U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549



FORM 10-Q/A





(Mark One)



[x]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934



For the quarterly period ended June 30, 2005



[ ] 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 001-31886



AXM Pharma, Inc.

__________________________________________________________________

(Exact name of registrant as specified in its charter)



|Nevada
_________________________(State or other jurisdiction
                              
of incorporation or organization) | 20-0745214
          ___________________________(IRS
                    Employer Identification No.)
|----------------------------------------------------------------------------------------------------------------------------- | -----------------------------------------------------------------------------------------------------
|                                                                                                                              |                                                                                                      



US Representative Office



7251 West Lake Mead Blvd., Suite 300, Las Vegas, NV 89128

(Address of principal executive offices)



(702) 562-4155

(Issuer's telephone number)





(Former address)





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 _______



Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).  Yes  ⁭   No  x



As of November 11, 2005, there were 21,303,439 shares of Common Stock outstanding, 838,200 shares of Series A Preferred Stock outstanding and 17.425 Shares of Series C Preferred Stock outstanding.  All stock par value is $.001.

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EXPLANATORY NOTE



This Amendment No. 1 on Form 10-Q/A (this Amendment) to the Quarterly Report of AXM Pharma, Inc. (the Company) on Form 10-Q for the fiscal quarter ended June 30,  2005,  filed with the  Securities  and Exchange  Commission  (the "SEC") on August 15,  2005 (the  "Original  Filing")  is being  filed as  required  by Regulation S-X promulgated under the Securities Exchange Act of 1934.



Since the Original Filing, management of the Company has determined that:

(1) $2,891,936 of revenues and $1,393,982 of cost of revenues should not have been recognized in the three months ended June 30, 2005.  While the Company had received purchase orders for certain products from its distributors, management has concluded that under its distribution agreements a number of the elements necessary to the recognition of such revenue in its financial statements were not in place as of June 30, 2005.

(2) $151,250 of non-cash expenditures during the quarter were incorrectly expensed and should have been capitalized as the acquisition of certain license rights.

(3) $60,805 of interest expense on the Companys convertible debentures which accrued during the quarter was not recorded.

(4) $154,115 of non-cash general and administrative expenses should have been recorded.

(5) $26,800 of non-cash general and administrative expenses were incorrectly recorded as cash general and administrative expenses.

(6) $77,137 of the amortization of deferred financing costs related to the Companys convertible debentures was not recorded as interest expense during the quarter.



Therefore, the accompanying consolidated financial statements reflect adjustments for all of the foregoing adjustments, which have the cumulative effect of changing the previously reported net income of $179,409 to a loss of $(1,459,352) for the three months ended June 30, 2005.  Several drafting changes have been made in the Form 10-Q/A to adjust disclosures to reflect these changes.



Additionally, the Audit Committee of the Companys Board of Directors is continuing its review of the Companys internal controls, which includes determining how these misstatements occurred and implementing the appropriate controls designed to avoid a re-occurrence of this kind of problem.



This Amendment continues to speak as of the date of the Original Filing, and the Company has not updated the disclosures contained therein to reflect any events that occurred after August 15, 2005, the date of the Original Filing. Accordingly, this Amendment should be read in conjunction with our subsequent filings with the SEC.



In connection with the filing of this Amendment, and pursuant to the rules of the SEC, there is included with this Amendment a currently dated signature page and currently dated certifications included as Exhibits 31.1, 31.2, 32.1 and 32.2.



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|PART I - FINANCIAL INFORMATION                                                                         | 4 
|------------------------------------------------------------------------------------------------------ | --
|                                                                                                       |   
|ITEM 1.  FINANCIAL STATEMENTS                                                                          | 4 
|                                                                                                       |   
|CONSOLIDATED BALANCE SHEETS AT JUNE 30, 2005 AND DECEMBER 31, 2004                                     | 4 
|                                                                                                       |   
|CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 2005 AND 2004 | 5 
|                                                                                                       |   
|CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTH PERIODS ENDED JUNE 30, 2005 AND 2004           | 6 
|                                                                                                       |   
|NOTES TO FINANCIAL STATEMENTS                                                                          | 7 
|                                                                                                       |   
|NOTE 1-- MANAGEMENT REPRESENTATION AND PRESENTATION                                                    | 7 
|                                                                                                       |   
|NOTE 2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES                                                    | 9 
|                                                                                                       |   
|NOTE 3  STOCK ISSUANCES                                                                               | 12
|                                                                                                       |   
|NOTE 4  INVENTORY                                                                                     | 13
|                                                                                                       |   
|NOTE 5  CONVERTIBLE DEBENTURES                                                                        | 14
|                                                                                                       |   
|NOTE 6  RESTATEMENT                                                                                   | 14
|                                                                                                       |   
|ITEM 2.  MANAGEMENTS DISCUSSIONN AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION        | 16
|                                                                                                       |   
|ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK                                     | 21
|                                                                                                       |   
|ITEM 4.  CONTROLS AND PROCEDURES                                                                       | 22
|                                                                                                       |   
|PART II - OTHER INFORMATION                                                                            | 23
|                                                                                                       |   
|ITEM 1.  LEGAL PROCEEDINGS                                                                             | 23
|                                                                                                       |   
|ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS                                   | 24
|                                                                                                       |   
|ITEM 3.  DEFAULTS UPON SENIOR SECURITIES                                                               | 26
|                                                                                                       |   
|ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                           | 26
|                                                                                                       |   
|ITEM 5.  OTHER INFORMATION                                                                             | 26
|                                                                                                       |   
|ITEM 6.  EXHIBITS                                                                                      | 27

















