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 JUNE 30, 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
            ---------------------------------------------------------
            7251 WEST LAKE MEAD BLVD., SUITE 300, LAS VEGAS, NV 89128
                    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

                                 (702) 562-4155
                                 --------------
                           (ISSUER'S TELEPHONE NUMBER)


                                (FORMER ADDRESS)
           3960 HOWARD HUGHES PARKWAY, SUITE 500, LAS VEGAS, NV 89109

         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 JUNE 30,  2004,  THERE  WERE  15,642,280  SHARES OF COMMON  STOCK
OUTSTANDING,  2,255,000  SHARES  OF SERIES A  PREFERRED  STOCK  OUTSTANDING  AND
860,000  SHARES OF SERIES B PREFERRED  STOCK  OUTSTANDING  AND 30.425  SHARES OF
SERIES C PREFERRED STOCK OUTSTANDING.




<PAGE>





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

Item 1.  Financial Statements

Balance Sheet at June 30, 2004 (unaudited)..................................3

Unaudited Statements of Operations for the three and six
  months ended June 30, 2004 and 2003.......................................4

Unaudited Statements of Cash Flows for the
  six month periods ended June 30, 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




<PAGE>

<TABLE>

<CAPTION>


                         PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
                                AXM Pharma, Inc.
                           CONSOLIDATED BALANCE SHEET
                                  JUNE 30, 2004
                                   (UNAUDITED)


<S>                                                                       <C>
ASSETS
Current assets

  Cash                                                                    $  4,160,186
  Accounts Receivable, net of allowance of 0                                   828,902
  Inventories                                                                2,976,013
  Advances, Suppliers                                                          548,179
                                                                          ------------

    Total current assets                                                     8,513,280

Property and equipment, net                                                  1,592,316
Licenses                                                                     1,449,871
                                                                          ------------

TOTAL ASSETS                                                              $ 11,555,467
                                                                          ============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities

  Value added tax payable                                                 $    678,664
  Accounts payable and accrued expenses                                        332,119
                                                                          ------------

    Total current liabilities                                                1,010,783


Stockholders' Equity
Series A Preferred stock, $.001 par value, 4,050,000 shares authorized,
  2,255,000 shares issued and outstanding                                        2,255
Series B Preferred stock, $.001 par value, 2,000,000 shares authorized,
  860,000 shares issued and outstanding                                            860
Series C Preferred stock, $.001 par value, 100 shares authorized,
  30,425 shares issued and outstanding                                               1
Common stock, $.001 par value, 50,000,000 shares authorized,
  15,642,280 issued and outstanding                                             15,642
Additional paid-in-capital                                                  22,652,647
Accumulated deficit                                                        (12,126,721)
                                                                          ------------

Stockholders' Equity                                                        10,544,684
                                                                          ------------
LIABILITIES AND STOCKHOLDERS' EQUITY                                      $ 11,555,467
                                                                          ============
</TABLE>


<PAGE>

<TABLE>

<CAPTION>

                                AXM PHARMA, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS

                                   (UNAUDITED)

                                                      Three Months Ended             Six Months Ended
                                                          June 30,                      June 30,
                                                ----------------------------   ----------------------------
                                                     2004             2003          2004            2003
                                                ------------    ------------   ------------    ------------
<S>                                             <C>             <C>            <C>             <C>
Revenues                                        $    978,663    $  1,832,207   $  2,097,628    $  3,199,449

Cost of revenues                                     465,435       1,032,565      1,045,772       1,955,139

                                                ------------    ------------   ------------    ------------

Gross profit                                         513,228         799,642      1,051,856       1,244,310

General, administrative and selling:

  Cash                                             3,199,679         436,411      4,568,693         803,405
  Non-cash                                         1,666,800               0      3,331,800               0
                                                ------------    ------------   ------------    ------------

Net income (loss)                               $ (4,353,251)   $    363,231   $ (6,848,637)   $    440,905

Net income (loss) applicable to common
shareholders:
  Net income (loss)                             $ (4,353,251)   $    363,231   $ (6,848,637)   $    440,905
  Beneficial conversion features of preferred
      stock                                         (827,838)              0     (1,775,466)              0
  Deemed dividend from beneficial
      conversion feature of warrants                 (84,051)              0       (221,440)              0
                                                ------------    ------------   ------------    ------------

Net income (loss) applicable to common
shareholders                                    $ (5,265,140)   $    363,231   $ (8,845,543)   $    440,905
                                                ============    ============   ============    ============
Net income (loss) per share:
  Basic and diluted                             $      (0.35)   $       0.04   $      (0.60)   $       0.04

Weighted averaged shares outstanding:
  Basic and diluted                               15,221,836      10,000,000     14,708,684      10,000,000

</TABLE>


<PAGE>


                                      AXM PHARMA, INC.
                           CONSOLIDATED STATEMENTS OF CASH FLOWS
                          Six Months Ended June 30, 2004 and 2003
                                        (Unaudited)
                                                         2004           2003
                                                      ----------    ----------
CASH FLOWS FROM OPERATING ACTIVITIES

  Net income (loss)                                  $(6,848,637)   $  440,905
  Adjustments to reconcile net loss to cash used in
   operating activities:
    Common stock issued for services                   3,331,800             0
    Depreciation and amortization                         20,100        11,165
  Changes in assets and liabilities:
    Cash held in trust                                         0         8,779
    Accounts receivable                                1,786,077      (636,237)
    Advances                                             917,520       291,622
    Inventories                                         (732,259)     (910,443)
    Accounts payable and accrued expenses               (192,044)      166,374
    Value added tax payable                           (2,239,162)      543,906
                                                      ----------    ----------
CASH FLOWS USED IN OPERATING ACTIVITIES               (3,956,605)      (83,929)
                                                      ----------    ----------

