U.
S. Securities and Exchange Commission


Washington,
D. C. 20549




FORM
10-QSB





[X]
            QUARTERLY
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      the quarterly period ended March 31, 2008




[  
      ]
            TRANSITION
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      the transition period from _____ to _____




Commission
File No. 0-24185





CHINA
AOXING PHARMACEUTICAL COMPANY, INC.


(Name
of Small Business Issuer in its Charter)







Florida
            65-0636168(State
      or Other Jurisdiction of incorporation or
    organization)
            (I.R.S.
      Employer I.D. No.)




444 Washington Blvd., Unit
2424, Jersey City, NJ 07310


(Address
of Principal Executive Offices)





Issuer's
Telephone Number: (201) 420-1075





Indicate  by
check mark  whether the  Registrant  (1) has filed
all reports required to be filed by Sections 13 or 15(d) of
the  Securities Exchange Act of
1934  during  the  preceding  12
months  (or for such shorter  period  that the
Registrant was required to file such reports),  and (2) has been
subject to such filing requirements for the past 90 days. Yes X     
No ___





Indicate
by check mark whether the Registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).  
Yes ___     No   X





APPLICABLE
ONLY TO CORPORATE ISSUERS:  Indicate the number of shares outstanding
of each of the Registrant's classes of common stock, as of the latest
practicable date:






May
      15, 2008
              Common
      Stock: 80,942,323




Transitional
Small Business Disclosure Format (check one):  
Yes ___     No   X







CHINA
AOXING PHARMACEUTICAL CO., INC. AND SUBSIDIARIES


CONSOLIDATED
BALANCE SHEET


MARCH 31,
2008


(Unaudited)




ASSETS





CURRENT
      ASSETS:Cash
            
            $
            4,340,048Accounts
      receivable
            
            
            207,907Inventories
            
            
            198,957Deferred
      financing costs
            
            
            831,600Prepaid
      expenses and sundry current assets
            
            
            415,505TOTAL
      CURRENT ASSETS
            
            
            5,994,017Property
      and equipment, net of accumulated depreciation
            
            
            20,363,757Deferred
      interest
            
            
            7,972,026TOTAL
      ASSETS
            
            $
            34,329,800LIABILITIES
      AND STOCKHOLDERS’ EQUITYCURRENT
      LIABILITIES:Short-term
      bank borrowings
            
            $
            285,600Accounts
      payable
            
            
            639,502Loans
      payable – other
            
            
            748,925Due
      to stockholders
            
            
            637,474Deposit
      payable
            
            
            3,728,000Accrued
      expenses and taxes payable
            
            
            2,935,639Loan
      payable – bank
            
            
            12,209,251TOTAL
      CURRENT LIABILITIES
            
            
            21,184,391CONVERTIBLE
      DEBENTURES
            
            
            1,687,000STOCKHOLDERS’
      EQUITY:Common
      stock, $0.001 par value,100,000,000
      shares authorized42,737,050
      shares issued and outstanding
            
            
            42,737Preferred
      stock, $0.001 par value300,000
      shares authorized277,018
      shares issued and outstanding
            
            
            277Additional
      paid-in capital
            
            
            22,280,294Accumulated
      deficit
            
            
            (11,661,275
            )Other
      comprehensive income
            
            
            796,376TOTAL
      STOCKHOLDERS’ EQUITY
            
            
            11,458,409TOTAL
      LIABILITIES AND STOCKHOLDERS’ EQUITY
            
            $
            34,329,800






See notes
to financial statements




2





CHINA
AOXING PHARMACEUTICAL CO., INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF OPERATIONS


(Unaudited)




THREE
      MONTHS ENDED
              DECEMBER
      31,
            
            
            NINE
      MONTHS ENDED
              MARCH
      31,2008
            
            
            2007
            
            
            2008
            
            
            2007REVENUES
            
            $
            857,065
            
            
            $
            561,959
            
            
            $
            3,101,236
            
            
            $
            902,818COST
      OF SALES
            
            
            453,456
            
            
            
            438,585
            
            
            
            1,550,872
            
            
            
            591,474GROSS
      PROFIT
            
            
            403,609
            
            
            
            123,374
            
            
            
            1,550,364
            
            
            
            311,344COSTS
      AND EXPENSES (INCOME):Research
      and development costs
            
            
            174,237
            
            
            
            82,984
            
            
            
            277,891
            
            
            
            203,557General
      and administrative expenses
            
            
            1,515,732
            
            
            
            640,053
            
            
            
            3,279,973
            
            
            
            1,341,541Grant
      from local government
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (63,665
            )Interest
      expense
            
            
            354,083
            
            
            
            265,194
            
            
            
            938,598
            
            
            
            976,876Depreciation
      and amortization
            
            
            125,068
            
            
            
            -
            
            
            
            363,463
            
            
            
            -Depreciation
      of deferred interest
            
            
            519,915
            
            
            
            519,915
            
            
            
            1,559,745
            
            
            
            1,012,218TOTAL
      COSTS AND EXPENSES
            
            
            2,689,035
            
            
            
            1,508,146
            
            
            
            6,419,670
            
            
            
            3,470,527NET
      LOSS
            
            $
            (2,285,426
            )
            
            $
            (1,384,772
            )
            
            $
            (4,869,306
            )
            
            $
            (3,159,183
            )BASIC
      AND DILUTED EARNINGS PER SHARE
            
            $
            (0.06
            )
            
            $
            (0.03
            )
            
            $
            (0.12
            )
            
            $
            (0.08
            )WEIGHTED
      AVERAGE NUMBEROF SHARES OUTSTANDING
            
            
            41,312,664
            
            
            
            40,116,659
            
            
            
            40,822,684
            
            
            
            40,079,319







See notes
to financial statements


3


CHINA
AOXING PHARMACEUTICAL CO., INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(Unaudited)




NINE
      MONTHS ENDED
              MARCH
      31,2008
            
            
            2007OPERATING
      ACTIVITIES:Net
      loss
            
            $
            (4,869,306
            )
            
            $
            (3,159,183
            )Adjustments
      to reconcile net loss to net cashused in operating
      activities:Depreciation
            
            
            532,756
            
            
            
            308,275Amortization
      of deferred interest
            
            
            1,559,745
            
            
            
            1,012,218Stocks
      issued for services
            
            
            1,373,735
            
            
            
            -Changes
      in operating assets and liabilities:Accounts
      receivable
            
            
            (85,304
            )
            
