Aoxing Pharmaceuticals Co (OTC BB:CAXGD)

AOXING PHARMACEUTICAL CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE LOSS
		For the year ended June 30
		2015				2014
SALES		$	25,481,199			$	12,739,371
COST OF SALES			5,688,863				6,925,697
GROSS PROFIT			19,792,336				5,813,674
OPERATING EXPENSES:
Research and development			337,067				569,699
General and administrative			2,753,535				3,613,657
Selling expenses			7,457,758				4,350,442
Depreciation and amortization			548,319				614,755
TOTAL OPERATING EXPENSES			11,096,679				9,148,553
INCOME/(LOSS) FROM OPERATIONS			8,695,657				(3,334,879	)
OTHER INCOME (EXPENSE):
Interest expense, net of interest income			(5,768,094	)			(5,194,786	)
Equity in loss of joint venture, net			(93,352	)			(104,715	)
Subsidy income			279,893				-
TOTAL OTHER EXPENSE			(5,581,553	)			(5,299,501	)
INCOME/(LOSS) BEFORE INCOME TAXES			3,114,104				(8,634,380	)
Income taxes/(benefits)			(2,704,369)				-
NET INCOME/(LOSS)			5,818,473				(8,634,380	)
Net income/(loss) attributable to non-controlling interest in subsidiaries			323,760				(418,697	)
NET INCOME/(LOSS) ATTRIBUTABLE TO SHAREHOLDERS OF THE COMPANY			5,494,713				(8,215,683	)
OTHER COMPREHENSIVE INCOME :
Foreign currency translation adjustment			91,359				28,055
COMPREHENSIVE INCOME/(LOSS)			5,586,072				(8,187,628	)
Other comprehensive loss income attributable to non-controlling interest			4,568				1,403
COMPREHENSIVE INCOME/(LOSS) ATTRIBUTABLE TO THE COMPANY		$	5,581,504			$	(8,189,031	)
BASIC AND DILUTED INCOME/(LOSS) PER COMMON SHARE		$	0.09			$	(0.16	)
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING			63,107,104				49,856,247

Management Discussion and Analysis

Revenue for the year ended June 30, 2015 was $25,481,199, representing a 100.0% increase from the revenue of $12,739,371 for the year ended June 30, 2014. The increase in revenue was primarily attributable to the changes in our marketing program. The Company’s previous sales process began with the sales manager who shipped the product to a third-party sales agent. The sales agent then sold the product to the customer. With the current sales process, the Company has gradually terminated the sales agent contracts and now sells the product directly to the customer. The sales price to direct customers is higher than the price to sales agencies, which has led to an increase in the average price of our products. 

The Company realized net income of $5,818,473 for the fiscal year ended June 30, 2015.  However, because the Company owns only 95% of Hebei Aoxing, 5% of that company’s net income was attributed to the minority interest.  Therefore the net income for the fiscal year attributable to the shareholders of Aoxing Pharmaceutical was $5,494,713.  In comparison, during the fiscal year ended June 30, 2014, the Company’s net loss was $8,634,380 and, after deducting loss attributable to the 5% minority interest in Hebei Aoxing, net loss attributable to shareholders of Aoxing Pharmaceutical was $8,215,683.

Item 1.01 Entry into Material Definitive Agreement

On September 30, 2015 Aoxing Pharmaceutical Company sold 2,352,941 shares of common stock and 1,764,706 common stock purchase warrants (the "Warrants") pursuant to a Securities Purchase Agreement dated as of September 24, 2015. The purchaser was an institutional investor.

The aggregate purchase price for the securities was $3,000,000. From the proceeds of the offering, Aoxing Pharmaceutical Company, Inc. has paid a fee of $180,000 to Rodman & Renshaw, a unit of H.C Wainwright & Co., LLC (“Wainwright”), which acted as the placement agent for the offering. Aoxing Pharmaceutical Company, Inc. has also reimbursed Wainwright for its out-of-pocket expenses, and has issued to Wainwright and its affiliates warrants to purchase 141,176 shares of common stock.

