U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-QSB

     (MARK ONE)

       [X]        QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
                    OF THE SECURITIES EXCHANGE ACT OF 1934

               FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2003

       [ ]        TRANSITION REPORT PURSUANT TO SECTION 13
                    OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

        FOR THE TRANSITION PERIOD FROM _______________ TO _______________


COMMISSION FILE NUMBER 0-27689

                                AXM PHARMA, INC.
        -----------------------------------------------------------------
        (EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)

            NEVADA                                      75-2853946
------------------------------------         ---------------------------------
 (STATE OR OTHER JURISDICTION                (IRS EMPLOYER IDENTIFICATION NO.)
  OF INCORPORATION OR ORGANIZATION)


                            US REPRESENTATIVE OFFICE
            4695 MACARTHUR COURT, 11TH FLOOR, NEWPORT BEACH, CA 92660
            ---------------------------------------------------------
                    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

                                  (949)798-5587
                           ---------------------------
                           (ISSUER'S TELEPHONE NUMBER)

                           AXIOM PHARMACEUTICALS, INC.
    -------------------------------------------------------------------------
   (FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST
    REPORT)

         CHECK WHETHER THE ISSUER (1) FILED ALL REPORTS  REQUIRED TO BE FILED BY
SECTION 13 OR 15(D) OF THE  EXCHANGE  ACT OF 1934  DURING THE PAST 12 MONTHS (OR
FOR SUCH SHORTER  PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS),
AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS.

                                YES  X   NO
                                    ---     ---

         AS OF SEPTEMBER 30, 2003 THERE WERE  13,728,347  SHARES OF COMMON STOCK
OUTSTANDING AND 2,750,000 SHARES OF SERIES A PREFERRED STOCK OUTSTANDING.






<PAGE>
                                                                            PAGE


PART I - FINANCIAL INFORMATION................................................3

Item 1.  Financial Statements

Balance Sheet at September 30, 2003 (unaudited)...............................3

Unaudited Statements of Operations for the three and
   nine month periods ended September 30, 2003 and 2002.......................4

Unaudited Statements of Cash Flows for the
  nine month periods ended September 30, 2003 and 2002........................5

Notes to Financial Statements.................................................6

NOTE 1: MANAGEMENT REPRESENTATION AND PRESENTATION ...........................6

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ..........................6

NOTE 3 - STOCK ISSUANCES......................................................9

Item 2 -MANAGEMENT DISCUSSION AND ANALYSIS...................................11

Item 3 - CONTROLS AND PROCEDURES.............................................17


PART II - OTHER INFORMATION..................................................18

Item 1.  LEGAL PROCEEDINGS...................................................18

Item 2.  EMPLOYMENT AGREEMENTS...............................................18

Item 3.  RECENT SALES OF UNREGISTERED SECURITIES.............................19

Item 4.  EXHIBITS AND REPORTS ON FORM 8-K....................................19















                                                                               2
<PAGE>

<TABLE>

<CAPTION>

                         PART 1 - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                                AXM PHARMA, INC.
                     (FORMERLY AXIOM PHARMACEUTICALS, INC.)
                           CONSOLIDATED BALANCE SHEET
                               SEPTEMBER 30, 2003
                                   (UNAUDITED)

                                     ASSETS
<S>                                                                                 <C>

Current assets
  Cash                                                                              $        4,277,597
  Cash held in trust by related party                                                          215,776
  Accounts receivable, net of allowance of $0                                                2,823,025
  Inventories                                                                                1,717,812
                                                                                    ------------------
    Total current assets                                                                     9,034,210

Property and equipment, net                                                                     67,405
Licenses                                                                                     1,449,748
                                                                                    ------------------

    TOTAL ASSETS                                                                    $       10,551,363
                                                                                    ==================

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities
  Value added tax payable                                                           $        2,316,254
  Accounts payable and accrued expenses                                                        318,841
  Due to affiliate                                                                              47,970
                                                                                    ------------------
    Total current liabilities                                                                2,683,065
                                                                                    ------------------

STOCKHOLDERS' EQUITY:
  Preferred stock, $.001 par value, 10,000,000 shares authorized,
    2,750,000 shares issued and outstanding                                                      2,750
  Common stock, $.001 par value, 50,000,000 shares authorized,
    13,728,347 shares issued and outstanding                                                    13,728
  Additional paid-in capital                                                                12,844,354
  Accumulated deficit                                                                       (5,037,490)
  Accumulated other comprehensive income                                                        44,956
                                                                                    ------------------
    Total Stockholders' Equity                                                               7,868,298
                                                                                    ------------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                          $       10,551,363
                                                                                    ==================
</TABLE>



                                                                               3
<PAGE>

<TABLE>

<CAPTION>

                                AXM PHARMA, INC.
                     (FORMERLY AXIOM PHARMACEUTICALS, INC.)
                      CONSOLIDATED STATEMENTS OF OPERATIONS
             THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
                                   (UNAUDITED)

                                           Three Months Ended                         Nine Months Ended
                                             September 30,                              September 30,
                                -----------------------------------------  -----------------------------------------
                                       2003                 2002                  2003                  2002
                                -------------------  --------------------  --------------------  -------------------
<S>                             <C>                  <C>                   <C>                   <C>

Revenues                         $       3,123,441   $          337,866    $        6,338,657    $        1,915,970

Cost of revenues                         2,186,519              724,230             4,151,293             1,700,334
                                ------------------   ------------------    ------------------    ------------------

Gross profit                               936,922             (317,400)            2,187,364               215,636
                                ------------------   ------------------    ------------------    ------------------

General, administrative
 and selling:
  Cash                                   1,303,473              170,353             2,159,002               467,251
  Non-cash                               2,708,335                    -             3,495,835                     -
                                ------------------   ------------------    ------------------    ------------------

                                         4,011,808              170,353             5,654,837               467,251
                                ------------------   ------------------    ------------------    ------------------



Net loss                        $       (3,074,886)  $         (487,753)   $       (3,467,473)   $         (251,612)
                                ==================   ==================    ==================    ==================

Net loss per share:
 Basic and diluted              $            (0.23)  $            (0.04)   $            (0.27)   $            (0.02)
                                ==================   ==================    ==================    ==================
Weighted averaged shares
 outstanding:
  Basic and diluted                     13,257,332           11,420,000            12,658,227            11,420,000
                                ==================   ==================    ==================    ==================
</TABLE>












                                                                               4
<PAGE>

<TABLE>

<CAPTION>

                                AXM PHARMA, INC.
                     (FORMERLY AXIOM PHARMACEUTICALS, INC.)
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                  NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
                                   (UNAUDITED)
                                                                               2003                  2002
                                                                         ------------------    ------------------
<S>                                                                      <C>                   <C>

 CASH FLOWS FROM OPERATING ACTIVITIES
  Net loss                                                               $      (3,467,473)    $        (251,612)
  Adjustments to reconcile net loss to cash used in
    operating activities:
      Common stock issued for services                                           3,495,835                     -
      Depreciation and amortization                                                 43,776                21,659
        Changes in assets and liabilities:
          Cash held in trust                                                       (66,573)              734,397
          Accounts receivable                                                   (1,890,024)               50,799
          Advances                                                                 291,597              (417,434)
          Inventories                                                             (392,887)             (531,063)
          Accounts payable                                                             422                     -
          Value added tax payable                                                1,104,183               333,195
          Accrued expenses                                                         146,262                60,046
                                                                         -----------------     -----------------

CASH FLOWS USED IN OPERATING ACTIVITIES                                           (734,882)                  (13)
                                                                         -----------------     -----------------

CASH FLOWS FROM INVESTING ACTIVITIES
  Capital expenditures                                                             (27,235)                    -
  Cash received in reverse merger                                                      169                     -
                                                                         -----------------     -----------------

CASH FLOWS FROM INVESTING ACTIVITIES                                               (27,066)                    -
                                                                         -----------------     -----------------

CASH FLOWS FROM FINANCING ACTIVITIES
  Capital contributions                                                                  -               100,000
  Proceeds from the sale of preferred stock                                      4,888,562                     -
                                                                         -----------------     -----------------