            
            (312,414
            )Inventories
            
            
            40,302
            
            
            
            (95,822
            )Prepaid
      expenses and sundry current assets
            
            
            (59,513
            )
            
            
            (46,702
            )Accounts
      payable
            
            
            (336,408
            )
            
            
            426,364Accrued
      expenses, taxes and sundry current liabilities
            
            
            874,509
            
            
            
            286,567NET
      CASH USED IN OPERATING ACTIVITIES
            
            
            (969,484
            )
            
            
            (1,580,697
            )INVESTING
      ACTIVITIES:Acquisition
      of property and equipment, net of disposition
            
            
            (12,317
            )
            
            
            (324,636
            )NET
      CASH USED IN INVESTING ACTIVITIES
            
            
            (12,317
            )
            
            
            (324,636
            )FINANCING
      ACTIVITIES:Repayment
      of bank borrowings
            
            
            -
            
            
            
            (64,750
            )Other
      borrowings
            
            
            205,442
            
            
            
            -Borrowings
      (repayment) of loans to stockholders
            
            
            (596,181
            )
            
            
            1,083,536Acquisition
      deposit
            
            
            3,728,000
            
            
            
            -Sale
      of convertible debentures
            
            
            349,000
            
            
            
            1,989,000Sale
      of common stock
            
            
            -
            
            
            
            145,708NET
      CASH PROVIDED BY FINANCING ACTIVITIES
            
            
            3,686,261
            
            
            
            3,153,494EFFECT
      OF EXCHANGE RATE ON CASH
            
            
            124,461
            
            
            
            (5,775
            )INCREASE
      (DECREASE) IN CASH
            
            
            2,828,921
            
            
            
            1,242,386CASH
      – BEGINNING OF PERIOD
            
            
            1,511,127
            
            
            
            777CASH
      – END OF PERIOD
            
            $
            4,340,048
            
            
            $
            1,243,163Supplemental
      disclosures of cash flow information:Non-cash
      financing activities:Conversion
      of convertible debentures into common stock
            
            $
            1,209,000
            
            
            $
            -Stock
      issued for financing agent
            
            $
            831,600
            
            
            $
            -







See notes
to financial statements





4





CHINA
AOXING PHARMACEUTICAL CO., INC. AND SUBSIDIARIES


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


MARCH 31,
2008


(Unaudited)




1 BASIS OF
PRESENTATION




The
accompanying unaudited financial statements of China Aoxing Pharmaceutical
Company, Inc. (“China Aoxing” or the “Company”) reflect all material adjustments
consisting of only normal recurring adjustments that, in the opinion of
management, are necessary for a fair presentation of results for the interim
periods.  Certain information and footnote disclosures required under
accounting principles generally accepted in the United States of America have
been condensed or omitted pursuant to the rules and regulations of the
Securities and Exchange Commission, although the Company believes that the
disclosures are adequate to make the information presented not
misleading.  These financial statements should be read in conjunction
with the financial statements and notes thereto included in the Company’s Annual
Report on Form 10-KSB for the year ended June 30, 2007 as filed with the
Securities and Exchange Commission.




The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period.  Actual results could differ from those
estimates.




The
results of operations for the three months ended March 31, 2008 are not
necessarily indicative of the results to be expected for the entire year or for
any other period.




2 BUSINESS
DESCRIPTION




Business
description




China
Aoxing Pharmaceutical Co., Inc. (“the Company”) is a vertically integrated
pharmaceutical company specializing in research, development, manufacturing and
marketing of a variety of narcotics and pain management pharmaceutical products
in generic and innovative formulations.  The Company’s operating
subsidiary, Hebei Aoxing Pharmaceutical Co., Inc. (“Hebei”) is a corporation
organized under the laws of the People’s Republic of China
(“PRC”).  Since 2002, Hebei has been engaged in developing its
analgesic products, building its facilities and obtaining the requisite licenses
from the Chinese Government.




PROPERTY
AND EQUIPMENT




A summary
of property and equipment and the estimated lives used in the computation of
depreciation and amortization as of March 31, 2008 is as follows:




AMOUNT
            
            LIFERight
      to use land
            
            $
            7,711,200
            
            Life
      of leaseBuilding
      and building improvements
            
            
            12,031,740
            
            39
      yearsMachinery
      and equipment
            
            
            2,087,584
            
            5-8
      yearsFurniture
      and office equipment
            
            
            338,175
            
            5-8
      yearsAutomobiles
            
            
            327,522
            
            3-5
      years22,496,221Accumulated
      depreciation and amortization
            
            
            2,132,464$
            20,363,757




5


4 DUE
TO STOCKHOLDERS




The
amounts due stockholders bear interest at rates ranging from 6% to 10%per annum
and are due on demand.




5 SHORT-TERM
BORROWINGS




Short-term
borrowings consist of a non-interest bearing note payable to a local government
and are due three months after the Company is listed on NASDAQ.





6 LOANS
PAYABLE - OTHER




Loans
payable – other consists of various loans to unrelated third parties which are
due on demand and bear interest at a weighted average interest rate of
10.5.%





7 LOAN PAYABLE
- BANK




Loan
payable – bank consists of notes payable to a bank bearing interest at 5.58% per
annum and due as follows:




Year
      ended June 30,2008
            
            $
            7,496,8512009
            
            
            4,712,400$
            12,209,251





The notes
payable bank are collateralized by a first security interest in substantially
all assets of the Company
and $6,118,974 is guaranteed by a vendor of the Company.




The
Company is in default of the bank loan in the amount of $7,496,851 which was due
as of March 31, 2008.  The Company is in active discussions with the
Bank of China regarding the bank loan refinancing and expects to reach an
agreement on the refinance terms in the near future.





8 CONVERTIBLE
DEBENTURES




On
September 28, 2006, the Company completed the sale of 869,500 units of
securities at $2.00 per unit.  Each unit consisted of one share of
common stock and four common stock purchase warrants exercisable at prices
ranging from $2.50 to $5.50.  The warrants are exercisable for five
years and may be redeemed by the Company if the market price of its common stock
exceeds 200% of the exercise price of the warrants.  In October 2006,
the Company exchanged all of the shares of common stock purchased in this
offering for a 10% convertible debenture in the amount of his/her investment,
plus the four warrants purchased in the offering.  The Company has
recorded a discount on this debt which is being amortized as additional interest
expense.  The Company has restated prior years’ financial statements
to reflect a reallocation of the proceeds from the sale of debentures in prior
years.




