 30,
	2014			2013

Shijiazhuang Finance Bureau (a)		$	81,199		$	80,799
Shijiazhuang Construction Investment Group Co., Ltd (b)			3,247,966			3,231,958
Hebei Chuangyu Investment Group Co., Ltd (c)			1,948,780			-
Hebei Hengrui Sunshine Pharmacy Co., Ltd (d)			3,247,966			-
Mr. Liu Shujun (e)			260,519			-
Mr. Li Hui (f)			538,208			-
Shijiazhuang Red Property Management Co., Ltd (g)			2,073,826			-
Total		$	11,398,464		$	3,312,757

(a) A non-interest bearing note payable to Shijiazhuang Finance Bureau, an agency of a local government, due on demand.

(b) A one-year term loan from Shijiazhuang Construction Investment Group, disbursed through China Construction Bank. The note bears an annual interest rate of 15% and was due on August 3, 2013, at which time it was rolled-over for 3 months until November 3, 2013 and further extended to November 11, 2014. The note was secured by certain registered trademarks and renewal certificates relating to Aoxing’s Zhongtongan capsule.

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AOXING PHARMACEUTICAL CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014

(c) A four months term loan from Hebei Chuangyu Investment Group Co., Ltd. The note bears an annual interest rate of 15% and was due on November 22, 2014.

(d) A one-year term loan from Hebei Hengrui Sunshine Pharmacy Co., Ltd. The note bears an annual interest rate of 15% and was due on April 17, 2015.

(e) A one-year term loan from Mr. Liu Shujun. The note bears an annual interest rate of 15% and was due on May 21, 2015.

(f) On December 21, 2012, the Company obtained RMB2,000,000 (approximately $324,797) term loan from Mr. Li Hui. The note bears an annual interest rate of 27.6% and was due on December 31, 2014. On March 1, 2013, the Company further obtained RMB1,314,120 (approximately $213,411) term loan from Mr. Li Hui. The note bears an annual interest rate of 20% and was due on February 28, 2015.

(g) A one-year term loan from Shijiazhuang Red Property Management Co., Ltd. The note bears an annual interest rate of 15% and was due on April 17, 2015.

8 LOAN PAYABLE – BANK

Loan payable – bank consist of the following loans collateralized by assets of the company:

	June 30,
	2014		2013

Bank Note in the amount of 30 million RMB with Bank of Communications of China bearing an annual floating rate of 7.872%, set to be 20% higher than the interest rate of the China People Bank rate, initially made on April 29, 2011 and renewed again on April 18, 2013 for one year maturing on April 17, 2014	$	-	$	4,847,936

Bank Note in the amount of 20 million RMB with Postal Savings Bank bearing an 7.8%interest per annum, made on June 18, 2013 for one year maturing on June 17, 2014		-		3,231,958

Bank Note in the amount of 20 million RMB with China Merchant Bank bearing an annual floating rate of 7.8%, initially made on December 27, 2013 for one year maturing on December 26, 2014		3,247,966		-

Bank Note in the amount of 42.6 million RMB with Beijing International Trust Co., Ltd bearing an 18.0% interest per annum, made on September 24, 2012 for two year maturing on September 23, 2014		-		387,835

	$	3,247,966	$	8,467,729

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AOXING PHARMACEUTICAL CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014

9 LOAN PAYABLE – OTHER

Loan payable – other consist of loans from unrelated third-parties, bearing interest at an average rate of 17.57% and 17.9% as of June 30, 2014 and 2013, respectively. Loans will mature as following:

	June 30,
	2014		2013

Within one year	$	-	$	-
1 – 2 years		-		1,403,591
2 – 3 years		1,354,810		-
Total		1,354,810		1,403,591
Less current portion		-		-
	$	1,354,810	$	1,403,591

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 13.94% and 15.88% per annum as of June 30, 2014 and 2013, respectively. Loans will mature as follows:

	June 30,
	2014			2013

Within one year	$	1,084,248		$	2,101,998
1 – 2 years		-			1,561,013
2 – 3 years		6,146,803			-
Total		7,231,051			3,663,011
Less current portion		(1,084,248	)		(2,101,998)
	$	6,146,803		$	1,561,013

11 LONG TERM BANK LOAN

On September 24, 2012, the Company entered into a loan agreement with Beijing International Trust Co., Ltd and obtained a loan of RMB45 million (approximately $7.3 million) with a term of two years. This loan requires interest only payments every quarter on the 20th of March, June, September and December. This loan bears an 18.0% interest per annum. The loan matures on September 23, 2014 and the Company must repay 15%, 15% and 50% of the original loan balance 20 days, 10 days and 5 days, respectively, before the maturity date. The loan also requires two initial repayments of RMB1.2 million (approximately $0.4 million) each on July 20, 2013 and December 20, 2013. The loan is classified as current portion of long-term bank loan in the Balance Sheet.

On December 20, 2012, the Company obtained an additional loan of RMB20 million (approximately $3.2 million) from Beijing International Trust Co., Ltd with a 16.5% interest per annum that will mature on September 21, 2014. Both loans interest payments are due quarterly on the 21thof March, June, September and December. The loan is classified as current portion of long-term bank loan in the Balance Sheet.