CASH FROM FINANCING ACTIVITIES                                                   4,888,562               100,000
                                                                         -----------------     -----------------

Effect of exchange rate changes on cash                                             44,956                     -
                                                                         -----------------     -----------------

NET INCREASE IN CASH                                                             4,171,570                99,987

Cash, beginning of period                                                          106,027                     -
                                                                         -----------------     -----------------

Cash, end of period                                                      $       4,277,597     $          99,987
                                                                         =================     =================

SUPPLEMENTAL NON-CASH TRANSACTIONS:
  Net liabilities assumed in reverse merger                              $          22,692     $               -
  Assets acquired for common stock                                       $          26,250     $               -

</TABLE>





                                                                               5
<PAGE>


                                AXM PHARMA, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

                FOR THE PERIOD ENDED SEPTEMBER 30, 2003 AND 2002




NOTE 1: MANAGEMENT REPRESENTATION AND PRESENTATION


Operating results for the three and nine months ended September 30, 2003 are not
necessarily  indicative  of the results that may be expected for the year ending
December 31, 2003.  It is suggested  that the  financial  statements  be read in
conjunction with the audited financial  statements and notes for the fiscal year
ended  December 31, 2002 included in the Company's  Current  Report on Form 8K/A
filed on July 1, 2003.

The balance  sheet of AXM Pharma,  Inc. as of September  30,  2003,  the related
consolidated  statements  of  operations  for  the  six and  nine  months  ended
September  30, 2003 and 2002 and the  consolidated  statements of cash flows for
the nine months ended  September 30, 2003 and 2002 included in the  consolidated
financial  statements  have been prepared by the Company  without audit.  In the
opinion  of  management,  the  accompanying  consolidated  financial  statements
include all adjustments (consisting of normal,  recurring adjustments) necessary
to summarize fairly the Company's consolidated financial position and results of
operations.  The consolidated  results of operations for the six and nine months
ended  September  30,  2003 are not  necessarily  indicative  of the  results of
operations for the full year or any other interim period. Notes to the financial
statements which would substantially  duplicate the disclosure  contained in the
audited financial  statements for the most recent fiscal year ended December 31,
2002 to be reported in Form 8-K/A, have been omitted.



NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


                             NATURE OF OUR BUSINESS

AXM Pharma, Inc., a Nevada corporation, is a pharmaceutical company based in The
People's  Republic of China.  We are a publicly listed company trading under the
symbol  (OTCBB:  AXMA).  Our  business  is  the  sale  of  over-the-counter  and
prescription  pharmaceutical  products in The  People's  Republic of China.  Our
business in The  People's  Republic of China is  conducted  by our  wholly-owned
subsidiary,  Shenyang Tianwei Werke  Pharmaceuticals  Co., Ltd.,  located in the
city of Shenyang in the Northeastern  Portion of the People's Republic of China.
Our  products  are  currently  produced by  third-party  manufacturers  and sold
through  third-party   distributors.   Shenyang  Tianwei  Werke  Pharmaceuticals
currently  holds  43  licenses  to  produce  over-the-counter  and  prescription
pharmaceutical products in The Peoples Republic of China.  Of these 43 licenses,
we have, to date,  commercialized  four of these  licenses from which we produce
five products.  In the future we plan to expand our business by  commercializing
additional  licenses held by Shenyang Tianwei Werke  Pharmaceuticals;  acquiring
additional product licenses; and by moving the manufacturing and distribution of
our products in-house.














                                                                               6
<PAGE>


                                AXM PHARMA, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

                FOR THE PERIOD ENDED SEPTEMBER 30, 2003 AND 2002



Our subsidiary,  Shenyang Tainwei Werke  Pharmaceutical Co., Ltd., is classified
under Chinese Company Law as a Wholly Foreign Owned  Enterprise.  Wholly Foreign
Owned  Enterprises  have recently  become the  investment  vehicle of choice for
foreign  investors who wish to  manufacture,  process,  or assemble  products in
China.   Wholly  Foreign  Owned  Enterprises  are  limited  liability  companies
established  under Chinese  Company Law,  which are owned  exclusively by one or
more foreign  investors and thus offer  controls over the company's  management,
technology,  and finances that the typical  foreign  investor  requires.  From a
foreign investors' point of view, the advantages of establishing a WFOE include:

     o    Independence and freedom to implement the worldwide  strategies of its
          parent company without having to consider the involvement of a Chinese
          partner;

     o    Ability to carry on business rather than just a representative  office
          function;

     o    Ability to issue  invoices to their  customers  in  Renminbi  (Chinese
          Currency) and receive Renminbi revenues;

     o    Ability to convert  Renminbi  profits to US dollars for  remittance to
          their parent company outside China;

     o    Ability to employ staff directly within China;

     o    Protection of intellectual know-how technology;

     o    Greater   efficiency  in  its   operations,   management   and  future
          development; and

     o    No requirement to share profits with another party; and

In  summary,  the key  differences  between a WFOE and an equity or  cooperative
joint  venture are that the joint venture  business  structure  requires  profit
sharing  between the stake holders,  significant  involvement in operational and
business  matters by the  Chinese  stake  holders,  indirect  representation  in
business matters and much less effective and efficient  cooperation  between the
stake  holders.  Typically,  the  foreign  party  to  a  Chinese  joint  venture
experiences  significantly  less control over the business structure than if the
foreign party forms a Wholly  Foreign  Owned  Enterprise or converts an existing
joint venture into a Wholly Foreign Owned Enterprise. Because the Wholly Foreign
Owned  Enterprise  business  structure is  relatively  new compared to the joint
venture  structure,  fewer than 5% of foreign firms currently  operate as Wholly
Foreign Owned  Enterprises.  It is anticipated that newly formed businesses will
likely choose the use of the Wholly Foreign Owned Enterprise  structure over the
joint venture structure. It is also anticipated that existing joint ventures are
likely to migrate their corporate structures to Wholly Foreign Owned Enterprises
over the next five years.

Shenyang Tianwei Werke Pharmaceuticals is located in the City of Shenyang, which
is in the  Province  of  Liaoning  in the  Northeastern  section of The  Peoples
Republic of China.  Shenyang Tianwei Werke  Pharmaceuticals  and its predecessor
company, Shenyang Tianwei Pharmaceutical Factory, Ltd. have an operating history
of approximately 10 years. Shenyang Tianwei Werke  Pharmaceuticals  historically
has  been  a  manufacturer   and   distributor   of   proprietary   and  generic
pharmaceutical products, which include injectables,  capsules,  tablets, liquids
and medicated skin products for export and domestic  Chinese sales. We currently
own 43 product  licenses and permits,  of which only four licenses are currently
commercialized.  Shenyang  Tianwei Werke  Pharmaceuticals's  Shenyang  plant was
decommissioned  in 2002  due to the  significant  growth  of the  population  of
Shenyang that caused the surrounding area to change from a city-edge  industrial
area to a city-center, non-industrial urban residential neighborhood. As part of
a broad-based corporate development strategy,  the Shenyang plant is anticipated
to  be  contributed  to a  city  sponsored  commercial/residential  real  estate
development.   Shenyang  Tianwei  Werke  Pharmaceuticals  currently  utilizes  a
third-party original equipment manufacturing pharmaceutical plant to produce all
of its products and sells its products only through third-party distributors.





                                                                               7
<PAGE>



                                AXM PHARMA, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

                FOR THE PERIOD ENDED SEPTEMBER 30, 2003 AND 2002



                               FINANCIAL CONDITION

On September  12, 2003,  we completed a private  equity  financing of $5,500,000
with two accredited  investors.  After payment of costs and expenses,  including
fees  of  the  placement  agent,  we  received  net  proceeds  of  approximately
$4,850,000.  We believe that the capital  raised is  sufficient to allow for the
completion  of the  first  phase  of  construction  of a modern  production  and
distribution facility in Shenyang during 2004.