On
November 30, 2006, the Company sold 188,500 units of securities.  Each
unit consists of a share of common stock or 10% convertible debenture and four
common stock purchase warrants, exercisable at prices ranging from $2.50 to
$5.50.  The warrants are exercisable for five years and may be
redeemed by the Company if the market price of its common stock exceeds 200% of
the exercise price of the warrants.  (See Note 9 for detailed
information).  The convertible debentures bear interest payable
semi-annually.




6





8 CONVERTIBLE
DEBENTURES (Continued)




The
Company received gross proceeds of $2,116,000 less placement fees of
approximately $275,080, resulting in net proceeds of $1,840,920. As of March 31,
2008, $1,395,000 convertible debentures were converted to common
stocks.




As of
March 31, 2008 the Company has sold $1,093,000 in principal for convertible
debentures, which bear interest at 8% per annum, are payable semi-annually and
are due May 1, 2010.  Interest will accrue on the principal amount at
8% per annum and will be payable on January 1st and
July 1st each
year.  The holder may convert the principal and accrued interest into
the Company’s common stock at a conversion price per share equal to the greater
of (a) $5.00, or (b) 75% of the average of the closing bid prices reported for
the five trading days preceding the date of conversion.




9 GOING
CONCERN




The
investment of $18 million by American Oriental Bioengineering Inc. in April 2008
significantly improved the financial liquidity of the Company.
  However,
for the nine months ended March 31, 2008, the Company generated net losses of
$4,869,306.     As shown on the attached balance sheet,
the Company’s current liabilities exceeded its current assets by
$15,190,374.  In addition, the Company is in default on $7,496,851 of
loans from a bank.





The
uncertainties caused by these conditions raise substantial doubt as to the
Company’s ability to continue as a going concern.  The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.





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





10 RISK
FACTORS




Vulnerability
due to Operations in PRC




The
Company=s
operations may be adversely affected by significant political, economic and
social uncertainties in the PRC.  Although the PRC government has been
pursuing economic reform policies for more than 20 years, there is no guarantee
that the PRC government’s pursuit of economic reforms will be consistent or
effective.




The PRC
has adopted currency and capital transfer regulations.  These
regulations require that the Company complies with complex regulations for the
movement of capital.  Because most of the Company’s future revenues
will be in RMB, any inability to obtain the requisite approvals, or any future
restrictions on currency exchanges, will limit the Company’s ability to fund its
business activities outside China or to pay dividends to its
shareholders.




Concentration
of Credit Risk




Financial
instruments that potentially subject the Company to significant concentration of
credit risk are primarily cash and cash equivalents. The Company maintains its
cash with various banks and trust companies located in China which are not
insured or otherwise protected. Should any of these institutions holding the
Company’s cash become insolvent, or if the Company unable to withdraw funds for
any reason, the Company could lose the cash on deposit with that institution. As
of March 31, 2008, substantially all of the Company’s cash and cash equivalents
were managed by financial institutions.




7




Other
Risks





The core
business of the Company is the manufacture and sale of narcotic drugs, which is
highly regulated by the PRC government.  The Company depends on
obtaining licenses of its products from the China State Food and Drug
Administration (SFDA).  Obtaining these licenses can be expensive and
is usually time consuming.  Failure to obtain the necessary licenses
when needed can cause the Company’s business plan to be delayed.  If
the delays prevent the Company from generating positive cash flow or introducing
a significant number of products, there will be a material adverse effect on the
Company.





11SUBSEQUENT
EVENT




In April
2008 the Company received an equity investment in the amount of $18,000,000 from
American Oriental Bioengineering Inc, and simultaneously the Company paid 80
million RMB (approximately $11,000,000) and issued 8 million shares of the
Company’s common stock to acquire a 100% interest in Shijiazhuang Le Ren Tang
Pharmaceutical Ltd. (“LRT”), a pharmaceutical company organized under the laws
of the PRC specializing in the manufacture and distribution of modernized
Chinese traditional medicines.




On May 1,
2008, the Company completed the acquisition of an additional 35% equity interest
in Hebei Aoxing Pharmaceutical Group Company Ltd. from Mr. Zhenjiang Yue, the
Chairman and CEO of the Company. The purchase price was 24,500,000 RMB. The
purchase price was paid by issuance of a junior subordinated promissory note to
Mr. Yue for $3,420,000. The note bears interest at 5% per annum and is due
together with accrued interest on December 31, 2012.




8


ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS




Outline
of Our Business




China
Aoxing is a vertically integrated pharmaceutical company that specializes in
research, development, manufacturing and marketing of a variety of narcotics and
pain management pharmaceutical products in generic and innovative formulations.
China Aoxing’s operating subsidiary, Hebei Aoxing, is a corporation organized
under the laws of the People's Republic of China.  Since 2002 Hebei
Aoxing has been engaged in developing its analgesic products, building its
facilities, and obtaining the requisite licenses from the Chinese
government.




In
November 2006, Hebei Aoxing received GMP (Good Manufacturing Practices)
certification for its Naloxone raw materials workshop from the China State Food
and Drug Administration (SFDA).  Hebei Aoxing started the production of the
Naloxone raw materials in December 2006.  In January, 2007 the SFDA granted
Hebei Aoxing the final GMP certificate (H4107) for small volume injectables,
which was a significant milestone in our history.  In February 2007, Hebei
Aoxing initiated the product launch of Naloxone Hydrochloride injectable in the
Chinese market.  Currently Hebei Aoxing is authorize by the SFDA to
manufacture Naloxone Hydrochloride injectable in four dosage strengths:
 0.4mg (1ml), 1mg (1ml), 2mg (2ml) and 4mg (10ml).




In April
2007,   Hebei Aoxing received clearance from the SFDA for the clinical
study of Tilidine Hydrochloride tablets and capsules for the treatment of
moderate to severe pain associated with cancer and surgery, as well as other
forms of pain.  The Tilidine drug is not currently available in China and
Hebei Aoxing is currently the only authorized domestic manufacturer of Tilidine
tablets and capsules.  In the second half of 2007, Hebei Aoxing
started a clinical study program, which will include approximately four hundred
patients through several health centers in China.  The purpose of the
study will be to confirm Tilidine's efficacy and safety in reducing pain levels
for Chinese patients.  Furthermore, in November 2007, the China SFDA
granted the Company the designated manufacturer status to produce Tilidine
Tablets and Capsules in order to address significant unmet medical needs in
cancer pain management in China.




