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 MARCH 31, 2004

   [ ]   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
                       ------------

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


          NEVADA                                           20-0745214
  --------------------------------              -------------------------------
 (STATE OR OTHER JURISDICTION                  (IRS EMPLOYER IDENTIFICATION NO.)
  OF INCORPORATION OR ORGANIZATION)


                            US REPRESENTATIVE OFFICE

           3960 HOWARD HUGHES PARKWAY, SUITE 500, LAS VEGAS, NV 89109
           ----------------------------------------------------------
                    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

                                 (702) 990-3659
                           (ISSUER'S TELEPHONE NUMBER)


(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 MARCH 31,  2004, THERE WERE  14,850,280  SHARES OF COMMON  STOCK
OUTSTANDING,  2,455,000  SHARES  OF SERIES A  PREFERRED  STOCK  OUTSTANDING  AND
860,000 SHARES OF SERIES B PREFERRED STOCK OUTSTANDING.


<PAGE>



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

Item 1.  Financial Statements

Balance Sheet at March 31, 2004 (unaudited)....................................3

Unaudited Statements of Operations for the
  three month periods ended March 31, 2004 and 2003............................4

Unaudited Statements of Cash Flows for the
  three month periods ended March 31, 2004 and 2003............................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......................................................10

Item 2 -MANAGEMENT DISCUSSION AND ANALYSIS....................................12

Item 3 - CONTROLS AND PROCEDURES..............................................26



PART II - OTHER INFORMATION...................................................27

Item 1.  LEGAL PROCEEDINGS....................................................27

Item 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS............................27

Item 3.  DEFAULTS UPON SENIOR SECURITIES......................................28

Item 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..................28

Item 5.  OTHER INFORMATION....................................................28

Item 6.  EXHIBITS AND REPORTS ON FORM 8-K.....................................29








                                       2
<PAGE>

<TABLE>

<CAPTION>



                         PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                                AXM PHARMA, INC.
                           CONSOLIDATED BALANCE SHEET
                                 MARCH 31, 2004
                                   (UNAUDITED)

ASSETS
<S>                                                                             <C>

Current assets
  Cash                                                                      $  5,225,323
  Accounts receivable, net of allowance of 0                                     854,384
  Inventories                                                                  2,925,545
  Advances, Suppliers                                                            351,933
                                                                            ------------
    Total current assets                                                       9,357,185

Property and equipment, net                                                      604,878
Licenses                                                                       1,449,748
                                                                            ------------

    TOTAL ASSETS                                                            $ 11,411,811
                                                                            ============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities
  Value added tax payable                                                   $  1,348,194
  Accounts payable and accrued expenses                                          248,002
                                                                            ------------
    Total current liabilities                                                  1,596,196
                                                                            ------------

STOCKHOLDERS' EQUITY:
  Series A Preferred stock, $.001 par value, 4,050,000 shares authorized,
    2,455,000 shares issued and outstanding                                        2,455
  Series B Preferred stock, $.001 par value, 2,000,000 shares authorized,
    860,000 shares issued and outstanding                                            860
  Common stock, $.001 par value, 50,000,000 shares authorized,
    14,850,280 shares issued and outstanding                                      14,850
  Additional paid-in capital                                                  17,570,527
  Accumulated deficit                                                         (7,773,077)
                                                                            ------------
    Total Stockholders' Equity                                                 9,815,615
                                                                            ------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                  $ 11,411,811
                                                                            ============
</TABLE>



                                       3
<PAGE>

<TABLE>

<CAPTION>

                                AXM PHARMA, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                   THREE MONTHS ENDED MARCH 31, 2004 AND 2003
                                   (UNAUDITED)

                                                              Three Months Ended
                                                                   March 31,
                                                         ----------------------------
                                                             2004            2003
                                                         ------------    ------------
<S>                                                      <C>             <C>

Revenues                                                 $  1,119,394    $  1,367,159

Cost of revenues                                              580,330         927,409
                                                         ------------    ------------

Gross profit                                                  539,064         439,750
                                                         ------------    ------------

General, administrative
 and selling:
  Cash                                                      1,264,229         367,460
  Non-cash                                                  1,769,828            --
                                                         ------------    ------------


Net loss                                                 $ (2,494,993)   $     72,290
                                                         ============    ============

Net loss applicable to
common shareholders:
 Net loss                                                $ (2,494,993)   $     72,290
 Beneficial conversion feature of preferred stock            (947,628)           --
 Deemed dividend from beneficial conversion feature of
 warrants                                                    (137,389)           --
                                                         ------------    ------------
Net loss applicable to common shareholders               $ (3,580,010)   $     72,290
                                                         ============    ============

Net loss per share:
 Basic and diluted                                       $      (0.25)   $       0.01
                                                         ------------    ------------

Weighted averaged shares
 outstanding:
 Basic and diluted                                         14,195,531      10,000,000
                                                         ============    ============
</TABLE>








                                       4
<PAGE>

<TABLE>

<CAPTION>

                                AXM PHARMA, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                   THREE MONTHS ENDED MARCH 31, 2004 AND 2003
                                   (UNAUDITED)

                                                          2004           2003
                                                      -----------    -----------
<S>                                                   <C>            <C>

CASH FLOWS FROM OPERATING ACTIVITIES
  Net loss                                            $(2,494,993)   $    72,290
  Adjustments to reconcile net loss to cash used in
    operating activities:
      Common stock issued for services                  1,769,828           --
      Depreciation and amortization                         9,639          5,414
        Changes in assets and liabilities:
          Cash held in trust                                 --          149,203
          Accounts receivable                           1,760,595       (494,106)
          Advances                                      1,105,766       (157,162)
          Inventories                                    (681,791)       316,687
          Accounts payable and accrued expenses          (268,162)          --
          Value added tax payable                      (1,569,632)       211,865
                                                      -----------    -----------


CASH FLOWS USED IN OPERATING ACTIVITIES                  (368,750)       104,491
                                                      -----------    -----------

CASH FLOWS FROM INVESTING ACTIVITIES
  Capital expenditures                                   (314,741)          --
   Cash received in reverse merger                           --              169
                                                      -----------    -----------
CASH FLOWS FROM INVESTING ACTIVITIES                     (314,741)           169
                                                      -----------    -----------

CASH FLOWS FROM FINANCING ACTIVITIES
  Capital contributions                                      --             --
  Proceeds from the sale of stock                       2,958,032           --
                                                      -----------    -----------

CASH FROM FINANCING ACTIVITIES                          2,958,032           --
                                                      -----------    -----------

NET INCREASE IN CASH                                    2,274,541        104,660

Cash, beginning of period                               2,950,782        106,027
                                                      -----------    -----------

Cash, end of period                                   $ 5,225,323    $   210,687
                                                      ===========    ===========

SUPPLEMENTAL NON-CASH TRANSACTIONS:
  Net liabilities assumed in reverse merger           $      --      $    22,692

</TABLE>




                                       5
<PAGE>




                                AXM PHARMA, INC.
                     (FORMERLY AXIOM PHARMACEUTICALS, INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1: MANAGEMENT REPRESENTATION AND PRESENTATION

Operating  results for the three months ended March 31, 2004 are not necessarily
indicative of the results that may be expected for the year ending  December 31,
2004. 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, 2003 included in our Annual Report on Form 10-KSB.