CASH FLOWS FROM INVESTING ACTIVITIES
  Capital expenditures                                (1,326,954)            0
                                                      ----------    ----------

CASH FROM FINANCING ACTIVITIES
  Proceeds from sale of stock                          6,492,963             0
                                                      ----------    ----------

NET INCREASE IN CASH                                   1,209,404       (83,929)

Cash, beginning of period                              2,950,782       106,036
                                                      ----------    ----------

Cash, end of period                                   $4,160,186    $   22,107
                                                      ==========    ==========

SUPPLEMENTAL NON-CASH TRANSACTIONS
  Net liabilities assumed in reverse merger







<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 June 30, 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 June, 2004, the related consolidated
statement of  operations  for the three and six months ended June 30, 2004,  and
the consolidated  statement of cash flows for the six months ended June 30, 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
and six months  ended  June 30,  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 injectables,  capsules,  tablets, liquids and medicated
skin products for export and domestic  Chinese sales.  AXM Shenyang's  plant was
decommissioned  in 2002 due to significant  growth of the population of Shenyang
that caused the surrounding area to change from a city-edge industrial area to a
city-center,   non-industrial,   residential  neighborhood.   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.




<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

On June 24, 2004, we completed a private equity  financing of $3,042,500 with 11
accredited investors. After payment of costs and expenses, including fees of the
placement agent, we received net proceeds of approximately $2,773,800. We issued
30.425 shares of our Series C Preferred  Stock,  $.001 par value per share, at a
price per share of $100,000 and 357,936 common stock purchase warrants,  each of
which  entitles the holder to purchase one share of our common stock,  $.001 par
value,  for a period of three  years from the date of  issuance  at an  exercise
price equal to $5.50 per share. Each share of the preferred stock is convertible
into a number  of fully  paid and  non-assessable  shares  of our  common  stock
obtained  by  dividing  the  face  value of  $100,000  per  share  by the  fixed
conversion  price of $4.25 per share.  The warrants are redeemable by AXM Pharma
under certain circumstances.

During the  three-month  period ended June 30., 2004 we generated  $978,663 from
product sales compared to revenues from product sales for the three-month period



<PAGE>

ended March 31, 2003 of $1,832,207. This represents a sales decrease of $853,544
from the three-month period ended March 31, 2003.

The lower sales were  specifically  due to the changing  government  regulations
regarding the sales and marketing of  pharmaceutical  products in China.  Due to
new State Food and Drug Administration guidelines, we are now required to obtain
Chinese Good  Manufacturing  Practices  certification  and renew our licenses to
manufacture and sell our existing  products at the national level, as opposed to
the state and local level as had been required in the past. Because our national
approval license  applications were not submitted until April 2004, we have been
unable to  continue  manufacturing  and  selling  these  items  until we receive
approval  from the State  Food and Drug  Administration.  Under  the  proscribed
timeline for the approval  process of national  licenses  (more than 100 working
days from submission thereof), we expect to receive approval of our applications
in October 2004 and to restart  production  of these  products at that time.  We
have requested accelerated approval of our application for national registration
approval  number  and hope that the  renewal  will be  granted in advance of the
inspection  of our new  factory  for Chinese  Good  Manufacturing  Certification
scheduled for the fourth quarter of 2004.

In addition to the  licenses  for the  products  listed  above,  we acquired the
rights to Qiyao,  an  adjunctive  therapy for Type II  diabetes;  Tong Yang,  an
anti-fatigue  functional  food;  Sunkist Vitamin Range;  and,  Whisper  Feminine
Hygiene Wash. We intend to  manufacture,  market and sell these  products in the
future, when we enter into appropriate marketing and distribution agreements. On
July 29,  2004 we entered  into a  distribution  agreement  with  China  Zuellig
Xinxing Pharmaceutical Company Limited.  Zuellig Xinxing has the exclusive right
to distribute and sell our Whisper Feminine Hygiene Wash in Beijing. The term of
the agreement is one year,  however it can be extended for an additional year on
each  anniversary  of the date the agreement was entered into. We have finalized
the plan with 40  product  promoters  for the test  launch of  Whisper  Feminine
Hygiene  Wash in the top 100  pharmacies  in Beijing.  We have  already met with
three  of the  largest  chain  retail  pharmacies  in  Beijing,  namely,  Golden
Elephant,   Chaoyang  Dispatching  (Yiyuan  Tang),  and  Beijing  Medical  Group
(Yibaoquanxing),  all of whom we believe are enthusiastic and eager to carry our
product  in their  stores.  Zuellig  Xinxing  has also  agreed  to try to expand
distribution of our product to more pharmacies.  We are currently negotiating to
import additional  products under our Sunkist Agreement.  It is our intention to
begin importing  these products  sometime in the third or fourth quarter of this
fiscal year.

Although our new sales and marketing  initiatives  have been delayed until later
in the third and fourth quarters of 2004,  management remains confident that the
activities  currently  being  completed in China will  position us to be able to
execute a solid  growth  plan of  increased  sales and  earnings  during the 4th
quarter  of  2004  and on  into  2005.  Management  recognizes  that  2004  is a
significant   transition   year,   where  we  are   transforming   a   localized
privately-owned  pharmaceutical company into an international company with state
of the art  manufacturing  facilities,  nation-wide  distribution  reach and new
globally  recognized  branded  products.  Delays in the actual launch of our new
products, which is the culmination of our efforts over the past year, is typical
within emerging markets and the pharmaceutical industry as a whole.