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AOXING PHARMACEUTICAL CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014

12 DEFERRED INCOME

The balance of deferred income represents government grants related to the Company's construction in progress ("CIP"). It will be recognized in subsidy income on a systematic basis (straight-line method) over the useful life of the fixed asset transferred from CIP which is a project to reform and improve the production line of the Zhongtongan. As of June 30, 2014, the CIP did not meet the condition of usage that is a prerequisite for reclassification to property and equipment. See Note 5.

13 ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and taxes consist of the following:

	June 30,
	2014		2013

Accrued salaries and benefits	$	817,306	$	867,961
Accrued interest		1,294,934		698,320
Accrued taxes		418,485		255,275
Deposit payable		605,130		429,610
Due to employee		46,746		46,516
Advance from customers		733,144		516,183
Other accounts payable		286,376		711,486
Other accrued expenses and current liabilities		232,669		883,325
	$	4,434,790	$	4,408,676

14 STOCK OPTIONS

On February 1, 2011 and April 2, 2011, the Company issued 50,000 and 170,000, a total of 220,000 options to management and employees. These stock compensation grants were valued at $48,057 and $163,362 and the Company recorded $20,024 and $163,362 in compensation expense for the year ended June 30, 2011. The remainder of the value of the grants, $28,033, was recognized as compensation expense during the year ended June 30, 2012.

On February 1, 2012, the Company issued a total of 50,000 options to an employee. This stock compensation grant was valued at $17,771 and the Company recorded $7,405 in compensation expense for the year ended June 30, 2012. Subsequently, this employee terminated his employment with the Company on July 1, 2012 resulting in the cancelation of the options.

The Company has no unrecognized compensation expense as of June 30, 2012 and no further options were issued by the Company during the year ended June 30, 2013 and 2014.

The Company recorded nil stock option compensation expense for year ended June 30, 2014 and 2013.

A summary of option activity as of June 30, 2014 and 2013, and changes during the years then ended is as followings:

F - 18

AOXING PHARMACEUTICAL CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014

						Weighted-avg.		Aggregate
				Weighted-avg.		remaining		intrinsic
	Shares			Exercise Price		Term (yr.)		Value

On June 30, 2012		270,000		$	1.70	3.2		$	0
Granted:		-		$	-	-			-
Exercised:		-			-	-			-
Forfeited:		(138,000	)	-		-		-
On June 30, 2013		132,000		$	2.00	1.1		$	0
Granted:		-		$	-		-	-
Exercised:		-		-		-		-
Forfeited:		-		-		-		-
On June 30, 2014		132,000		$	2.00		0.1	$	0

15 ISSUANCE OF COMMON STOCK

On October 21, 2013, the Company issued 60,000 shares of common stock to three independent director for services rendered. Total value of the compensation is approximately $19,200 based on closing average price of $0.32 during the period of service.

On October 23, 2012, the Company issued 79,809 shares of common stock to an independent director for services rendered. Total value of the compensation is approximately $22,000 based on closing average stock price of $0.28 during the period of service.

On November 7, 2012, the Company issued 120,000 shares of common stock to management related to a separation agreement. Total value of the stock grants is $69,300, based on the stock price of $0.58.

16 AXES

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:

	Year Ended June 30,
	2014			2013

Tax at U.S. Statutory rate	$	(3,022,033	)	$	(6,051,716	)
Tax rate difference between China and U.S.		3,765,170			541,696
Change in Valuation Allowance		(2,416,252)			1,852,280
Net operating loss expired		1,666,605			1,786,650
Stock and option compensation		6,510			50,892
Impairment loss on goodwill		-			1,820,198
Effective tax rate	$	-		$	-

F - 19

AOXING PHARMACEUTICAL CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014

The provisions of income taxes (credit) are summarized as follows:

	Year Ended June 30,
	2014			2013

Current	$			$	-
Deferred - U.S.		(91,156	)		(176,469	)
Deferred – China		2,507,409			(1,532,812	)
Valuation allowance - U.S.		91,156			176,469
Valuation allowance – China		(2,507,409	)		1,532,812
Total	$	-		$	-

The tax effects of temporary differences that give rise to the Company’s net deferred tax asset as of June 30, 2014 and 2013 are as follows:

	Year Ended June 30,
	2014		2013

Net operating loss carryforward - China	$	3,106,728	$	2,930,676
Net operating loss carryforward - US		1,705,262		1,614,106
Allowance for doubtful accounts		(792,888)		427,752
Others		(790,452)		672,369
		3,228,650		5,644,903
Less: valuation allowance- U.S.		(1,705,262)		(1,614,106	)
valuation allowance- China.		(1,523,388)		(4,030,797	)
Deferred tax assets	$	-	$	-

As of June 30, 2014, the Company has a full valuation allowance for its deferred tax asset balance related to China and the US. The Company restated the prior year financial statements to provide a full valuation allowance for deferred tax assets. The Company’s loss carry forwards for the past 5 years are a significant amount of the deferred tax assets and due to certain negative indicators that were present as of June 30, 2014, the Company determined it was appropriate under US GAAP to restate the prior year financial statements and provide a 100% valuation allowance for the deferred tax assets.

For the year ended June 30, 2014 and 2013, the Company did not have any interest and penalties associated with tax positions. As of June 30, 2014 and 2013, the Company did not have any significant unrecognized uncertain tax positions.