The  balance  sheet of AXM  Pharma,  Inc.  as of March  31,  2004,  the  related
consolidated  statement of operations for the three months ended March 31, 2004,
and the  consolidated  statement  of cash flows for the three months ended March
31, 2004 included in the consolidated financial statements have been prepared by
us without audit. In the opinion of management,  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
months ended March 31, 2004,  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,
2003 and reported in our most recent Form 10-KSB, 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  (AMEX:  AXJ).  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,  AXM Pharma Shenyang,  Inc.,  located in the city of Shenyang in the
Northeastern  Portion of the  People's  Republic of China.  AXM Shenyang and its
predecessor  company,  Shenyang  Tiawei  Pharmaceutical  Factory,  Ltd., have an
operating  history of approximately 10 years. AXM Shenyang has historically been
a  manufacturer  and  distributor  of  proprietary  and  generic  pharmaceutical
products,  which include injectibles,  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.   Our  products  are
currently  produced by third-party  manufacturers  and sold through  third-party
distributors.   AXM   Shenyang   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 AXM Shenyang;
acquiring  additional  product  licenses;  and by moving the  manufacturing  and
distribution   of  our  products   in-house.   In  October  2003,  we  commenced
construction  of a new plant to be built to U.S. and Chinese Good  Manufacturing
Practices requirements.



                                       6
<PAGE>


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 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.

FINANCIAL CONDITION

During the three-month period ended March 31, 2004 we generated  $1,119,394 from
product sales compared to revenues from product sales for the three-month period
ended March 31, 2003 of $1,367,159. This represents a sales decrease of $247,765
from the  three-month  period ended March 31, 2003.  The lower sales were due to
management's  strategic  decision to eliminate  the sales of the  Cefalexin  and
Norflexin antibiotic products due to their significantly decreasing gross profit
margins.  Antibiotic  pricing  is under  significant  pressure  from  government
hospital  purchasers  who are  reducing  the price  they are  willing to pay for
antibiotics by up to 20% per year.  Other product  categories are not under such
pressures.  First  quarter,  sales of Asarone,  Weifukang  and Lifupeng  were on
target rising approximately 100% over the first quarter 2003. Despite this lower
sales figure for the period ended March 31, 2004,  we still  anticipate  meeting
our internal projections of approximately $33 million in sales for FY2004.



                                       7
<PAGE>


Gross profit on product sales for the  three-month  period ended March 31, 2004,
was  $539,064  compared to $439,750 for the  three-month  period ended March 31,
2003,  an increase of $99,314.  These  figures  represent a 22%  increase of our
gross margin to  approximately 48%.  This increase in gross profits was achieved
through a planned  elimination of the sales of our ultra-low  margin  antibiotic
products.  During the remainder of FY 2004, we anticipate continuing to increase
our gross  profit  margin to achieve  further  gains of more than 20  percentage
points  versus 2003.  We anticipate  this  significant  increase in gross profit
margin  through  the  introduction  of  our  various  new  products,  which  are
anticipated  to have an average  gross  margin of 75%,  the  re-branding  of our
products  under  the  AXM  Pharma  Shenyang  and  Sunkist  brands,  signing  new
distribution  contracts  at  margins  that are  equivalent  or  better  than the
agreements  in  force  in  2003,  and the  opening  of our new  state of the art
manufacturing plan in Shenyang scheduled for the second half of 2004.

At March 31, 2004, we had total assets of  $11,411,811  compared to total assets
of $11,024,738  at December 31, 2003.  Cash was $5,225,323 as of March 31, 2004,
an increase of $2,274,541  from the  $2,950,782  cash on hand as of December 31,
2003.  Cash used in  operations  was  $368,750  and cash  provided by  financing
activities from the sale of common stock was $2,958,032. Accounts receivable was
$854,384 at March 31,  2004, a decrease of  $1,760,595  from the  $2,614,979  at
December  31,  2003.  Inventories  increased  $681,791  to  $2,925,545  from the
$2,243,754 at December 31, 2003. The increase in inventories is  attributable to
preparing to meet the  anticipated  higher sales figures.  Total  liabilities at
March 31, 2004 were $1,596,196,  a decrease of $1,845,794 from the $3,441,990 at
December 31, 2003.  Accounts  payable and accrued  liabilities  were $248,002 at
March 31, 2004, an increase of $98,670 from the $346,672 at December 31, 2003.

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

In October 2003, we began  construction of a modern  production and distribution
facility,  which we intend to qualify  under  United  States Good  Manufacturing
Practice regulations. The new plant is 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.

AXM  Shenyang 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


                                       8
<PAGE>

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 AXM Shenyang,  will
enjoy exemption from income tax for 2 years from the first year of operation.

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 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.  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 37.3%
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.

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. We regularly monitor  inventories for excess or obsolete
items and makes any valuation corrections when such adjustments are needed.


                                       9
<PAGE>


NOTE 3 - STOCK ISSUANCES

COMMON STOCK ISSUED FOR STOCK-BASED COMPENSATION

We 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  March 31, 2004,  we issued  300,000  shares of
common stock and 50,000 warrants for services valued at $1,769,828.

On January 26, 2004,  the Board  authorized  the  issuance of 100,000  shares of
restricted common shares and 50,000 warrants to Great Eastern  Securities,  Inc.
pursuant  to an  investment  banking  agreement.  The shares are to be  released
quarterly based upon a vesting  schedule of 25,000 shares per quarter during the
term of the  agreement.  Pursuant to an agreement  that was executed on December
18, 2003,  Great Eastern will provide  investor  relations  related services and
assist AXM Pharma with broker  relations  for our stock.  The warrants are for a
term of five years and have an  exercise  price  equal to $4.74 per  share.  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 shares were valued at $5.65 per share, the market price for shares
of our common  stock at the time of  issuance.  Therefore,  the total  aggregate
value of the consideration paid to Great Eastern Securities,  Inc. was $639,828,
including a $104,828 charge for black shoals valuation of the warrants issued.

On February 2, 2004, we issued 200,000 shares of restricted  common to the Aston
Organization.  We have only  released  20,000 of the issued  shares to the Aston
Organization. The remaining 180,000 shares are to be released monthly based upon
a vesting  schedule of 15,000 shares per month during the term of the agreement.
The services to be provided  under the  agreement  are investor  relations.  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 shares were valued at $5.65 per share, the market price for shares
of our common  stock at the time of  issuance.  Therefore,  the total  aggregate
value of the consideration paid to the Aston Organization was $1,130,000.

Conversions of Preferred Stock and Warrant Exercises

During the third quarter, AXM Pharma issued shares of common stock in connection
with the following  conversions of its Series A Preferred  Stock and exercise of
Common Stock purchase warrants.

AXM Pharma issued  365,000  shares of common stock for the conversion of 365,000
shares of Series A Preferred Stock.

AXM Pharma  issued  448,000  shares of common stock for the exercise of warrants
for proceeds of $1,344,040.

AXM Pharma  issued 8,933  shares of common  stock for the  cashless  exercise of
13,750 warrants.