Gross profit on product  sales for the  three-month  period ended June 30, 2004,
was  $513,228  compared to $799,642 for the  three-month  period ended March 31,
2003, a decrease of $286,414.  During the  remainder of FY 2004,  we  anticipate
continuing  to increase  our gross  profit  margin with the sales of our new and
re-licensed  products  particularly  during  the 4th  quarter.  We  continue  to



<PAGE>

anticipate  a  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  plant  in  Shenyang
scheduled for October 2004.

At June 30, 2004, we had total assets of $11,555,467 compared to total assets of
$11,024,738  at December 31, 2003.  Cash was  $4,160,186  as of June 30 2004, an
increase of $1,209,404 from the $2,950,782 cash on hand as of December 31, 2003.
Cash used in operations was $3,956,605 and cash provided by financing activities
from the sale of  Series C  Preferred  Stock  was  $2,773,800  and  $40,000  was
provided by the sale of common stock.  Accounts  receivable was $828,902 at June
30, 2004, a decrease of  $1,786,077  from the  $2,614,979  at December 31, 2003.
Inventories increased $732,259 to $2,976,013 from the $2,243,754 at December 31,
2003. The increase in inventories is attributable to preparations  for increased
sales in the fourth quarter.  Products.  Total liabilities at June 30, 2004 were
$1,010,783,  a decrease of $2,431,207  from the $3,441,990 at December 31, 2003.
Accounts  payable and accrued  liabilities  were  $332,120 at June 30,  2004,  a
decrease of $192,044 from the $524,164 at December 31, 2003.

Despite the views of management, the statements concerning future gross revenues
and gross profits are 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.

RECENT DEVELOPMENTS

In August 2004,  we signed an exclusive  supply  agreement  for line of chewable
prescription  and OTC  products  under the  Sunkist  brand In Asia.  We signed a
distribution  contract  with China  Zuellig Xin Xing,  a  subsidiary  of largest
pharmaceutical  distributor in Asia and this new  distributor,  began purchasing
our Whisper feminine hygiene product for an initial product launch in Beijing.

In June 2004, we filed for Chinese GMP approval of our plant in Shenyang with an
anticipated  construction  completion in October 2004. We also  appointed as our
key advertising  advisor the Ogilvy Group public  relations firm to assist us in
our product launch strategy focused on the second half of 2004. We also acquired
an anti-depression  and anti-fatigue  compound for OTC distribution in China. We
also,  launched a new product  line of chewable  prescription  and OTC  products
under the Sunkist brand in Asia that included the  acquisition  of the exclusive
rights to an oral drug delivery technology.

In June 2004, we completed a $3,042,500  financing led by HC Wainwright  and the
Shemano  Group.  We  received a key drug  manufacturing  license  and  appointed
Saatchi & Saatchi to advise on certain  advertising and marketing issues related
to new product launches.

In May 2004,  we were  approved  to use  the name AXM Pharma  in China.  We also
appointed  the  Alliance of ZZAD and Ogilvy  Group to advise on various  product
packaging and marketing issues.  Also, our feminine hygiene product was approved
by the National Ministry for Health and Hygiene in China.



<PAGE>

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 by third  parties
pending the completion and certification of new production facility. This 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 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
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 one 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



<PAGE>

and taxes may have an adverse affect on our business and  operations.  There can
be no  guarantee  that The  Peoples  Republic  of  China  will  comply  with the
membership  requirements of the World Trade  Organization.  A future outbreak of
Severe Acute  Respiratory  Syndrome (SARS) or similar virus may adversely impact
our   operations  and  the   operations  of  our  contract   manufacturers   and
distributors.  There  may not be  sufficient  liquidity  in the  market  for our
securities  in order for investors to sell their  securities.  The fact that our
directors  and  officers  own over 45% 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 make any valuation corrections when such adjustments are needed.


NOTE 3 - STOCK ISSUANCES

COMMON STOCK ISSUED FOR STOCK-BASED COMPENSATION

We periodically issue common stock for services rendered. Common stock issued is
valued at the estimated  fair market value,  as determined by management and 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 June 30, 2004, we issued 420,000 shares of common
stock for services valued at $1,666,800.

On May 10, 2004, we issued 300,000 shares of restricted  common shares valued at
$1,176,000  pursuant to an agreement with Madden  Consulting to provide investor
relations  services.  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 $3.92 per share,  the
market price for shares of our common stock at the time of issuance.

On May 7, 2004, we issued  120,000  shares of restricted  common to XCL Partners
valued at  $490,800  pursuant  to an  agreement  with XCL  Partners  to  provide
investor  relations  services.  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 $4.09 per share, the
market price for shares of our common stock at the time of issuance.

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 200,000 shares of common stock
for the  conversion of 200,000  shares of Series A Preferred  Stock.  AXM Pharma
issued  20,000  shares of common stock for the exercise of warrants for proceeds
of $40,000.



<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 June 24, 2004, we completed a private equity  financing of $3,042,500 with 11
accredited investors. After payment of costs and expenses, including fees of the
placement agent, we received net proceeds of approximately $2,773,800. We issued
30.425 shares of our Series C Preferred  Stock,  $.001 par value per share, at a
price per share of $100,000 and 357,936 common stock purchase warrants,  each of
which  entitles the holder to purchase one share of our common stock,  $.001 par
value,  for a period of three  years from the date of  issuance  at an  exercise
price equal to $5.50 per share. Each share of the preferred stock is convertible
into a number  of fully  paid  and  nonassessable  shares  of our  common  stock
obtained  by  dividing  the  face  value of  $100,000  per  share  by the  fixed
conversion  price of $4.25 per share.  The warrants are redeemable by AXM Pharma
under certain circumstances.