                               RECENT DEVELOPMENTS

We intend to use a portion of the net proceeds from our recent private financing
to construct a modern production and distribution  facility,  which we intend to
qualify under United States Good  Manufacturing  Practice  regulations.  The new
plant,  construction  of which is planned to commence in December 2003,  will be
located in a special  economic zone in the city of Shenyang that will provide us
with various multi-year tax and development  incentives.  Currently our products
are produced using third-party original equipment  manufacturing  relationships,
which  allows  us to  operate  with  approximately  35  employees.  However,  we
anticipate that when our new facility is certified and becomes  operational,  we
will have approximately 320 employees and we will cease using  third-parties for
the production and distribution of our products.

Shenyang  Tianwei  Werke  Pharmaceutical  Factory  has  chosen to locate its new
production  facility in the Shenyang Hunnan National New & High-Tech  Industrial
Development District.  This special economic district is located at the southern
part of the city of  Shenyang  with a total  area of  approximately  120  square
kilometers.  The  development  and  construction  of  the  High-Tech  Industrial
Development  District  is a  major  step  for  Shenyang's  economic  and  social
development.

The High-Tech Industrial  Development District was established in May of 1988 in
order  to  accelerate  the  development  and   industrialization   of  high-tech
industries in the North-Eastern  portion of the Peoples Republic of China. After
thirteen years of development,  it has successfully  attracted various high-tech
industries,  including:   biotechnology,   pharmaceuticals,   software,  digital
technology,  robots,  nano-materials and a distribution  center for IT products.
Currently, over 480 foreign enterprises including General Motors, Toshiba and LG
that have set up offices or manufacturing facilities in the High-Tech Industrial
Development District.

In order to create  unique  incentives  for companies to locate in the High-Tech
Industrial  Development  District,  favorable  corporate  income rates have been
established.  The income tax rate for those companies that have chosen to locate
in the High-Tech  Industrial  Development  District will be levied at 15 percent
annually. Newly founded high-tech enterprises,  including Shenyang Tianwei Werke
Pharmaceutical  Factory,  will enjoy  exemption from income tax for 2 years from
the first year of operation.


                                   NAME CHANGE

On October 1, 2003,  we changed our name from "Axiom  Pharmaceuticals,  Inc." to
"AXM Pharma,  Inc."  Our name change, which was approved by written consent of a
majority  of our  shareholders  and by  unanimous  resolution  of our  Board  of
Directors,  was made in conjunction  with the settlement of a claim of trademark
infringement alleged by Axiom Pharmaceutical Corporation on September 29, 2003.






                                                                               8
<PAGE>

                                AXM PHARMA, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

                FOR THE PERIOD ENDED SEPTEMBER 30, 2003 AND 2002



                             RISKS AND UNCERTAINTIES


All of the  following  risks may impair our business  operations.  If any of the
following risks actually occurs our business,  financial condition or results of
operations  could be materially  adversely  affected.  In such case, the trading
price of our common  stock could  decline,  and you may lose all or part of your
investment.  Additional risks include:  We may not be able to adequately protect
and maintain our intellectual  property. We may not be able to obtain regulatory
approvals for our products or reimbursement  from the sale of our products.  Our
dependence  on certain  local  third  parties  may impact our ability to control
certain  aspects of our  operations.  We rely on third  parties  for the supply,
manufacture and distribution of our products.  We may have difficulty  competing
with larger and better  financed  companies in our sector.  New  legislative  or
regulatory requirements may adversely effect our business and operations. We are
dependant on certain key existing and future personnel.  Our growth is dependent
on our ability to successfully develop,  acquire or license new drugs. We may be
subject  to  product  liability  claims in the  future.  Changes in the laws and
regulations in The Peoples Republic of China may adversely affect our ability to
conduct our business.  We may experience  barriers to conducting business due to
governmental  policy.  Capital outflow policies in The Peoples Republic of China
may hamper our ability to remit income to the United States.  Fluctuation of the
Renminbi  could  materially  affect  our  financial  condition  and  results  of
operations.  We may face  obstacles  from the  communist  system in The  Peoples
Republic of China.  We may have  difficulty  establishing  adequate  management,
legal and financial  controls in The Peoples  Republic of China.  Trade barriers
and taxes may have an adverse affect on our business and  operations.  There can
be no  guarantee  that The  Peoples  Republic  of  China  will  comply  with the
membership requirements of the World Trade Organization.  The recent outbreak of
Severe Acute Respiratory Syndrome (SARS) may adversely impact our operations and
the operations of our contract manufacturers and distributors.  There may not be
sufficient  liquidity in the market for our securities in order for investors to
sell their  securities.  The fact that our directors and officers own over 45.8%
of our capital stock may decrease the influence on  shareholder  decisions.  The
outstanding  warrants may  adversely  affect the Company in the future and cause
dilution to existing shareholders.


                                   INVENTORIES

Inventories, which consist primarily of raw materials and related materials, are
stated at the  lower of cost or  market  with  cost  determined  on a  first-in,
first-out (FIFO) basis. The Company regularly monitors inventories for excess or
obsolete items and makes any valuation  corrections  when such  adjustments  are
needed.


NOTE 3 - STOCK ISSUANCES

                COMMON STOCK ISSUED FOR STOCK-BASED COMPENSATION

The Company periodically issues common stock for services rendered. Common stock
issued is valued at the estimated fair market value, as determined by management
and the board of directors of the Company. Management and the board of directors
consider market price quotations, recent stock offering prices and other factors
in  determining  fair market  value for  purposes  of valuing the common  stock.
During the three months ending  September 30, 2003, AXM issued 541,667 shares of
common stock for services valued at $2,708,355.

On August 31, 2003, we issued 41,667 shares to Peter  Cunningham,  our President
and Chief Executive Officer,  pursuant to the terms of his employment  agreement
with  AXM  Pharma.  The  shares  were  issued  pursuant  to  an  exemption  from
registration  under  Section  4(2)  of the  Securities  Act  for  issuances  not
involving a public offering.






                                                                               9
<PAGE>


                                AXM PHARMA, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

                FOR THE PERIOD ENDED SEPTEMBER 30, 2003 AND 2002



On September 18, 2003, we issued  400,000  shares of restricted  Common Stock to
Madden  Consulting,  Inc.  pursuant to a consulting  agreement.  The shares were
issued pursuant to the exemption from  registration  provided by Section 4(2) of
the Securities Act for issuances not involving a public  offering.  The services
provided are public relations consulting.


On September 18, 2003, we issued 100,000 shares to Lan Hao, our Chief  Financial
Officer,  pursuant to the terms of his employment agreement with AXM Pharma. The
shares were issued pursuant to an exemption from registration under Section 4(2)
of the Securities Act for issuances not involving a public offering.


                     ACCOUNTING FOR STOCK-BASED COMPENSATION

The Company  accounts  for  stock-based  compensation  issued to  employees  and
advisors of the Company using the intrinsic  value based method as prescribed by
APB Opinion No. 25 "Accounting for Stock Issued to Employees"  ("APB 25"). Under
the intrinsic  value based method,  compensation  is the excess,  if any, of the
fair  value of the stock at the grant  date or other  measurement  date over the
amount an  employee  must pay to acquire  the stock.  Compensation,  if any,  is
recognized  over the  applicable  service  period,  which is usually the vesting
period.

In October 1995,  the  Financial  Accounting  Standards  Board  ("FASB")  issued
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). This standard, if fully adopted,  changes the method
of  accounting  for employee  stock-based  compensation  plans to the fair value
based method. For stock options and warrants,  fair value is determined using an
option  pricing model that takes into account the stock price at the grant date,
the exercise  price,  the expected  life of the option or warrant and the annual
rate of quarterly  dividends.  Compensation  expense, if any, is recognized over
the applicable service period, which is usually the vesting period.