                                       10
<PAGE>

ACCOUNTING FOR STOCK-BASED COMPENSATION

We account 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 we have
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 we
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 December 31, 2003,  we issued  860,000  shares of our preferred  stock,  at a
price per share of $2.25 and 1,000,000  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 for a period of five years from the
date of 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.
In addition, we issued to TN Capital Equities,  our placement agent, a five-year
warrant to purchase  up to 86,000  shares of our  preferred  stock for $2.25 per
share and up to 100,000  warrants  to purchase  shares of our common  stock upon
exercise  at $3.00 per  share,  on a  pro-rata  basis to the number of shares of
preferred stock purchased. The private equity financing described above was made
pursuant to the exemption from the registration provisions of the Securities Act
provided by Section  4(2) of the Act and Rule 506 of  Regulation  D  promulgated
thereunder.

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


                                       11
<PAGE>

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 filed with the Securities  and Exchange  Commission by June 30,
2004, 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 tradable
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.

STOCK OPTION PLANS

In April of 2004, our Shareholders approved the "2004 Qualified and Nonstatutory
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  2,040,000  options  to
employees, directors and consultants.

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 the notes  thereto  which appear  elsewhere in this report.  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.

Overview

On March 14, 2003,  we completed a share  exchange  with Werke  Pharmaceuticals,
Inc.,  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


                                       12
<PAGE>

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.

In April  2004,  we  received  approval  from the  Liaoning  Province  Bureau of
Industry and Commerce and the Liaoning  Province  Ministry of Foreign  Trade and
Investment  to change  the name of our  wholly  owned  subsidiary  in China from
Shenyang Tianwei Werke Pharmaceuticals,  Ltd. to AXM Pharma Shenyang,  Inc. This
approval of our name change paves the way for us to  repackage  our product line
with the AXM Pharma  brand.  We are  currently  undertaking  a full redesign and
reconfiguration  of our packaging by our  international  brand  consulting firm,
ZZAD and Ogilvy and Mather.

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 entered into a licensing  agreement  to  manufacture,  market and
sell certain  vitamin and vitamin  supplements in The Peoples  Republic of China
under the Sunkist  brand name and  trademark.  The  agreement  grants AXM Pharma
exclusive  rights in The  Peoples  Republic of China,  excluding  Macao and Hong
Kong,  for use of the Sunkist  brand name for AXM Pharma's  range of vitamin and
vitamin supplements  (excluding  vitamin-fortified  confections).  The agreement
also grants AXM Pharma a right of first refusal for any territory in the rest of
Asia where Sunkist does not currently license the product  categories covered by
their  agreement  with AXM  Pharma.  Under  the terms of the  agreement,  we are
required  to achieve  certain  sales  targets  each year,  for each  category of
product  licensed  under the  agreement.  If we fail to achieve  the agreed upon
sales  targets for any two  consecutive  years,  the agreement may be terminated
with regard to such product category by Sunkist in its discretion.

LIQUIDITY AND CAPITAL RESOURCES

Total assets increased from $4,596,520 at March 31, 2003 to $11,411,811 at March
31,  2004.  The increase is  primarily  attributable  to the increase in cash of
approximately  $5.0 million and an increase in inventories of approximately $1.9
million.

During the first quarter,  we completed a private equity financing of $1,950,000
with two accredited  investors.  After payment of costs and expenses,  including
fees  of  the  placement  agent,  we  received  net  proceeds  of  approximately
$1,734,833.  Pursuant to the terms of the purchase agreement with our investors,
dated as of December 31, 2003, we issued 1,00,000 shares of our preferred stock,
$.001 par value per share,  at a price per share of $2.25 and 860,000  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 decreased to approximately  $1,596,196
at March 31, 2004,  as compared to  approximately  $1,644,062 at March 31, 2003.



                                       13
<PAGE>


From March 31, 2003, to March 31, 2004, our cash and cash equivalents  increased
by  approximately  $5.0  million as a result of receipt of net  proceeds  in the
private placement offering of $2,958,032.  Approximately  $1,769,828 of non-cash
general,  administrative  and selling expenses were incurred in the period ended
March  31,  2004.  The  non-cash  expense  is  where we pay for  services  (e.g.
financial consulting and investor relations services) using shares of our common
stock. In the past the Company took advantage of these opportunities to conserve
cash.

We currently have sufficient cash to maintain  operations at their present level
through the end of the current year.  However,  to fulfill our planned expansion
in sales  territory,  complete the factory,  implement the required  systems and
fund our working capital needs, we will need to raise  approximately $12 million
in additional funds. We are currently seeking to raise this additional  capital,
but there cannot be any guarantees that we will be able to raise this additional
capital on terms  acceptable  to  management  or at all. We are  currently  in a
position to call a significant number of outstanding warrants, in the event that
all  warrants  were called and  converted  we would  receive  gross  proceeds of
approximately $9 million. If we are not be able to raise this additional capital
through warrant  conversions 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 our
the anticipated future sales and earnings.

If the warrants are not exercised and we are unable to provide necessary capital
for  construction  of the  Shenyang  plant from  future  revenues  or  financing
activities,  this may cause delays in the  construction  of the Shenyang  plant.
More likely,  however,  is that in the absence of the funds from the exercise of
the warrants,  we will still be able to complete the Shenyang  plant but we will
be forced to acquire manufacturing equipment that operates at lower capacity and
speed. We intend to use the additional  funds from exercise of the warrants,  if
any, for engineering  support to increase speed of production  through improving
work flow and using  higher speed  equipment;  for higher  speed  equipment  for
tableting and  encapsulation  production;  and for higher  volume  equipment and
higher speed equipment for cream mixing and filling production.

CRITICAL 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:

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


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<PAGE>

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.

ACCOUNTING FOR STOCK-BASED COMPENSATION

We account for  stock-based  compensation  based on the provisions of 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. We 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.  We 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 our operations and/or financial position.

We did not issue any stock  options to  employees  during the period ended March
31, 2004,  therefore pro forma disclosures are not required for the three months
ended March 31, 2004.

CONVERTIBLE PREFERRED STOCK

Convertible  Preferred  Sock  issued  by AXM  Pharma  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  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


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<PAGE>

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 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.

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


                                       16
<PAGE>

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

COMPARISON  OF RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 2004 TO THREE MONTHS
ENDED MARCH 31, 2003

REVENUE.  During  the  three-month  period  ended  March 31,  2004 we  generated
$1,119,394  from product  sales  compared to revenues from product sales for the
three-month  period ended March 31, 2003 of $1,367,159.  This represents a sales
decrease of $247,765 from the three-month period ended March 31, 2003.

The lower sales were due to  management's  strategic  decision to eliminate  the
sales  of  the  Cefalexin  and  Norflexin   antibiotic  products  due  to  their
significantly  decreasing  gross  profit  margins.  Antibiotic  pricing is under
significant  pressure from government  hospital  purchasers who are reducing the
price  they are  willing  to pay for  antibiotics  by up to 20% per year.  Other
product  categories  are not  under  such  pressures.  First  quarter,  sales of
Asarone,  Weifukang and Lifupeng were on target rising  approximately  100% over
the first quarter of 2003.  Despite this lower sales figure for the period ended
March  31,  2004,  we still  anticipate  meeting  our  internal  projections  of
approximately $33 million in sales for FY2004.