In June
2007, Hebei Aoxing received formal approval from the SFDA for the clinical study
of Codeine Phosphate Compound Medicine for cold and flu treatment (SFDA
Certificate 2007LO1280).  While Codeine Phosphate is widely used and
considered effective in cold and flu treatment in Western countries, it just
became available in China in 2006.  Hebei Aoxing is one of only two
drug makers developing this medicine in China. The company started a clinical
study of the Codeine Phosphate Compound Medicine in later 2007 to test efficacy
and safety in China. The clinical study is a multi-center randomized,
double-blind, controlled trial, involving 300 patients in China.




In
October 2007 the Company's operating subsidiary, Hebei Aoxing Pharmaceutical
Group Co. Ltd. ("Hebei Aoxing"), was approved to be eligible for preferential
enterprise income tax treatments by the relevant tax bureau of People's Republic
of China (PRC).  Under the PRC Enterprise Income Taxation Law (the
"EIT Law"), Hebei Aoxing is classified as a foreign-invested enterprise, or FIE,
in the business of manufacturing medicines. The Company is confirmed to enjoy
certain income tax treatments, including a flat tax rate of 15% for five years
after it becomes a profitable company, potentially starting from year 2008 with
increased sales and new product launches.  A flat tax rate of 15% for
five years granted to Hebei Aoxing is significantly lower than the uniform tax
rate of 25%, effective January 1, 2008 for all enterprises (including FIEs)
under the PRC EIT Law, which was enacted on March 16, 2007. For FIEs established
before the promulgation of the EIT Law, a five-year transition period is
provided during which reduced rates will apply but gradually be phased
out.




9




In
November 2007, the China SFDA granted the Company and its partner, National
Institute of Drug Dependence at Beijing University, an important research and
development license of Buprenorphine/Naloxone sublingual combo tablet to treat
opioid dependence, a growing social and medical problem in
China.   The company is planning to file a clinical trial
application to the China SFDA in 2008.




In April
2008, China Aoxing and American Oriental Bioengineering Inc (NYSE: AOB) entered
into strategic alliance to jointly commercialize and develop narcotic and
pain-management products in China.  Under the terms of the agreement,
American Oriental Bioengineering Inc made an investment of $18.0 million in
exchange for 30 million shares of newly-issued China Aoxing common
stock.   The two companies agreed to collaborate on sales of
China Aoxing's current product portfolio as well as commercialization of China
Aoxing's narcotic drug development pipeline, which includes Oxycodone and
Tilidine. The agreement also provides for joint efforts in the areas of
marketing, branding, international product licensing and research and
development.




In April
2008, China Aoxing acquired 100% ownership of  Shijiazhuang Le Ren
Tang Pharmaceutical Ltd (“LRT”). LRT is a pharmaceutical company organized under
the laws of China specializing in the manufacturing and distribution of
modernized Chinese traditional medicines, with a strong portfolio of pain
management products.  . The purchase price was paid in 80 million RMB
(approximately $10.8 million) in cash and 8 million shares of the Company's
common stock.




On May 1,
2008, the Company completed the acquisition of an additional 35% equity position
in Hebei Aoxing Pharmaceutical Group Company, Ltd., from Mr. Zhenjiang Yue, the
Chairman and the CEO of the Company.  The purchase price was
24,500,000 RMB, which equals 35% of the registered capital of RMB, which is
70,000,000 RMB.  Due to the recent depreciation in the value of US
currency, the purchase price was greater than the $3.08 million specified in the
purchase agreement dated September 4, 2007.  The purchase price was
paid by delivery to Mr. Yue of a Junior Subordinated Promissory Note in the
principal amount of $3.42 million.    The Junior
Subordinated Promissory Note will bear interest at the rate of 5.0%
annually.  The principal of $3.42 million and accrued interest will be
payable on December 31, 2012.  All payments will be made in U.S.
Dollars.





Products – Narcotics and
Pain Management




Since its
inception in 2002, Hebei Aoxing has been focusing on research, development,
manufacturing and distribution of a variety of narcotics and pain management
pharmaceutical products in China.  Its facility is dedicated to
conducting the narcotic drug business with GMP manufacturing capability for
drugs in tablet, capsule, injectable, oral solution and granulated
formulations.  Over the years, the company has developed a compelling
pipeline in narcotics and pain management drugs, including Naloxone, Oxycodone,
Tilidine, Codeine Phosphate, Pholcodine, Buprenorphine, etc.




Narcotics,
also known as opioids, are chemical substances that have a morphine-like action in
the body.  They are prescribed when other pain medications and
therapies fail to work. Opioids are the strongest pain medicines available and
may become addictive if used on a long-term basis.  The global market
for opioid therapies exceeds $10 billion (over $6 billion in U.S.) and is
continuing to grow due to a combination of demographic factors and proprietary
formulations replacing products with expiring patents.  Opioids are
used mostly for their analgesic properties to treat severe pain (fentanyl,
hydromorphone, methadone, morphine and pethidine), moderate to severe pain
(buprenorphine18 and oxycodone) and mild to moderate pain (codeine,
dihydrocodeine and dextropropoxyphene), as well as to induce or supplement
anaesthesia (fentanyl and fentanyl analogues such as alfentanil and
remifentanil). They are also used as cough suppressants (codeine, dihydrocodeine
and, to a lesser extent, pholcodine and ethylmorphine), to treat
gastrointestinal disorders, mainly diarrhoea (codeine and diphenoxylate), and in
the treatment of addiction to opioids (buprenorphine and methadone). Certain
analgesic opioids, such as hydrocodone or oxycodone, are compounded in mixtures
with non-opiate drugs to provide analgesic action.   These drugs
are often used in combination with other medications such as antidepressants,
anticonvulsants, and non-narcotic pain relievers.