Each Warrant will permit the holder to purchase one share of common stock from Aoxing Pharmaceutical Company for a price of $1.74 per share. The Warrants will be exercisable from March 30, 2016 until March 30, 2021. The warrants issued to Wainwright and its affiliates are substantially identical to the Warrants, except that the termination date is September 24, 2020. Cashless exercise of either warrant is permitted only if there is no effective registration statement permitting resale of the common shares underlying the warrants.

We made the offering and sale of the shares and Warrants pursuant to a shelf registration statement on Form S-3 (Registration No. 333-205148) that was declared effective by the Securities and Exchange Commission on July 1, 2015, and a base prospectus dated as of the same date, as supplemented by a prospectus supplement filed with the Securities and Exchange Commission on September 28, 2015.

AOXING PHARMACEUTICAL COMPANY, INC.
2,352,941 shares of common stock
1,905,882 common stock purchase warrants0
1,905,882 shares of common stock issuable upon exercise of the warrants

Pursuant to this prospectus supplement and the accompanying prospectus, we are offering up to 4,258,823 shares of our common stock (which includes 1,905,882 shares issuable upon exercise of the Warrants), par value $0.001 per share, and common stock purchase warrants to purchase up to 1,905,882 shares of our common stock (the “Warrants”).  The Warrants offered by means of this prospectus include warrants to purchase 1,764,706 shares, which have an initial exercise price of $1.74 per share and may be exercised at any time and from time to time on or after March 31, 2016 through and including March 31, 2021 (the “Public Warrants”).  Each investor in the initial offering who purchases a share of the common stock offered hereby will receive a Public Warrant to purchase ¾ of a share of common stock.  The Warrants also include placement agent warrants to purchase 141,176 shares of our common stock, which have an initial exercise price of $1.74 per share and may be exercised at any time and from time to time on or March 31, 2016 through September 30, 2020.
 
Our common stock is traded on the NYSE MKT under the symbol “AXN.”  The last reported sale price of our common stock on the NYSE MKT on September 25, 2015 was $1.64 per share.
 
We have retained Rodman & Renshaw, a unit of H.C. Wainwright & Co., LLC, as our exclusive placement agent to use its best efforts to solicit offers to purchase our securities in this offering.  See “Plan of Distribution” beginning on page S-6 of this prospectus supplement for more information regarding the fee arrangements.

		Per Share				Total
Public offering price of securities		$	1.275			$	3,000,000
Placement agent fees (1)		$	0.0765			$	180,000
Proceeds, before expenses, to Aoxing Pharmaceutical Company, Inc.		$	1.1985			$	2,820,000

Item 1.01                      Entry into Material Definitive Agreement

On September 24, 2015 Aoxing Pharmaceutical Company entered into a Securities Purchase Agreement. The Securities Purchase Agreement provides that, at a closing expected to occur on September 29, 2015 after satisfaction of standard closing conditions, Aoxing Pharmaceutical Company will sell 2,352,941 shares of common stock and 1,764,705 common stock purchase warrants (the “Warrants”). The purchasers are institutional investors. The aggregate purchase price for the securities will be $3,000,000.

Each Warrant will permit the holder to purchase one share of common stock from Aoxing Pharmaceutical Company for a price of $1.74 per share. The Warrants will be exercisable commencing six months after the closing date, and will expire five and one-half years after the closing date.

Aoxing Pharmaceutical Company is making the offering and sale of the shares and warrants pursuant to a shelf registration statement on Form S-3 (Registration No. 333-205148) that was declared effective by the Securities and Exchange Commission on July 1, 2015, and a base prospectus dated as of the same date, as supplemented by a prospectus supplement to be filed with the Securities and Exchange Commission on September 28, 2015.