In March 2004, we announced that we had acquired the rights to  manufacture  and
distribute a new adjunctive therapy for Type II diabetes. In March 2004, we also
announced  the  signing  of an  exclusive  agreement  with  Sunkist  Growers  to
manufacture  and distribute  various vitamin and supplement  products.  In March
2004,  we also  announced  that we had  hired a  former  executive  of  Viagra's
(Pfizer)  Marketing  Service  provider in China as Vice  President of Marketing.
Following the close of the first  quarter,  in April 2004, we announced  that we
had gained the rights to  manufacture  and  distribute  a new  Feminine  Hygeine
Product, Xin Shu and had appointed ZZAD and Ogilvy & Mather to provide marketing
and branding service support for the various new products. These events, coupled
with  anticipated  expanded  distribution  and  marketing  relationships,   have
provided us with the key products and internal  management and external advisors
necessary  for us to  increase  total  revenues  by as much as 300% in 2004.  We
anticipate  completing new marketing and distribution  relationships  during the
remainer of 2004. We are currently in negotiation  with various new distribution
and  marketing  partners,  to  date  no  additional  distribution  or  marketing
agreements have been executed. We will continue to seek additional manufacturing
and marketing rights to new over-the-counter formulas and 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 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.

GROSS  PROFIT.  Gross profit on product sales for the  three-month  period ended
March 31, 2004,  was $539,064  compared to $439,750 for the  three-month  period


                                       17
<PAGE>

ended March 31,  2003,  an increase of $99,314.  These  figures  represent a 22%
increase of our gross margin to approximately 48%.

This increase in gross profits was achieved through a planned elimination of the
sales of our ultra-low margin antibiotic products. During the remainder of 2004,
we anticipate continuing to increase our gross profit margin in order to achieve
further gains,  which we anticipate  will represent an increase of more than 20%
over our 2003 fiscal year.  We  anticipate  this  significant  increase in gross
profit margin through the  introduction  of our various new products,  which are
anticipated  to have an average  gross  margin of 75%,  the  re-branding  of our
products  under  the  AXM  Pharma  Shenyang  and  Sunkist  brands,  signing  new
distribution  contract that provide  margins which are equivalent or better than
the  agreements  that were in force in 2003, and the opening of our new state of
the art manufacturing plan in Shenyang scheduled for the second half of 2004.

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
anticipated to be achieived. Pricing of our products and gross profit on product
sales could change due to competitive forces that could negatively impact future
sales and or operating profits.

GENERAL,  ADMINISTRATIVE AND SELLING EXPENSES.  The cash portion of this expense
category was $1,264,229 compared to $367,460 for the same period last year. This
increase in cash expenditures on general, administrative and selling expense for
this  quarter  compared to the same  quarter  last year is due  primarily to the
expansion  of  administrative  staff in the US office to provide  for  financial
reporting,  capital raising  efforts and  maintaining our public  relations at a
level  consistent with a public  company.  We also added staff in setting up the
information  technology  function for reviewing  possible  software and hardware
solutions.  The expenditures in the information technology area are necessity in
order  to  precede  with  the  actual  implementation  and  role  our of our new
manufacturing,  marketing  and  accounting  software  modules  in step  with the
completion of our new manufacturing  facility in Shenyang and meeting US GMP and
China GMP standards.

In addition to the aforementioned  cash expenses in the general,  administrative
and selling expense category there were $1,769,828 in non-cash expenses relating
to stock issued for professional services rendered in the public relations area.

NON-CASH  CONSULTING  ACTIVITIES.  During the three-month period ended March 31,
2004,  our Board of Directors  authorized  the issuance of shares of  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 $1,769,828 for the issuance of
these shares during the three-month period ended March 31, 2004.

NET LOSS AND LOSS PER SHARE. As a result of the above, in the three months ended
March 31, 2004,  our net loss was  $2,494,993  including  $1,769,828 in non-cash
stock issuance related losses.  The net loss in the period  applicable to common
shareholders  was $3,580,010 or $(0.25) per share compared to $72,290 profit the
same period during 2003.  The Net Loss for the three months ended March 31, 2004
was a result of increased  expenses  related to our public  reporting status and
increased  activities  associated  with  the  construction  of our new  plant in
Shenyang.


                                       18
<PAGE>

The net loss and loss per share  results  for the three  months  ended March 31,
2004 were inline with internal management estimates. We have forecasted earnings
per share for FY2004 at $0.42 cents per share, excluding non-cash expenses, on a
fully diluted basis of approximately 21 million shares outstanding at year end.

Despite the views of management,  the statement  concerning  future earnings per
share  is  a   forward-looking   statement  that  involves   certain  risks  and
uncertainties,  which could  result in a  fluctuation  of  earnings  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  impacted
future earnings.

ASSETS AND  LIABILITIES.  At March 31, 2004, we had total assets of  $11,411,811
compared  to  total  assets  of  $11,024,738  at  December  31,  2003.  Cash was
$5,225,323 as of March 31, 2004, an increase of $2,274,541  from the  $2,950,782
cash on hand as of December 31, 2003.  Cash used in operations  was $368,750 and
cash  provided  by  financing  activities  from the  sale of  common  stock  was
$2,958,032.

Accounts  receivable  was $854,384 at March 31,  2004, a decrease of  $1,760,595
from the  $2,614,979  at December 31, 2003.  Inventories  increased  $681,791 to
$2,925,545 from the $2,243,754 at December 31, 2003. The increase in inventories
is attributable to preparing to meet the anticipated higher sales figures.

Total  liabilities at March 31, 2004 were  $1,596,196,  a decrease of $1,845,794
from  the  $3,441,990  at  December  31,  2003.  Accounts  payable  and  accrued
liabilities  were  $248,002 at March 31,  2004,  a decrease of $98,670 from  the
$346,672 at December 31, 2003.

RISK FACTORS
------------

You  should  carefully  consider  the risks  described  below  before  making an
investment in AXM Pharma. All of these 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.

RISKS RELATING TO OUR BUSINESS

We may not be able to adequately protect and maintain our intellectual property.

Our  success  will  depend  in part  on our  ability  to  protect  and  maintain
intellectual  property rights and licensing  arrangements  for our products.  No
assurance  can be given that  licenses  or rights used by AXM Pharma will not be
challenged,  invalidated,  infringed or circumvented, or that the rights granted
thereunder will provide competitive  advantages to us. There can be no assurance
that we will be able to obtain a license to any  third-party  technology that we
may require to conduct our business or that such technology can be licensed at a
reasonable  cost.  There is no certainty  that we will not be  challenged by our
partners for non-compliance with our licensing arrangements.  Furthermore, there
can be no  assurance  that we will be able to  remain  in  compliance  with  our
existing or future  licensing  arrangements.  Consequently,  there may be a risk
that licensing  arrangements  are withdrawn with no penalties to the licensor or
compensation to AXM Pharma.


                                       19
<PAGE>


We may  not  be  able  to  obtain  regulatory  approvals  for  our  products  or
reimbursement from the sale of our products.

The manufacture and sale of  pharmaceutical  products in The Peoples Republic of
China is highly regulated by a number of state,  regional and local authorities.
These  regulations  significantly  increase the difficulty and costs involved in
obtaining and maintaining  regulatory  approval and  reimbursement  listings for
marketing  new and  existing  products.  In  addition,  our  future  growth  and
profitability are, to a significant extent, dependent upon our ability to obtain
timely regulatory approvals and reimbursement from the relevant authorities.