10




Scientific
research suggests that opioids relieve pain in two ways. First, they attach to
opioid receptors, which are specific proteins on the surface of cells in the
brain, spinal cord and gastrointestinal tract. These drugs interfere and stop
the transmission of pain messages to the brain. Second, they work in the brain
to alter the sensation of pain. These drugs do not take the pain away, but they
do reduce and alter the patient’s perception of the pain.  There are
four broad classes of narcotics, (1) endogenous opioid peptides (opioids
produced naturally in the body); (2) opiates, such as the naturally occurring
alkaloids, morphine, codeine, thebaine, papaverine, and the non-alkaloid heroin
(processed morphine);  (3) semi-synthetic opioids, created from the
natural opioids, such as hydromorphone, hydrocodone, and oxycodone;
and  (4) fully synthetic opioids, such as fentanyl, pethidine,
methadone, and propoxyphene;




At the
present time, Hebei Aoxing distributes Naloxone and Naloxone Hydrochloride,
which are opioid antagonists.  It has the technology in place to
produce oxycodone, a semi-synthetic opioid.  And it has been licensed
to conduct clinical tests of Tilidine, an opioid analog.




Naloxone
Series.  As an opioid antagonist, Naloxone has curative effects
for pain, shock, alcoholism, and cerebral infarction.  Naloxone has
shown limited side effects, and is widely applied in clinical
treatment.  Naloxone or Naloxone Hydrochloride is recommended by the
WHO (World Health Organization) to treat acute alcoholism and acute poisoning of
opiod and non-opioid drugs. The Company’s application for a license to develop
facilities to manufacture Naloxone was approved by China’s SFDA in January 2005
followed by the final production approval of the Naloxone
injectable.  We introduced the product to the market in February
2007.




Naloxone
Hydrochloride was developed by the DuPont Company, and was introduced into the
US market in the 1970’s. Since then it has been introduced into the additional
markets of Britain, Germany, France and Italy.  The Beijing Academy of
Military Medical Sciences first used Naloxone Hydrochloride as morphine
antagonist to ease the indication of breath suppression and awakening after a
morphine-based anesthesia.




Oxycodone
Series.  Oxycodone is a derivative of the semi-synthetic
opioid, alkaloid thebaine. Its pharmacological properties are similar to those
of morphine. It is an activator of the opiod receptor, and is able to relieve
acute pain.




Global
manufacture of Oxycodone rose gradually during the 1990s, amounting to 11.5 tons
in 1998.  Since 1999, the growth of manufacture has accelerated,
reaching the record level of 56.5 tons in 2005. The United States manufactured
40.3 tons in 2005 and accounted for 71 percent of the world total. The
manufacture of Oxycodone also grew steadily in the United Kingdom and France,
contributing 19 percent (10.9 tons) and 8 percent (4.4 tons) respectively to the
global total. Three other countries, Switzerland, Japan and Slovakia,
manufactured Oxycodone in smaller quantities of between 100 and 500
kg.




11




Global
consumption has also risen steadily, reflecting the increased use of
controlled-release preparations containing Oxycodone for the treatment of
moderate to severe pain. In 2005 global consumption reached the highest level
ever recorded, 42.3 tons, mainly as a result of increased consumption in the
United States, which continued to be the largest consumer of Oxycodone,
accounting for 83 per cent of the world total. Other major consumer countries in
2005 (all reporting increased consumption) were Canada (3 tons), Germany (1.6
tons), Australia (774 kg) and the United Kingdom (501 kg), together accounting
for 14 percent of global consumption. Consumption of Oxycodone has spread to
more than 50 other countries, including developing countries.




In
1980’s, after the World Health Organization introduced the Three Step Principle
in Cancer Pain Treatment, the production and consumption of Oxycodone increased
quickly in the world. The effectiveness and safeness of Oxycodone in treating
cancer pain have been acknowledged by the Chinese medicine
community.  But since China does not produce Oxycodone in bulk, the
clinical application of Oxycodone is still impossible.  Although the
SFDA had granted import licenses for Oxycodone controlled-release tablets
(Oxycontin) and the composite capsule of Oxycodone and paracetamol (Tylox), most
patients in China cannot afford the imported drugs.  Therefore the
Chinese government is heavily committed to producing Oxycodone pharmaceuticals
in bulk domestically. Hebei Aoxing recently submitted additional information to
the SFDA and is currently waiting for a clinical trial license to be issued by
the SFDA.




Tilidine
Series.  Tilidine is a leading opioid analgesic drug in Europe,
used in the treatment of moderate to severe pain associated with cancer, post
surgery, and other forms of pain.  Tilidine is widely prescribed in
Europe, with Germany, Ireland, Switzerland and Belgium as major
users.  Based on the “Narcotic Drugs” reported by the International
Narcotics Control Board in year 2006, global Tilidine manufacture followed a
generally increasing trend after 1993, from 8.2 tons in that year to a peak of
45.2 tons in 2004.  Global consumption of Tilidine has continued to
increase, reaching its peak in 2005, with 28.9 tons.




Tilidine
is not currently manufactured in China.  As a result, the per capita
consumption of Tilidine in China is less than 1% of the average level in other
industrialized countries. China Aoxing is currently the only government approved
domestic manufacturer for Tilidine capsules and tablets.  In November
2007, the China SFDA granted the Company the designated manufacturer status to
produce Tilidine Tablets and Capsules in order to address significant unmet
medical needs in cancer pain management in China.  China Aoxing is
currently conducting clinical studies in evaluating Tilidine’s efficacy and
safety among Chinese patients.




Buprenorphine
Series.  Buprenorphine is an opioid that has been used as an
analgesic. The increasing consumption of Buprenorphine in recent years is mainly
the result of its use in detoxification and substitution treatment of opioid
dependence in a growing number of countries.  Hebei Aoxing is the
first company in China which is working on a tablet formulation of Buprenorphine
combined with Naloxone for drug abuse treatment.  At present, more
than 40 countries are importing Buprenorphine for that purpose.




Opioid
dependence is a chronic, relapsing medical condition that requires long-term
treatment and patient support. Current standard maintenance therapies are
methadone and buprenorphine, both of which bind to the opioid receptors in the
brain.   A combo therapy was developed based on Naloxone, an
opioid receptor antagonist, alongside Buprenorphine, which is designed to limit
the potential for misuse and potentially lower the street value and the
incentive for diversion.  This combo therapy was approved by the US
FDA in October 2002, and just became available in the UK in 2007, sold by
Reckitt & Benckiser, a Fortune 500 global pharmaceutical
company.




12




Since
1993, total manufacture of Buprenorphine increased steadily and significantly.
During the period 2003-2005, average global manufacture amounted to nearly 2
tons, double the amount manufactured in the late 1990s. The United Kingdom
accounts for 75 per cent of global manufactures and is also the world’s leading
exporter of Buprenorphine. France and Germany are the main importers of
Buprenorphine, accounting for 60 per cent of global imports. Both France and
Germany utilize Buprenorphine mainly for substitution treatment.





