10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_____________________

FORM 10-K

☒	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
	For the fiscal year ended June 30, 2016.
	OR
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

Commission File No. 1-32674

AOXING PHARMACEUTICAL COMPANY, INC.

(Exact Name of Registrant as Specified in its Charter)

Florida	65-0636168
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer ID Number)

1098 Foster City Blvd., Suite 106-810, Foster City, CA 94404

(Address of principal executive offices)

Issuer's Telephone Number, including Area Code: 646-367-1747

Securities Registered Pursuant to Section 12(b) of the Act:

Title of Each Class	Name of Exchange Where Registered
Common Stock, $.001 par value	NYSE MKT

Securities Registered Pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 406 of the Securities Act.    Yes __ No √ 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes __ No √ 

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  √    No __

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.)  Yes √   No ___

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405) is not contained herein, and will not be contained, to the best of registrant's  knowledge,  in definitive proxy or information  statements incorporated  by reference  in Part III of this Form 10-K or any  amendment to this Form 10-K. [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check One)

Large accelerated filer ___        Accelerated filer ___        Non-accelerated filer ___        Smaller reporting company    X  

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

The aggregate market value of the Registrant's common stock, $.001 par value, held by non-affiliates as of December 31, 2015, the last business day of the second fiscal quarter, was $30,727,141.

As of September 27, 2016 the number of shares outstanding of the Registrant's common stock was 76,209,195 with $.001 par value.

DOCUMENTS INCORPORATED BY REFERENCE: None.

FORWARD-LOOKING STATEMENTS: NO ASSURANCES INTENDED

This Annual Report on Form 10-K (including the section regarding Management's Discussion and Analysis of Financial Condition and Results of Operations) contains certain "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, as well as information relating to Aoxing Pharmaceutical Company, Inc. that represents management's assumptions based on the information currently available to management. Although forward-looking statements in this Annual Report on Form 10-K reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks and uncertainties and actual results and outcomes may differ materially from the results and outcomes discussed in or anticipated by the forward-looking statements. When used in this document and other documents, releases and reports released by us, the words "anticipate," "believe," "estimate," "expect," "intend," "the facts suggest" and words of similar import, are intended to identify any forward-looking statements. You should not place undue reliance on these forward-looking statements. These statements reflect our current view of future events and are subject to certain risks and uncertainties as noted below. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, our actual results could differ materially from those anticipated in these forward-looking statements. Actual events, transactions and results may materially differ from the anticipated events, transactions or results described in such statements. Although we believe that our expectations are based on reasonable assumptions, we can give no assurance that our expectations will materialize. Many factors could cause actual results to differ materially from our forward looking statements, including those set forth in Item 1A of this report. Other unknown, unidentified or unpredictable factors could materially and adversely impact our future results. We undertake no obligation and do not intend to update, revise or otherwise publicly release any revisions to our forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of any unanticipated events.

We file reports with the Securities and Exchange Commission ("SEC" or "Commission"). You can read and copy any materials we file with the Commission at its Public Reference Room at 100 F Street, NE, Washington, DC 20549. You can obtain additional information about the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330. In addition, the Commission maintains an Internet site (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the Commission, including our reports.

Our fiscal year ends on June 30, and any references herein to "Fiscal 2016" mean the year ended June 30, 2016, and references to other "Fiscal" years mean the year ending June 30 of the year indicated.

PART 1

Item 1.  Business

Aoxing Pharmaceutical Company, Inc. ("Aoxing Pharma" or "Company") has one operating subsidiary, Hebei Aoxing Pharmaceutical Co., Inc. ("Hebei Aoxing"), which is organized under the laws of the People's Republic of China ("PRC"). Since 2002, Hebei Aoxing has been engaged in developing narcotics and pain management products.  In 2008 Hebei Aoxing supplemented its product lines by acquiring Shijiazhuang Lerentang Pharmaceutical Company, Ltd. ("LRT"), a specialty pharmaceutical company focusing on herbal pain related therapeutics.  The Company owns 95% of the equity in Hebei Aoxing.

History of the Company

The Company was incorporated in the State of Florida on January 23, 1996. In 2006 the Company liquidated its previous business assets and acquired 60% of Hebei Aoxing. On May 1, 2008 the Company completed the acquisition of an additional 35% interest in Hebei Aoxing from Zhenjiang Yue, our Chief Executive Officer.