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PART I  FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS



|AXM PHARMA, INC. AND SUBSIDIARIES                                        
|-------------------------------------------------------------------------
|CONSOLIDATED BALANCE SHEETS                                              
|                                                                         
|                                                                         
|ASSETS                                                                   
|Current Assets                                                           
|Cash                                                                     
|Accounts Receivable, net of allowance                                    
|Inventory                                                                
|Advances, Suppliers                                                      
|Other Current Assets                                                     
|Total Current Assets                                                     
|                                                                         
|Property & Equipment, Net                                                
|Licenses                                                                 
|Deferred Financing Costs                                                 
|                                                                         
|TOTAL ASSETS                                                             
|                                                                         
|LIABILITIES AND STOCKHOLDERS' EQUITY                                     
|Current Liabilities                                                      
|Short Term Loans                                                         
|Current Maturities on Long Term Convertible Debentures                   
|Value Added Tax Payable                                                  
|Accounts Payable and Accrued Expense                                     
|Total Current Liabilities                                                
|                                                                         
|Long Term Convertible Debentures                                         
|                                                                         
|STOCKHOLDERS' EQUITY                                                     
|Series A, Preferred stock, $.001 par value, 10,000,000 shares authorized,
|938,300 shares issued and outstanding                                    
|Series B Preferred stock, $.001 par value, 2,000,000 shares authorized,  
|no shares issued and outstanding                                         
|Series C Preferred stock, $.001 par value, 100 shares authorized,        
|17.425 shares issued and outstanding                                     
|Common Stock, $.001 par value, 50,000,000 shares authorized,             
|19,564,085 shares issued and outstanding                                 
|Additional paid-in capital                                               
|Accumulated deficit                                                      
|Total Equity                                                             
|                                                                         
|Liabilities and Equity                                                   

See accompanying notes to financial statements.

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|AXM PHARMA, INC.                     
|-------------------------------------
|CONSOLIDATED STATEMENTS OF OPERATIONS
|(Unaudited)                          
|                                     
|                                     
|                                     
|                                     
|                                     
|                                     
|Revenues                             
|                                     
|Cost of Revenues                     
|                                     
|Gross Profit                         
|                                     
|General, Administrative and Selling: 
|Cash                                 
|Non-cash                             
|                                     
|Total general, administrative        
|and selling                          
|                                     
|Operating Income (Loss)              
|                                     
|Interest Expense                     
|                                     
|Net Income (Loss)                    
|                                     
|Net Income (Loss) applicable to      
|common shareholders:                 
|Net Income (Loss)                    
|Beneficial conversion features       
|of preferred stock                   
|Deemed dividend from beneficial      
|Conversion of warrants               
|                                     
|Net Income (Loss) applicable to      
|common shareholders                  
|                                     
|Net Income (Loss) per share:         
|Basic and diluted                    
|Weighted averaged shares outstanding:
|Basic and diluted                    







See accompanying notes to financial statements.





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|AXM PHARMA, INC.                                 
|-------------------------------------------------
|CONSOLIDATED STATEMENTS OF CASH FLOWS            
|Six  Months Ended June 30,                       
|(Unaudited)                                      
|                                                 
|                                                 
|                                                 
|CASH FLOWS FROM OPERATING ACTIVITIES             
|Net loss                                         
|Adjustments to reconcile net loss to cash used in
|operating activities:                            
|Common stock  issued for services and interest   
|Depreciation and amortization                    
|Non-cash interest expense                        
|Changes in assets and liabilities:               
|Accounts receivable                              
|Advances, suppliers                              
|Inventories                                      
|Accounts payable and accrued expenses            
|Value added tax payable                          
|                                                 
|CASH FLOWS USED IN OPERATING ACTIVITIES          
|                                                 
|CASH FLOWS FROM INVESTING ACTIVITIES             
|Capital expenditures                             
|                                                 
|CASH FROM FINANCING ACTIVITIES                   
|Proceeds from notes payable                      
|Proceeds from bank loans                         
|                                                 
|CASH FROM FINANCING ACTIVITIES                   
|                                                 
|NET INCREASE IN CASH                             
|                                                 
|Cash, beginning of period                        
|                                                 
|Cash, end of period                              



See accompanying notes to financial statements.







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AXM PHARMA, INC.

(FORMERLY AXIOM PHARMACEUTICALS, INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 1 -- MANAGEMENT REPRESENTATION AND PRESENTATION



Operating results for the three and six months ended June 30, 2005 are not necessarily indicative of the results that may be expected for the year ending December 31, 2005.  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, 2004 included in our Annual Report on Form 10-KSB.



The consolidated balance sheet of AXM Pharma, Inc. as of June 30, 2005, the related consolidated statement of operations for the three and six months ended June 30, 2005, and the consolidated statement of cash flows for the six months ended June 30, 2005 have been prepared by us without audit. In managements opinion, the accompanying consolidated financial statements include all adjustments (consisting of normal, recurring adjustments) necessary to summarize fairly our consolidated financial position and results of operations. The consolidated results of operations for the three and six months ended June 30, 2005, 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, 2004 and reported in our most recent Form 10-KSB, have been omitted.