JERSEY CITY, NJ / ACCESSWIRE / April 3, 2015 / Aoxing Pharmaceutical Company, Inc. (NYSE MKT: AXN) ("Aoxing Pharma"), a specialty pharmaceutical company focusing on research, development, manufacturing, and distribution of narcotic, pain-management, and addiction treatment pharmaceuticals, has received notice from NYSE MKT (the "Exchange") that Aoxing Pharma has regained compliance with one of the NYSE MKT LLC's continued listing standards. Specifically, the Company has resolved the continued listing deficiency with respect to Section 1003(a)(iv) of the Company Guide referenced in the Exchange's letter dated October 25, 2013. The Company is no longer considered financially impaired by the Exchange.

NYSE MKT advised Aoxing Pharma that if its financial condition worsens, it could again fall below compliance with Section 1003(a)(iv), at which time NYSE MKT would examine the relationship between the two incidents of noncompliance and re-evaluate Aoxing Pharma's recovery from the first incident. In addition, NYSE MKT reminded Aoxing Pharma that it remains out of 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 September 30, 2014 and has incurred losses from continuing operations and/or net losses in two of its three most recent fiscal years;

- Section 1003(a)(ii) since it reported stockholders' equity of less than $4,000,000 at December 31, 2014 and has incurred losses from continuing operations and/or net losses in three of its four most recent fiscal years; and

- Section 1003(a)(iii) since it reported stockholders' equity of less than $6,000,000 at December 31, 2014 and has incurred losses from continuing operations and/or net losses in its five most recent fiscal years.

Based on the plans of compliance submitted by the Company, the Exchange has granted the Company until April 27, 2015 to regain compliance with Sections 1003(a)(i), 1003(a)(ii) and 1003(a)(iii).

AOXING PHARMACEUTICAL CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME (LOSS)
(Unaudited)
		For the three months ended								For the six months ended
		December 31,								December 31,
		2014				2013				2014				2013
SALES		$	6,430,701			$	3,466,807			$	10,955,783			$	7,043,915
COST OF SALES			1,624,853				2,023,707				3,012,386				4,038,371
GROSS PROFIT			4,805,848				1,443,100				7,983,397				3,005,544
OPERATING EXPENSES:
Research and development expense			95,597				90,775				203,147				268,716
General and administrative expenses			821,008				617,903				1,332,495				1,447,953
Selling expenses			1,775,924				1,258,800				2,978,433				2,876,789
Depreciation and amortization			140,802				138,585				280,076				320,011
TOTAL OPERATING EXPENSES			2,833,331				2,106,063				4,794,151				4,913,469
PROFIT (LOSS) FROM OPERATIONS			1,972,517				(662,963	)			3,189,246				(1,907,924	)
OTHER EXPENSE:
Interest expense, net of interest income			(1,628,120	)			(1,254,403	)			(2,821,280	)			(2,329,092	)
Equity in loss of joint venture, net			(22,018	)			(104	)			(47,989	)			(31,427	)
Subsidy income			279,573				-				279,573				-
TOTAL OTHER EXPENSE			(1,370,565	)			(1,254,506	)			(2,589,696	)			(2,360,519	)
PROFIT (LOSS) BEFORE INCOME TAXES			601,952				(1,917,469	)			599,550				(4,268,443	)
Income tax expense			-				-				-				-
NET PROFIT (LOSS)			601,952				(1,917,469	)			599,550				(4,268,443	)
Net profit (loss) attributed to non-controlling interest in subsidiaries			34,784				(91,752	)			40,251				(207,740	)
PROFIT (LOSS) ATTRIBUTABLE TO SHAREHOLDERS OF THE COMPANY			567,168				(1,825,717	)			559,299				(4,060,703	)
OTHER COMPREHENSIVE INCOME :
Foreign currency translation adjustment			7,900				11,526				21,708				32,395
COMPREHENSIVE PROFIT (LOSS)			575,068				(1,814,191	)			581,007				(4,028,307	)
Other comprehensive income attributable to non-controlling interest			395				576				1,085				1,620
COMPREHENSIVE PROFIT  (LOSS) ATTRIBUTABLE TO THE COMPANY		$	574,673			$	(1,814,768	)		$	579,922			$	(4,029,927	)
BASIC AND DILUTED INCOME (LOSS) PER COMMON SHARE		$	0.01			$	(0.04	)		$	0.01			$	(0.08	)
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING			57,614,546				49,861,126				57,614,546				49,837,974