Products – Cough and
Congestion





Hebei
Aoxing has also developed a number of products that relieve symptoms of cough
and cold.  It is estimated that cold and flu medicines account for
approximately USD$625 million in sales annually in China.  The Company
intends to capitalize on this opportunity with a safe, effective product that
caters to a large and growing market.  The Company expects to receive
the government permits to market these products over the next two
years:




Compound
Pholcodine Syrup.   This Syrup tranquilizes cough, removes
phlegm, and eases nasal congestion.  It also has a limited capacity to
relieve asthma symptoms. The Syrup can be used in treating coughs caused by
acute bronchitis and respiratory infections.   Preclinical
research on acute and chronic toxicity shows that Pholcodine’s toxicity is lower
than that of codeine.   In November 2007, the China SFDAgranted
the Company the designated manufacturer status to produce Pholcodine active
pharmaceutical ingredient (API).  Therefore the Company became one of
the only two producers of Pholcodine API in China.




Codeine
Phosphate.   China Aoxing is developing an oral solution
consisting of Guaifenesin, Pseudoephedrine Hydrochloride and Codeine Phosphate.
This drug is an effective opioid cough medicine in Western countries, which just
became available in China in 2006. This formulation is widely prescribed in
continental Europe and other regions, including major markets like Australia,
New Zealand and Canada. It is also available without prescription in combination
preparations in limited doses in some countries.





Research and
Development





China
Aoxing’s  research and development expenses were $277,891 and $
203,557 respectively during the nine months ended March 31, 2008 and
2007.   During the three months ended March 31, 2008 and 2007,
the Company’s research and development expenses were $174,237, and
$82,984.  The company conducts its research and development programs
through a combination of internal and collaborative programs. We rely on
arrangements with universities, our collaborators, contract research
organizations and clinical research sites for a significant portion of our
product development efforts.





The
Market





China
entered the “Single Convention on Narcotic Drugs, 1961” in 1985, which resulted
in the gradual loosening of government policy toward the control of analgesic
supplies.  Before 2000, the average consumption of analgesics in China
was less than 1% of the consumption in industrialized countries. There were only
six varieties of analgesics available in production.  By 2005, Chinese
government had approved the production of 11 varieties of
analgesics.  In the near future, patients in China will find 30
varieties and over 80 specifications of different types of analgesics. Since
1993, the annual growth rate of analgesic sales in China has been, on average,
35%.




13




In March
2008, the Company set up its national headquarters of sales and marketing in
Beijing.  For the foreseeable future, Hebei Aoxing intends to focus
its marketing efforts exclusively in China.  Because China is only now
developing a domestic supply of bulk analgesics, the market potential is
sufficient to fully occupy the Company’s efforts.




Results
of Operations




During
the three months ended March 31, 2008, the Company reported product revenues of
$857,065 from the sales of Naloxone Hydrochloride injectable and Shuanghuanglian
Capsules.  The company had the product sales of $561,959 during the
three months ended March 31, 2007.  During the nine months ended March
31, 2008 and March 31, 2007, the company reported product revenues of $3,101,236
and $902,818, respectively.




The
Company’s largest expense during the three months ended March 31, 2008 was
general and administrative expenses in the amount of $1,515,732.  The
increase from the $640,053 in general and administration expense incurred in the
three months ended March 31, 2007 was primarily attributable to the fact that
Hebei Aoxing is now introducing its products to the market, and has ramped up
its staffing for that purpose.  In addition, we are now incurring
legal, accounting and bookkeeping fees in connection with our new reporting
obligations as a public company.  On top of this, China Aoxing is now
incurring expenses incidental to its status as a U.S. public company, such as
the cost of maintaining a physical presence in the U.S. and expenses related to
investor relations.  Finally, the increase of general and
administration expenses also reflected the additional cash and equity
compensation for senior management,  cost of setting up national
headquarters of sales and marketing in Beijing, as well as professional fees and
expenses related to the capital financing and LRT acquisition.




We
incurred interest expense of $354,083 during the quarter ended March 31,
2008.  At March 31, 2008 we had approximately $14 million in debt,
long and short-term, that we incurred to build our facilities and develop our
product line.  Until Hebei Aoxing generates revenues from operations
or secures capital infusions from investors, we will depend on loans to fund our
ongoing development costs, and our interest expense will be high.




In April
2008, the Company received an equity investment in the amount of $18 million
from American Oriental Bioengineering Inc, and simultaneously the Company paid
80 million RMB (approximately $11 million) and issued 8 million shares of the
Company’s common stock to acquire 100% ownership of LRT.  The company
is expected to use the rest of the fund from American Oriental Bioengineering
Inc. for R&D expenses, working capital, as well as partial payment of the
bank loan of Bank of China.  The Company is currently in active
negotiation with Bank of China to refinance its bank loan in the amount of
$12,209,251. $7,496,851 was due in December 31, 2007 and $4,712,400 is due on
December 31, 2008.




Our net
loss for the three months ended March 31, 2008 totaled
$2,285,426.  This represents the consolidation of the results realized
by our subsidiary, Hebei Aoxing, with the administrative expenses incurred by
China Aoxing.  As of March 31, 2008, China Aoxing owned only 60% of
the equity in Hebei Aoxing.  Accordingly, only 60% of the retained
loss from the operations of Hebei Aoxing affects the equity of our shareholders
on a liquidation basis.  Likewise, if in the future Hebei Aoxing
produces net income, the effect of that income on the value of our shareholders’
shares would have been reduced by 40%.  It is for that reason that, on
May 1 2008, we completed the acquisition from our Chairman, Zhenjiang Yue, of an
additional 35% interest in Hebei Aoxing.




14




Liquidity
and Capital Resources




In April
2008, the Company received an investment in the amount of $18 million from
American Oriental Bioengineering Inc.  Simultaneously, with this
funding, the Company paid 80 million RMB (approximately $10.8 million) and
issued 8 million shares of the Company’s common stock to acquire 100% ownership
of LRT.  The company is expected to use the rest of the fund from
American Oriental Bioengineering Inc. for R&D expenses, working capital, as
well as partial payment of the bank loan from Bank of
China.   With the consolidation of LRT, the financial objective
of the Company is to achieve profitability as soon as possible.