Nature of our Business



AXM Pharma, Inc., a Nevada corporation, is a pharmaceutical company with a subsidiary and plant located in The Peoples Republic of China, a subsidiary located in Hong Kong and a branch office located in Taiwan. We are a publicly listed company trading under the symbol (AMEX: AXJ). Our business is the sale of over-the-counter and prescription pharmaceutical and neutriceutical products in The Peoples Republic of China, Hong Kong and Taiwan.  Our business in the Peoples Republic of China is conducted by our wholly-owned subsidiary, AXM Pharma Shenyang, Inc. (AXM Shenyang), located in the city of Shenyang in the Northeastern portion of the Peoples Republic of China.  AXM Shenyang and its predecessor company, Shenyang Tianwei Pharmaceutical Factory, Ltd., have an operating history of approximately 10 years.  AXM Shenyang has historically been a manufacturer of proprietary and generic pharmaceutical products, which include injectables, capsules, tablets, liquids and medicated skin products for export and domestic Chinese sales.  AXM Shenyangs plant was decommissioned in 2002 due to 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, residential neighborhood. In April 2004, AXM Shenyang applied for national renewal of its 43 licenses to produce over-the-counter and prescription pharmaceutical products in The Peoples Republic of China.  We have received confirmation that the State Food and Drug

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Administration has renewed 42 of these licenses, including all of those that we have historically commercialized.  We recommenced production of Asarone and Livecomf and started the production of Whisper, our Feminine Hygiene Wash at the end of the beginning of the current quarter.



Our subsidiary, AXM Shenyang, 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 Wholly Foreign Owned Enterprises include:



·

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

·

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

·

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

·

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

·

Ability to employ staff directly within China;

·

Protection of intellectual know-how technology;

·

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

·

No requirement to share profits with another party.



In summary, the key differences between a Wholly Foreign Owned Enterprise 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.



In the last quarter we opened a subsidiary in Hong Kong and a Branch Office in Taiwan for the purposes of sales and marketing of our Sunkist labeled over the counter vitamins and supplements which are part of our International Division administered from our corporate office in Las Vegas, Nevada.

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NOTE 2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



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



Revenue Recognition



Product sales revenue is recognized when the goods are shipped, title and risk of loss passes and collectability is reasonably assured.  In situations where a distributors sales reporting to us is inadequate or untimely, we have to judge whether all of the elements required for revenue recognition have been met, including assurance of collectability.  In such instances, we may conclude that revenue recognition of such sales should be delayed until payments are received from the distributor.  Any provision for discounts andestimated returns are accounted for in the period the related sales are recorded.



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 collectability 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



If we have transferred inventory to a third party, such as a distributor, but the transaction is such that under our accounting policies revenue cannot be recognized, we continue to maintain such inventory in our financial statements until the related revenue can be recognized.



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 demands, 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.



Accounting for Stock-Based Compensation



The Company accounts for stock-based compensation based on the provisions of

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Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, as amended by the Financial Accounting Standards Board Interpretation No. 44, Accounting for Certain Transactions Involving Stock Compensation. Accounting Principles Board Opinion No. 25 and Financial Accounting Standards Board Interpretation No. 44 state that no compensation expense is recorded for stock options or other stock-based awards to employees that are granted with an exercise price equal to or above the estimated fair value per share of the companys common stock on the grant date.  The Company adopted the disclosure requirements of Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation, which requires compensation expense to be disclosed based on the fair value of the options granted at the date of the grant.



In December 2002, the Financial Accounting Standards Board issued its Statement No. 148, Accounting for Stock-Based Compensation  Transition and Disclosurean amendment of Financial Accounting Standards Board Statement No. 123. This Statement amends Statement of Financial Accounting Standards No. 123, to provide alternative methods of transition for an entity that voluntarily changes to the fair value based method of accounting for stock-based employee compensation.  It also amends the disclosure provisions of Statement of Financial Accounting Standards No. 123 to require prominent disclosure about the effects on reported net income of an entitys accounting policy decisions with respect to stock-based employee compensation. The transition and annual disclosure provisions of Statement of Financial Accounting Standards No. 148 are effective for fiscal years ending after December 15, 2002, and the interim disclosure provisions were effective for the first interim period beginning after December 15, 2002.  The Company did not voluntarily change to the fair value based method of accounting for stock-based employee compensation; therefore, the adoption of Statement of Financial Accounting Standards No. 148 did not have a material impact on its operations and/or financial position.



We did not issue any stock options to employees during the period ended June 30, 2005; therefore pro forma disclosures are not required for the six months ended June 30, 2005.



Convertible Debentures



Convertible debentures that we issued are initially offset by a discount representing the relative fair value of the warrants issued with the debentures.  This discount is amortized as interest expense over the term of the debentures, along with the fees and expenses relating to the issuance of these debentures.  The fair value of the debentures and the warrants are calculated based on available market data using appropriate valuation models.



Convertible Preferred Stock



Convertible Preferred Stock that we issue is initially offset by a discount representing the relative fair value of the beneficial conversion feature and warrants.  This beneficial conversion for the preferred stock is recorded as a dividend over the period the preferred

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stock is convertible and accelerated pro-rata as the preferred stock are converted.  The beneficial conversion feature allocated to warrants is recognized over the life of the warrants and accelerated as warrants are exercised.  The fair value of the warrants and beneficial conversion discount are calculated based on available market data using appropriate valuation models.  The beneficial conversion feature is limited to the total proceeds received.



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 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 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.

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Value Added Tax



Value added tax payable is reported as a significant liability.  The accounting policies adopted by management include full disclosure of the Value Added Tax liability calculated at 17% of the difference between ex factory price and the cost of raw materials, less the cost of the fees paid to the third-party original equipment manufacturing company.



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.





NOTE 3  STOCK ISSUANCES



Common Stock Issued for Stock-Based Compensation



We periodically issue common stock for services rendered.  Common stock issued is valued at the estimated fair market value, as determined by management and our board of directors.  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 ended June 30, 2005, we issued 95,000 shares of common stock valued at $261,250.