On April 16, 2008, Hebei Aoxing completed the acquisition of 100% of the registered capital of Shijiazhuang Lerentang Pharmaceutical Company Limited ("LRT"). LRT was engaged in the manufacture and distribution of Chinese traditional medicines focusing on pain management related therapeutics within China.  In exchange for transfer of ownership of LRT to Hebei Aoxing, the Company paid to the shareholders of LRT 80 million Renminbi and related expenses (approximately $12.4 million in total) and issued 4 million shares of common stock. Subsequently the Company undertook the integration of LRT's business and operations into Hebei Aoxing, which resulted in a requirement that our manufacturing facilities be relicensed by the government.  In April 2011, the combined Hebei Aoxing and LRT manufacturing facility received GMP certification from the Chinese State Food and Drug Administration (CFDA) for its production lines.  The certification marked the completion of the integration of LRT into Hebei Aoxing. LRT's business is currently operated under Hebei Aoxing.

On April 26, 2010, Aoxing Pharma and Johnson Matthey Plc entered into an agreement to establish a joint venture focused on research, development, manufacturing and marketing of active pharmaceutical ingredients ("API') for narcotics and neurological drugs for the China market. Under the terms of the agreement, Macfarlan Smith Ltd, a wholly owned subsidiary of Johnson Matthey Plc, headquartered in the United Kingdom, will contribute technology expertise and capital to the joint venture. Hebei Aoxing will contribute capital, fixed assets and related API manufacturing licenses. The joint venture company is called Hebei Aoxing API Pharmaceutical Company, Ltd. Hebei Aoxing has a 51% stake in the joint venture, while Macfarlan Smith (Hong Kong) Ltd (a wholly owned subsidiary of Johnson Matthey Pacific Ltd) holds 49%. Each joint venturer has equal representation on a board of directors that will oversee a management team responsible for corporate strategies and operations.  The joint venture is located on the Hebei Aoxing campus in Xinle City, 200 kilometers southwest of Beijing. The total capital investment was originally projected to be approximately $15 million during the first five years at the time of establishment. However, due mainly to the delays in securing API manufacturing licenses and reduced focus from both partners, only approximately $1 million of capital resources had been invested in the joint venture . At this point, we do not expect any major investment in API in the near term.

Pharmaceutical Market in China

The market for pharmaceutical products in China has been growing dramatically during the past decade. The growth in the Chinese pharmaceutical market is driven by several factors including improving standards of living and an increase in disposable income fueled by the growing economy, the aging population, the increasing participation in the State Basic Medical Insurance System and the increase in government spending on public health care.  Nevertheless, the pharmaceutical market in China is highly fragmented. We believe there are over 3,000 small enterprises currently engaged in the development, manufacture and sale of pharmaceutical products, and we expect significant consolidation of pharmaceutical business, products and technologies in China in near future.  However, based on recent statistics provided by the CFDA, there are only 13 pharmaceutical companies designated by the CFDA as narcotic drug producers in China, and we are one of them.

1

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. A significant portion of 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 - the remainder of the facility is dedicated to the herbal pharmaceutical products acquired from LRT.  Over the years, the company has developed a compelling pipeline in narcotics and pain management drugs, including Naloxone, Tilidine, Oxycodone, and Buprenorphine.

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 used mostly for their analgesic properties to treat severe pain (fentanyl, hydromorphone, methadone, morphine and pethidine), moderate to severe pain (buprenorphine 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 diarrhea (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 (analgesic-antipyretic preparations).  These drugs are often used in combination with other medications such as antidepressants, anticonvulsants, and non-narcotic pain relievers.  Opioids are the strongest pain medicines available and may become addictive if used on a long-term basis.

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 with 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.

Opioid drugs have been associated with illicit drug abuse and drug related crime since the onset of their medical use. The United Nations and its member States coordinate responses to this problem through international drug control conventions. Over 95 per cent of the Member States of the United Nations are now parties to the international drug control conventions, or the "Single Convention on Narcotic Drugs, 1961", organized by International Narcotics Control Board ("INCB"). The conventions contain the basic legal structure, obligations, tools and guidance that are needed for all States to achieve the main aims of the international drug control system: controlled universal availability of narcotic drugs and psychotropic substances for medical and scientific purposes only; prevention of drug abuse, drug trafficking and other forms of drug-related crime; and the undertaking of effective remedial action when prevention does not fully succeed. As such, the conventions constitute the world's agreed proportionate response to the global problems of illicit drug abuse and trafficking and the legal framework for international drug control.  