Prior to
the investment by American Oriental Bioengineering in April 2008, the Company’s
operations had been funded primarily by loans, including loans from stockholders
and officers, short term borrowings from a local government, two loans from the
Bank of China, and other loans.  American Oriental Bioengineering had made
a cash deposit of $3,728,000 prior to March 31, 2008, which swelled our cash
position at the end of the quarter.  That deposit is offset by a
corresponding current liability, however, since the investment by American
Oriental Bioengineering was not completed until mid-April.  Therefore,
the balance sheet of China Aoxing and its subsidiaries at March 31, 2008 showed
a working capital deficit of $15,190,373.  The greater portion of the
deficit was represented by $12,209,251 due to the Bank of China.  The
Company is currently in active negotiation with Bank of China to refinance its
bank loans.  The loans bear interest at 5.58% per annum, and are
collateralized by a first security interest in substantially all of Hebei
Aoxing’s assets.  The Company expects, but is not assured, that it
willreach an
agreement on refinance terms in near future.




Despite
the investment by American Oriental Bioengineering Inc. in April, the Company
still has a significant working capital deficit.   Since $10.8 million of
the funds contributed by American Oriental Bioengineering were used to acquire
LRT, the net amount of the American Oriental Bioengineering investment will be
sufficient to offset less than half of our working capital deficit.




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




Off-Balance
Sheet Arrangements




We do not
have any off-balance sheet arrangements that have or are reasonably likely to
have a current or future effect on our financial condition or results of
operations.




15




Risk
Factors that May Affect Future Results




You
should carefully consider the risks described below before buying our common
stock.  If any of the risks described below actually occurs, that
event could cause the trading price of our common stock to decline, and you
could lose all or part of your investment.




I.
Risks
Attendant to our Business


We
lack sufficient capital to fully carry out our business plan.




In order
to make our operations cost-efficient, it is necessary that we expand our
operations.  At March 31, 2008 we had a working capital deficit of
$15,190,373.  The investment of $18 million by American Oriental
Bioengineering Inc.  in April 2008 significantly improved the
liquidity of our Company, but still left us in a negative working capital
position, as $11 million of those funds were immediately used for a capital
acquisition.  Therefore,  the Company still needs sufficient
capital in order to execute our business plan.  If we are unable to
obtain the necessary capital, our entry into the Chinese pharmaceutical market
will be hindered.




Our
business and growth will suffer if we are unable to hire and retain key
personnel that are in high demand.




Our
future success depends on our ability to attract and retain highly skilled
chemists, pharmaceutical engineers, technical, marketing and customer service
personnel, especially qualified personnel for our operations in China. Qualified
individuals are in high demand in China, and there are insufficient experienced
personnel to fill the demand.  Therefore we may not be able to
successfully attract or retain the personnel we need to succeed.




We
may not be able to adequately protect our intellectual property, which could
cause us to be less competitive.




We are
continuously designing and developing new technology. We rely on a combination
of patents, trade secret laws, and restrictions on disclosure to protect our
intellectual property rights. Unauthorized use of our technology could damage
our ability to compete effectively.  In China, monitoring unauthorized
use of our products is difficult and costly.  In addition,
intellectual property law in China is less developed than in the United States
and historically China has not protected intellectual property to the same
extent as it is protected in other jurisdictions, such as the United States. Any
resort to litigation to enforce our intellectual property rights could result in
substantial costs and diversion of our resources, and might be
unsuccessful.




We
may be subject to the People’s Republic of China’s price control of drugs which
may limit our profitability and even cause us to stop manufacturing certain
products.




The State
Development and Reform Commission ("SDRC") of the People’s Republic of China and
the price administration bureaus of the relevant provinces of China in which our
pharmaceutical products are manufactured are responsible for the retail price
control over our pharmaceutical products.  The SDRC sets the price
ceilings for certain pharmaceutical products in China.  Where our
products are subject to a price ceiling, we will need to adjust the product
price to meet the requirement and to accommodate for the pricing of competitors
in the competition for market shares.  The price ceilings set by the
SDRC may limit our profitability, and in some instances, such as where the price
ceiling is below production costs, may cause us to stop manufacturing certain
products.




16




Product
liability claims could materially impact operating results and
profitability.




We may
produce products which inadvertently have an adverse pharmaceutical effect on
the health of individuals.  Existing laws and regulations in China do
not require us to maintain third party liability insurance to cover product
liability claims.  However, if a product liability claim is brought
against us, it may, regardless of merit or eventual outcome, result in damage to
our reputation, breach of contract with our customers, decreased demand for our
products, costly litigation, product recalls, loss of revenue, and our inability
to commercialize some products.




We
have limited business insurance coverage.




The
insurance industry in China is still at an early stage of development. Insurance
companies in China offer limited business insurance products, and do not, to our
knowledge, offer business liability insurance. As a result, we do not have any
business liability insurance coverage for our operations. Moreover, while
business disruption insurance is available, we have determined that the risks of
disruption and cost of the insurance are such that we do not require it at this
time. Any business disruption, litigation or natural disaster might result in
substantial costs and diversion of resources.




We
may have difficulty establishing adequate management and financial controls in
China.




The
People’s Republic of China has only recently begun to adopt the management and
financial reporting concepts and practices with which investors in the United
States are familiar.  We may have difficulty in hiring and retaining
employees in China who have the experience necessary to implement the kind of
management and financial controls that are expected of a United States public
company.  If we cannot establish such controls, we may experience
difficulty in collecting financial data and preparing financial statements,
books of account and corporate records and instituting business practices that
meet U.S. standards.




Capital
outflow policies in China may hamper our ability to pay dividends to
shareholders in the United States.




The
People’s Republic of China has adopted currency and capital transfer
regulations. These regulations require that we comply with complex regulations
for the movement of capital. Although Chinese governmental policies were
introduced in 1996 to allow the convertibility of RMB into foreign currency for
current account items, conversion of RMB into foreign exchange for capital
items, such as foreign direct investment, loans or securities, requires the
approval of the State Administration of Foreign Exchange. We may be unable to
obtain all of the required conversion approvals for our operations, and Chinese
regulatory authorities may impose greater restrictions on the convertibility of
the RMB in the future. Because most of our future revenues will be in RMB, any
inability to obtain the requisite approvals or any future restrictions on
currency exchanges will limit our ability to fund our business activities
outside China or to pay dividends to our shareholders.




17




Currency
fluctuations may adversely affect our business.