On April 1, 2005 we issued 40,000 shares of restricted common stock to Newbridge Securities as compensation for investor relations consulting services.  The stock was valued at $2.75 per share, the closing stock price on the date of issuance; the Company recognized $110,000 in expenses for the issuance of this stock.  On April 1, 2005 we issued 45,000 shares of stock to Zhu Ming and 10,000 shares of stock to Li Shuzhen, both at $2.75 per share and totaling $151,250 for certain license rights.  We also issued

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28,583 shares of common stock as dividends to Series C Preferred shareholders as payment of interest totaling $40,016 in lieu of cash payment.



We apply and intend to continue to apply the recognition and intrinsic value measurement principles of Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations in accounting for those plans.



We did not issue any stock options in the quarter ended June 30, 2005.  There was no effect on net income and earnings per share if AXM Pharma, Inc. had applied the fair value recognition provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation.



Conversions of Preferred Stock



During the quarter ended June 30, 2005 we issued shares of common stock in connection with the following conversions of its Preferred Stock.  We issued 11,700 shares of common stock for the conversion of 11,700 shares of Series A Preferred Stock.  We also issued 78,329 shares of common stock for the conversion of fractional shares of Series C Preferred.



Stock Option Plans



In April of 2004, our Shareholders approved the 2004 Qualified and Non-statutory Stock Option Plan. The Board of Directors reserved 3,000,000 shares of our common stock to be issued in the form of incentive and/or non-qualified stock options for employees, directors and consultants to AXM. On April 29, 2004, our shareholders approved and ratified the issuance of 2,140,000 options to employees, directors and consultants.  On February 1, 2005, our Board of Directors approved the 2005 Equity Incentive Plan, which will replace the 2004 Plan.  Our shareholders approved the 2005 Plan at our Special Meeting on March 10, 2005.   Shares available under the 2005 Plan include 5,000,000 shares of our common stock, plus all shares remaining available for issuance under the 2004 Plan.  At the time of filing this report, 687,500 common shares have been issued under the 2005 Plan.





NOTE 4  INVENTORY



As of June 30, 2005, inventory in the amount of approximately $1,393,000 had been delivered to, or was in transit to, certain of the Companys distributors.  The remaining inventory was held by the operations at AXM Shenyang.











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NOTE 5  CONVERTIBLE DEBENTURES



On April 20, 2005 we completed a private financing with 9 accredited investors.  We executed notes totaling $3,425,000.  Net proceeds from the issuance of the notes after offering costs were approximately $3,034,000. The notes were issued as a portion of 6.25 Units, each consisting of one (1) $500,000 Secured Promissory Note (the Convertible Debentures); three hundred thousand (300,000) Common Stock Purchase Warrants (Series A Warrants); and three hundred thousand (300,000) special Common Stock Purchase Warrants (Series B Warrants).  The Convertible Debentures bear interest at 9% and are repayable in equal installments during the period September 2005-April 2007.  The Series A Warrants were issued with an exercise price of $2.90 per share and the Series B Warrants were issued with an exercise price per share of $3.50.  Each Purchaser also received a Series C Warrant to purchase a number of shares of Common Stock equal to one hundred percent (100%) of the number of Conversion Shares issuable upon conversion of such Purchasers Convertible Debentures at an exercise price per share equal to the Conversion Price.  The Series A Warrants and the Series B Warrants expire five (5) years following the Closing Date and the Series C Warrants expire one (1) year following the effective date of the registration statement providing for the resale of the Conversion Shares and the Warrant Shares.  The value of these warrants and the fees paid were recorded as a discount to the notes and are being amortized over the term of the notes using the effective interest method.   See Note 2 above regarding the accounting for these securities.





NOTE 6  RESTATEMENT



Since the Original Filing, management of the Company has determined that:

(1) $2,891,936 of revenues and $1,393,982 of cost of revenues should not have been recognized in the three months ended June 30, 2005.  While the Company had received purchase orders for certain products from its distributors, management has concluded that under its distribution agreements a number of the elements necessary to the recognition of such revenue in its financial statements were not in place as of June 30, 2005.

(2) $151,250 of non-cash expenditures during the quarter were incorrectly expensed and should have been capitalized as the acquisition of certain license rights.

(3) $60,805 of interest expense on the Companys convertible debentures which accrued during the quarter was not recorded.

(4) $154,115 of non-cash general and administrative expenses should have been recorded.

(5) $26,800 of non-cash general and administrative expenses were incorrectly recorded as cash general and administrative expenses.

(6) $77,137 of the amortization of deferred financing costs related to the Companys convertible debentures was not recorded as interest expense during the quarter.



Therefore, the accompanying consolidated financial statements reflect adjustments for all of the foregoing adjustments, which have the cumulative effect of changing the previously reported net income of $179,409 to a loss of $(1,459,352) for the three months

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ended June 30, 2005.  Additionally, as of June 30, 2005, accounts receivable have been reduced by $2,891,936; inventories have been increased by $1,393,982; licenses have been increased by $151,250; deferred financing costs have been increased by $705,102; accrued interest expense has been increase $60,805; additional paid-in capital has been increased $936,354; and the statements of cash flows for the six months ended June 30, 2005 have been correspondingly adjusted for all of these changes.

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Item 2.

MANAGEMENTS DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION



Results of Operations



Sales for the three months ended June 30, 2005 were $329,042, a decrease of $649,621 from the three-month period ended June 30, 2004.  Sales for the six month period ended June 30, 2005 were $357,302 compared to $2,097,628 for the six months ended June 30, 2004.  This represents a decrease of $1,740,326.