In  March  2000,  the  FASB  issued  FASB  Interpretation  No.  44  ("FIN  44"),
"Accounting  for  Certain   Transactions   Involving  Stock   Compensation,   an
interpretation  of APB Opinion 25." FIN 44 clarifies the  application  of APB 25
for (a) the  definition  of employee  for  purposes of applying  APB 25, (b) the
criteria for determining  whether a plan qualifies as a  non-compensatory  plan,
(c) the  accounting  consequence  for  various  modifications  to the terms of a
previously  fixed stock option or award,  and (d) the accounting for an exchange
of stock compensation awards in a business combination. FIN 44 is effective July
1, 2000, but certain  provisions  cover specific  events that occur after either
December  15, 1998,  or January 12, 2000.  The adoption of FIN 44 did not have a
material effect on the financial statements.

The  adoption of the  accounting  methodology  of SFAS 123 is  optional  and the
Company has elected to continue  accounting for stock-based  compensation issued
to employees using APB 25, as amended by FIN 44; however, pro forma disclosures,
as if the Company adopted the cost recognition  requirements under SFAS 123, are
required to be presented (see below).  For  stock-based  compensation  issued to
non-employees,  the Company values these grants at fair value as defined in SFAS
123, FIN 44 and EITF 96-18,  "Accounting for Equity  Instruments That Are Issued
to Other Than Employees for Acquiring,  or in Conjunction  with Selling Goods or
Services."


                            CASH FINANCING ACTIVITIES

On September  12, 2003,  we completed a private  equity  financing of $5,500,000
with two accredited  investors.  After payment of costs and expenses,  including
fees  of  the  placement  agent,  we  received  net  proceeds  of  approximately
$4,850,000.  Pursuant to the terms of the Securities Purchase Agreements,  dated
as of August 21, 2003, and September 12, 2003, we issued 2,750,000 shares of our
preferred  stock,  $.001 par value per share,  at a price per share of $2.00 and
2,750,000 warrants. Each share of preferred stock is convertible,  at the option
of the holder, into one share of common stock, subject to adjustment for certain
occurrences.  Each  warrant  entitles  the holder to  purchase  one share of our
common stock, $.001 par value, for  a  period of  five years from  the  date  of




                                                                              10
<PAGE>

                                AXM PHARMA, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

                FOR THE PERIOD ENDED SEPTEMBER 30, 2003 AND 2002


issuance  at a price  of $3.00  per  share.  Holders  of our  warrants  may also
exercise the warrants through a cashless  exercise under certain  circumstances.
The  warrants  are  redeemable  by AXM Pharma under  certain  circumstances.  In
addition to its fees and  expenses,  TN Capital  Equities,  Ltd.,  the placement
agent,  received a five-year  warrant to purchase up to 275,000 units. Each unit
granted to the placement  agent consists of one share of our preferred stock and
one  common  stock  purchase   warrant.   The  placement  agent's  warrants  are
exercisable at a price of $2.00 per unit.

Also, in connection  with the issuance of the shares of our preferred  stock and
warrants to our investors,  we agreed to file a registration  statement with the
Commission  in order to register  for resale the shares of our common stock into
which the  shares of our  preferred  stock may be  converted  and the  shares of
common stock  issuable  upon the  exercise of the  warrants If our  registration
statement is not declared effective by the Securities and Exchange Commission by
December  25, 2003,  we will begin to owe  penalties  to our  investors.  We are
required to keep this registration statement effective until such time as all of
the common stock  underlying the shares of our preferred  stock and the warrants
is freely tradeable under the Securities Act of 1933, as amended.

In the Securities Purchase Agreement,  each purchaser agreed not to sell, in any
calendar  month  during  the  one-year  period  beginning  on  the  date  of the
Securities Purchase Agreement,  more than 1/12 of the aggregate number of shares
of common stock issuable upon  conversion of the preferred stock and exercise of
the warrants purchased by such purchaser;  provided, however, that the number of
shares  that can be sold is  cumulative  and  begins  to  accumulate  on the day
following the date of the Securities Purchase Agreement,  and, provided that the
number of shares that can be sold in any calendar  month will increase to 1/6 of
such  aggregate  number of shares of common stock  issuable to such purchaser in
the event the average  daily  trading  volume in the common stock is equal to or
greater  than  200,000  shares  per day in the  previous  20 trading  days.  Our
executive officers, directors and 5% or greater shareholders have also agreed to
abide by lock-up  provisions  substantially  similar  to those  agreed to by the
purchasers in the Securities Purchase Agreement.


                               STOCK OPTION PLANS

We do not currently have any stock option or incentive plans.  Thus, there is no
adjustment to the net loss figures.


                               REVENUE RECOGNITION

Product  sales  revenue  is  recognized  upon  passage  of title  to  customers,
typically  upon  shipment of product.  Any provision for discounts and estimated
returns are accounted for in the period the related sales are recorded.



ITEM 2.  MANANGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

The  following  discussion  should  be read in  conjunction  with our  Financial
Statements  and Notes  thereto  which  appear  elsewhere in this  document.  The
results  shown  herein  are not  necessarily  indicative  of the  results  to be
expected  in  any  future  periods.  This  discussion  contains  forward-looking
statements based on current expectations,  which involve  uncertainties.  Actual
results   and  the  timing  of  events   could   differ   materially   from  the
forward-looking  statements as a result of a number of factors.  Readers  should
also  carefully  review  factors set forth in other reports or documents that we
file from time to time with the Securities and Exchange Commission.







                                                                              11
<PAGE>

                                AXM PHARMA, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

                FOR THE PERIOD ENDED SEPTEMBER 30, 2003 AND 2002


                         LIQUIDITY AND CAPITAL RESOURCES


On March 14, 2003, we completed a Share  Exchange  (the "Share  Exchange ") with
Werke Pharmaceuticals,  Inc. ("Werke"), a Delaware corporation formed to develop
and finance the growth of Chinese based pharmaceutical companies. As a result of
the Share  Exchange,  Werke became our wholly owned  subsidiary.  Werke's wholly
owned operating  subsidiary is Shenyang Tianwei Werke Pharmaceutical Co. Ltd., a
northern China-based  pharmaceutical  company.  The comparables  discussed below
relate to the  operations  of Werke and its wholly  owned  subsidiary,  Shenyang
Tianwei Werke Pharmaceutical Co., for the periods discussed.

We anticipate seeking Chinese government  approval to repackage our product line
with the AXM Pharma brand during the fourth quarter of 2003 following completion
of a full  redesign and  reconfiguration  of our  products by our  international
brand  consulting  firm  and  the  initiation  of  the  construction  of  a  new
manufacturing and distribution facility in Shenyang, China.

Our products are currently  primarily sold through one third party  distributor,
Liaoning  Weikang  Medicine  Co.,  Ltd.  and its selected  sub-distributors,  to
hospital  pharmacies in the key cities of Shanghai,  Guangzhou and Shenyang.  We
anticipate  expanding  our sales into retail  pharmacies  within  these  regions
during the next quarter and will make efforts to expand both hospital and retail
pharmacy sales into other regional cities such as Beijing.

We  are  currently   seeking  to  license  various  branded  OTC  products  from
identifiable  North  American   pharmaceutical  and  supplement   companies  for
distribution and manufacturing in China and Asia-Pacific. As of the date of this
filing  we have  not  entered  into  any  definitive  agreements  with  any such
companies.

Total assets  increased  from  $4,312,196 at December 31, 2002 to $10,551,363 at
September  30,  2003.  The  increase  is  primarily  attributable  to receipt of
$4,850,000 in net proceeds from the placement of securities,  from gross profits
gained in operations,  which increase was offset by cash and securities used for
the payment of United States based  general &  administrative  expenses,  common
stock  issued  for   services,   offering  fees  &  expenses  and  planning  and
construction of the new plant in Shenyang.

During the third quarter,  the Company  completed a private equity  financing of
$5,500,000 with two accredited  investors.  After payment of costs and expenses,
including fees of the placement agent, we received net proceeds of approximately
$4,850,000.  Pursuant to the terms of the Securities Purchase Agreements,  dated
as of August 21, 2003, and September 12, 2003, we issued 2,750,000 shares of our
preferred  stock,  $.001 par value per share,  at a price per share of $2.00 and
2,750,000 warrants. Each share of preferred stock is convertible,  at the option
of the holder, into one share of common stock, subject to adjustment for certain
occurrences.  Each  warrant  entitles  the holder to  purchase  one share of our
common  stock,  $.001 par  value,  for a period of five  years  from the date of
issuance at a price of $3.00 per share.