17 CONCENTRATIONS

Sales to two major customers were 7% and 4% of total sales for the year ended June 30, 2014. Sales to two major customers were 21% and 11% of total sales for the year ended June 30, 2013.

Sales of one major product represented approximately 92% and 91% of total sales for the year ended June 30, 2014 and 2013, respectively.

Two major customers accounted for nil and 1% of outstanding accounts receivable as of June 30, 2014. Two major customers accounted for 10% and 1% of outstanding accounts receivable as of June 30, 2013.

F - 20

AOXING PHARMACEUTICAL CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014

18 SUBSEQUENT EVENTS

On July 31, 2014 the Company entered into Exchange Agreements with six of its creditors. The Exchange Agreements provide that debts owed by the Company to the six creditors will be satisfied by the issuance of the Company's common stock at an exchange rate of $0.39 per share. On August 28, 2014 the agreement between the Company and the six creditors became effective. As a result, 11,862,278 shares were issued, and there are now 61,737,100 shares of our common stock issued and outstanding. The creditors, debts and number of shares to be issued are as follows:

Creditor	Debt		Shares

Zhenjiang Yue	$	2,842,788		7,289,199
Yumin Yue	$	486,224		1,246,727
Guoan Zhang	$	324,149		831,152
Hui Li	$	534,846		1,371,400
Hua Chen Construction LLC	$	178,282		457,133
Shujun Liu	$	260,000		666,667
TOTAL	$	4,626,289		11,862,278

Zhenjiang Yue is the Company's Chief Executive Officer. Yumin Yue is his daughter. Guoan Zhang is the Company's Acting Chief Financial Officer. The Audit Committee of the Board of Directors reviewed and approved the transactions with these related parties. The Company’s Board of Directors approved all six transactions.

On July 21, 2014, the Company entered into a loan agreement with Postal Savings Bank of China and obtained a loan of RMB30 million (approximately $4.9 million) with a term of one year. This loan bears an annual floating rate of 30% higher than the interest rate of the China People Bank rate.

In accordance with ASC 855 “Subsequent Events”, which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued, we have evaluated all events or transactions that occurred after June 30, 2014 up through the date we issued the consolidated 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.

F - 21

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Not Applicable

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures.

We have established disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), to provide reasonable assurance that information required by Aoxing Pharma in the reports that it files with the Securities and Exchange Commission is recorded, processed, summarized and reported within the time limits specified in the Commission’s rules. “Disclosure controls and procedures” include, without limitation, controls and procedures designed to insure that information Aoxing Pharma is required to disclose in the reports it files with the Commission is accumulated and communicated to our Certifying Officers as appropriate to allow timely decisions regarding required disclosure.

The Company’s management, with the participation of the Chief Executive Officer and the Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this annual report (the “Evaluation Date”). Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the Evaluation Date, such controls and procedures were not effective. The weaknesses in the Company’s controls and procedures consisted of a lack of expertise in identifying and addressing complex accounting issues under U.S. Generally Accepted Accounting Principles among the personnel in the Company’s accounting department.

Changes in Internal Controls.

There have been no changes in our internal control over financial reporting during the fourth quarter of fiscal 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Management’s Report on Internal Control over Financial Reporting.

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934. We have assessed the effectiveness of those internal controls as of June 30, 2014, using the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) Internal Control – Integrated Framework (1992) as a basis for our assessment.

A material weakness in internal controls is a deficiency in internal control, or combination of control deficiencies, that adversely affects the Company’s ability to initiate, authorize, record, process, or report external financial data reliably in accordance with accounting principles generally accepted in the United States of America such that there is more than a remote likelihood that a material misstatement of the Company’s annual or interim financial statements that is more than inconsequential will not be prevented or detected. In the course of making our assessment of the effectiveness of internal controls over financial reporting, we identified a material weakness in our internal control over financial reporting, specifically, a lack of expertise in identifying and addressing complex accounting issues under U.S. Generally Accepted Accounting Principles among the personnel in the Company’s accounting department. Accordingly, management’s assessment is that the Company’s internal controls over financial reporting were not effective as of June 30, 2014.

To remediate the weakness, the Company plans to continue to train our internal accountants in US GAAP and SEC reporting and potentially engage a 3rd party consultant. Although our accounting staff is professional and experienced in accounting requirements and procedures generally accepted by the PRC, management has determined they require additional training for US GAAP and SEC reporting. We plan for the above to be remediated, which we hope will provide for much greater credibility and consistency in the financial statements.

Because we are a smaller reporting company, this Annual Report on Form 10-K does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting.

Item 9B. Other Information

None.

PART III

Item10. Directors, Executive Officers, and Corporate Governance.

The following individuals are the members of Aoxing Pharma’s Board of Directors and/or its executive officers.

Name	Age	Position	Member of the Board Since

Zhenjiang Yue	55	Chairman of the Board, Chief Executive Officer	2006

Min Jun	55	Director	2008

Guozhu Xu	68	Director	2008

Yang Li	34	Director	2012

Zhimin Li	56	Director	2014

Guoan Zhang	44	Acting Chief Financial Officer	--

Guirong Zhou	60	President of Research & Development	--

Board of Directors

Our Board oversees our business affairs and monitors the performance of our management. Each director and executive officer holds office until his successor is duly elected and qualified, he resigns or he is removed in the manner provided by our Bylaws. All officers are appointed and serve at the discretion of the Board. All of our officers devote their full-time attention to our business.