During the three month period ended June 30, 2005, we entered into three international markets for our Sunkist-labeled products:  Hong Kong; Taiwan and China.  While the Company received purchase orders for certain products from its distributors in these territories, management of the Company has concluded that several of the elements necessary to the recognition in its financial statements of the revenue related to these purchase orders were not in place as of June 30, 2005.At this time it is not clear when (if ever) such elements will be place so that this revenue (and the related costs) will be able to be recognized by the Company.



The gross profit for the three months ended June 30, 2005 was $209,884 compared to $513,228 for the three-month period ended June 30, 2004, a decrease of $303,344.   For the six months ended June 30, 2005 the gross profit was $214,669 or a decrease of $837,187 over the comparable six month period last year.



During the quarter ended June 30, 2005 we had total general and administrative expense of $1,032,355, compared to $4,866,479 for the comparable period in 2004, a decrease of $3,834,142.  This general and administrative expense included $330,931 in non-cash general and administrative expense. For the sixth month period ended June 30, 2005, we had total general and administrative expenses of $4,139,433 compared to $7,900,493, a decrease of $3,761,060.  This general and administrative expense included approximately $1,590,879 in non-cash general administrative expense.



The reason for the significant improvement in both cash and non-cash general and administrative expenses was the lack of significant consulting expense as compared to expenses incurred in the prior year as the factory was being constructed and we were setting up our infrastructure to enter our various sales markets.



Non-cash expense is where we pay for services (e.g. financing consulting and investor relations services) using shares of our common stock. In the past we took advantage of these opportunities to conserve cash.



During the quarter we incurred $636,881 in interest expense with $126,755 in interest on bank loans in our subsidiary, AXM Shenyang, and $510,126 in interest charges relating to the amortization of debt discount and deferred financing costs related to the Companys convertible debentures.



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Liquidity and Capital Resources



At June 30, 2005, we had total assets of $ 15,523,262 compared to total assets of $12,340,946 at December 31, 2004.  The increase of $3,182,316 is attributable primarily to the $3,425,000 in convertible debentures executed during the quarter.



Our cash was $559,832 as of June 30, 2005, a decrease of $695,849 from the $1,255,681 cash on hand as of December 31, 2004.  Cash used in operations was $5,399,298. Accounts receivable was $361,119, an increase of $330,369 from the $30,750 at December 31, 2004.  Inventories increased to $3,580,797 at December 31, 2004 due primarily to the purchase of Sunkist-labeled product for distribution in China, Hong Kong and Taiwan.  Total current liabilities were $7,354,087, an increase of $2,007,391from the $5,346,696 at December 31, 2004.  Accounts payable and accrued liabilities were $3,875,836, a decrease of $466,177 from the $4,342,013 at December 31, 2004.



On April 20, 2005 we completed a private financing with 9 accredited investors.  We executed notes totaling $3,425,000.  Net proceeds from the issuance of the notes after offering costs were approximately $3,034,000. The notes were issued as a portion of 6.25 Units, each consisting of one (1) $500,000 Secured Promissory Note (the Convertible Debentures); three hundred thousand (300,000) Common Stock Purchase Warrants (Series A Warrants); and three hundred thousand (300,000) special Common Stock Purchase Warrants (Series B Warrants).  The Convertible Debentures bear interest at 9% and are repayable in equal installments during the period September 2005-April 2007.  The Series A Warrants were issued with an exercise price of $2.90 per share and the Series B Warrants were issued with an exercise price per share of $3.50.  Each Purchaser also received a Series C Warrant to purchase a number of shares of Common Stock equal to one hundred percent (100%) of the number of Conversion Shares issuable upon conversion of such Purchasers Convertible Debentures at an exercise price per share equal to the Conversion Price.  The Series A Warrants and the Series B Warrants expire five (5) years following the Closing Date and the Series C Warrants expire one (1) year following the effective date of the registration statement providing for the resale of the Conversion Shares and the Warrant Shares.  The value of these warrants and the fees paid were recorded as a discount to the notes and are being amortized over the term of the notes using the effective interest method.



Please refer to the Recent Developments section of this item for details of financing received as a result of a Special Warrant Offer extended to investors in our August 9, 2005, financing, which occurred after the end of this reporting period.



In the first quarter of 2005 we began transitioning the production of certain of our products to our AXM Shenyang production facilities.  However, due to our limited cash on hand in the second quarter, we have been unable to fund the AXM Shenyang operations to the extent necessary for those facilities to reach their full capacity. Additionally, AXM Shenyang has been unable to pay its 200 employees since June.  This has resulted in some of these employees leaving its employ.  We will need to put

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substantial additional funds into our Shenyang operations in order to realize the full potential of the factory.  Additionally, we have been informed that in order to meet certain safety regulations in Shenyang, we may have to upgrade certain systems such as our fire prevention systems and sewage processing system or we may be forced to halt production until such time as we are in compliance with these requirements.    However, we may not have sufficient funds to finance our full production requirements and if we are unable to obtain additional financing we may have to substantially curtail our Shenyang operations, which could have a material adverse impact on our business and operations in Shenyang.  As with our Sunkist products, we are seeking traditional accounts receivable based financing to compress the sales cycle of our Shenyang based product line, which would assist with our cash needs at those facilities.



Our decisions as to how to allocate our limited available cash have been based on Managements assessment of how such allocation will yield the greatest return to us.  In the second quarter, we made the decision to allocate a greater proportion of our available funds to the production of our Sunkist line of products.  Although we hope in the future to be able to fund both our Sunkist line and our products produced from our Shenyang facility to the extent required to achieve maximum capacity from both of those lines, there can be no guarantee that we will have sufficient resources available to do so.