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 2010, Chinese government had approved the production of 25 varieties of analgesics. In the near future, patients in China will find 30 varieties and over 80 specifications of different types of analgesics. Worldwide, there are about 123 varieties of narcotics and pain medicines.

Marketed Products

Each of our pharmaceutical products has certain medicinal functions and has demonstrated safety and efficacy in accordance with the CFDA requirements for the treatment of one or more therapeutic indications. Our products are produced in various formulations, such as injection, tablets, capsules, oral solution and powders. Our manufacturing facility in China is GMP certified, fully integrated with manufacturing support systems including quality assurance, quality control and regulatory compliance. We have developed our own independent quality control systems in accordance with CFDA regulations. Our quality assurance team devotes significant attention to quality control for designing, manufacturing and testing our products, and is also responsible for ensuring that we are in compliance with all applicable national and local regulations and standards, as well as our internal policies. Our senior management team is also actively involved in setting quality assurance policies and managing internal and external quality performance. These support systems enable us to maintain high standards of quality for our products and deliver reliable products to our customers on a timely basis.

2

We have more than 100 products under licenses from CFDA. The following is a brief description of the two products that generate most of our revenue during fiscal 2016.

· Zhongtong'an is a capsule of herbal extraction manufactured under modern GMP standards for the indication of oral and dental pain. We expanded its use to include gynecological and orthopedic application in 2011. Zhongtong'an has accounted for more than 80% of our total sales in each of the past four fiscal years.

· Yiqi Qiangshen Granule is an OTC herbal extraction solely supplied by Aoxing Pharma. Yiqi Qiangshen is used to tonify qi and empower body, promote blood circulation to remove meridian obstruction. It can also help to improve patient's immune system. Yiqi Qiangshen represented 8% of the total revenue during fiscal 2016.

Tilidine Hydrochloride Tablets

Tilidine hydrochloride is an orally-absorbed synthetic narcotic analgesic. It is used in 50mg or 100mg dosage strength for relief of acute, moderate to severe pain, and chronic cancer-related pain. Tilidine hydrochloride tablet is currently selling in European countries, including Germany, Belgium, Ireland, Italy and Switzerland and is not available in China at the moment.

It is estimated that there are at least 50 million operation procedures performed in Chinese hospitals and clinical centers every year, and 50% of these procedures require acute post-operative pain treatment. In addition, there are estimated to be over 2.2 million newly diagnosed cancer patients every year, and 60% of them are unable to receive necessary pain management under the current treatment paradigm. According to the New England Journal of Medicine, cancer has become the No. 1 cause of death, contributing to 20% of adult deaths in China.

Our Phase III clinical study of Tilidine Hydrochloride tablets was a multi-center, randomized, double-blind and active-control study which covered two pivotal trials: (1) a trial of 200 patients with post-operative pain for the indication of acute moderate to severe pain; and (2) a trial of 120 patients with cancer pain for the indication of chronic moderate to severe pain. The study was conducted at 9 metropolitan hospitals in China. The primary endpoints used to evaluate the efficacy were the sum of pain score differences, measured by Pain Intensity Difference (PID).

On June 8, 2015, the China Food and Drug Administration ("CFDA") issued to Aoxing Pharma's subsidiary licenses to produce Tilidine Hydrochloride tablets ("Tilidine HCL"). Registration Certificate 2015S00391 was issued for the 50mg tablet; Registration Certificate 2015S00390 was issued for the 100mg tablet. This approval is the culmination of multiple years of research, development and regulatory activities. Our entry into the market will be a significant break-through in China's fight to treat pain. Tilidine HCL tablets offer a convenient medium for delivery of this drug, which is essential in the fight against pain. Tilidine tablets production started in June, 2016 and we expect the sales to ramp up during fiscal 2017. Tilidine is designated as a Class III New Medicine, which has at least four-year period of exclusively protection from the date when the registration certificate of a new medicine was issued.