Our total outstanding current  liabilities  increased to $2,683,065 at September
30, 2003 as compared to $1,409,336 at December 31, 2002. The current liabilities
increase was the resulted from an increase in accrued  expenses and  value-added
tax payable.

From  December 31, 2002 to September  30,  2003,  our cash and cash  equivalents
increased  by  $4,171,570  as a result of receipt of net proceeds in the private
placement  offering of $4,850,000  and an operating  gross profit of $2,187,364.
This figure was offset by cash and non-cash general,  administrative and selling
expenses of $5,634,712.  The general,  administrative  and selling  expenditures
were incurred primarily for offering fees & expenses, planning and construction,
legal and accounting fees and non-cash  consulting  fees.  Where the Company can
pay for services (e.g.  financial  consulting and investor  relations  services)
using  shares  of its  common  stock,  the  Company  takes  advantage  of  these
opportunities to conserve cash.

Assuming no decrease in current  accounts  payable  and  accounting  for various
one-time expenses, as of November 18, 2003, cash is being decreased at  the rate
of approximately  $100,000 per month.  Without a significant change in sales and



                                                                              12
<PAGE>


                                AXM PHARMA, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

                FOR THE PERIOD ENDED SEPTEMBER 30, 2003 AND 2002


operating gross profits, our only source of significant additional funds to meet
future operating expenses is the sale of the Company's securities. The amount of
cash on hand is  sufficient  to meet our  operating  expenses  through  at least
December 31, 2004.  Management  anticipates that the future prospects and trends
in our business  indicate that the Company may experience at least a 100 percent
growth of sales and operating gross profits during 2004.

We do  expect  to  incur  material  capital  expenditures  for the new  plant in
Shenyang.  Any  required  future  capital  expenditures  for the new  plant  and
associated  manufacturing equipment will be funded out of existing cash on hand,
future  revenues or additional  financing  activities.  There is no assurance we
will be able to generate  sufficient  revenues or obtain  sufficient  funds when
needed,  or  whether  such  funds,  if  available,  will be  obtained  on  terms
satisfactory to us. We do not have any long term or contingent  obligations that
must be satisfied.

Additionally,  in order  to  ensure  that  sufficient  funds  are  available  to
development  various  additional phases of the new Shenyang plant, we may in the
near future,  following  completing any  regulatory or  contractual  obligations
redeem the warrants  sold in the private  placement.  If one hundred  percent of
these warrants were redeemed, we would receive approximately $8,250,000 in gross
proceeds.  Our  ability to call the  warrants  is,  however,  subject to several
factors  beyond our control.  Such factors  include,  the  effectiveness  of our
registration  statement on Form SB-2, filed September 25, 2003, and the price of
our common  stock on the market on which it trades.  Therefore,  there can be no
guarantee  that we will be able to call the warrants or that we will receive any
proceeds from the exercise of the warrants.


                          CRITICAL ACCOUNTING POLICIES

Our  Unaudited  Financial  Statements  have been  prepared  in  accordance  with
accounting  principles  generally accepted in the United States. The preparation
of these financial  statements  requires us to make estimates and judgments that
affect the reported amounts of assets,  liabilities,  revenues and expenses, and
related  disclosure of contingent assets and liabilities.  We base our estimates
on historical  experience and on various other  assumptions that are believed to
be reasonable  under the  circumstances,  the results of which form the basis of
making  judgments about the carrying  values of assets and liabilities  that are
not readily  apparent from other  sources.  Actual results may differ from these
estimates under different assumptions or conditions.

We believe the following critical accounting policies,  among others, affect our
more  significant  judgments  and  estimates  used  in  the  preparation  of our
financial statements:

ALLOWANCE FOR DOUBTFUL  ACCOUNTS.  We maintain  allowances for doubtful accounts
for  estimated  losses  resulting  from the  inability of our  customers to make
required  payments.  The  allowance  for doubtful  accounts is based on specific
identification  of customer  accounts and our best estimate of the likelihood of
potential loss, taking into account such factors as the financial  condition and
payment  history of major  customers.  We  evaluate  the  collectibility  of our
receivables at least quarterly. If the financial condition of our customers were
to  deteriorate,  resulting in an impairment of their ability to make  payments,
additional  allowances may be required.  The  differences  could be material and
could significantly impact cash flows from operating activities.

INVENTORY.   We  write  down  our  inventory  for  estimated   obsolescence   or
unmarketable inventory equal to the difference between the cost of inventory and
the estimated  market value based upon assumptions  about future demand,  future
pricing and market conditions. If actual future demand, future pricing or market
conditions  are less favorable  than those  projected by management,  additional
inventory  write-downs  may be required and the  differences  could be material.
Such  differences   might   significantly   impact  cash  flows  from  operating
activities.

SALES ALLOWANCES.  A portion of our business is to sell products to distributors
who resell the  products  to the end  customers.  In  certain  instances,  these
distributors   obtain  discounts  based  on  the  contractual   terms  of  these
arrangements.  Sales discounts are usually based upon the volume of purchases or
by  reference  to a specific  price in the related  distribution  agreement.  We
recognize  the  amount of these  discounts  at the time the sale is  recognized.
Additionally, sales returns allowances are estimated based on historical  return



                                                                              13
<PAGE>



                                AXM PHARMA, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

                FOR THE PERIOD ENDED SEPTEMBER 30, 2003 AND 2002



data,  and  recorded  at the time of sale.  If the  quality or  efficacy  of our
products  deteriorates or market conditions  otherwise change,  actual discounts
and  returns  could  be  significantly  higher  than  estimated,   resulting  in
potentially material differences in cash flows from operating activities.

VALUATION OF INTANGIBLES.  From time to time, we acquire  intangible assets that
are beneficial to our product development  processes.  We periodically  evaluate
the carrying value of intangibles,  including the related amortization  periods.
In evaluating acquired intangible assets, we determine whether there has been an
impairment  by  comparing  the  anticipated  undiscounted  cash  flows  from the
operation and eventual  disposition of the product line with its carrying value.
If the  undiscounted  cash flows are less than the carrying value, the amount of
the  impairment,  if any, will be determined by comparing the carrying  value of
each  intangible  asset with its fair value.  Fair value is  generally  based on
either a discounted  cash flows analysis or market  analysis.  Future  operating
income is based on various assumptions,  including regulatory approvals, patents
being  granted,  and the type and nature of competing  products.  If  regulatory
approvals or patents are not  obtained or are  substantially  delayed,  or other
competing  technologies are developed and obtain general market  acceptance,  or
market  conditions  otherwise  change,  our intangibles may have a substantially
reduced value, which could be material.


DEFERRED  TAXES.  We record a valuation  allowance  to reduce the  deferred  tax
assets  to the  amount  that is more  likely  than not to be  realized.  We have
considered  estimated future taxable income and ongoing tax planning  strategies
in  assessing  the amount  needed for the  valuation  allowance.  Based on these
estimates,  all of our deferred tax assets have been reserved. If actual results
differ  favorably  from those  estimates  used, we may be able to realize all or
part of our net deferred tax assets.  Such realization  could positively  impact
our operating results and cash flows from operating activities.

LITIGATION.  We account for  litigation  losses in accordance  with Statement of
Financial  Accounting  Standards (SFAS) No. 5,  "Accounting for  Contingencies."
Under SFAS No. 5, loss  contingency  provisions are recorded for probable losses
at management's best estimate of a loss, or when a best estimate cannot be made,
a  minimum  loss  contingency  amount is  recorded.  These  estimates  are often
initially developed  substantially  earlier than the ultimate loss is known, and
the estimates are refined each accounting  period, as additional  information is
known. Accordingly,  we are often initially unable to develop a best estimate of
loss;  therefore,  the minimum  amount,  which could be zero,  is  recorded.  As
information becomes known, either the minimum loss amount is increased or a best
estimate can be made, resulting in additional loss provisions.  Occasionally,  a
best  estimate  amount is changed to a lower  amount  when  events  result in an
expectation of a more favorable  outcome than  previously  expected.  Due to the
nature of current litigation matters,  the factors that could lead to changes in
loss  reserves  might  change  quickly and the range of actual  losses  could be
significant,  which could  materially  impact our results of operations and cash
flows from operating activities.