Management Discussion and Analysis

Revenues for the three months ended December 31, 2014 were $6,430,701, representing an 85% increase over the revenues of $3,466,807 realized during the three months ended December 31, 2013. Revenues for the six months ended December 31, 2014 were $10,955,783, representing a 56% increase over the revenues of $7,043,915 realized during the six months ended December 31, 2013. The increase in revenue was primarily attributable to the changes in our marketing program. The Company’s previous sales process began with the sales manager who shipped the product to a third-party sales agent. The sales agent then sold the product to the customer. With the current sales process, the Company has gradually terminated the sales agent contracts and now sells the product directly to the customer. The sales price to direct customers is higher than the price to sales agencies, which has led to an increase in average price of our products.

The Company realized a net profit of $ 601,952 for the three months ended December 31, 2014 and $599,550 for the six months ended December 31, 2014. The achievement of net profit in this quarter was due to the increase in revenue and gross profit as a result of the change in our distribution channels.  We expect revenue and gross profit will further improve in the coming years.

Item 3.01 Notice of Delisting or Failure to Satisfy a Continued Listing Rule or Standard

 
As previously reported, the Registrant has received notice from NYSE MKT LLC that, based upon the financial statements contained in Aoxing Pharma’s Annual Report on Form 10-K for the year ended June 30, 2013 and its Quarterly Reports on Form 10-Q for the periods ended September 30, 2013 and December 31, 2013, 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.

Item 3.01 Notice of Delisting or Failure to Satisfy a Continued Listing Rule or Standard

 
As previously reported, the Registrant has received notice from NYSE MKT LLC that, based upon the financial statements contained in Aoxing Pharma’s Annual Report on Form 10-K for the year ended June 30, 2013 and its Quarterly Reports on Form 10-Q for the periods ended September 30, 2013 and December 31, 2013, 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.

The Registrant was afforded the opportunity to submit plans of compliance to the Exchange. Based on the plans of compliance submitted by the Registrant, the Exchange granted the Registrant an extension until April 27, 2015 to regain compliance with Sections 1003(a)(i), 1003(a)(ii) and 1003(a)(iii). The Exchange also granted the Registrant an extension until December 31, 2014 to regain compliance with Section 1003(a)(iv).

Item 3.01 Notice of Delisting or Failure to Satisfy a Continued Listing Rule or Standard

 
As previously reported, the Registrant has received notice from NYSE MKT LLC that, based upon the financial statements contained in Aoxing Pharma’s Annual Report on Form 10-K for the year ended June 30, 2013 and its Quarterly Reports on Form 10-Q for the periods ended September 30, 2013 and December 31, 2013, 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.

The Registrant was afforded the opportunity to submit plans of compliance to the Exchange. Based on the plans of compliance submitted by the Registrant, the Exchange granted the Registrant an extension until April 27, 2015 to regain compliance with Sections 1003(a)(i), 1003(a)(ii) and 1003(a)(iii). The Exchange also granted the Registrant an extension until November 23, 2014 to regain compliance with Section 1003(a)(iv).

On December 16, 2014, the Exchange notified the Registrant that the period during which it will be permitted to regain compliance with Section 1003(a)(iv) has been extended to December 31, 2014. The Registrant will be subject to periodic review by the Exchange Staff 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 the Registrant being delisted from the NYSE MKT LLC.