Notwithstanding the recently completed financing, by the fourth quarter, we will have to obtain additional financing either through increased bank borrowing against our inventory and receivables, or from the exercise of outstanding warrants from previous financings.  There is no guarantee that we will be successful in obtaining such additional financing, in which case we would be forced to curtail operations to conserve cash and that could possibly result in lower sales than we currently anticipate.  We are not currently in a position to call any of our outstanding warrants.  However, should our common stock trade at a price of $4.00, based on the closing sales price, for 30 consecutive calendar days, assuming an effective registration statement is in place with regard to the underlying shares of our common stock, we would be in a position to call a significant portion of the outstanding warrants.  In the event that these warrants were called and converted we would receive gross proceeds of approximately $18.5 million. If we are not able to raise this additional capital through warrant exercises or additional fund raising activities we could be forced to curtail some of the currently anticipated expenditures in the above mentioned areas.  Should we be forced to do this it could have an impact on the anticipated future sales and earnings.



Despite the views of management, the statements concerning future gross revenues and gross profits are forward-looking statements that involve certain risks and uncertainties, which could result in a fluctuation of total sales below those anticipated to be achieved. Pricing of our products and gross profit on product sales could change due to competitive forces, which could negatively impact future sales and or operating profits.



Recent Developments



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On August 9, 2005, we completed a financing totaling $2,127,436.20 pursuant to a Special Warrant Offer that we extended to the purchasers to our Note and Warrant Purchase Agreement dated as of April 19, 2005.  Pursuant to the Purchase Agreement dated April 19, 2005, such purchasers received (i) a secured convertible promissory note; (ii) a Series A warrant with an exercise price per share of $2.90; (iii) a Series B warrant with an exercise price per share of $3.50; and (iv) a Series C warrant with an exercise price per share equal to $2.10.  The Special Warrant Offer reduces the exercise price of the Series C warrants to $1.80 per share.  8 out of 9 purchasers participated in the Special Warrant Offer.  Such participants shall now receive



(i)

an amendment to the exercise price of their existing Series A warrants reducing the exercise price per share to a price equal to one hundred five percent of the closing bid price of our common stock on August 8, 2005, which calculates to $2.41 per share;



(ii)

an amendment to the exercise price of their existing Series B warrants reducing the exercise price per share to $1.80, none of which have been exercised;



(iii)

new Series D incentive warrants in an amount equal to one hundred percent of the number of shares of common stock issued upon exercise of the purchasers Series C warrants pursuant to the Special Warrant Offer.  The Series D Incentive Warrants shall have a term of five years exercisable commencing on October 19, 2005, contain a cashless exercise provision if we do  not have an effective registration statement within one year, piggyback registration rights and weighted average anti-dilution protection and have an exercise price per share equal to one hundred five percent of the closing bid price of our common stock on August 8, 2005; and



(iv)

full ratchet anti-dilution protection on their notes for issuances of our securities at a conversion price, exercise price or price per share less than the Conversion Price (as defined in the notes) for a period of three (3) months following the closing date of the Special Warrant Offer.



Investors in our April 2005 financing who did not elect to exercise their Series C Warrants pursuant to the Special Warrant Offer retain the right to exercise their Series C Warrants at the reduced price of $1.80 per share; provided, however, such purchasers are not entitled to receive an adjustment to the exercise prices of their Series A warrants and Series B warrants, the new Series D Incentive Warrants or the full ratchet anti-dilution protection on its notes.



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

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materially adversely affected.  In such case, the trading price of our common stock could decline, and one may lose all or part of your investment.  Additional risks include:



·

We will require substantial amounts of additional capital to support our planned growth.

·

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 may have difficulty competing with larger and better financed companies in our sector.

·

New legislative or regulatory requirements may adversely affect 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.

·

A future outbreak of Severe Acute Respiratory Syndrome (SARS) or similar virus 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 approximately 42% of our capital stock may decrease the influence on shareholder decisions.

·

The outstanding warrants may adversely affect us in the future and cause dilution to existing shareholders.



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Other Risks



There may not be sufficient liquidity in the market for our securities in order for investors to sell their securities.



There is currently only a limited public market for our common stock, which is listed on the American Stock Exchange, and there can be no assurance that a trading market will develop further or be maintained in the future.   During the month of April 2005, our common stock traded an average of approximately 70,875 shares per day.  As of May 13, 2005, the closing bid price of our common stock on the American Stock Exchange was $1.25 per share.  As of May 13, 2005, we had approximately 143 shareholders of record not including shares held in street name.  In addition, during the past two years our common stock has had a trading range with a low price of $.09 per share and a high price of $7.30 per share.



The fact that our directors and officers own approximately 41.78% of our capital stock may decrease your influence on shareholder decisions.



Our executive officers and directors, in the aggregate, beneficially own approximately 41.78% of our capital stock.  As a result, our officers and directors will have the ability to influence our management and affairs and the outcome of matters submitted to shareholders for approval, including the election and removal of directors, amendments to our bylaws and any merger, consolidation or sale of all or substantially all of our assets.



The outstanding warrants may adversely affect AXM Pharma in the future and cause dilution to existing Shareholders.



There are currently 10,096,930 warrants outstanding.  The terms of these warrants expire as early as 2007 and as late as 2010.  The exercise price of these warrants range from $1.80 to $5.50 per share, subject to adjustment in certain circumstances.  The holders of the warrants have until August 21, 2008, September 12, 2008, December 31, 2008, June 24, 2007, and April 19, 2010 respectively, to exercise their warrants.Exercise of the warrants may cause dilution in the interests of other shareholders as a result of the additional common stock that would be issued upon exercise.  In addition, sales of the shares of our common stock issuable upon exercise of the warrants could have a depressive effect on the price of our stock, particularly if there is not a coinciding increase in demand by purchasers of our common stock.   Further, the terms on which we may obtain additional financing during the period any of the warrants remain outstanding may be adversely affected by the existence of these warrants as well.





ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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Not Applicable





ITEM 4.  CONTROLS AND PROCEDURES



(a)

Evaluation of disclosure controls and procedures



Our controls and procedures have not been effective to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. The Audit Committee of the Companys Board of Directors is continuing its review of the Companys internal controls to determine how this second quarter misstatement occurred and how to implement controls designed to avoid the occurrence of this kind of problem in the future.



(b)

Changes in internal controls



There were no changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation of those controls by the former chief executive officer and former principal financial officer.



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PART II - OTHER INFORMATION



ITEM 1.  LEGAL PROCEEDINGS



In February 2005, we were notified that Don Bates, our US Good Manufacturing Practices consultant hired counsel to pursue collection of outstanding invoices we allegedly owe him.  Mr. Bates is claiming that $408,275.00 is due to him.  Management is evaluating Mr. Bates claim and currently plans to negotiate an amicable settlement with Mr. Bates if possible. Although management has not determined the claim amount that it believes to be valid, it has accrued the full amount allegedly due in the event that it is ultimately determined that such amount is due to Mr. Bates.



Our subsidiary, AXM Shenyang, obtained loans in the aggregate amount of 8,290,302 RMB (US $1,002,455) between October 22, 2004 and June 26, 2005, through a series of short term non-recourse loans from ten individual Chinese lenders.  Our subsidiary is in default on these loans and interest of RMB 3,890,302 (US$470,411).  Although these loans are not secured by any of our property or assets, we could be subject to lawsuits if they are not paid.  Currently, no lawsuits regarding these loans have been initiated and we are not aware that any such lawsuits are being contemplated by any of the lenders.



In June 2005, we became aware of a lawsuit filed in the U.S. District Court for the Central District of California by a company known as Apex Associates, which alleged that on or around May 2004, Peter Cunningham, our former Chief Executive Officer and former President of International Sales and Marketing, entered into a consulting agreement with Apex.  The agreement allegedly requires Apex to provide strategic licensing and marketing advisory services to us in consideration for 50,000 stock options at $5.24 per share, the strike price at the time the agreement was allegedly entered into and $900,000 over approximately five years.  We have disputed the validity of the agreement since it was never approved by our board of directors and does not contain terms that we believe are consistent with similar agreements with consultants providing similar services in our sector.  As a result, we engaged counsel to defend the lawsuit vigorously and we instituted a third-party complaint against Mr. Cunningham seeking indemnity for any sums for which we may be held liable for under the alleged agreement, for our costs and expenses in defending the lawsuit, for the costs of our third-party complaint against Mr. Cunningham and for any other sums we have paid to Apex.  At the time of this filing we have agreed to a proposed settlement with Apex that has not yet been finalized, wherein we would pay $100,000 to Apex and issue Apex 50,000 shares of our restricted common stock, for which we agree to file a registration statement for their resale within 60 days of the final settlement.  Additionally, the alleged agreement with Apex would be rescinded and we would agree to dismiss our third party complaint against Peter Cunningham.  We expect to finalize this settlement through the execution of a formal agreement in the near future.



We have engaged outside counsel to conduct an internal investigation into the circumstances of the Apex agreement, as well as the conduct of Mr. Cunningham while

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in our employ.  Such counsel will report its findings directly to our Audit Committee as soon as they are available. Mr. Cunningham was terminated for cause on July 20, 2005.



In July 2005, we received a demand letter from Saatchi & Saatchi, an ad firm that alleged that AXM Shenyang, our wholly-owned subsidiary in China, owed them approximately RMB582,055.48 (U.S. $71,770) in connection with advertising services supposedly provided to AXM Shenyang.  We are currently reviewing their claim and plan to negotiate a settlement of such claim.  We do not feel that this matter will have a material impact on our business or operations.



Due to our limited available cash in the second quarter, we were unable to allocate sufficient cash to our Chinese subsidiary, AXM Shenyang, for it to pay its approximately 200 employees in June and July.  As a result some of these employees have resigned. Further, although we have been able to retain most of them and believe that we will be able to pay them through at least the end of the third quarter, we may face employment actions from those employees who resigned for violations of Chinese labor laws.  At present, we have not received notice of any contemplated proceedings.



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. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS



(a)

Unregistered Sales of Equity Securities



(i)

On April 20 2005, we completed a private financing with 9 accredited investors. We accepted total subscriptions in the amount of $3,425,000 for a total of 6.85 Units.  Net proceeds from the offering after estimated costs and expenses, including fees of the placement agent were approximately $3,067,500.  Each Unit consists of one (1) $500,000 Secured Promissory Note (the Convertible Debentures) and three hundred thousand (300,000) Common Stock Purchase Warrants (Series A Warrants) and three hundred thousand (300,000) special Common Stock Purchase Warrants (Series B Warrants).  The Convertible Debentures bear interest at 9% and are repayable in equal installments during the period September 2005-April 2007.  For each $500,000 of Convertible Debentures purchased, a Purchaser received a Series A Warrant to purchase up to 300,000 shares of Common Stock at an exercise price of $2.90 per share and a Series B Warrant to purchase up to 300,000 shares of Common Stock at an exercise price per share of $3.50.  Each Purchaser also received a Series C Warrant to purchase a number of shares of Common Stock equal to one hundred percent (100%) of the number of Conversion Shares issuable upon conversion of such Purchasers Convertible Debentures at an exercise price per share of $2.10.  The Series A Warrants and the Series B Warrants expire five (5) years following the Closing Date and the Series C Warrants expires one (1) year following the effective date of the registration statement providing

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for the resale of the Conversion Shares and the Warrant Shares. The Note is convertible at $2.10 per share.