<PAGE>


In addition to its fees and expenses,  the placement agent received a three-year
warrant to purchase up to 3 shares of our Series C Preferred Stock at a price of
$100,000 per share and up to 35,793 warrants.

Also in  connection  with the  issuance  of the  shares of  preferred  stock and
warrants  issued on June 24,  2004,  we agreed to file the current  registration
statement with the Securities and Exchange Commission 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. We are required to file such registration  statement on or before July
15, 2004. If the registration statement is not declared effective by October 15,
2004, we will be required to pay liquidated  damages equal to 1.0% of the amount
invested and shall pay liquidated  damages equal to 0.5% of the amount  invested
for each  subsequent  30-day period.  In no event however,  shall the liquidated
damages exceed 18% in the aggregate.  We are required to keep this  registration
statement  continuously effective under the Securities Act until such date as is
the  earlier  of (x)  the  date  when  all of the  securities  covered  by  such
registration  statement have been sold or (y) the date on which such  securities
may be sold without any  restriction  pursuant to Rule 144 as  determined by the
counsel to AXM Pharma  pursuant to a written  opinion  letter,  addressed to our
transfer  agent to such  effect.  We also  agreed to  provide  the same  penalty
provisions to our Series B Shareholders  whose stock is also being registered as
part of this prospectus.


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.



<PAGE>



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
AXM  Shenyang  Inc.,  a  northern   China-based   pharmaceutical   company.  The
comparables  discussed  below relate to the  operations  of Werke and its wholly
owned subsidiary, AXM Shenyang, for the periods discussed.

During the fiscal  quarter ended June 30, 2004, our products were 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 Guangzhou
and Shenyang.  Beginning July 1, 2004, all pharmaceutical  companies must obtain
Good  Manufacturing  Practices  certification  and national approval licenses to
manufacture each of their  pharmaceutical  products.  The application period can
take more than 100 working days. In April 2004,  in accordance  with  guidelines
provided by the Liaoning sFDA, we submitted  applications  to renew licenses for
all of our pharmaceutical  products.  The guidelines  provided to AXM Pharma are
organized  to  accommodate   companies  that  are  building  new   manufacturing
facilities  and / or have other  reasons for filing past  December  2003. We are
attempting to expedite the review process.  Under these timelines,  we expect to
receive  approval by October 2004. In June 2004, we submitted  applications  for
Good Manufacturing Practices certification pursuant to the requirements of State
Food and Drug Administration,  which we are required to obtain prior to December
31, 2004. Until we receive these regulatory approvals and our products are ready
for sale, we will not receive any revenues  from the sale of our  pharmaceutical
products. However, certain of our new products, such as Whisper Feminine hygiene
product and certain vitamin products that we intend to produce under our license
agreement with Sunkist,  do not require approval as pharmaceutical  products and
may therefore be produced and sold earlier. We expect to commence sales of a new
feminine  hygiene  product brand named Whisper in August 2004, on a trial basis.
We also  anticipate  that we will  commence  sales  of  certain  of the  Sunkist
products  in the third  quarter,  which will  likely  require  approval  as food
products, which approval takes approximately one month to obtain.

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. We are currently party
to 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 and other  products  under AXM Pharma owned brand names.  The
Sunkist  trademark  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.

Recent events have led us to examine  closely the management  performance at our
wholly owned operating  subsidiary,  AXM Shenyang.  There are clear  indications
that deficiencies have arisen at the senior level.  These  deficiencies may have
contributed to the delays in the process to obtain  national  approval  licenses
and the lower than expected sales in the second  quarter.  We have  instituted a



<PAGE>

senior management executive search process in order to attract additional senior
management  and  advisors to AXM  Shenyang  in order to support the  significant
company  activities  taking  place in China  during the second  half of 2004 and
beyond. This process is not unusual particularly in companies with international
cross-cultural  businesses. The typical results of this type of initiative is to
add  strong  industry  experienced  executives  to the  management  team  and to
reorganize  various  roles  and  responsibilities  within  the group in order to
enhance  productivity and reduce conflicts.  We hope that these initiatives will
lead to more effective  integration of our U.S. and Chinese management teams and
enhance  our ability to conduct our  business in an  effective  manner in future
periods.

LIQUIDITY AND CAPITAL RESOURCES

Total assets  increased from  $11,024,738 at December 31, 2003 to $11,555,467 at
June 30, 2004.  This increase is  attributable  to the increase of $1,219,656 in
cash and an  increase  of $ 732,259  in  receivables,  offset by a  decrease  of
$2,703,597 in advances to suppliers.

On June 24, 2004, we completed a private equity financing  of $3,042,500 with 11
accredited investors. After payment of costs and expenses, including fees of the
placement agent, we received net proceeds of approximately $2,773,800. We issued
30.425 shares of our Series C Preferred  Stock,  $.001 par value per share, at a
price per share of $100,000 and 357,936 common stock purchase warrants,  each of
which  entitles the holder to purchase one share of our common stock,  $.001 par
value,  for a period of three  years from the date of  issuance  at an  exercise
price equal to $5.50 per share. Each share of the preferred stock is convertible
into a number  of fully  paid  and  nonassessable  shares  of our  common  stock
obtained  by  dividing  the face  value of  $100,000  per  share by at the fixed
conversion  price of $4.25 per share.  The warrants are redeemable by AXM Pharma
under certain circumstances.