RESULTS OF OPERATIONS

THREE MONTHS ENDED  SEPTEMBER 30, 2003 COMPARED TO THREE MONTHS ENDED  SEPTEMBER
30, 2002

REVENUE.  During the  three-month  period ended September 30, 2003, we generated
$3,123,441  from product  sales  compared to revenues from product sales for the
three-month period ended September 30, 2002 of $337,866.  This is an increase of
$2,785,575 or 824.5%.  The increase is primarily due to more robust sales of our
product line,  particularly  the sales of Asarone  tablets and Weifukang  cream.
Domestic Chinese  customers  accounted for 100% of total sales. We estimate that
45% of these  sales were from the sale of Asarone  Tablets and 27% were from the
sale of Weifukang cream.





                                                                              14
<PAGE>


                                AXM PHARMA, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

                FOR THE PERIOD ENDED SEPTEMBER 30, 2003 AND 2002


The  Company  is  seeking  additional   distribution  agreements  with  regional
distributors  in  various  provinces  in  China.  The  Company  is also  seeking
additional  manufacturing  and marketing right to new OTC formulas and products.
During the  period  ended  September  30,  2003 no  additional  distribution  or
manufacturing & marketing rights were concluded by the Company.

Management  anticipates  growing  total  revenues  by as much  as 100% in  2004,
through  broader  distribution  within China and the addition of one or more new
products. Despite the views of management, the statement concerning future gross
revenues  is  a  forward-looking  statement  that  involves  certain  risks  and
uncertainties,  which could result in a  fluctuation  of gross sales below those
achieved for the three months ended September 30, 2003.  Pricing of our products
and gross profit on product sales could change due to  competitive  forces which
could negatively impacted future sales and or operating profits.

GROSS  PROFIT.  Gross profit on product sales for the  three-month  period ended
September 30, 2003, was $936,922 compared to a loss $317,400 for the three-month
period ended  September  30, 2002,  an increase of  $1,254,322.  The increase in
gross profits during the  three-month  period ended  September 30, 2003, was due
primarily  due  to  an  increase  in  Asarone   tablets,   which  accounted  for
approximately  45% of gross profits,  and Weifukang  cream sales which accounted
for approximately  27% of gross profits,  and more efficient third party product
manufacturing, which accounted for approximately 5% of the increase in our gross
profits. Assuming the product sales mix remains the same, management anticipates
future gross profit  margins to increase by as much as another 5% in 2004.  This
gross profit margin increase is due to higher pricing of the Company's  products
and slightly lower  distribution  costs.  Despite the views of  management,  the
statement concerning future gross profit margins is a forward-looking  statement
that  involves  certain  risks  and  uncertainties,  which  could  result  in  a
fluctuation  of gross  margins  below those  achieved for the three months ended
September  30, 2003.  Pricing of our products and gross profit on product  sales
could change due to competitive  forces which could  negatively  impacted future
sales and or operating profits.

GENERAL,   ADMINISTRATIVE   AND   SELLING   EXPENSES.   We   incurred   General,
Administrative  and Selling  expenses of $4,011,808 for the  three-month  period
ended September 30, 2003,  compared to $170,353 for the three-month period ended
September  30, 2002,  an increase of  $3,821,330  or 2243.2%.  This  increase in
General,  Administrative  and Selling  expenses was  primarily  the result of an
increase in third party  consulting  fees  associated  with  investor  relations
(non-cash),  which  accounted  for  approximately  67% of our  expenses  in this
category, an increase in travel expenses which accounted for approximately 1% of
our expenses in this  category,  an increase in legal fees which  accounted  for
approximately 3% of our expenses in this category, an increase in salaries which
accounted  for  approximately  3% of our  expenses  in this  category,  fees and
benefits which accounted for approximately 10% of our expenses in this category,
equipment and software  acquisition  which accounted for approximately 1% of our
expenses in this category,  and the costs associated with the private  placement
which accounted for approximately 13% of our expenses in this category.

NON-CASH  CONSULTING  ACTIVITIES.  During the three-month period ended September
30,  2003,  our Board of  Directors  authorized  the  issuance  of shares of our
restricted common stock to various  consultants in lieu of cash payments.  Based
upon the common stock trading price at the times of issuance, and FASB rules, we
were  required  to incur  non-cash  consulting  expenses of  $2,708,335  for the
issuance of these shares during the three-month period ended September 30, 2003.

NET LOSS AND LOSS PER SHARE. As a result of the above, in the three months ended
September 30, 2003, the Company's net loss was $3,074,886  including  $2,708,335
in non-cash stock issuance related losses or $(0.23) per share compared to a net
loss of $487,753 or $(0.04) per share for the same period in the prior year. The
Net Loss for the three months ended September 30, 2003 was a result of increased
expenses related selling and marketing of our products; expenses associated with
our public  reporting  status;  and  increased  activities  associated  with the
proposed construction of a new plant in Shenyang.





                                                                              15
<PAGE>


                                AXM PHARMA, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

                FOR THE PERIOD ENDED SEPTEMBER 30, 2003 AND 2002



NINE MONTHS ENDED SEPTEMBER 30, 2003 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
2002

REVENUE.  During the  nine-month  period ended  September 30, 2003, we generated
$6,338,657  from product  sales  compared to revenues from product sales for the
nine-month  period ended September 30, 2002, of $1,915,970.  This is an increase
of $4,422,687,  or 230.8%.  Revenues were higher in the 2003 periods due to more
robust sales of our product line,  particularly the sales of Asarone tablets and
Weifukang cream.  Domestic Chinese customers  accounted for 100% of total sales.
We estimate  that 45% of these  sales were from the sale of Asarone  Tablets and
27% were from the sale of Weifukang cream.

The  Company  is  seeking  additional   distribution  agreements  with  regional
distributors  in  various  provinces  in  China.  The  Company  is  also  seeing
additional  manufacturing  and marketing right to new OTC formulas and products.
During the  period  ended  September  30,  2003 no  additional  distribution  or
manufacturing & marketing rights were concluded by the Company.

Management  anticipates  growing  total  revenues  by as much  as 100% in  2004,
through  broader  distribution  within China and the addition of one or more new
products. Despite the views of management, the statement concerning future gross
revenues  is  a  forward-looking  statement  that  involves  certain  risks  and
uncertainties,  which could result in a  fluctuation  of gross sales below those
achieved for the nine months ended  September 30, 2003.  Pricing of our products
and gross profit on product sales could change due to  competitive  forces which
could negatively impacted future sales and or operating profits.

GROSS  PROFIT.  Gross profit on product  sales for the  nine-month  period ended
September  30, 2003,  was  $2,187,364  compared to $215,636  for the  nine-month
period ended September 30, 2002, an increase of $1,971,728 or 914.4%.

The increase in gross profits during the nine-month  period ended  September 30,
2003, was due primarily due to an increase in Asarone  tablets,  which accounted
for  approximately  45% of  gross  profits,  and  Weifukang  cream  sales  which
accounted for approximately 27% of gross profits, and more efficient third party
product  manufacturing,  which accounted for approximately 5% of the increase in
our gross profits.  Assuming the product sales mix remains the same,  management
anticipates  future gross profit margins to increase by as much as another 5% in
2004.  This  gross  profit  margin  increase  is due to  higher  pricing  of the
Company's products and slightly lower distribution  costs.  Despite the views of
management,   the  statement   concerning  future  gross  profit  margins  is  a
forward-looking  statement that involves certain risks and uncertainties,  which
could result in a fluctuation of gross margins below those achieved for the nine
months ended  September  30,  2003.  Pricing of our products and gross profit on
product  sales could change due to  competitive  forces  which could  negatively
impacted future sales and or operating profits.