Biographical Information of Directors and Executive Officers

Biographical information with respect to the Company’s current executive officers and directors is provided below.

Zhenjiang Yue. In 2000, after securing the approval of the Hebei Provincial Government, Mr. Yue established the Hebei Aoxing Group. Since 2000, Mr. Yue has been employed as the President and General Manager of Hebei Aoxing Pharmaceutical Co. Ltd. Prior to organizing Hebei Aoxing, Mr. Yue was engaged in senior management of a number of private enterprises, including a carpet factory, a precast metal factory, the Hebei Brewery Plant, and China Aoxing Food & Brewery Co. Ltd (all in the PRC). Mr. Yue’s day to day leadership, as Chief Executive Officer of the Company, provides him with intimate knowledge of our operations.

Jun Min was one of the founders of American Oriental Bioengineering Company, which is the largest shareholder of Aoxing. Mr. Min has served as Vice President and a member of Board of Directors of AOB since 2002. Mr. Min has over 20 years of experience in operations management, and has an extensive knowledge of the consumer and pharmaceutical products industries in China. Mr. Min earned a Bachelor’s Degree with a concentration in Business Management from the Harbin Broadcast & Television University in 1986, and an Executive Master’s in Business Administration degree from Preston University in 2005. Mr. Min brings his extensive experience in operations management in China to the Board and the Company.

Dr. Guozhu Xu has, since 1990, been employed as Director of the China National Drug Dependence Institute at Beijing University, with responsibility for clinical management. Until recently, Dr. Xu served as a Committee Member of the Center for Drug Evaluation at the China State Food and Drug Administration (“SFDA”). In that role, Dr. Xu was the primary investigator for over seventy clinical programs in pain management, representing over 80% of new pain management drugs approved by the SFDA. Dr. Xu is an associate director of China Drug Abuse Prevention magazine and has published over 100 articles regarding drug research and development. Dr Xu received his medical degree from Beijing Medical University in 1970. Dr. Xu brings his technical, industry and operational expertise to the Board.

Yang Li, Mr. Yang Li is a member of the institute of chartered accountants of Canada and a member of the institute of chartered accountants of Ireland.She previously worked for PricewaterhouseCoopers LLP, one of the big four accounting firms. She leaded audit team to provide audit services for many U.S. and Canadian public company. After her return to China, she has assisted a well-known company successfully listed in the U.S. stock exchange market. She also led a team that provided audit and tax services to many state-owned enterprises. Ms. Yang received her master's degree in accounting from University College Dublin of the National University of Ireland. Ms. Li brings to the Board a thorough understanding of U.S. accounting principles and practices, and the knowledge of business gained from her experience as an auditor.

Zhimin Li has been appointed to the board on July 31, 2014 in order that the Company can obtain the benefit of his 24 years of experience in business management. Most recently, Mr. Li has been employed, since 2011, as General Manager of Xingtai Leshen Edible Oil Company. From 2009 to 2011 Mr. Li was employed as Vice General Manager by Shijiazhuang Fuge Pharmaceutical Company. From 1990 until 2009 he served as Chairman and General Manager of the Gaocheng Electric Pole factory. In addition, from 2006 to 2009, Mr. Li also served as Director of the Hebei Hongda Fertilizer Company, and from 2002 to 2012 Mr. Li served as Director of Shijiazhuang Sifang Road and Bridge Company. In 1997 Mr. Li was awarded a junior college degree in business administration by the Hebei Radio & TV University.

Guoan Zhang was appointed Acting Chief Financial Officer in July 2012. Mr Zhang has been the Company’s Senior Vice President of Finance since June 2010. Mr. Zhang has served as the Chief Accounting Officer of the Company since March 2010. Prior to the appointment of Mr. Zhang as the Company’s Chief Accounting Officer Mr. Zhang was the Senior Director of Financial Operation of the Company between January 2009 and February 2010. Mr. Zhang was Vice General Manager of Finance of LRT between 2007 and 2008. Mr. Zhang graduated from Heilongjiang School of Business and he is a Certified Public Accountant in China.

Guirong Zhou was appointed President of Research and Development in July 2012. Prior to that, she was deputy director in our R&D department. Ms. Zhou joined the company in 2011 from Shijiazhuang Pharmaceutical Company, where she worked since 1985 and held various senior positions especially in R&D. Ms. Zhou has been involved in the registration of many new drug certificates and product licenses, including tablet, injection, transfusion, soft capsule, drop pills, lyophilized powder, quick release preparation and control release preparation. Among all the achievements, Ms. Zhou was the project leader in bringing Pentoxifylline Sustained Release Tablets and Acemetacine capsule to market and they are leading products in China. Ms. Zhou is an academic advisor in pharmaceutical engineering at Tianjin University and Hebei University of Science and Technology.

There are no material proceedings to which any director, executive officer or affiliate of the Company, any owner of record or beneficial owner of more than five percent of any class of voting securities of the Company, or any associate of any such director, executive officer, affiliate or security holder is a party adverse to the Company or has a material interest adverse to the Company. There are no family relationships between any of the Company’s executive officers or directors and there are no arrangements or understandings between a director and any other person pursuant to which such person was elected as director.