The State Food and Drug Administration of The Peoples Republic of China recently
implemented  new  guidelines  for  licensing  of  pharmaceutical  products.  All
existing  manufacturers  with  licenses,  which are  currently  valid  under the
previous  guidelines,  are  required to apply for Good  Manufacturing  Practices
certification by June 30, 2004, and to receive approval by December 31, 2004. As
a  result,  we plan to  submit  our  application  to the  State  Food  and  Drug
Administration within the required time period. Furthermore, we believe that our
new factory,  which is  currently  under  construction  in Shenyang and which is
being  constructed  to meet more  stringent  U.S. Good  Manufacturing  Practices
requirements,  will pass the certification process and that our current licenses
will be renewed  under the new  guidelines.  However,  should we fail to receive
certification  under the new  guidelines  promulgated by the State Food and Drug
Administration, our business would be impacted in a materially adverse manner.

Our  dependence  on certain  local  parties  may  impact our  ability to control
certain aspects of our operations.

Our operations may become  substantially  dependent on local Chinese partners to
provide marketing expertise and knowledge of the local regulatory environment in
order to  facilitate  the  acquisition  of necessary  licenses and permits.  Any
failure to form or maintain alliances with local partners,  or the preemption or
disruption of such alliances by our  competitors or otherwise,  could  adversely
affect  our  ability  to  penetrate  and  compete  successfully  in the  Chinese
marketplace.  In addition,  in the uncertain  legal  environments in The Peoples
Republic of China, our business may be vulnerable to local  government  agencies
or other  parties  who wish to  renegotiate  the  terms  and  conditions  of, or
terminate, their agreements or other understandings with AXM Pharma.

We rely on third parties for the supply,  manufacture  and  distribution  of our
products.

Third  parties  manufacture  and  distribute  all  of  our  products.  We do not
currently have manufacturing facilities, personnel or access to raw materials to
independently manufacture our products. Currently, our products are manufactured
by  Qiqihaer  Pharmaceutical  Factory  2 and our  products  are  distributed  by
Liaoning  Weikang  Medicine  Co.  Ltd.  Except  for any  contractual  rights and
remedies that we may have with our manufacturer and our distributor,  we have no
control over the  availability  of our  products,  their  quality or cost or the
actual  distribution of our products.  Our current  distribution  agreement with
Liaoning Weikang  Medicine Co. Ltd.  expires at the end of March 2004.  Although
Liaoning  Weikang  Medicine  Co.  Ltd.  has  verbally  agreed to continue as our
distributor at this time, we have not yet signed a definitive  written agreement
for  distribution of our products with either Liaoning Weikang Medicine Co. Ltd.
or any other  distributor.  If for any  reason we are unable to obtain or retain
third-party  manufacturers and distributors on commercially acceptable terms, we
may not be able to  produce  and  distribute  our  products  as  planned.  If we
encounter delays or difficulties with our contract  manufacturer in producing or
packaging our products or with our distributor in distributing our products, the
production, distribution, marketing and subsequent sales of these products would


                                       20
<PAGE>

be adversely affected,  and we may have to seek alternative sources of supply or
distribution  or abandon or sell product lines on  unsatisfactory  terms. We may
not be able  to  enter  into  alternative  supply,  production  or  distribution
arrangements  on  commercially  acceptable  terms,  if at all.  There  can be no
assurance  that the  manufacturer  that we have  engaged will be able to provide
sufficient  quantities of these products or that the products supplied will meet
with our  specifications  or that our distributor will be able to distribute our
products in accordance  with our  requirements.  In addition,  production of our
products  may require raw  materials  for which the sources and  quantities  are
limited.  An  inability  to obtain  adequate  supplies  of raw  materials  could
significantly  delay  development,  regulatory  approval  and  marketing  of our
products.

During the fiscal  years  ended  December  31,  2003 and 2002,  one  distributor
accounted for 100% of our net revenues.

During the fiscal  years  ended  December  31, 2003 and 2002,  one  distributor,
Liaoning  Weikang  Medicine  Co.,  Ltd.,  accounted for 100% of our net revenues
during the past two fiscal years.  Any dispute with Liaoning  Medicine Co. could
have a material  adverse  effect on our  ability  to  distribute  our  products.
Additionally,  should  Liaoning  Weikang  Medicine Co.'s business suffer for any
reason or if they encounter  problems with their customers our business would be
adversely affected.

Additionally,  our  distributor,  Liaoning  Weikang  Medicine Co. is required to
comply with new Good Sales  Practices  guidelines  promulgated by the State Food
and Drug  Administration by December 31, 2004. We have been informed by Liaoning
Weikang  Medicine  Co.  that  they  are in the  process  of  preparing  for this
certification requirement and that they expect to meet the new requirements. If,
however,  Liaoning  Weikang  Medicine  Co.  does not meet the new  certification
requirements, we would be forced to find a new distributor for our products that
is in compliance with the new guidelines.  Any delay in our distribution  caused
by  such  an  event  could  have a  material  adverse  effect  on our  business.
Furthermore,  we may not be able to obtain  terms as  favorable to us from a new
distributor  as the terms we have  currently  negotiated  with Liaoning  Weikang
Medicine Co., which could also have an adverse effect on our business.

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

The ethical and  over-the-counter  drug markets in The Peoples Republic of China
are very competitive and competition may increase. Products compete on the basis
of efficacy, safety, side effect profiles, price and brand differentiation. Some
of our competitors may have greater  technical and financial  resources than AXM
Pharma  and may use  these  resources  to  pursue a  competitive  position  that
threatens our products. Our products could be rendered obsolete, or uneconomical
by the development of new  pharmaceuticals to treat conditions  addressed by our
products,  as  a  result  of  technological   advances  affecting  the  cost  of
production,  or as a result of marketing or pricing action by one or more of our
competitors.

We are dependant on certain key existing and future personnel.

Our success will depend,  to a large  degree,  upon the efforts and abilities of
our officers and key management  employees such as Peter  Cunningham,  our Chief
Executive Officer;  Chet Howard, our Chief Financial Officer;  and Wang Wei Shi,
Chief Executive Officer of Shenyang Tianwei Werke  Pharmaceuticals  and Chairman
of AXM  Pharma.  The loss of the  services  of one or more of our key  employees
could have a material  adverse effect on our operations.  We currently only have
an employment agreement with Peter Cunningham.  We do not currently maintain key
man life  insurance on any of our key  employees.  In addition,  as our business


                                       21
<PAGE>

plan is implemented,  we will need to recruit and retain  additional  management
and key employees in virtually all phases of our operations.  Key employees will
require  not only a strong  background  in the  pharmaceutical  industry,  but a
familiarity  with  language  and culture in the markets in which we compete.  We
cannot  assure  that we will be able to  successfully  attract  and  retain  key
personnel.

Our growth is  dependent  on our  ability to  successfully  develop,  acquire or
license new drugs.