GENERAL, ADMINISTRATIVE AND SELLING EXPENSES. During the nine-month period ended
September  30,  2003,  we  incurred  General  and  Administrative   expenses  of
$5,654,837  compared to $467,251 for the nine-month  period ended  September 30,
2002,  an  increase  of  $5,167,463  or  1,105.9%.  This  increase  in  General,
Administrative  and Selling  expenses was primarily the result of an increase in
third party consulting fees associated with investor relations (non-cash), which
accounted for approximately 67% of our expenses in this category, an increase in
travel  expenses which  accounted for  approximately  1% of our expenses in this
category,  an increase in legal fees which accounted for approximately 3% of our
expenses  in  this  category,  an  increase  in  salaries  which  accounted  for
approximately  3% of our  expenses in this  category,  fees and  benefits  which
accounted for approximately 10% of our expenses in this category,  equipment and
software  acquisition  which accounted for  approximately  1% of our expenses in
this  category,  and the  costs  associated  with the  private  placement  which
accounted for approximately 13% of our expenses in this category.





                                                                              16
<PAGE>



                                AXM PHARMA, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

                FOR THE PERIOD ENDED SEPTEMBER 30, 2003 AND 2002



NON-CASH CONSULTING ACTIVITIES. During the nine-month period ended September 30,
2003, our Board of Directors authorized the issuance of shares of our restricted
common stock to various  consultants  in lieu of cash  payments.  Based upon the
common stock  trading  price at the times of issuance,  and FASB rules,  we were
required to incur non-cash consulting expenses of $3,495,835 for the issuance of
these shares during the nine-month period ended September 30, 2003.

NET LOSS AND LOSS PER SHARE.  As a result of the above, in the nine months ended
September 30, 2003, the Company's net loss was $3,467,473  including  $3,495,835
in non-cash stock issuance related losses or $(0.27) per share compared to a net
loss of $251,612 or $(0.02) per share for the same period in the prior year. The
Net Loss  for the  nine-months  ended  September  30,  2003  was the  result  of
increased expenses related selling and marketing of our products which accounted
for 52%;  expenses  associated  with our public  reporting  status  and  raising
capital  accounted  for 43%; and 5% was  associated  with  increased  activities
related to the proposed construction of a new plant in Shenyang.

ASSETS AND  LIABILITIES.  At September 30, 2003, the Company had total assets of
$10,551,363  compared to total assets of $4,312,196  at December 31, 2002.  Cash
was  $4,277,597  as of September 30, 2003, an increase of $4,171,394 or 3,927.8%
from the $106,203 cash on hand as of December 31, 2002.  Cash used in operations
was $734,882 and cash provided by financing  activities  from the sale of common
stock was $4,888,562.

Accounts  receivable  was  $2,823,025  at  September  30,  2003,  an increase of
$1,890,024 or 202.6% from the $933,001 at December 31, 2002 due  principally  to
higher sales figures.  Inventories  increased  $392,887 (29.7%),  to $1,717,812,
from the  $1,324,925  at December  31,  2002.  The  increase in  inventories  is
attributable to managing inventory to meet the higher sales figures.

Total  liabilities  at  September  30,  2003 were  $2,683,065,  an  increase  of
$1,273,729  from the  $1,409,336  at December  31,  2002.  Accounts  payable and
accrued liabilities were $318,841 at September 30, 2003, an increase of $121,576
or 61.6% from the $197,265 at December 31, 2002.  The increase is primarily  due
to accrued expenses related to the planning, development and construction of the
new plant in Shenyang.

FORWARD LOOKING STATEMENTS. This Form 10-QSB contains forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking  statements made by the Company involve known and unknown risks,
uncertainties and other factors which may cause the actual results,  performance
or  achievements  of the  Company  to be  materially  different  from any future
results,   performance   or   achievements   expressed   or   implied   by  such
forward-looking  statements.  Factors that could cause actual  results to differ
materially from the forward looking statements include,  but are not limited to,
risks  associated  with lack of significant  operating  history,  demand for the
Company's products, international business operations,  dependence on licensees,
governmental   regulations,   technological  changes,  intense  competition  and
dependence on management.  Given these uncertainties,  readers are cautioned not
to place  undue  reliance  on such  forward-looking  statements.  The  Company's
management  disclaims any  obligation to  forward-looking  statements  contained
herein to reflect any change in the Company's expectation with regard thereto or
any change in events,  conditions,  circumstances or assumptions underlying such
statements.


ITEM 3.  CONTROLS AND PROCEDURES

An evaluation was carried out under the supervision  and with the  participation
of the Company's  management,  including our Chief  Executive  Officer and Chief
Financial  Officer,  regarding the effectiveness of our disclosure  controls and
procedures  (as defined in Rule 13a-14(c)  under the Securities  Exchange Act of
1934) as of  September  30,  2003.  As a result of their  evaluation,  our Chief
Executive  Officer and Chief Financial Officer have concluded that the Company's
disclosure  controls and  procedures  are  effective to ensure that  information




                                                                              17
<PAGE>



                                AXM PHARMA, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

                FOR THE PERIOD ENDED SEPTEMBER 30, 2003 AND 2002


required  to be  disclosed  by the  Company in reports  that it files or submits
under the Securities Exchange Act of 1934 is recorded, processed, summarized and
reported  within the time  periods  specified  in the  Securities  and  Exchange
Commission  rules and forms.  There were no  changes in the  Company's  internal
control  over  financial  reporting  that  occurred  during  the  quarter  ended
September 30, 2003,  that has  materially  affected and is reasonably  likely to
materially affect, the Company's internal control over financial reporting.



                           PART II - OTHER INFORMATION


ITEM 1.   LEGAL PROCEEDINGS

On  June  3,  2003,  we  received  correspondence  from  counsel  to  an  entity
purportedly  known as Axiom  Pharmaceutical  Corporation,  which alleged that we
were   infringing   upon  its  use  of  the  trademark   "Axiom   Pharmaceutical
Corporation." On September 29, 2003, we entered into a settlement agreement with
Axiom  Pharmaceutical  Corporation,  whereby  we agreed to cease  using the name
"Axiom   Pharmaceuticals,   Inc."  and  in  consideration  Axiom  Pharmaceutical
Corporation  agreed to release us from any claims of infringement  regarding use
of the trademark "Axiom Pharmaceutical  Corporation" and to pay us $5,000. Other
than as disclosed  herein,  we are not a party to any material legal  proceeding
and no such proceeding is known to be contemplated.


ITEM 2. EMPLOYMENT AGREEMENTS

In August 2003, we entered into an employment  agreement with Peter  Cunningham,
our President and Chief  Executive  Officer.  Although he was original  hired to
serve as our Chief  Operating  Officer,  in September  2003, Mr.  Cunningham was
promoted to the positions of President and Chief Executive Officer.  At the time
of his promotion,  other than the change in his  responsibilities,  the terms of
Mr. Cunningham's  employment  agreement remained the same. Pursuant to the terms
of his agreement with the Company,  Mr.  Cunningham  shall be paid not less than
$120,000 per year for his services.  In addition,  Mr. Cunningham is entitled to
receive a stock  grant of 250,000  shares of our common  stock,  which  shall be
issued and vest in equal  installments  every six months  (41,667  per six month
period)  beginning in August 2003.  Mr.  Cunningham  is also  entitled to health
insurance and such other bonus and incentives as the Board of Directors,  in its
discretion, shall authorize. Mr. Cunningham's salary, bonus and incentives shall
be reviewed yearly by our Board of Directors and compensation committee with the
goal of bringing Mr. Cunningham's  salary in line with industry  standards.  The
term  of Mr.  Cunningham's  agreement  with  the  Company  is one  year  but the
agreement shall automatically renew on the first and second anniversary dates of
the  agreement  unless  either the Company or Mr.  Cunningham  provides  written
notice to the other not less  than 60 days  prior to the  anniversary  date that
they do not wish to renew  the  agreement,  in which  case the  agreement  shall
expire on the day prior to the anniversary date. The Agreement may be terminated
for good  cause  by  either  party in the  event  of a  material  breach  of the
employment  agreement  by  either  party or in the case of Mr.  Cunningham  of a
change in control of the Company. In the event of termination with good cause by
Mr. Cunningham or without good cause by the Company,  Mr. Cunningham is entitled
to three  months  severance  plus bonus and  incentives  earned to that date and
relocation  to Los  Angeles,  California.  In the event that Mr.  Cunningham  is
terminated  for good cause by the Company or terminates  the  agreement  without
good  cause he will  only be  entitled  to  payment  of his  salary,  bonus  and
incentives  earned to the date of  termination  and  relocation  to Los Angeles,
California.  Mr.  Cunningham's  agreement requires that he keep confidential any
proprietary  information  acquired  while  employed and upon  termination of his
employment.  He is also  prohibited from soliciting any employees of the Company
for a period of one year following his termination for any reason.