No director or officer of the Company has, during the last 10 years, been subject to or involved in any legal proceedings described under Item 401(f) of Regulation S-K, been convicted of any criminal proceeding (excluding traffic violations or similar misdemeanors), or been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, United States federal or state securities laws or finding any violations with respect to such laws.

There were no material changes to the procedures by which shareholders may recommend nominees to the Board since the Company’s last disclosure of such policies.

Board Committees

Our Board has three committees: Audit Committee, Compensation Committee, and the Nominating and Governance Committee. The membership and responsibilities of these current committees are summarized below.

Below are the current committee memberships and other information about the Board committees. The membership of each of the standing committees of the Board is comprised solely of independent directors, as described below.

Name	Board of Directors	Audit Committee	Compensation Committee	Nominating and Corporate Governance Committee

Zhenjiang Yue	**
Jun Min	*
Yang Li (1)	*	**	*	*
Guozhu Xu	*	*	**	**
Zhimin Li (2)	*		*	*
Meetings in fiscal 2014	10	4	1	1

*	Denotes membership
**	Denotes chairmanship
(1)	Audit Committee financial expert
(2)	Zhimin Li was appointed to the Board of Directors in July 2014.

Audit Committee

Yang Li currently serves as Chairman of the Audit Committee. The Board has determined that Yang Li is an audit committee financial expert as defined by Item 407(d)(5) of Regulation S-K under the Securities Act and is “independent” as defined under applicable rules and regulations. Guozhu Xu is the other member of the Audit Committee. The Board has determined that each of the members of the Audit Committee satisfies the independence requirements of the NYSE Amex.

The purposes of the Audit Committee are to assist the Board in its general oversight of Aoxing’s financial reporting, internal controls and audit functions. As described in the Audit Committee Charter, the Audit Committee’s primary responsibilities are to oversee on behalf of the Board:

·	the Company’s accounting financial reporting processes and the integrity of its financial statements;
·	the audits of the Company’s financial statements and the appointment, compensation, qualification, independence and performance of the Company’s independent auditors;
·	the Company’s compliance with legal and regulatory requirement; and
·	the performance of the Company’s internal audit function and internal control over financial reporting.

Compensation Committee

Guozhu Xu serves as Chairman of the Compensation Committee. Yang Li and Zhimin Li are the other members of this Committee. The Board has determined that each of the members of the Compensation Committee satisfies the independence requirements of the NYSE Amex. The purpose of the Compensation Committee is to assist the Board in determining the compensation of the Chief Executive Officer and make recommendations to the Board with respect to the compensation of the Chief Financial Officer, other executive officers of the Company and the independent directors. In furtherance of this purpose, the Compensation Committee has the following authority and responsibilities:

·	annually review the Company’s corporate goals and objectives relevant to the CEO’s compensation;
·	evaluate the CEO’s performance in light of such goals and objectives; and, either as a Compensation Committee or, together with the other independent directors (as directed by the Board), determine and approve the CEO’s compensation level based on this evaluation; annually review and make recommendations to the Board with respect to non-CEO executive officer and independent director compensation to assist the Board in making the final determination as to non-CEO executive officer and independent director compensation;
·	establish measurements that will ensure that the Company’s compensation program is effective in attracting and retaining key employees, reinforce business strategies and objectives for enhanced stockholder value, and administer the compensation program in a fair and equitable manner consistent with established policies and guidelines;
·	make recommendations to the Board with respect to the Company’s incentive-compensation plans and equity-based plans that are subject to the Board’s approval;
·	make recommendations to the Board regarding approval, disapproval, modification, or termination of existing or proposed employee benefit plans; approve any stock option award or any other type of award as may be required for complying with any tax, securities, or other regulatory requirement, or otherwise determined to be appropriate or desirable by the Compensation Committee or Board;
·	review and assess the adequacy of this charter annually; review and approve the compensation disclosure and analysis prepared by the Company’s management, as required to be included in the Company’s proxy statement or annual report on Form 10-K filed with the SEC;
·	produce a Compensation Committee report on executive officer compensation as required by the SEC to be included in the Company’s proxy statement or annual report on Form 10-K filed with the SEC.

The CEO of the Company may not be present during voting or deliberations of the Compensation Committee with respect to his compensation. Moreover, the Compensation Committee has the authority to delegate any of its responsibilities to subcommittees as it may deem appropriate in its sole discretion. The Compensation Committee also annually reviews its own performance. The Committee may retain and receive advice, in its sole discretion, from compensation consultants. The Compensation Committee does not currently employ compensation consultants in determining or recommending the amount or form of executive and director compensation. None of the members of our Compensation Committee is one of our officers or employees. None of our executive officers currently serves, or in the past year has served, as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving on our Board or Compensation Committee.

Nominating and Corporate Governance Committee

Guozhu Xu serves as Chairman of the Compensation Committee. Yang Li and Zhimin Li are the other members of this Committee. The Nominating and Corporate Governance Committee has the following responsibilities as set forth in its charter:

·	to review and recommend to the Board with regard to policies for the composition of the Board;
·	to review any director nominee candidates recommended by any director or executive officer of the Company, or by any shareholder if submitted properly;
·	to identify, interview and evaluate director nominee candidates and have sole authority to retain and terminate any search firm to be used to assist the Committee in identifying director candidates and approve the search firm’s fees and other retention terms;
·	to recommend to the Board the slate of director nominees to be presented by the Board;
·	to recommend director nominees to fill vacancies on the Board, and the members of each Board committee;
·	to lead the annual review of Board performance and effectiveness and make recommendations to the Board as appropriate; and to review and recommend corporate governance policies and principles for the Company, including those relating to the structure and operations of the Board and its committees.