We must  invest  substantial  time,  resources  and capital in  identifying  and
developing  new drugs,  dosage  and  delivery  systems,  either on our own or by
acquiring and licensing such products from third parties. Our growth depends, in
part, on our success in such process. Our planned expansion over time is founded
on a simple  principal of introducing  two new products or line  extensions each
year  and to  expand  distribution  into two new  territories  each  year.  This
strategy has the advantage of building brands through  geographic  expansion and
line  extensions,  and  establishing  incremental  capabilities  for new product
introductions.  We believe that our planned  expansion will require $5.0 million
in total over three  years,  which we intend to fund out of our future  revenues
and, if necessary,  additional financing. If we are unable to either develop new
products on our own or acquire licenses for new products from third parties, our
ability  to grow  revenues  and  market  share will be  adversely  affected.  In
addition, we may not be able to recover our investment in the development of new
drugs, given that projects may be interrupted,  unsuccessful,  not as profitable
as initially  contemplated or we may not be able to obtain  necessary  financing
for such  development if we are unable to fund such  development from our future
revenues.  Similarly, there is no assurance that we can successfully secure such
rights from third parties on an economically feasible basis.

We may be subject to product liability claims in the future.

We face an inherent business risk of exposure to product liability claims in the
event that the use of our  technologies or products are alleged to have resulted
in adverse side  effects.  Side effects or marketing or  manufacturing  problems
pertaining to any of our products  could result in product  liability  claims or
adverse  publicity.  These  risks  will  exist for those  products  in  clinical
development and with respect to those products that receive regulatory  approval
for commercial sale. Furthermore,  although we have not historically experienced
any  problems  associated  with  claims  by  users  of our  products,  we do not
currently  maintain  product  liability  insurance.  We plan  to have a  product
liability insurance plan in place by the second quarter of fiscal 2004; however,
there can be no  assurance  that we will be able to  acquire  product  liability
insurance with terms that are commercially feasible.


RISKS RELATING TO THE PHARMACEUTICAL INDUSTRY IN THE PEOPLE'S REPUBLIC OF CHINA

Changes  in the  laws and  regulations  in The  Peoples  Republic  of China  may
adversely affect our ability to conduct our business.

The  pharmaceutical  industry is relatively  new in the emerging  markets of The
Peoples  Republic of China that we are  targeting,  and the manner and extent to
which it is regulated  in these  geographical  areas is  evolving.  As a Chinese
corporation, AXM Pharma is subject to the Company Law of The Peoples Republic of
China and more specifically to the Foreign Company provisions of the Company Law
and the Law on Foreign  Capital  Enterprises of the People's  Republic of China.
Additionally,  as a pharmaceutical company, we are subject to the Pharmaceutical
Administrative Law. Changes in existing laws or new interpretations of such laws
may have a significant  impact on our methods and costs of doing  business.  For


                                       22
<PAGE>

example,   new  legislative   proposals  for  pharmaceutical   product  pricing,
reimbursement  levels,  approval criteria and manufacturing  requirements may be
proposed and adopted. Such new legislation or regulatory requirements may have a
material  adverse  effect on our financial  condition,  results of operations or
cash flows. In addition, we will be subject to varying degrees of regulation and
licensing by governmental  agencies in The Peoples Republic of China.  There can
be no assurance that the future  regulatory,  judicial and  legislative  changes
will not have a material adverse effect on AXM Pharma,  that regulators or third
parties  will not  raise  material  issues  with  regard  to AXM  Pharma  or our
compliance or  non-compliance  with  applicable  laws or regulations or that any
changes in  applicable  laws or  regulations  will not have a  material  adverse
effect on AXM Pharma or our operations.

We may experience barriers to conducting business due to governmental policy.

The State Food and Drug Administration of The Peoples Republic of China set up a
classification    administrative   system   in   1999   for   prescription   and
over-the-counter  drugs. Since then, the State Food and Drug  Administration has
issued a series  of  guidelines  for  interpretation  of the new  classification
system for  labeling,  usage  instructions  and  packaging  of  over-the-counter
products.  The  State  Food  and Drug  Administration  currently  requires  that
pharmaceutical  manufacturers clearly label drugs for over-the-counter sales and
distinguish  them from those to be sold in hospitals as ethical  drugs.  We have
instituted this policy as required by the State Food and Drug Administration. To
date,  we  have  never   experienced  any  problems  with  compliance  with  the
regulations  of the  State  Food and Drug  Administration.  We have  never  been
investigated  for  noncompliance  by  this  agency  nor  have  we  violated  any
regulations of the State Food and Drug Administration.

Our business may be adversely  affected by government plans to consolidate state
owned pharmaceutical companies in the Peoples Republic of China.

The Ministry of Commerce announced plans to consolidate nearly 5,000 state owned
pharmaceutical  companies into approximately 12 to 15 companies. The Ministry of
Commerce has stated that it targets the size of these  remaining  firms to be at
least U.S.$ 10.0 billion  revenue per annum in the future  (U.S.$ 5.0 billion by
the year 2010).  Their primary  business will be to make generic  pharmaceutical
products  for sale to state  owned  hospitals.  The  planned  consolidation  has
already commenced and is anticipated to continue until the goals of the Ministry
of Commerce  have been  realized.  The  Ministry of Commerce has set a near term
goal of having 10 large  companies  with  annual  sales of over RMB 5 billion by
2005. We are not aware,  however,  at this time of how many  companies have been
consolidated  or when the  planned  consolidation  will be  completed.  A recent
example of the consolidation amongst state owned pharmaceutical companies is the
acquisition  by the  conglomerate  Huayuan  Group  of a 40%  stake  in  Shanghai
Pharmaceutical  Group.  This  new  company  will  be  involved  in  manufacture,
distribution and research and development.  An objective of the consolidation is
to establish a manufacturing  standard  consistent with U.S. Good  Manufacturing
Practices.  It is planned that all products manufactured in The Peoples Republic
of China will meet U.S. Good Manufacturing Practices standard in the future.

AXM Pharma has initiated  several  programs to mitigate any  potential  negative
impact  that  this  consolidation  may  have.  These  steps  include  commencing
construction of a U.S. Good Manufacturing Practices qualified facility that will
comply with both  Chinese  and U.S.  requirements;  seeking to license  original
molecules from multi national pharmaceutical firms and specialist drug discovery
firms to participate in the patented  prescription product segment of the market
which provides certain  protections and pricing multiples not available in other


                                       23
<PAGE>

segments;  and  pursuing   expansion  into  the   distribution  segment  of  the
pharmaceutical  business  which is being  opened for foreign  companies  at this
time.  This access is  supported by new  government  regulation.  Despite  these
steps, however, should The Ministry of Commerce follow through with its plans to
consolidate the many fragmented Chinese pharmaceutical  companies into a smaller
number of large  firms,  we will face  increased  competition  from large,  well
funded, government supported companies. Our business could be adversely affected
by this increased competition.

RISKS RELATING TO THE PEOPLE'S REPUBLIC OF CHINA

Capital outflow policies in The Peoples Republic of China may hamper our ability
to remit income to the United States.

The  Peoples  Republic  of China  has  adopted  currency  and  capital  transfer
regulations.   These  regulations  may  require  that  we  comply  with  complex
regulations  for the  movement  of  capital.  In  order  to  comply  with  these
regulations we may have to revise or change the banking structure of our company
or its subsidiaries Although we believe that we are currently in compliance with
these  regulations,  should these  regulations or the  interpretation of them by
courts or  regulatory  agencies  change  we may not be able to remit all  income
earned and proceeds received in connection with our operations to the U.S.