                                                                              18
<PAGE>


In September 2003, we entered into employment  agreement with Lan Hao, our Chief
Financial Officer.  Pursuant to the terms of his agreement with the Company, Mr.
Hao is entitled to be paid $120,000 per year for his services. In addition,  Mr.
Hao  received  a stock  grant of  100,000  shares of our  common  stock,  health
insurance and such other bonus and incentives as the Board of Directors,  in its
discretion,  shall authorize.  The term of Mr. Hao's employment agreement is one
year but the  agreement  may be terminated by either party with or without cause
on 30 days written  notice.  In the event of termination  with good cause by Mr.
Hao or without  good cause by the  Company,  Mr. Hao is entitled to three months
severance plus bonus and  incentives  earned to that date. In the event that Mr.
Hao is  terminated  for good cause by the Company or  terminates  the  agreement
without good cause he will only be entitled to payment of his salary,  bonus and
incentives  earned to the date of  termination.  Mr.  Hao is not  subject to any
restrictive  covenants  in  his  employment  agreement.   Mr.  Hao's  employment
agreement may be extended by mutual written consent of the Company and Mr. Hao.


ITEM 3. RECENT SALES OF UNREGISTED SECURITIES

On September 18, 2003,  we issued  41,667  shares of restricted  Common Stock to
Peter  Cunningham  pursuant to an employment  agreement.  The shares were issued
pursuant to the  exemption  from  registration  provided by Section  4(2) of the
Securities Act for issuances not involving a public  offering.  The services are
to include management duties as President and CEO.

On September 18, 2003, we issued  100,000  shares of restricted  Common Stock to
Lan Hao pursuant to an employment agreement.  The shares were issued pursuant to
the exemption from  registration  provided by Section 4(2) of the Securities Act
of 1933 for  issuances  not  involving a public  offering.  The  services are to
include management duties as CFO.

On September 18, 2003, we issued  400,000  shares of restricted  Common Stock to
Madden  Consulting,  Inc.  pursuant to a consulting  agreement.  The shares were
issued pursuant to the exemption from  registration  provided by Section 4(2) of
the Securities Act for issuances not involving a public  offering.  The services
provided are public relations consulting.

On September  12, 2003,  we completed a private  equity  financing of $5,500,000
with two accredited  investors.  After payment of costs and expenses,  including
fees  of  the  placement  agent,  we  received  net  proceeds  of  approximately
$4,850,000.  Pursuant to the terms of the Securities Purchase Agreements,  dated
as of August 21, 2003, and September 12, 2003  (collectively  referred to herein
as the  "Securities  Purchase  Agreement"),  we issued  2,750,000  shares of our
Series A Preferred Stock, $.001 par value per share (the "Preferred  Stock"), at
a price per share of $2.00 and  2,750,000  Common Stock  Purchase  Warrants (the
"Warrants"),  each of which entitles the holder to purchase one share of the our
common stock,  $.001 par value (the "Common Stock"),  for a period of five years
from the date of issuance at a price of $3.00 per share. Each share of Preferred
Stock is  convertible,  at the  option of the  holder,  into one share of common
stock,  subject to adjustment for certain  occurrences.  In addition to its fees
and  expenses,  TN Capital  Equities,  Ltd.,  the  placement  agent,  received a
five-year  warrant to  purchase  up to 275,000  units (the  "Units"),  each Unit
consisting of one share of Preferred  Stock and one Warrant at an exercise price
of $2.00 per Unit.


ITEM 4.  EXHIBITS AND REPORTS ON FORM 8-K

(a) The following exhibits are filed as part of this report.

       Exhibit No.                     Document

           31.1  Certification  of  Chief  Executive  Officer  required  by Rule
                 13a-14/15d-14(a) under the Exchange Act.

           31.2  Certification  of  Chief  Financial  Officer  required  by Rule
                 13a-14/15d-14(a) under the Exchange Act.

           32.1  Certification of Chief Executive  Officer pursuant to 18 U.S.C.
                 Section  1350,  as  adopted  pursuant  to  Section  906  of the
                 Sarbanes-Oxley Act of 2002.




                                                                              19
<PAGE>


           32.2  Certification of Chief Financial  Officer pursuant to 18 U.S.C.
                 Section  1350,  as  adopted  pursuant  to  Section  906  of the
                 Sarbanes-Oxley Act of 2002.

(b) Reports of Form 8-K

We filed the  following  Current  Reports on Form 8-K during the  quarter  ended
September 30, 2003:

On July 1, 2003, we filed an amendment on Form 8-K/A in order to correct certain
disclosures regarding beneficial ownership of our officers,  directors and 5% or
greater  shareholders  disclosed in our r Current Report on Form 8-K, originally
filed on March 21, 2003, and subsequently amended on May 29, 2003.

On August 22, 2003,  we filed a Current  Report,  dated August 21, 2003, on Form
8-K  disclosing  the fact  that we had  raised  2,000,000  from  one  accredited
investor in a private  equity  financing  made  pursuant to the  exemption  from
registration provided by Section 4(2) of the Securities Act of 1933, as amended,
for  issuances  not  involving a public  offering and  Regulation D  promulgated
thereunder.

On August 27,  2003,  we filed a Current  Report on Form 8-K,  dated  August 25,
2003,  disclosing the appointment of Lan Hao as our Chief Financial  Officer and
Peter Cunningham as our Chief Executive Officer.

On September 12, 2003, we a filed a Current Report on Form 8-K, dated  September
11, 2003,  disclosing that That Ngo had resigned as our Chief Executive  Officer
and a member of our Board of  Directors.  We also  disclosed in the same Current
Report that our Board of Directors had promoted Peter Cunningham, our then Chief
Operating Officer,  to the position of Chief Executive Officer and that Lan Hao,
our Chief Financial  Officer,  had been chosen by the Board of Directors to fill
the vacancy on the Board created by That Ngo's resignation as a director.

On September 15, 2003, we filed a Current  Report on Form 8-K,  dated  September
12, 2003,  disclosing  the fact that we had raised an additional  3,500,000 from
two  accredited  investor in a private  equity  financing  made  pursuant to the
exemption  from  registration  provided by Section 4(2) of the Securities Act of
1933, as amended, for issuances not involving a public offering and Regulation D
promulgated thereunder.

On October  3, 2003,  we filed a Current  Report on Form 8-K,  dated  October 1,
2003,  disclosing  the fact we had changed our  corporate  name to "AXM  Pharma,
Inc." from "Axiom Pharmaceuticals, Inc."






                                   SIGNATURES

In accordance with the  requirements of the Exchange Act, the registrant  caused
this  report to be  signed on its  behalf  by the  undersigned,  thereunto  duly
authorized.

Date:  November 18, 2003                      AXM PHARMA, INC.

                                            By:   /s/ Peter Cunningham
                                                      ------------------------
                                                      Peter Cunningham,
                                                      President and CEO

                                                 /s/  Lan Hao
                                                      ------------------------
                                                      Lan Hao,
                                                      Chief Financial Officer





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