AOXING PHARMACEUTICAL CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME (LOSS)
(Unaudited)
		For the Three Months Ended
		September 30,
		2014				2013
SALES		$	4,565,081			$	3,577,108
COST OF SALES			1,387,534				2,014,663
GROSS PROFIT			3,177,547				1,562,445
OPERATING EXPENSES:
Research and development expense			107,550				177,941
General and administrative expenses			511,486				830,050
Selling expenses			1,202,509				1,617,989
Depreciation and amortization			139,276				181,426
TOTAL OPERATING EXPENSES			1,960,821				2,807,406
INCOME (LOSS) FROM OPERATIONS			1,216,726				(1,244,961)
OTHER EXPENSE:
Interest expense, net of interest income			(1,193,160)				(1,074,690)
Equity in loss of joint venture, net of tax			(25,971)				(31,323)
TOTAL OTHER EXPENSE			(1,219,131)				(1,106,013)
LOSS BEFORE INCOME TAX			(2,405	)			(2,350,974)
Income tax			-				-
NET LOSS			(2,405	)			(2,350,974)
Net income (loss) attributed to non-controlling interest in subsidiaries			5,467				(115,988)
LOSS ATTRIBUTABLE TO SHAREHOLDERS OF THE COMPANY			(7,872	)			(2,234,986)
OTHER COMPREHENSIVE INCOME :
Foreign currency translation adjustment			13,809				20,870
COMPREHENSIVE PROFIT/(LOSS)			5,937				(2,214,116)
Other comprehensive income attributable to non-controlling interest			690				1,043
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO THE COMPANY		$	5,247			$	(2,215,159)
BASIC AND DILUTED LOSS PER COMMON SHARE		$	-			$	(0.04)
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING			53,098,267				49,814,822

Item 3.01 Notice of Delisting or Failure to Satisfy a Continued Listing Rule or Standard

 
As previously reported, the Registrant has received notice from NYSE MKT LLC that, based upon the financial statements contained in Aoxing Pharma’s Annual Report on Form 10-K for the year ended June 30, 2013 and its Quarterly Reports on Form 10-Q for the periods ended September 30, 2013 and December 31, 2013, 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.

The Registrant was afforded the opportunity to submit plans of compliance to the Exchange. Based on the plans of compliance submitted by the Registrant, the Exchange granted the Registrant an extension until April 27, 2015 to regain compliance with Sections 1003(a)(i), 1003(a)(ii) and 1003(a)(iii). The Exchange also granted the Registrant an extension until September 21, 2014 to regain compliance with Section 1003(a)(iv).

Item 3.02

Unregistered Sale of Equity Securities

Item 3.01 Notice of Delisting or Failure to Satisfy a Continued Listing Rule or Standard 
 
 
As previously reported, the Registrant has received notice from NYSE MKT LLC that, based upon the financial statements contained in Aoxing Pharma’s Annual Report on Form 10-K for the year ended June 30, 2013 and its Quarterly Reports on Form 10-Q for the periods ended September 30, 2013 and December 31, 2013, 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. 

The Registrant was afforded the opportunity to submit plans of compliance to the Exchange. Based on the plans of compliance submitted by the Registrant, the Exchange granted the Registrant an extension until April 27, 2015 to regain compliance with Sections 1003(a)(i), 1003(a)(ii) and 1003(a)(iii). The Exchange also granted the Registrant an extension until June 30, 2014 to regain compliance with Section 1003(a)(iv).

On August 4, 2014, the Exchange notified the Registrant that the period during which it will be permitted to regain compliance with Section 1003(a)(iv) has been extended to September 21, 2014.  The Registrant will be subject to periodic review by the Exchange Staff 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 the Registrant being delisted from the NYSE MKT LLC.

 

Item 3.01 Notice of Delisting or Failure to Satisfy a Continued Listing Rule or Standard

As previously reported, the Registrant has received notice from NYSE MKT LLC that, based upon the financial statements contained in Aoxing Pharma’s Annual Report on Form 10-K for the year ended June 30, 2013 and its Quarterly Reports on Form 10-Q for the periods ended September 30, 2013 and December 31, 2013, 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.

The Registrant was afforded the opportunity to submit plans of compliance to the Exchange. Based on the plans of compliance submitted by the Registrant, the Exchange granted the Registrant an extension until April 27, 2015 to regain compliance with Sections 1003(a)(i), 1003(a)(ii) and 1003(a)(iii). The Exchange also granted the Registrant an extension until May 30. 2014 to regain compliance with Section 1003(a)(iv).