Fluctuation of the Renminbi could materially affect our financial  condition and
results of operations.

The value of the  Renminbi  fluctuates  and is subject to changes in The Peoples
Republic  of  China's  political  and  economic  conditions.   Since  1994,  the
conversion of Renminbi into foreign currencies, including United States dollars,
has been based on rates set by the People's  Bank of China,  which are set daily
based upon the  previous  day's  interbank  foreign  exchange  market  rates and
current exchange rates on the world financial markets.  Since 1994, the official
exchange  rate for the  conversion  of  Renminbi  to United  States  dollars has
generally  been stable.  As of November 15, 2003,  the exchange rate between the
Renminbi  and the United  States  dollar was 8.26  Renminbi  to every one United
States dollar.

We may face  obstacles  from the  communist  system in The  Peoples  Republic of
China.

Foreign  companies  conducting  operations in The Peoples Republic of China face
significant  political,  economic and legal risks.  The Communist  regime in The
Peoples Republic of China, including a stifling bureaucracy,  may hinder Western
investment.  Another obstacle to foreign  investment is corruption.  There is no
assurance  that we will be able to obtain  recourse,  if  desired,  through  The
Peoples Republic of China's poorly developed and often corrupt judicial systems.

We may have difficulty  establishing  adequate  management,  legal and financial
controls in The Peoples Republic of China.

The Peoples  Republic of China  historically has been deficient in Western style
management and financial reporting concepts and practices,  as well as in modern
banking,  computer and other control  systems.  We may have difficulty in hiring
and retaining a sufficient number of qualified  employees to work in The Peoples
Republic of China. As a result of these factors, we may experience difficulty in
establishing management, legal and financial controls, collecting financial data
and preparing financial  statements,  books of account and corporate records and
instituting business practices that meet Western standards.


                                       24
<PAGE>


Trade  barriers  and  taxes  may have an  adverse  effect  on our  business  and
operations.

We may  experience  barriers to  conducting  business  and trade in our targeted
emerging markets in the form of delayed customs  clearances,  customs duties and
tariffs.  In addition,  we may be subject to repatriation  taxes levied upon the
exchange of income from local currency into foreign currency,  substantial taxes
of profits,  revenues,  assets and  payroll,  as  well as  value-added  tax. The
markets in which we plan to operate may impose onerous and unpredictable duties,
tariffs and taxes on our  business and  products,  and there can be no assurance
that this will not have an adverse effect on our finances and operations.

It will be extremely  difficult to acquire  jurisdiction and enforce liabilities
against our  officers,  directors  and assets  based in The Peoples  Republic of
China.


                                       25
<PAGE>


Because  several of our  directors,  including Wei Shi Wang, the chairman of our
Board of Directors, are Chinese citizens it may be difficult, if not impossible,
to acquire  jurisdiction  over these persons in the event a lawsuit is initiated
against AXM Pharma and/or its officers and  directors by a shareholder  or group
of  shareholders  in the U.S.  Also,  although our  executive  officers are U.S.
citizens,  because they may be residing in The Peoples  Republic of China at the
time such a suit is initiated  achieving service of process against such persons
would be extremely  difficult.  Furthermore,  because the majority of our assets
are  located  in The  Peoples  Republic  of  China it  would  also be  extremely
difficult to access those assets to satisfy an award entered  against us in U.S.
court.

There can be no  guarantee  that The Peoples  Republic of China will comply with
the membership requirements of the World Trade Organization.

Due  in  part  to  the  relaxation  of  trade  barriers  following  World  Trade
Organization accession in January 2002, we believe The Peoples Republic of China
will become one of the world's largest  pharmaceutical  markets by the middle of
the twenty-first  century. As a result, we believe the Chinese market presents a
significant  opportunity for both domestic and foreign drug manufacturers.  With
the   Chinese   accession   to  the  World  Trade   Organization,   the  Chinese
pharmaceutical  industry  is gearing up to face the new  patent  regime  that is
required by World Trade  Organization  regulation.  The Chinese  government  has
begun to reduce its average tariff on  pharmaceuticals.  The Peoples Republic of
China has also  agreed  that  foreign  companies  will be allowed to import most
products,  including  pharmaceuticals,  into any part of The Peoples Republic of
China. Current trading rights and distribution restrictions are to be phased out
over a three-year period. In the sensitive area of intellectual property rights,
The  Peoples  Republic  of China  has  agreed  to  implement  the  trade-related
intellectual property agreement of the Uruguay Round. There can be no assurances
that The Peoples Republic of China will implement any or all of the requirements
of its membership in the World Trade Organization in a timely manner, if at all.

The recent  outbreak of Severe Acute  Respiratory  Syndrome (SARS) may adversely
impact our  operations  and the  operations  of our contract  manufacturers  and
distributors.

The SARS  outbreak  has been most  notable in Asia,  in  particular  The Peoples
Republic of China, Singapore and Vietnam. Our principal  administrative,  sales,
marketing  and  production  development  facilities  are located in the Northern
portion  of The  Peoples  Republic  of China  and the  operations  of all of our
contract  manufacturers  and distributors are located in The Peoples Republic of
China, as well. The development,  manufacture, marketing and distribution of our


                                       26
<PAGE>

pharmaceutical products could suffer if a significant number of our employees or
the employees of our contract  manufacturers  or  distributors  contract SARS or
otherwise are unable to fulfill their  responsibilities.  In addition,  while we
possess  technology  that would  allow us to develop  and market  products  with
minimal  travel to or from Asia,  our business could also be harmed if travel to
or from Asia and the United States is restricted or inadvisable.  Because of our
relatively  small size,  many of our competitors may be better able to withstand
the adverse impact to their businesses resulting from the SARS outbreak.

RISKS RELATING TO OWNERSHIP OF COMMON STOCK

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 2004, our common stock traded an average of approximately  81,800
shares per day. As of May 13, 2004, the closing bid price of our common stock on
the  American  Stock  Exchange was $4.28 per share.  As of May 13, 2004,  we had
approximately  112  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 45.78% of our capital
stock may decrease your influence on shareholder decisions.

Our  executive  officers  and  directors,  in the  aggregate,  beneficially  own
approximately  45.78% 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.

The holders of the warrants have until August 21, 2008,  September 12, 2008, and
December 31, 2008, respectively, to exercise their warrants. There are currently
3,333,750  warrants  outstanding,  which are exercisable at a price of $3.00 per
share, subject to adjustment in certain circumstances.  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.  CONTROLS AND PROCEDURES


(a)  Evaluation of disclosure controls and procedures
     ------------------------------------------------

     We maintain  controls and  procedures  designed to ensure that  information
     required to be  disclosed  in the reports  that we file or submit under the


                                       27
<PAGE>

     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.  Based upon their  evaluation of those
     controls and  procedures  performed as of the end of the period  covered by
     this report,  our chief executive  officer and principal  financial officer
     concluded that our disclosure controls and procedures were adequate.

(b)  Changes in internal controls
     ----------------------------

     There were no  significant  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 chief executive officer and
     principal financial officer.

