Our total outstanding current liabilities decreased to approximately  $1,010,783
at June 30, 2004,  as compared to  approximately  $3,441,990  at March 31, 2003.
This  reduction of  $2,431,207  is mostly  attributable  to a reduction in Value
Added Tax liabilities of $2,239,162.

From  December  31,  2003,  to June 30,  2004,  our  cash  and cash  equivalents
increased  by  approximately  $1,209,404  million  as a result of receipt of net
proceeds in the private placement offering of approximately $6,492,963. This was
offset by cash used for factory and  equipment of $1,326,954  and  reductions in
current liabilities of $2,431,207. Approximately $1,666,800 of non-cash general,
administrative  and selling  expenses were incurred in the period ended June 30,
2004.  The  non-cash  expenses  for the six  months  ended  June  30,  2004  was
$3,331,800.  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.  Capital  used  to  date  in  activities
associated with the building and certification of the new facilities in Shenyang
is approximately US$4 million. We anticipate requiring additional  investment of
approximately  US$ 4.2 million primarily during the 3rd quarter of 2004 in order
to  complete  the  new  production  facilities,  laboratory  and  administration
buildings.  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  $9 million in  additional
funds. We are currently seeking to raise this additional  capital through either



<PAGE>

sales of our equity securities or debt financing of our factory and equipment in
Shenyang,  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 not
currently in a position to call any of our outstanding warrants. However, should
our common  stock trade at a price of $4.00,  based on the closing  sales price,
for 30 consecutive calendar days, assuming an effective  registration  statement
is in place with regard to the underlying  shares of our common stock,  we would
be in a position to call a significant portion of the outstanding  warrants.  In
the event that these  warrants  were called and converted we would receive gross
proceeds  of  approximately  $10.5  million.  If we are not able to  raise  this
additional   capital  through  warrant  exercises  or  additional  fund  raising
activities  we could be  forced to  curtail  some of the  currently  anticipated
expenditures  in the above  mentioned  areas.  Should we be forced to do this it
could have an impact on the anticipated future sales and earnings.

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 additional debt
or equity  financing or the exercise of the  warrants,  we will still be able to
complete  the  Shenyang  plant  but  we  will  then  have  to  seek  alternative
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  collectability  of our  receivables  at least  quarterly.  If the
financial  condition  of our  customers  were to  deteriorate,  resulting  in an
impairment  of their  ability to make  payments,  additional  allowances  may be
required.  The differences could be material and could significantly impact cash
flows from operating activities.




INVENTORY

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



<PAGE>


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
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



<PAGE>

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

VALUATION OF INTANGIBLES

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

DEFERRED TAXES

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

VALUE ADDED TAX

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

LITIGATION

We account for  litigation  losses in  accordance  with  Statement  of Financial
Accounting  Standards (SFAS) No. 5, "Accounting for  Contingencies."  Under SFAS
No.  5,  loss  contingency  provisions  are  recorded  for  probable  losses  at
management's  best estimate of a loss, or when a best estimate cannot be made, a
minimum loss contingency amount is recorded. These estimates are often initially
developed  substantially  earlier  than  the  ultimate  loss is  known,  and the
estimates  are refined each  accounting  period,  as additional  information  is
known. Accordingly,  we are often initially unable to develop a best estimate of
loss;  therefore,  the minimum  amount,  which could be zero,  is  recorded.  As
information becomes known, either the minimum loss amount is increased or a best
estimate can be made, resulting in additional loss provisions.  Occasionally,  a
best  estimate  amount is changed to a lower  amount  when  events  result in an
expectation of a more favorable  outcome than  previously  expected.  Due to the



<PAGE>

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 AND SIX MONTHS ENDED JUNE 30, 2004 TO THREE
AND SIX MONTHS ENDED JUNE 30, 2003

REVENUE

During the  three-month  period ended June 30, 2004 we generated  $978,663  from
product sales compared to revenues from product sales for the three-month period
ended June 30, 2003 of $1,832,207.  This represents a sales decrease of $853,544
from the  three-month  period ended June 30, 2003. For the six months ended June
30, 2004 sales were  $2,097,628  versus sales of $3,199,449  for the  comparable
period ended June 30, 2003.

The lower sales were due in part 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.  Sales also decreased in part
due to the  fact  that  we have  not  yet  received  national  approval  for our
pharmaceutical  licenses  or Chinese  Good  Manufacturing  certification,  which
caused us to cease  manufacturer  of our  pharmaceutical  products as of July 1,
2004,  and  also  disqualified  us and  any  distributors  we use  from  certain
competitive  bidding  processes  prior  to  that  date.  For  example,  we  were
disqualified  from a competitive  bidding process for the sale of Asarone direct
to hospitals in Shanghai because we could not provide the  documentation of Good
Manufacturing  Practices  certification  required  by the  local  government  to
participate  in such process.  Management  estimates that the approvals from the
regulatory  body for these items will be obtained  in October  2004.  Management
further  estimates  that the Company  will lose  approximately  in sales for the
remainder of the year related to these items.