On June 10, 2014, the Exchange notified the Registrant that the period during which it will be permitted to regain compliance with Section 1003(a)(iv) has been extended to June 30, 2014. The Registrant will be subject to periodic review by the Exchange Staff 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 the Registrant being delisted from the NYSE MKT LLC.

Item 3.01 Notice of Delisting or Failure to Satisfy a Continued Listing Rule or Standard

 
As previously reported, on October 30, 2013 the Registrant received notice from NYSE MKT LLC that, based upon the financial statements contained in the Registrant’s Annual Report on Form 10-K for the year ended June 30, 2013, the Registrant (a) is not in compliance with Section 1003(a)(iii) of the NYSE MKT Company Guide 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 (b) is not in compliance with Section 1003(a)(iv) of the Company Guide 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 Registrant will be able to continue operations and/or meet its obligations as they mature. The Registrant further announced on December 4, 2013 that it had received notice from NYSE MKT LLC that, based upon the financial statements contained in the Registrant’s Quarterly Report on Form 10-Q for the period ended September 30, 2013, the Registrant (a) is not in compliance with Section 1003(a)(ii) of the NYSE MKT Company Guide 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.

The Registrant was afforded the opportunity to submit plans of compliance to the Exchange, and on November 8, 2013 the Registrant presented its plan of compliance with Section 1003(a)(iv). On December 3, 2013 the Exchange notified the Registrant that it accepted the Registrant’s plan of compliance with Section 1003(a)(iv) and granted the Registrant an extension until March 1, 2014 to regain compliance with Section 1003(a)(iv). On November 25, 2013 the Registrant presented its plan of compliance with Section 1003(a)(iii) and supplemented it on December 26, 2013. On January 10, 2014 the Exchange notified the Registrant that it accepted the Registrant’s plan of compliance with Section 1003(a)(ii) and Section 1003(a)(iii) and granted the Registrant an extension until April 27, 2015 to regain compliance with Sections 1003(a)(ii) and 1003(a)(iii).

On February 28, 2014, the Exchange notified the Registrant that the period during which it will be permitted to regain compliance with Section 1003(a)(iv) has been extended to May 30, 2014. The Registrant will be subject to periodic review by the Exchange Staff 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 the Registrant being delisted from the NYSE MKT LLC.

On February 28, 2014 the Exchange also notified the Registrant that its review of the Registrant’s Form 10-Q for the quarter ended December 31, 2013 indicated that the Registrant is also not in compliance with Section 1003(a)(i) of the Company Guide 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. The notice advised that the Registrant is not required to submit an additional plan of compliance, but will be permitted to supplement the plan of compliance submitted on November 25, 2013 and December 26, 2013 to address how it intends to regain compliance with Section 1003(a)(i) by April 27, 2015. If the plan, as supplemented, is not accepted, the Registrant will be subject to delisting proceedings.