                                       28
<PAGE>



                           PART II - OTHER INFORMATION


ITEM 1.   LEGAL PROCEEDINGS

We are not involved in any lawsuits and are not aware of any pending litigation.

ITEM 2.   CHANGES IN SECURITIES AND USE OF PROCEEDS

(a)  Not Applicable.

(b)  Not Applicable.

(c)  On January 26, 2004, our Board  authorized the  issuance of 100,000 shares
     of  restricted   common  shares  and  50,000   warrants  to  Great  Eastern
     Securities,  Inc. pursuant to an investment banking  agreement.  The shares
     are to be released quarterly based upon a vesting schedule of 25,000 shares
     per quarter during the term of the agreement. Pursuant to an agreement that
     was  executed on December  18, 2003,  Great  Eastern will provide  investor
     relations  related services and assist AXM Pharma with broker relations for
     our stock.  The  warrants are for a term of five years and have an exercise
     price  equal to $4.74 per share.  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 shares were valued at
     $5.65 per  share,  the market  price for shares of our common  stock at the
     time of issuance. Therefore, the total aggregate value of the consideration
     paid to Great Eastern Securities,  Inc. was $639,828,  including a $104,828
     charge for black shoals valuation of the warrants issued. .

     On February 2, 2004, we issued 200,000  shares of restricted  common to the
     Aston  Organization.  We have only released  20,000 of the issued shares to
     the Aston  Organization.  The remaining  180,000  shares are to be released
     monthly based upon a vesting schedule of 15,000 shares per month during the
     term of the agreement.  The services to be provided under the agreement are
     investor  relations.  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 shares were valued at $5.65 per share,
     the market  price for shares of our common  stock at the time of  issuance.
     Therefore, the total aggregate value of the consideration paid to the Aston
     Organization was $1,130,000.












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<PAGE>



(d)  Not applicable.

ITEM 3.   DEFAULTS UPON SENIOR SECURITIES

Not Applicable.

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

(a)  On  April  29,  2004,   AXM Pharma,   Inc.  held   its  annual  meeting  of
     shareholders.

(b)  Proxies for the meeting were  solicited  pursuant to  Section  14(a) of the
     Securities Exchange Act of 1934 and there was no solicitation in opposition
     to  management's  Director  nominees.  There were no-broker  non-votes with
     respect to any Director nominee.

     Votes  representing  9,032,643  shares  of Common  Stock  were cast and the
     following   persons  received  the  number  of  votes  set  opposite  their
     respective names, to wit:

                                                   "FOR"       "WITHHELD"

         Wang Wei Shi                            9,032,643         0
         Douglas C. MacLellan                    9,032,643         0
         Mark J. Bluer                           9,032,643         0
         Mark Elenowitz                          9,032,643         0
         Montgomery F. Simus                     9,032,643         0
         Chaoying (Charles) Li                   9,032,643         0

      Accordingly,  all of the managements'  Director  nominees as listed in the
      proxy statement dated March 25, 2004 were elected.

(c)  Votes representing  9,032,443 shares of common stock were cast for and  100
     shares of common stock were cast against the  ratification of the selection
     of Malone & Bailey,  PLLC as independent  auditors AXM Pharma, Inc. and its
     subsidiaries for the fiscal year ending December 31, 2004.

     Accordingly,  Malone &  Bailey,  PLLC  were  approved  to  be AXM  Pharma's
     independent auditors for the fiscal year ending December 31, 2004.

(d)  Votes  representing  9,027,043  shares of common  stock  were cast  for and
     2,800  shares of common stock were cast  against the  ratification  of  the
     2004 AXM Pharma, Inc. Incentive and Nonstatutory Stock Option Plan.

     Accordingly,  the 2004 AXM Pharma Incentive and  Nonstatutory  Stock Option
     Plan was approved.


ITEM 5. OTHER INFORMATION
None.




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<PAGE>


ITEM 6.   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.

        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

        1.      On  January  2,  2004,  we filed a  Current  Report  on Form 8-K
                reporting  the  completion  of a  private  equity  financing  of
                $1,935,000  on December 31, 2003 with two  accredited  investors
                (Item 5).

        2.      On  March  29,  2004,  we  filed a  Current  Report  on Form 8-K
                reporting  (i) that our  corporate  offices  had moved from 4695
                Macartheur Court, Newport Beach, California 92660 to 3960 Howard
                Hughes Parkway,  Suite 500, Las Vegas, Nevada 89109 (Item 5) and
                (ii)  that  on  March  29,  2004,  we  held  a  conference  call
                discussing  our year  end  results  for the  fiscal  year  ended
                December 31, 2003,  and other current events of AXM Pharma (Item
                12).

                                   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:  May 14, 2004                      AXM PHARMA, INC.

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

                                                 /s/  Chet Howard
                                                      ------------------------
                                                      Chet Howard,
                                                      Chief Financial Officer




                                      31
<PAGE>


Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER
----------------------------------------

I, Peter Cunningham, certify that:

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

2.   Based on my  knowledge,  this  annual  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 annual 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
     annual report;

4.   The  small  business  issuer'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)) for
     the small business issuer 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 small
          business  issuer,  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.   Evaluated the effectiveness of the small business issuer'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

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

5.   The  small  business  issuer's  other  certifying  officer(s)  and  I  have
     disclosed,  based on our most recent  evaluation  of internal  control over
     financial reporting,  to the small business issuer's auditors and the audit
     committee of the small  business  issuer'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 small  business  issuer's
          ability   to  record,   process,   summarize   and  report   financial
          information; and



                                       32
<PAGE>


     b.   Any fraud, whether or not material,  that involves management or other
          employees who have a significant  role in the small business  issuer's
          internal control over financial reporting.

Date: May 14, 2004


/S/ Peter Cunningham
-------------------------
    Peter Cunningham
    Chief Executive Officer




                                       33
<PAGE>


Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER
----------------------------------------

I, Chet Howard, certify that:

1.   I have reviewed this quarterly report on Form 10-QSB 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 annual report;

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information included in this annual 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 annual report;

4.   The  small  business  issuer'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)) for
     the small business issuer 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 small
          business  issuer,  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.   Evaluated the effectiveness of the small business issuer'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

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

5.   The  small  business  issuer's  other  certifying  officer(s)  and  I  have
     disclosed,  based on our most recent  evaluation  of internal  control over
     financial reporting,  to the small business issuer's auditors and the audit
     committee of the small  business  issuer'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 small  business  issuer'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 small business  issuer's


                                       34
<PAGE>

          internal control over financial reporting.

Date: May 14, 2004

/s/ Chet Howard
-----------------------
    Chet Howard,
Chief Financial Officer



















                                       35
<PAGE>


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-QSB for the period ending March 31, 2004,  as filed with the  Securities
and  Exchange  Commission  on the  date  hereof  (the  "Report'),  I,  Peter  W.
Cunningham,  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/ Peter W. Cunningham
---------------------------
    Peter W. Cunningham,
    Chief Executive Officer

May 14, 2004















                                       36
<PAGE>


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-QSB for the period ending March 31, 2004,  as filed with the  Securities
and Exchange Commission on the date hereof (the "Report'), I, Chet Howard, 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/ Chet Howard
--------------------------
    Chet Howard,
    Chief Financial Officer

May 14, 2004










                                       37