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  Hygiene
Product, Xin Shu, which we are marketing under the name Whisper Feminine Hygiene
Wash,  and had  appointed  ZZAD and the Ogilvy  Group to provide  marketing  and
branding service support for the various new products.  In July 2004, we entered
into  an  exclusive  distribution  agreement  with  China  Zuellig  Xin  Xing to
distribute  Whisper in Beijing.  Also in July 2004,  we acquired  the  exclusive
rights to oral drug delivery  technology  drug delivery  technology for chewable
tablets,  capsules and lozenges including the transfer of intellectual  property
and technical support for formulation and manufacturing  processes,  as well as,
distribution  rights  throughout Asia from WN  Pharmaceuticals,  Ltd. We plan to
market these products will be marketed  under the Sunkist  brand,  in accordance
with our agreement  with  Sunkist.  In August 2004, we entered into an exclusive
supply  agreement with WN  Pharmaceuticals  for the same products so that we can
begin  production  and  sales of these  products  prior  to the  completion  and



<PAGE>

certification  of our  new  factory.  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 remainder 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 June 30, 2004,
was  $513,228  compared to $799,642 for the  three-month  period ended March 31,
2003, a decrease of  $286,414.  For the six months ended June 30, 2004 the gross
profit was $1,051,856  compared to $1,244,310 for the comparable period in 2003.
In both instances the decrease in gross profit is  attributable  to the decrease
in sales.

While gross profit  decreased due to decreased  sales the gross margin  actually
improved  from 43.6% for the three  months  ended June 30, 2003 to 52.4% for the
three months  ended June 30, 2004.  Likewise the gross margin for the six months
ended June 30, 2004 was 50.1%  compared  to 38.9% for the six months  ended June
30,  2003.  This  increase  in gross  margin  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 with the sales of our new and re-licensed  products  particularly  during
the 4th  quarter.  We continue to  anticipate  a  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 plant in Shenyang scheduled for October 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 achieved.  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.


SALES, GENERAL AND ADMINISTRATIVE EXPENSES

The cash  portion of this  expense  category for the three months ended June 30,
2004 was $3,199,679 compared to $436,411 for the same period last year. The cash
portion of this  expense for the six months  ended June 30, 2004 was  $3,331,800
compared to $803,405 for the  comparable  period in 2003.  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 and China 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



<PAGE>

information  technology  function for reviewing  possible  software and hardware
solutions.  The expenditures in the information technology area are necessary in
order  to  proceed  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 $1,666,800 in non-cash expenses relating
to stock issued for professional  services rendered in the public relations area
for the three months ended June 30, 2004. For the six months ended June 30, 2004
there  was  $3,436,628  in  non-cash   expenditures  for  professional  services
rendered.


NON-CASH CONSULTING ACTIVITIES

During the  three-month  period  ended  June 30,  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  $1,660,800  for the issuance of these shares during the
three-month  period ended June 30, 2004. For the six month period ended June 30,
2004 the Company  incurred  $3,331,800 in non-cash  expense for  compensation to
various consultants.

NET LOSS AND LOSS PER SHARE

The net loss the three  months  ended June 30, 2004,  was  $4,353,251  including
$1,660,800 in non-cash stock issuance.  The net loss in the period applicable to
common  shareholders  was  $5,265,140 or $(0.35) per share  compared to $363,231
profit the same period during 2003. The Net Loss for the three months ended June
30, 2004 was  primarily the result of increased  expenses  related to our public
reporting  status and increased  activities  associated with the construction of
our new plant in  Shenyang.  The net loss for the six months ended June 30, 2004
was  $6,848,637 as compared to $440,905 for the  comparable  period in 2003. The
same reasons attributable to the three month loss increase are applicable to the
six month results.  The net loss applicable to the common  shareholders  for the
six month period ended June 30, 2004 was  $8,845,543 as compared to $440,905 for
the comparable period in 2003.

Delays in regulatory  approval have caused delays in the  implementation  of new
sales and marketing  initiatives until later in the third and fourth quarters of
2004. Management remains confident that the activities currently being completed
in China will position us to be able to execute a solid growth plan of increased
sales and earnings  during the 4th quarter of 2004 and on into 2005.  Management
recognizes that 2004 is a significant transition year, where we are transforming
a localized privately owned pharmaceutical company into an international company
with state of the art manufacturing  facilities,  nation-wide distribution reach
and new globally recognized branded products. Delays in the actual launch of our
new  products,  which is the  culmination  of our efforts over the past year, is
typical within emerging markets and the pharmaceutical industry as a whole.

The net loss and loss per share  results  for the three  months  ended  June 30,
2004,  were  higher  than  internal  management  estimates.  We  had  previously
forecasted $33 million in gross sales and earnings per share for FY2004 at $0.42



<PAGE>

cents per  share,  excluding  non-cash  expenses,  on a fully  diluted  basis of
approximately  21  million  shares  outstanding  at  year-end.   Management  now
estimates that we will incur a loss of  approximately  $ 2.7 million or_ ($0.13)
per share on FY 2004 sales of  approximately  $12 million  and gross  profits of
$6.1  million,  excluding  non-cash  expenses,  on  a  fully  diluted  basis  of
approximately 21 million shares outstanding at year-end. The primary reasons for
these revised  estimates are the delays in bringing  certain products to market,
as well as lost sales due to the  particular  regulations,  which  require us to
receive  national  approval  of  licenses  for the  manufacture  and sale of our
pharmaceutical  products  and the need to  receive  Chinese  Good  Manufacturing
Practices certification.

Despite  the  views of  management,  the  statement  concerning  future  loss or
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 June 30, 2004, we had total assets of $11,555,467 compared to total assets of
$11,024,738  at December 31, 2003.  Cash was  $4,160,186 as of June 30, 2004, an
increase of $1,209,404 from the $2,950,782 cash on hand as of December 31, 2003.
Cash used in operations was $3,956,605 and cash provided by financing activities
from the sale of common and preferred stock was $6,492,963.