Code of Ethics

The Company has adopted a Code of Ethics that applies to its executive officers and directors. A copy of the Code of Ethics was filed as Exhibit 14 to the Current Report on Form 8-K filed on November 30, 2009.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires our officers, directors and persons who own more than 10% of a registered class of our equity securities within the specified time periods to file certain reports of ownership and changes in ownership with the SEC.

Based solely upon a review the Forms 3 and Forms 4 furnished to the Company pursuant to Rule 16a-3 under the Exchange Act during the Company’s most recent fiscal year, it is the Company’s understanding that all such required filings have been made.

Item 11. Executive Compensation

The following table sets forth all compensation paid by Aoxing Pharma and its subsidiaries to Zhenjiang Yue for services as Chief Executive Officer during the years ended June 30, 2014, 2013 and 2012. There were no other executive officers whose total salary and bonus for the fiscal year ended June 30, 2014 exceeded $100,000.

Summary Compensation Table

	Year	Salary			Bonus		Stock Award (6)		Option Award		Other Compensation		Total

Zhenjiang Yue	2014	$	162,689	(1)		-		-		-		-	$	162,689
	2013	$	159,200	(2)		-		-		-		-	$	159,200
	2012	$	157,159	(3)		-		-		-		-	$	157,159

___________________________

(1)

The dollar equivalent of 1,000,000 RMB, based on the exchange rate of 6.1467 RMB per dollar

	(2)	The dollar equivalent of 1,000,000 RMB, based on the exchange rate of 6.2814 RMB per dollar

	(3)	The dollar equivalent of 1,000,000 RMB, based on the exchange rate of 6.3630 RMB per dollar

Employment Contracts, Termination of Employment and Change-in-Control Arrangements

The Company has employment agreements with the following named executive officer. The following is a description of that agreement.

Executive Employment Agreement dated as of January 13, 2010 with Zhenjiang Yue. This agreement provides that Mr. Yue will serve as the Company’s Chief Executive Officer. The Company agreed to pay Mr. Yue an annual salary of 1 million Chinese Yuan (approximately US$158,000). The Company may also pay him a cash bonus, within the discretion of the Board. In addition, subject to the approval of the Board, Mr. Yue is eligible to receive equity based award in the form of restricted common stock, stock option or other securities by the Company from time to time. The term of the agreement ends on January 13, 2014, but it renewed for consecutive one year terms unless affirmatively terminated by either party. The Company can terminate the agreement at any time without cause, but will be liable for six months’ severance pay. The agreement contains a covenant of non-competition by Mr. Yue for one year after termination, unless he is terminated without cause or he terminates for good reason.

Equity Grants in Fiscal 2014

The following tables set forth certain information regarding the stock options acquired by the Company’s Executive Officer during the year ended June 30, 2014 and those options held by him on June 30, 2014.

Option Grants in the Last Fiscal Year

Number of

securities

underlying

Unexercised

options (#)

exercisable

Number of

Securities

Underlying

Unexercised

Options (#)

unexercisable

Option

Exercise

Price ($)

Option

Expiration

Date

Zhenjiang Yue

Compensation of Directors

The members of the Board receive remuneration in cash and/or restricted shares of the common stock for the period of their duties as shown below:

·	No compensation for Zhenjiang Yue or Jun Min
·	RMB 4,000 per month and 20,000 shares of common stock annually for Yang Li
	RMB 4,000 per month and 20,000 shares of common stock annually for Zhimin Li
·	RMB 4,000 per month and 20,000 shares of common stock annually for Guozhu Xu

The following table sets forth all compensation paid or to be paid by the Company, as well as certain other compensation paid or accrued, for each of the directors for the fiscal year ended June 30, 2014. The Board members have the option of receiving fees earned in cash or restricted stock.

Name	Fees Earned or Paid in Cash ($)		Stock Awards ($)		All Other Compensation ($)		Total ($)

Zhenjiang Yue		-		-		-		-
Jun Min		-		-		-		-
Yang Li		7,809		6,200		-		14,009
Zhimin Li		-		-		-		-
Guozhu Xu		7,809		6,200		-		14,009

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Set forth below is information regarding the beneficial ownership of our common stock by:

·	each person known to us that beneficially owns more than 5% of our outstanding shares of common stock;
·	each of our directors;
·	each of our named executive officers; and
·	all of our current directors and executive officers as a group.

There are 61,737,100 shares of our common stock issued and outstanding. Except as otherwise indicated, we believe that the beneficial owners of the common stock listed below have sole voting power and investment power with respect to their shares, subject to community property laws where applicable.