We
generate revenues and incur expenses and liabilities in Chinese RMB. However we
report our financial results in the United States in U.S. Dollars.  As
a result, we are subject to the effects of exchange rate fluctuations between
these currencies.  Recently, there have been suggestions made to the
Chinese government that it should adjust the exchange rate and end the linkage
that in recent years has held the RMB-U.S. dollar exchange rate constant. If the
RMB exchange rate is adjusted or is allowed to float freely against the U.S.
dollar, our revenues, which are denominated in RMB, may fluctuate significantly
in U.S. dollar terms. We have not entered into agreements or purchased
instruments to hedge our exchange rate risks.




Our
business development would be hindered if we lost the services of our
Chairman.




Zhenjiang
Yue is the Chief Executive Officer of China Aoxing and of its operating
subsidiary, Hebei Aoxing Pharmaceutical Group.  Mr. Yue is responsible
for strategizing not only our business plan but also the means of financing
it.  If Mr. Yue were to leave Hebei Aoxing or become unable to fulfill
his responsibilities, our business would be imperiled.  At the very
least, there would be a delay in the development of Hebei Aoxing until a
suitable replacement for Mr. Yue could be retained.




China
Aoxing is not likely to hold annual shareholder meetings in the next few
years.




Management
does not expect to hold annual meetings of shareholders in the next few years,
due to the expense involved.  The current members of the Board of
Directors were appointed to that position by the previous
directors.  If other directors are added to the Board in the future,
it is likely that the current directors will appoint them.  As a
result, the shareholders of China Aoxing will have no effective means of
exercising control over the operations of the Company.





II.  Risks
attendant to the market for our common stock.




The
illiquidity of the market for China Aoxing common stock may prevent a
shareholder from obtaining a fair price for his shares.




China
Aoxing at the present time has fewer than 500 shareholders and only a small
number of market makers.  As a result, our stock trades only
occasionally and the market price for our common stock is volatile, at times
moving over 30% in one day.  Unless and until the market for our
common stock grows and stabilizes, the common shares you purchase will remain
illiquid.  A shareholder in China Aoxing who wants to sell his shares,
therefore, runs the risk that at the time he wants to sell, he will be unable to
find a buyer or the market price may be much less than the price he would
consider to be fair.




China
Aoxing Pharmaceutical Company will be quoted on the OTC Bulletin Board for the
immediate future.




China
Aoxing does not meet the eligibility requirements for listing on the NASDAQ
Stock Market.  Until we meet those standards and are accepted into the
NASDAQ Stock Market, or unless we are successful in securing a listing on the
American Stock Exchange or some other exchange, China Aoxing common stock will
be quoted only on the OTC Bulletin Board.  Such a listing is
considered less prestigious than a NASDAQ Stock Market or an exchange listing,
and many brokerage firms will not recommend Bulletin Board stocks to their
clients.  This situation may limit the liquidity of your
shares.




18


ITEM
3.  CONTROLS AND PROCEDURES





Evaluation of Disclosure Controls
and Procedures.  Our Chief Executive Officer and Chief
Financial Officer carried out an evaluation of the effectiveness of our
disclosure controls and procedures as of March 31, 2008.  Pursuant to
Rule13a-15(e) promulgated by the Securities and Exchange Commission pursuant to
the Securities Exchange Act of 1934, “disclosure controls and procedures” means
controls and other procedures that are designed to insure that information
required to be disclosed by China Aoxing in the reports that it files with the
Securities and Exchange Commission is recorded, processed, summarized and
reported within the time limits specified in the Commission’s
rules.  “Disclosure controls and procedures” include, without
limitation, controls and procedures designed to insure that information China
Aoxing is required to disclose in the reports it files with the Commission is
accumulated and communicated to our Chief Executive Officer and Chief Financial
Officer as appropriate to allow timely decisions regarding required
disclosure.  Based on his evaluation, our Chief Executive Officer and
Chief Financial Officer concluded that China Aoxing’s system of disclosure
controls and procedures was effective as of March 31, 2008 for the purposes
described in this paragraph.




Changes in Internal
Controls.  There was no change in internal controls over
financial reporting (as defined in Rule 13a-15(f) promulgated under the
Securities Exchange Act or 1934) identified in connection with the evaluation
described in the preceding paragraph that occurred during China Aoxing’s third
fiscal quarter that has materially affected or is reasonably likely to
materially affect China Aoxing’s internal control over financial
reporting.





PART
II   -   OTHER INFORMATION





Item 2. Changes in
Securities and Small
Business Issuer Purchase of Equity Securities




(c) Unregistered sales of
equity securities




During
the fiscal quarter that ended on March 31, 2008, the Company sold to one
investor a Senior 8% Convertible Debenture in the principal amount of
$25,000.  The Debenture was sold at par.  The sale of the
Debenture was exempt from the registration requirements of the Securities Act
pursuant to Section 4(6) of the Act, because  the investor was an
Accredited Investor and there was no advertising or public solicitation
performed in connection with the offering.  The sale of the shares was
also exempt from registration pursuant to Rule 506 of the Securities and
Exchange Commission, since the sale satisfied all of the conditions specified in
SEC Rules 501 and 502 and  the investors had such knowledge and
experience in financial and business matters that the investor was capable of
evaluating the merits and risks of the investment.




(e) Purchases of equity
securities




The
Company did not repurchase any of its equity securities that were registered
under Section 12 of the Securities Exchange Act during the 3rd  quarter
of fiscal 2008.





Item
3. Defaults upon Senior Securities





Hebei
Aoxing Pharmaceutical Group, Inc., the operating subsidiary of China Aoxing, is
in default of its bank loan from Bank of China in the amount of $7,496,851,
which was due as of December 31, 2007.   Hebei Aoxing is in
active discussions with the Bank of China regarding the loan, and expects, but
is not assured, that it will reach agreement on refinancing terms in near
term.




Item
6. Exhibits





31
            Rule
      13a-14(a) Certification32
            Rule
      13a-14(b) Certification




19




SIGNATURES





Pursuant
to the  requirements  of the Securities  Exchange
Act of 1934, the Registrant  has
duly  caused  this  Report  to
be  signed  on its  behalf by the undersigned
thereunto duly authorized.






CHINA
      AOXING PHARMACEUTICAL COMPANY, INC.Date:
      May 15, 2008
              By:
              /s/ Zhenjiang
    YueZhenjiang Yue, Chief Executive
      Officerand Chief Financial Officer












20