Accounts receivable was $828,902 at June 30, 2004, a decrease of $1,786,077 from
the  $2,614,979  at  December  31,  2003.   Inventories  increased  $732,259  to
$2,976,013 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 June 30, 2004 were  $1,010,783,  a decrease of $2,431,207
from  the  $3,441,990  at  December  31,  2003.  Accounts  payable  and  accrued
liabilities  were  $332,120 at June 30,  2004,  a decrease of $192,044  from the
$524,164 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



<PAGE>

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.

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. We
believe that our new factory,  which is currently under construction in Shenyang
and 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.

In  addition,  we are  required  to obtain or seek to obtain  national  approval
licenses  to  manufacture  each of our  pharmaceutical  products.  By  law,  the
approval  process for these licenses can take more than 100 working days. As AXM
Shenyang's  manufacturing  facilities  are  currently  under  construction,  the
company  qualified for  application  under an exception  category.  The approval
schedule provided by the Liaoning Provincial sFDA office for AXM Pharma Shenyang
has not been realized to date. An expedited review may be possible,  but it only
reduces  the  process by  approximately  two  months.  While  pending  approval,
companies  are not  allowed  to  manufacture  or sell  any of  their  drugs.  We
submitted our  applications in April 2004 and believe that we will gain approval
and resume  sales by October  2004,  however we have been  required to cease the
manufacture and sale of our drug products since June 30, 2004.  Depending on how
long the approval  process  ultimately  takes,  the Company could lose up to six
months of its pharmaceutical sales.

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.



<PAGE>


Our ability to successfully  integrate management of our U.S. parent company and
our Chinese  operating  subsidiary will have a material impact on our ability to
successfully operate our business.

At AXM Shenyang,  there are clear indications that management  deficiencies have
arisen at the senior level,  which result, in many cases, from the difficulty to
successfully  implement U.S. style management at a Chinese operating company and
the  difficulty  faced  by U.S.  trained  managers  operating  in  China.  These
deficiencies  may have  contributed  to the  delays  in the  process  to  obtain
national approval licenses and the lower than expected sales in the 2nd quarter.
We and AXM  Shenyang  are  actively  seeking  solutions  to these  issues.  Such
solutions may include,  among other actions, the hiring of senior level managers
who are  familiar  with both U.S.  management  methods and Chinese  language and
culture. In the event that we are unable to implement such solutions in a timely
manner it could have a material  adverse effect on our business and  operations,
including  but not limited to,  further  delays in future  anticipated  national
approval  licensing  activities and the ramp-up of the sales of new and existing
products.

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

Third parties have  manufactured  and distributed  all of our products.  We have
not,  and do not have  manufacturing  facilities,  personnel  or  access  to raw
materials to independently  manufacture our products.  Prior to the interruption
in the manufacture and sale of our drugs for regulatory  reasons and because our
factory is still under construction,  our products were manufactured by Qiqihaer
Pharmaceutical  Factory 2 and distributed by Liaoning  Weikang Medicine Co. Ltd.
Except for any  contractual  rights and  remedies  that we may have had with our
manufacturer  and  our  distributor,  we did  not  have  any  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.  expired at the end of March 2004.  Although  Liaoning Weikang
Medicine Co. Ltd.  verbally agreed to continue as our  distributor,  we have not
signed a definitive  written  agreement  for  distribution  of our products with
Liaoning Weikang Medicine Co. Ltd. or any other  distributor.  Our manufacturing
agreement with Qiqihaer  Pharmaceutical Factory 2 will expire in September 2004.
Depending  upon when our national  license  application  and Good  Manufacturing
Practices  certification  are approved,  our new factory may be operational  and
therefore we may no longer require the services of Quiqihaer Pharmaceutical.  We
have  also  begun   discussions   and   negotiations   with  other   third-party
manufacturers whom we may employ if our new factory is not complete by September
2004.  If however,  construction  of our new factory is not  complete and 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 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 we engage 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.



<PAGE>


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.

On July 29, 2004 we signed a distribution  agreement with China Zuellig  Xinxing
Pharmaceutical  Company  Limited.  Under  the  terms of the  Agreement,  Zuellig
Xinxing has an exclusive right to distribute,  market and sell Whisper  Feminine
Hygiene  Wash in Beijing and the trade  channels  (retail  pharmacy and hospital
channel)  defined by us. The Agreement with Zuellig Xinxing is effective for one
(1) year, and is thereafter  renewable  automatically  on the anniversary of the
date the agreement was entered,  for additional one-year terms.  Zuellig Xinxing
is and will continue to negotiate with retail pharmacies in Beijing. However, if
the  pharmacies  do not agree to carry our  products  it could  have a  material
adverse effect on our Beijing sales and 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 AXM Shenyang, Inc. 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 plan is implemented, we will need to
recruit and retain  additional  management  and key  employees in virtually  all



<PAGE>

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 products and on our ability to successfully  introduce such products
to the market.

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  or
acquisition   of  new  products,   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  or  acquisition  from our future  revenues.  Even if we are able to
develop  acquire  or  license  new  products,  our  growth  could be  materially
adversely  impacted  if we are unable to  successfully  market and sell such new
products once they are available to us.

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 uses 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



<PAGE>

may have a significant  impact on our methods and costs of doing  business.  For
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



<PAGE>

which provides certain  protections and pricing multiples not available in other
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.



<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.

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



<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 May 2004,  our common stock traded an average of  approximately  55,000
shares per day. As of August 2, 2004,  the closing bid price of our common stock
on the American Stock Exchange was $3.41 per share. As of August 2, 2004, we had
approximately  108  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 43.70% of our capital
stock may decrease your influence on shareholder decisions.