Research and Development

We have an in-house state-of-art facility which allows our multi-discipline team to conduct pharmaceutical research and development. Our research and development ("R&D") team consists of chemists, biologists, pharmacologists and other technical experts. The team works on multiple projects, ranging from early stage discovery to advanced clinical studies. Our team is capable of performing chemical synthesis, analytic analysis, pharmacology, toxicology as well as other technical tasks related to pharmaceutical industry. In addition, we rely on arrangements with universities, our collaborators, contract research organizations and clinical research sites for a significant portion of our product development efforts.

3

Our R&D team is working on the following products pipeline:

Oxycodone & Acetaminophen Tablets and Capsules (waiting for production licenses). Oxycodone & Acetaminophen Tablets and Capsules are compound tablets and compound capsules consisting of Oxycodone HCL and Acetaminophen which is used to treat acute and chronic pain. Oxycodone and Acetaminophen are categorized as class II psychotropic drugs which are not subject to the rules of the Single Convention on Narcotic Drugs.  Oxycodone & Acetaminophen Tablets and Capsules are currently being imported from Mallinckrodt into China.  Aoxing will be the first Chinese company to produce this generic product.

We obtained clinical trial approval of this product in September 2012. This product only requires trial on bioequivalence and needs 24 cases for each trial; no phase II trial or phase III trial is required. We have completed the clinical trials and the trials results have been submitted to the CFDA. The Company had also submitted the New Drug Application (NDA) for the final production clearance to the CFDA and is currently waiting for final approval.

Buprenorphine/ Naloxone (startedsubmission of the registration data). In November 2007, the CFDA granted Hebei Aoxing and its partner, the National Institute of Drug Dependence at Beijing University, an important research and development license for Buprenorphine/Naloxone sublingual combo tablet to treat opioid dependence. This project has been a joint effort of scientists from our Company and Beijing University since April 2005. This new combo therapy is expressly designed to combine the proven effectiveness and tolerability of buprenorphine with a lower potential for misuse, underlining our commitment to this therapy area.  There is much peer-reviewed evidence of superior efficacy and safety profile for this therapy.

In August 2010, the CFDA granted the Company authority to initiate the registration clinical trial of Buprenorphine/Naloxone sublingual tablets for opioid addiction treatment.  The approval enabled Aoxing Pharma to move forward to the final development stage with this therapy, which is novel in China as it is not yet available to patients.  The registration trial is being administered by the National Institute on Drug Dependence of China at Beijing University, the co-development partner of Aoxing Pharma.  The patient enrollment takes place in at least three Compulsory Drug Dependence Treatment Centers.  The clinical trial was conducted by Kunming General Hospital of the Chengdu Military Region as the leader unit with Shanghai Mental Health Center and Guangzhou psychiatric hospital as the member units. The phase I and phase II clinical trial have been completed. (This project doesn't require a phase III clinical trial). 

In July of 2015, we announced positive results of Buprenorphine/Naloxone sublingual tablets as a treatment for opioid dependence.  This was a registration clinical study evaluating the safety and efficacy of the sublingual tablets in order to gain the final production and marketing clearance by the China Food and Drug Administration (CFDA). In this multi-center, placebo-controlled, double-blinded, randomized, and paralleled study, 300 patients with opioid dependence were enrolled in 12-week therapy.  The primary endpoints of this study were to evaluate the safety and effectiveness of the sublingual tablets for the opioid dependence patients, by measuring the rate of outpatient service; the secondary endpoints of the study included the negative rate of urine morphine test, among other issues.

Our Buprenorphine/Naloxone sublingual tablets program could be the first such therapy in the Chinese market in treating opioid dependence patients. The drug demonstrated statistical significance in the measurements designed in the trial. We are working on the final preparation toward the submission of the registration data package, and look forward to the final clearance by the China CFDA.

Based on Chinese government data, drug abuse and addiction has become a serious social problem and the situation has been getting worse over the last two decades. As of December 2014 there were 2.95 million registered drug addicts in China, which is 0.5 million more than in 2013.  We believe the real population of drug addicts is estimated to be about 10 times the registered number in the country. The Chinese government has taken comprehensive measures to address this problem, including centralized compulsory treatment camp, community clinics, psychological consulting and pharmacological therapies. We believe Buprenorphine/Naloxone sublingual tablets will be a major product in Chinese market in treating opioid dependence patients.

4

Tilidine / Naloxone (under clinical trial). Tilidine / NaloxoneCapsules are compound capsules consisting of Tilidine HCL and Naloxone, which is used to treat acute and chronic pain. The mixture of naloxone is claimed to lower the abuse liability of the opioid analgesic. This will be the next generation of our Tilidine product line, and it is currently under Phase 2 clinical trial.