Name of Beneficial Owner	Amount and Nature of Beneficial Ownership(1)			Percent of Class

Zhenjiang Yue		12,161,375	(2)		19.7	%
Jun Min		0	(3)		*
Yang Li		0			--
Guozhu Xu		80,000			*
Zhimin Li		0			--

All directors and officers as a group (7 persons)		13,235,027			21.4	%

American Oriental Bioengineering, Inc.		16,789,203	(4)		27.2	%

___________________

*Less than 1%

(1)	For purposes of determining the amount of securities beneficially owned, share amounts include all Common stock owned outright plus all shares of common stock issuable upon conversion of convertible notes, or the exercise of options or warrants currently exercisable, or exercisable within 60 days of the record date. The Percent of Class is based on the number of shares of the Company’s common stock outstanding as of the record date. Shares of common stock issuable upon conversion of convertible notes, or the exercise of options or warrants currently exercisable, or exercisable within 60 days of the record date, are deemed outstanding for the purpose of computing the percentage ownership of the person holding such options or warrants, but are not deemed outstanding for computing the percentage ownership of any other owners. The address of all persons named in this table is: c/o Aoxing Pharmaceutical Company, Inc., 444 Washington Blvd, Suite 3338, Jersey City, NJ 07302.
(2)	Includes (i) 10,661,375 shares of common stock held by Mr. Yue and (ii) 1,500,000 shares of common stock held of record by Mr. Yue’s spouse, Cuiying Hao.
(3)	Does not include 16,789,203 shares owned of record by American Oriental Bioengineering, Inc., of which Mr. Min is Vice President and a member of the Board of Directors.
(4)	Represents shares of common stock held by American Oriental Bioengineering, Inc. The address for AOB is c/o Aoxing Pharmaceutical Company, 15 Exchange Place Suite 500, Jersey City, NJ 07302.

Item 13. Certain Relationships and Related Transactions, and Director Independence

Certain Relationships and Related Transactions

During the 2014 fiscal year, we were not involved in any related party transactions subject to Item 404 of Regulation S-K. Pursuant to Board policies, our executive officers and directors, and principal shareholders, including their immediate family members and affiliates, are not permitted to enter into a related party transaction without the prior consent of the Board. Any request for such related party transaction with an executive officer, director, principal stockholder, or any of such persons’ immediate family members or affiliates, in which the amount involved exceeds $120,000 must first be presented to the Audit Committee and the Board for review, consideration and approval. All of our directors, executive officers and employees are required to report to the Board any such related party transaction. In approving or rejecting the proposed agreement, the Board will consider the relevant facts and circumstances available and deemed relevant to the Board which will approve only those agreements that, in light of known circumstances, are in, or are not inconsistent with, our best interests, as the Board determines in the good faith exercise of its discretion.

Director Independence

Our Board is subject to the independence requirements of the NYSE MKT LLC. Pursuant to the requirements, the Board reviews director independence. During this review, the Board considers transactions and relationships between each director or any member of his immediate family and Aoxing and its affiliates, including those transactions that are contemplated under Item 404(a) of Regulation S-K. The purpose of this review was to determine whether any such relationships or transactions existed that were inconsistent with a determination that the director is independent. Based on this review, the Board has determined that all but two of our directors are “independent” as defined by the listing standards of the NYSE MKTLLC Company Guide (Mr. Zhenjiang Yue also serves as our Chief Executive Officer, and Mr. Jun Min is not considered independent, respectively, and neither Mr. Yue nor Mr. Jun serves on the Audit, Nominating, or Compensation Committees). The Board has also determined that the members of the Audit Committee are also “independent” for purposes of Section 10A-3 of the Exchange Act and Section 803 of the NYSE MKT LLC Company Guide. The Board based these determinations primarily on a review of the responses of the directors and executive officers to questions regarding employment and transaction history, affiliations and family and other relationships and on discussions with the directors. None of our directors engages in any transaction, relationship, or arrangement contemplated under Item 404(a) of Regulation S-K.

Item 14. Principal Accountant Fees and Services

Our current principal independent auditor is BDO China Shu Lun Pan Certified Accountants LLP, which we initially engaged on April 29, 2013.

The following table presents fees for professional services rendered by BDO China Shu Lun Pan Certified Accountants LLP with respect to the year ended June 30, 2014 and 2013.

Services Performed	2014		2013

Audit Fees (1)	$	155,789	$	150,000
Audit-Related Fees (2)	$	-	$	-
Tax Fees (3)	$	-	$	-
All Other Fees (4)	$	-	$	-

Total Fees	$	155,789	$	150,000

(1)

Audit fees represent fees billed for professional services provided in connection with the audit of the Company’s annual financial statements and reviews of its quarterly financial statements. All work on the engagements to audit the Company’s financial statements for the years ended June 30, 2014 and 2013 was performed by full-time permanent employees of BDO China Shu Lun Pan Certified Accountants LLP.

(2)	Audit-related fees represent fees billed primarily for assurance and related services not reported under Audit fees.

(3)	Tax fees principally represent fees billed for tax preparation, tax advice and tax planning services.

(4)	All other fees principally would include fees billed for products and services provided by the accountant, other than the services reported under the three captions above.

Our Audit Committee has the sole authority to pre-approve all audit and non-audit services provided by our independent auditors. The Audit Committee on an annual basis reviews audit and non-audit services performed by the independent auditors. All audit and non-audit services are pre-approved by the Audit Committee, which considers, among other things, the possible effect of the performance of such services on the auditors’ independence. As permitted under the Sarbanes-Oxley Act of 2002, the Audit Committee may delegate pre-approval authority to one or more of its members. Any service pre-approved by a delegate must be reported to the Audit Committee at the next scheduled quarterly meeting. The Audit Committee considered whether the provision of the auditors’ services, other than for the annual audit and quarterly reviews, is compatible with its independence and concluded that it is compatible. In 2014 and 2013, all such services were pre-approved by the Audit Committee.