Our  executive  officers  and  directors,  in the  aggregate,  beneficially  own
approximately  43.70% 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,
December 31, 2008, and June 24, 2007  respectively,  to exercise their warrants.
There are currently 3,683,689 warrants  outstanding,  which are exercisable at a
price of $3.00 per share,  with the exception of those  warrants which expire on
June 24, 2007,  which are exercisable at a price of $5.50 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



<PAGE>


(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 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.












<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 May 7, 2004, we issued  120,000  shares of restricted  common  stock,
and 200,000 warrants at $6.00 per warrant,  to XCL Partners,  Inc. 20,000 shares
were  released  when the  agreement  was signed on June 24, 2004.  The remaining
100,000  shares are to be released  monthly based upon a vesting  schedule of 10
,000 shares per month for ten (1 0 ) months , beginning 30 days after  effective
date of the  agreement  The  services to be  provided  under the  agreement  are
investor  relations.  20,000  warrants  shall vest  immediately.  The  remaining
180,000 warrants shall be released monthly based on a vesting schedule of 15,000
warrants  per month for eleven (11) months.  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 $4.09
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
XCL Partners was $ 490,800 .

On May 10, 2004 we issued 300,000 shares to Madden Consulting,  Inc. pursuant to
a  consulting  agreement.  The  services  to be  provided  under the  consulting
agreement were investor and public 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 $3.92
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
Madden Consulting was $1,176,000.

On June 24, 2004, we issued  30.425shares of our preferred stock, at a price per
share of $100,000 and 357,936  common  stock  purchase  warrants,  each of which
entitles the holder to purchase one share of our common stock,  $.001 par value,
for a period of three  years from the date of issuance at a price equal to $5.50
per share to accredited  investors pursuant to a private equity financing.  Each
share of the preferred  stock shall be  convertible  into a number of fully paid
and nonassessable shares of our common stock obtained by dividing the face value
of  $100,000  per share by the fixed  conversion  price of $4.25 per  share.  In
addition, we issued to HC Wainwright,  our placement agent, a three-year warrant
to  purchase  up to 3  shares  of our  Series  C  Preferred  Stock at a price of
$4.25per share and up to 35,793 warrants. The private equity financing described
above was made pursuant to the exemption from the registration provisions of the
Securities Act for issuances not involving a public offering provided by Section
4(2) of the  Act and  Rule  506 of  Regulation  D  promulgated  thereunder.  The
securities  issued have not been registered under the Act and may not be offered
or sold in the United States absent registration or an applicable exemption from
registration requirements.



<PAGE>


On June 24,  2004,  we issued  100,000  warrants to each of SF Capital  Partners
Ltd.,  Gryphon Master Fund,  L.P.,  Banyon Asia Limited and Banyon Mac 24, Ltd.,
each of which  entitles  the holder to purchase  one share of our common  stock,
$.001 par  value,  for a period of three  years from the date of  issuance  at a
price equal to $5.50 per share, in consideration  for services  provided related
to our recent private equity financing.  The private equity financing  described
above was made pursuant to the exemption from the registration provisions of the
Securities Act for issuances not involving a public offering provided by Section
4(2) of the  Act and  Rule  506 of  Regulation  D  promulgated  thereunder.  The
securities  issued have not been registered under the Act and may not be offered
or sold in the United States absent registration or an applicable exemption from
registration requirements.

(d)     Not applicable.

ITEM 3.   DEFAULTS UPON SENIOR SECURITIES

Not Applicable.

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

Not Applicable.


ITEM 5.   OTHER INFORMATION

The Company  recently  moved its U.S.  corporate  headquarters  from 3960 Howard
Hughes Parkway, Suite 500, Las Vegas, Nevada 89109 to 7251 West Lake Mead Blvd.,
Suite 300, Las Vegas, Nevada 89128.

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



<PAGE>


1.   On May 17, 2004, we filed a Current  Report on Form 8-K  reporting  that on
     May 17, 2004, we held a conference call  discussing our fiscal 2004,  first
     quarter results and current events of AXM Pharma. (Item 12).

2.   On June 22, 2004, we filed a Current  Report on Form 8-K reporting  that on
     June 22, 2004, we held a conference call discussing our current activity on
     the American Stock Exchange. (Item 5).

3.   On June 25, 2004, we filed a Current  Report on Form 8-K reporting  that on
     June 24, 2004, we completed a private equity  financing of $3,042,500  with
     11 accredited investors



                                   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:  August 18, 2004             AXM PHARMA, INC.

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

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




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

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



<PAGE>


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)) and
     internal control over financial reporting (as defined in Exchange Act Rules
     13a-15(f) and 15d-15(f)) 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.   Designed such internal  control over  financial  reporting,  or caused
          such internal control to be designed under our supervision, to provide
          reasonable  assurance regarding the reliability of financial reporting
          and the preparation of financial  statements for external  purposes in
          accordance with generally accepted accounting principles.

     c.   Evaluated the effectiveness of the 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

     d.   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
          internal control over financial reporting.

Date:  August 18, 2004


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


<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 quarterly 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  quarterly
     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)) and
     internal control over financial reporting (as defined in Exchange Act Rules
     13a-15(f) and 15d-15(f)) 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.   Designed such internal  control over  financial  reporting,  or caused
          such internal control to be designed under our supervision, to provide
          reasonable  assurance regarding the reliability of financial reporting
          and the preparation of financial  statements for external  purposes in
          accordance with generally accepted accounting principles.

     c.   Evaluated the effectiveness of the 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

     d.   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):



<PAGE>


     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
          internal control over financial reporting.

Date: August 18, 2004

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


<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

August 18, 2004










<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 and  Principle  Accounting  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
     Principle Accounting Officer

August 18, 2004