Employees

The Company currently has approximately 346 employees. There are 73 employees in administrative and management, 10 employees in R&D, 19 employees in quality assurance and quality control, 177 employees in production, and 67 employees in sales and marketing. 

We consider our employee relations to be good.

Item 1A  Risk Factors

Our business, financial condition, operating results and prospects are subject to the following risks. Additional risks and uncertainties not presently foreseeable to us may also impair our business operations. If any of the following risks actually occurs, our business, financial condition or operating results could be materially adversely affected. In such case, the trading price of our common stock could decline, and our stockholders may lose all or part of their investment in the shares of our common stock.  You should carefully consider the risks described below before buying our common stock.  

Our independent accountants have included an explanatory paragraph in their audit report raising substantial doubt as to the Company's ability to continue as a going concern, due to the Company's history of losses, negative cash flow from operations, and its working capital deficiency.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company had an accumulated deficit of $56.3 million as of June 30, 2016. At June 30, 2016 we had a $10.9 million working capital deficiency. These matters raise substantial doubt about the Company's ability to continue as a going concern. That doubt is expressed in the audit report of our independent auditor for the year ended June 30, 2016. If our Company is unable to continue as a going concern, investors in the Company will incur a loss.

Our sales revenue remains small and mainly derives from a single product. A disruption in, or a compromise of, our manufacturing or sales operations, or distribution channels related to that product would materially and adversely affect our financial condition and results of operations.

Sales for the year ended June 30, 2016 mainly derived from a few products approved by the CFDA.  In particular, over 85% of our revenue came from sales of Zhongtong'an. We expect these products will continue to account for a majority of our sales in the next one or two years until our new products are approved, launched and become accepted by the market. Because of our dependence on a few products, any disruption in, or compromise of, our manufacturing operations, sales operations or distribution channels, relating to any of these products could result in our failure to meet shipping and delivery deadlines or meet quality standards, which in turn could result in the cancellation of purchase orders, refusal to accept deliveries or a reduction in purchase prices, any of which could have a material adverse effect on our financial condition and results of operations.

We pledged the registered trademarks and renewal certificates relating to our principal product, Zhongtong'an, to secure a loan of $4,185,426 that is due on October 25, 2016. In each of the past three fiscal years, sales of Zhongtong'an represented over 80% of our annual sales revenue. We are planning to raise additional capital or seek external financing to replace this loan. If we are unable to satisfy the secured debt, the creditor, Shijiazhuang Construction Investment Group, will be entitled to foreclose on that collateral. If, in that event, we lose our ability to use those trademarks and certificates in connection with the sale of Zhongtong'an, our sales revenue will be drastically reduced.

5

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 the present time, however, our capital resources are sparse. We are exploring various alternatives to improve our financial position and secure other sources of financing. Such possibilities include a new credit facility, new equity raise, new arrangements to license intellectual property, or the sales of selected property rights. If we are unable to secure the necessary capital, we may be unable to achieve the size of operations necessary for profitable operations. 

Intense competition from existing and new companies may adversely affect our revenues and profitability.

We compete with other companies, many of whom are developing, or can be expected to develop, products similar to ours. Some of our competitors are more established than we are, have greater brand recognition of products that compete with ours, have more financial, technical, marketing and other resources than we presently possess and a larger customer base. These competitors may be able to respond more quickly to new or changing opportunities and customer requirements and may be able to undertake more extensive promotional activities, offer more attractive terms to customers or adopt more aggressive pricing policies. Our commercial opportunity will be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer side effects, are less expensive or have more attractive product characteristics than our current products or products that we may develop in the future. We cannot assure you that we will be able to compete effectively with current or future competitors or that the competitive pressures we face will not harm our business.

Most of our pipeline products contain narcotic ingredients. As a result of reports of misuse or abuse of prescription narcotics, the sale of such drugs may be subject to new regulation, which may prove difficult or expensive to comply with, and we and other pharmaceutical companies may face lawsuits.