On August 9, 2005, we completed a financing totaling $2,127,436.20 pursuant to a Special Warrant Offer that we extended to the purchasers to our Note and Warrant Purchase Agreement dated as of April 19, 2005.  Pursuant to the Purchase Agreement dated April 19, 2005, such purchasers received (i) a secured convertible promissory note; (ii) a Series A warrant with an exercise price per share of $2.90; (iii) a Series B warrant with an exercise price per share of $3.50; and (iv) a Series C warrant with an exercise price per share equal to $2.10.  The Special Warrant Offer reduces the exercise price of the Series C warrants to $1.80 per share.  8 out of 9 purchasers participated in the Special Warrant Offer.  Such participants shall now receive



(v)

an amendment to the exercise price of their existing Series A warrants reducing the exercise price per share to a price equal to one hundred five percent of the closing bid price of our common stock on August 8, 2005, which calculates to $2.41 per share;



(vi)

an amendment to the exercise price of their existing Series B warrants reducing the exercise price per share to $1.80, none of which have been exercised;



(vii)

new Series D incentive warrants in an amount equal to one hundred percent of the number of shares of common stock issued upon exercise of the purchasers Series C warrants pursuant to the Special Warrant Offer.  The Series D Incentive Warrants shall have a term of five years exercisable commencing on October 19, 2005, contain a cashless exercise provision if we do  not have an effective registration statement within one year, piggyback registration rights and weighted average anti-dilution protection and have an exercise price per share equal to one hundred five percent of the closing bid price of our common stock on August 8, 2005; and



(viii)

full ratchet anti-dilution protection on their notes for issuances of our securities at a conversion price, exercise price or price per share less than the Conversion Price (as defined in the notes) for a period of three (3) months following the closing date of the Special Warrant Offer.



Investors in our April 2005 financing who did not elect to exercise their Series C Warrants pursuant to the Special Warrant Offer retain the right to exercise their Series C Warrants at the reduced price of $1.80 per share; provided, however, such purchasers are not be entitled to receive an adjustment to the exercise prices of their Series A warrants and Series B warrants, the new Series D Incentive Warrants or the full ratchet anti-dilution protection on its notes.



(b)

Not Applicable.

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(c)

Not Applicable.





ITEM 3. DEFAULTS UPON SENIOR SECURITIES



Not Applicable.





ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS



Under Rule 713 of the Listing Standards, Policies and Requirements of the American Stock Exchange (AMEX), on which our common stock is listed, we must obtain stockholder approval in connection with any transaction, other than a public offering, that involves the issuance of common stock that equals 20% or more of our then-outstanding common stock, if we issue the stock at a price below the market value at the time of issuance. Accordingly, on June 15, 2005, we held a special meeting of our shareholders in order to approve the proposal to issue up to 8,109,116 shares of common stock at below-then current prices in accordance with the terms of our April 20, 2005, financing.



On the date of the Special Meeting, we had 20,940,462 shares outstanding.  10,837,769 (51.76%) votes were cast in favor of the proposal and 649,207 (3.10%) votes were cast against the proposal.  Pursuant to Nevada Revised Statutes, NRS 78.320, the proposal would be approved if the votes cast favoring this proposal exceeded the votes cast opposing this proposal.  Therefore, the proposal was approved.





ITEM 5. OTHER INFORMATION



Not applicable.





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ITEM 6.  EXHIBITS



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







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, 2005 | AXM PHARMA, INC.
By:

/s/  Weishi Wang
Weishi Wang,
Chief Executive Officer       
|------------------------ | ----------------------------------------------------------------------------------
|                         |                                                                                   
|Date:  November 18, 2005 | AXM PHARMA, INC.
By:

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





















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Exhibit 31.1







CERTIFICATION OF CHIEF EXECUTIVE OFFICER



I, Weishi Wang, certify that:



1. I have reviewed this quarterly report on Form 10-Q of AXM Pharma, Inc.



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



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



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



a.

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



b.

Omitted pursuant to SEC Release 34-47986.



c.

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



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d.

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



5.

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



a.

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



b.

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



Date: November 18, 2005





/s/ Weishi Wang

Weishi Wang

Chief Executive Officer

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Exhibit 31.2











CERTIFICATION OF CHIEF FINANCIAL OFFICER



I, Harry Zhang, certify that:



1. I have reviewed this quarterly report on Form 10-Q of AXM Pharma, Inc.



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



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



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



a.

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



b.

Omitted pursuant to SEC Release 34-47986.



c.

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



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d.

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



5.

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



a.

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



b.

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



Date: November 18, 2005





/s/ Harry Zhang

Harry Zhang

Acting Chief Financial Officer

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Exhibit 32.1



CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002





In connection with the Quarterly Report of AXM Pharma, Inc. (the Company) on Form 10-Q for the period ending June 30, 2005, as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Weishi Wang, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:



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



(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.









/s/ Weishi Wang

Weishi Wang,

Chief Executive Officer



November 18, 2005

32





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Exhibit 32.2



CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002





In connection with the Quarterly Report of AXM Pharma, Inc. (the Company) on Form 10-Q for the period ending June 30, 2005, as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Harry Zhang, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:



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



(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.









/s/ Harry Zhang

Harry Zhang,

Acting Chief Financial Officer



November 18, 2005



33