Item 15. Exhibit List and Financial Statement Schedules

(a) Financial Statements

Report of Independent Registered Accounting Firm

Balance Sheets – June 30, 2014 and 2013

Consolidated Statements of Operations – Years Ended June 30, 2014 and 2013

Consolidated Statement of Changes in Stockholders’ Equity - Years Ended June 30, 2014 and 2013

Consolidated Statements of Cash Flows - Years ended June 30, 2014 and 2013

Notes to Consolidated Financial Statements

(b) Exhibit List

3-a(1)	Certificate of Incorporation, as amended through December 29, 2005 – filed as an exhibit to the Annual Report on Form 10-KSB for the year ended June 30, 2006 and incorporated herein by reference.

3-a(2)	Certificate of Amendment of the Certificate of Incorporation effective on July 6, 2010 – filed as an Exhibit to the Current Report on Form 8-K filed on July 13, 2006 and incorporated herein by reference.

3-a(3)	Certificate of Amendment of the Certificate of Incorporation effective on January 6, 2010 – filed as an exhibit to the Current Report on Form 8-K filed on January 7, 2010 and incorporated herein by reference.

3-a(4)	Articles of Amendment of the Certificate of Incorporation effective on March 19, 2010 – filed as an Exhibit to the Current Report on Form 8-K filed on March 29, 2010 and incorporated herein by reference.

3-b	Amended and Restated Bylaws - filed as an exhibit to the Current Report on Form 8-K filed on November 16, 2009 and incorporated herein by reference.

10.1	Joint Strategic Alliance and Securities Purchase Agreement dated April 15, 2008 between China Aoxing Pharmaceutical Company, Inc. and American Oriental Bioengineering, Inc. (Filed as an exhibit to the Company’s Current Report on Form 8-K dated April 15, 2008 and incorporated by reference herein).

14	Code of Ethics of China Aoxing Pharmaceutical Company, Inc. (Filed as an Exhibit to the Current Report on Form 8-K filed on November 30, 2009 and incorporated herein by reference)

21.1	List of Subsidiaries *

31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *

31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act 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*

* Filed herewith.

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.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Aoxing Pharmaceutical Company, Inc.

Date: September 29, 2014	By: /s/ Zhenjiang Yue
	Zhenjiang Yue, Chief Executive Officer
	(Principal Executive Officer)

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, this Report has been signed below on [September 30, 2014] by the following persons on behalf of the Registrant and in the capacities indicated.

/s/ Zhenjiang Yue		Date: September 29, 2014
Zhenjiang Yue, Director,
Chief Executive Officer

/s/ Guoan Zhang		Date: September 29, 2014
Guoan Zhang, Acting Chief Financial Officer
(Principal Accounting and Financial Officer)

/s/Yang Li		Date: September 29, 2014
Yang Li, Director

/s/ Jun Min		Date: September 29, 2014
Jun Min, Director

/s/ Guozhu Xu		Date: September 29, 2014
Guozhu Xu, Director

/s/ Zhimin Li		Date: September 29, 2014
Zhimin Li, Director

Exhibit 21.1

List of Subsidiaries

The Company has the following subsidiaries:

	·	Ostar Pharmaceutical, Inc., a Delaware corporation

	·	Hebei Aoxing Pharmaceutical Co., Inc, a PRC company

Exhibit 31.1

CERTIFICATION

I, Zhenjiang Yue, certify that:

1. I have reviewed this Form 10-K of Aoxing Pharmaceutical Company, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: September 29, 2014

	/s/ Zhenjiang Yue
	Zhenjiang Yue, Chief Executive Officer
	(Principal Executive Officer)

Exhibit 31.2

CERTIFICATION

I, Guoan Zhang, certify that:

1. I have reviewed this Form 10-K of Aoxing Pharmaceutical Company, Inc.;

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: September 29, 2014

	/s/ Guoan Zhang
	Guoan Zhang, Acting Chief Financial Officer
	(Principal Financial and Accounting Officer)

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. §1350

Pursuant to 18 U.S.C. §1350 and in connection with the Annual Report on Form 10-K of Aoxing Pharmaceutical Company, Inc.; (the “Company”) for the fiscal year ended June 30, 2014 (the “Report”), I, Zhenjiang Yue, Chief Executive Officer of the Company, hereby certify that to the best of my knowledge and belief:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for said period.

	/s/ Zhenjiang Yue
	Zhenjiang Yue, Chief Executive Officer

Date: September 29, 2014

A signed original of this written statement has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request

Exhibit 32.2

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. §1350

Pursuant to 18 U.S.C. §1350 and in connection with the Annual Report on Form 10-K of Aoxing Pharmaceutical Company, Inc. (the “Company”) for the fiscal year ended June 30, 2014 (the “Report”), I, Guoan Zhang, Chief Financial Officer of the Company, hereby certify that to the best of my knowledge and belief:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for said period.

	/s/ Guoan Zhang
	Guoan Zhang, Acting Chief Financial Officer

Date: September 29, 2014

A signed original of this written statement has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request

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