AOXING PHARMACEUTICAL CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME (LOSS)
(Unaudited)
		For the three months  ended								For the six months ended
		December 31,								December 31,
		2013				2012				2013				2012
SALES		$	3,466,807			$	3,314,768			$	7,043,915			$	5,919,531
COST OF SALES			2,023,707				1,341,738				4,038,371				2,355,981
GROSS PROFIT			1,443,100				1,973,030				3,005,544				3,563,550
OPERATING EXPENSES:
Research and development expense			90,775				1,090,104				268,716				1,219,659
General and administrative expenses			617,903				756,876				1,447,952				1,367,747
Selling expenses			1,258,800				1,706,202				2,876,789				2,314,873
Depreciation and amortization			138,585				158,494				320,011				312,438
Impairment on intangible assets			-				613,739				-				613,739
TOTAL OPERATING EXPENSES			2,106,063				4,325,415				4,913,468				5,828,456
LOSS FROM OPERATIONS			(662,963	)			(2,352,385	)			(1,907,924	)			(2,264,906	)
OTHER EXPENSE:
Interest expense, net of interest income			(1,254,402	)			(755,005	)			(2,329,092	)			(1,267,794	)
Equity in loss of joint venture, net			(104	)			(28,271	)			(31,427	)			(51,476	)
TOTAL OTHER EXPENSE			(1,254,506	)			(783,276	)			(2,360,519	)			(1,319,270	)
LOSS BEFORE INCOME TAXES			(1,917,469	)			(3,135,661	)			(4,268,443	)			(3,584,176	)
Income tax expense (credit)			-				-				-				-
NET LOSS			(1,917,469	)			(3,135,661	)			(4,268,443	)			(3,584,176	)
Net loss attributed to non-controlling interest in subsidiaries			(91,752	)			(145,011	)			(207,740	)			(160,192	)
LOSS ATTRIBUTABLE TO SHAREHOLDERS OF THE COMPANY			(1,825,717	)			(2,990,650	)			(4,060,703	)			(3,423,984	)
OTHER COMPREHENSIVE INCOME :
Foreign currency translation adjustment			11,526				112,464				32,394				63,750
COMPREHENSIVE LOSS			(1,814,191	)			(2,878,186	)			(4,028,309	)			(3,360,234	)
Other comprehensive income attributable to non-controlling interest			577				5,623				1,620				3,188
COMPREHENSIVE LOSS ATTRIBUTABLE TO THE COMPANY		$	(1,814,768	)		$	(2,883,809	)		$	(4,029,929	)		$	(3,363,422	)
BASIC AND DILUTED LOSS PER COMMON SHARE		$	(0.04	)		$	(0.06	)		$	(0.10	)		$	(0.07	)
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING			49,861,126				49,756,582				49,837,974				49,685,797

Management Discussion and Analysis

Results of Operations
 
Revenues for the three months ended December 31, 2013 were $3,466,807, representing a 5% increase over the revenues of $3,314,768 realized during the three months ended December 31, 2012. Revenues for the six months ended December 31, 2013 were $7,043,915, representing a 19% increase over the revenues of $5,919,531 realized during the six months ended December 31, 2012. The increase in revenue was mainly attributable to the increase in sales of our main product, Zhongtongan. Sales of Zhongtongan were aided by our decision to expand our sales reach from the original pediatric and stomatological divisions to cover a new market in the gynecology and orthopaedics divisions in the hospitals.  To support this new direction in sales, we rebuilt the Company’s sales force and increase distribution channels which led to an increase in sales during the periods ended December 31, 2013. Our marketing effort was aided by the fact that the Company’s key product, Zhongtongan, is now pre-approved to be included in the Essential Drug List (“EDL”) of at least 4 provinces. Drugs included in the EDL are reimbursable under the national health care plan.  We anticipate that inclusion in the EDL will substantially increase sales in the near future.

The Company realized a net loss of $1,917,469 for the three months ended December 31, 2013 and $4,268,443 for the six months ended December 31, 2013.  However, because the Company owns only 95% of HebeiAoxing, 5% of the Company’s net loss was attributed to the non-controlling interest. Therefore the net loss attributable to the shareholders of Aoxing Pharmaceutical for the three and six months ended December 31, 2013 was $1,825,717 and $4,060,703, respectively.  In comparison, during the three and six months ended December 31, 2012, the net loss attributable to the Company’s shareholders was $2,990,650 and $3,423,984, after deducting the 5% non-controlling interest in HebeiAoxing.

Aoxing Pharmaceutical Company, Inc. is furnishing a copy of the Company’s investor presentation at the Rodman & Renshaw Investor Conference held in Shanghai, PRC, on March 7, 2011.

On February 1, 2011, the Board of Directors for Aoxing Pharmaceutical Company appointed Bob Yunjun Ai to serve as Chief Financial Officer.  Information regarding Mr. Ai follows:

Bob Yunjun Ai brings to the Company education and employment experience in both biology and finance.  From 2001 until 2011 Mr. Ai was employed in the finance sector, specializing in healthcare investment.  Most recently, from 2007 to 2011 Mr. Ai was a Principal in Merlin Nexus, a private equity firm that invests in life sciences companies, where his responsibilities included analysis and evaluation of investment decisions.  From 2006 to 2007 Mr. Ai served as Vice President for Wall Street Access, a broker-dealer, where he was responsible for industry research.  From 2004 to 2005 Mr. Ai was employed as Senior Equity Analyst by Bennett Lawrence, an asset management firm.  From 2001 to 2004 Mr. Ai was employed as an Analyst by Merlin Biomed, also an asset management firm.  Prior to entering the finance sector, Mr. Ai was engaged for seven years as a research associate and post-doctoral research scholar at the University of Pennsylvania.  Mr. Ai was awarded an MBA by Penn State University in 2001 and a PhD in Molecular and Cell Biology by Penn State University in 1992.  He is 47 years old.

On November 1, 2010, Hui (David) Shao resigned from his position as Chief Financial Officer for Aoxing Pharmaceutical Company, Inc. On the same day, the Board of Directors appointed Guoan Zhang to serve as interim Chief Financial Officer.

Revenues for the year ended June 30, 2010 were $6,115,774. This represented a 32% decline from the revenues of $8,941,907 that we realized during the fiscal year ended June 30, 2009. The decrease in revenue occurred because we relocated and consolidated our manufacturing facilities in the summer of 2009. This necessitated GMP re-certification by the Chinese government for each of our products before we could re-commence production. For a large part of the year, therefore, we produced only the limited number of products for which we had obtained recertification. The primary revenue contributors were Zhongtongan, Shuanghuanlian capsules and Naloxone Hydrochloride injectable, representing 73%, 9% and 6% of the total sales for the year ended June 30, 2010. In addition we were selling other prescription and over-the-counter drugs approved by the China SFDA.

Established in 2002, CAXG was a private company until it went public via a reverse merger transaction in 2006.

The company was essentially in the research and development stage until its fiscal 2007 year, when it commenced marketing activities.

Industry Trends:

"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 2005, Chinese government had approved the production of 11 varieties of analgesics. In the near future, patients in China will find 30 varieties and over 80 specifications of different types of analgesics. Since 1993, the annual growth rate of analgesic sales in China has been, on average, 35%. If the drug consumption per capita in China reaches the level of industrialized countries, the market size will exceed $50 billion."

The company has rapidly started generating revenues from its product portfolio albeit still small in absolute numbers.

Despite the increases in revenues the company is still losing money and is facing some financial challenges:

"For the six months ended December 31, 2007, the Company generated net losses of $1,780,496. The Company’s current liabilities exceeded its current assets by $15,077,549. In addition, the Company is in default on $7,177,774 of loans from a bank."

"Our auditors have the opinion, based on these factors, that the uncertainties caused by these conditions raise substantial doubt about our ability to continue as a going concern."

The company is addressing these challenges:

"Hebei Aoxing expects to be able to service its debt to the Bank of China and its other debt obligations from refinancing and with cash flow from operations, assuming that it is successful in initiating production and sales of additional products during the next few months. This will free our cash reserves to be used to fund our growth. Our ability to achieve financial stability, however, will depend on the success of our marketing efforts, which cannot be predicted at this time. Therefore, we continue to actively seek investment capital, and expect to issue more equity securities for this purpose in the coming months."

"We continue to actively seek investment capital, and expect to issue more equity securities for this in the coming months"

"The Company is exploring various alternatives to improve their financial position and secure other sources of financing. Such possibilities include a new credit facility, new equity raise, new arrangements to license intellectual property and the sale of selected property rights."

( Source 2008 December 10-QSB )

GEO Note:

The company just entered into an agreement to potentially acquire a profitable firm with $9 million in revenues and 127 products. No details were given on the magnitude of profits so we are unsure of the financial effect on caxg. 10 million shares will be issued for this transaction.

(Press: March 12, 2008)

GEO conclusion:

Although the market opportunity seems attractive, the GEO Team feels it is a little too early for an investment in CAXG. We would prefer to if see the firm resolves some of its financial obstacles. We are also concerned of the potential dilutive effects of their financing initiatives.

I