Most of our core pipeline products contain narcotic ingredients. Misuse or abuse of such drugs can lead to physical or other harm. For example, recently, reportedly widespread misuse or abuse of OxyContin^®, a product of Purdue Pharma L.P., or Purdue, containing the narcotic oxycodone, resulted in the strengthening of warnings on its labeling. In addition, Purdue, the manufacturer of OxyContin^®, faces or did face numerous lawsuits, including class action lawsuits, related to OxyContin^® misuse or abuse. We may be subject to litigation similar to the OxyContin^® suits related to our generic version of oxycodone or any other narcotic containing product that we market.

The CFDA and Department of Health may impose new regulations concerning the research and development, manufacture, storage, transportation and sale of prescription narcotics. Such regulations may include new labeling requirements, the development and implementation of formal risk minimization action plans, restrictions on prescription and sale of these products. The Chinese government and its agencies could require companies to formulate risk evaluation and mitigation strategies to ensure a drug's benefits outweigh its risks. In addition, the government and its agencies have authority to regulate distribution and may modify their regulations with respect to prescription narcotics in an attempt to curb abuse. In either case, any such new regulations or requirements may be difficult and expensive for us to comply with, may delay our introduction of new products, may adversely affect our net sales and may have a material adverse effect on our business, results of operations and financial condition.

We depend on our key management personnel and the loss of their services could adversely affect our business.

Our success depends in part on our continued ability to attract, retain and motivate highly qualified management. We place substantial reliance upon the efforts and abilities of our executive officers. The loss of services of any of these individuals or one or more other members of our senior management could delay or prevent the successful execution of our business objectives and could have a material adverse effect on our operations.

Replacing key employees may be difficult and costly and may take an extended period of time because of the limited number of individuals in our industry with the breadth of skills and experience required to develop and commercialize products successfully. We do not maintain "key person" insurance policies on the lives of these individuals or the lives of any of our other employees. The Company has entered into employment agreements with these individuals. We will need to hire additional personnel as we expand our commercial activities. We may not be able to attract or retain qualified management on acceptable terms in the future due to the intense competition for qualified personnel in our industry. If we are not able to attract and retain the necessary personnel to accomplish our business objectives, we may experience constraints that will impede these objectives.

6

We cannot assure you that we will be able to complete acquisitions or successfully integrate new businesses into our own.

We intend to pursue opportunities to grow our business by acquiring businesses, products and technologies that are complementary or related to our existing product lines. Successful completion of an acquisition depends on a number of factors that are not entirely within our control, including our ability to negotiate acceptable terms, conclude satisfactory agreements and obtain all necessary regulatory approvals. We may not be able to locate suitable acquisition candidates at prices that we consider appropriate. If we do identify an appropriate acquisition candidate, we may face competition from other companies interested in acquiring the target company that has greater financial and other resources than we have. Acquisitions of businesses, products, technologies or other material operations may require debt financing or additional equity financing, resulting in leverage or dilution of ownership.

Even if we complete one or more strategic transactions, we may be unable to integrate or coordinate successfully the personnel and operations of a business. Integration of acquired business operations could disrupt our business by diverting management away from day-to-day operations. The difficulties of integration may be increased by the necessity of coordinating geographically dispersed organizations, integrating personnel with disparate business backgrounds and combining different corporate cultures. We also may not be able to maintain key employees or customers of an acquired business or realize cost efficiencies or synergies or other benefits we anticipated when selecting our acquisition candidates. In addition, we may incur non-recurring severance expenses, restructuring charges and change of control payments and may need to record write-downs from future impairments of intangible assets, which could reduce our future reported earnings. At times, acquisition candidates may have liabilities or adverse operating issues that we fail to discover through due diligence prior to the acquisition.

In addition to the above, acquisitions in China, including of state owned businesses, will be required to comply with laws of the PRC, to the extent applicable. There can be no assurance that any proposed acquisition will be able to comply with PRC requirements, rules and/or regulations, or that we will successfully obtain governmental approvals to the extent required, which may be necessary to consummate such acquisitions.

If we fail to manage our growth and current operations, we may not achieve future growth or our expected revenues.

In order to maximize potential growth in our current and potential markets, we believe that we must expand our manufacturing and marketing operations. To this end, we are and expect to continue to substantially increase our employee headcount, which will place a significant strain on our management and on our operational, accounting, and information systems. Our need to manage our operations and growth effectively requires us to continue to expend funds to improve our financial controls, operating procedures, management information systems, reporting systems and procedures to manage our increased operations. If we are unable to implement improvements to our management information and control systems successfully in an efficient or timely manner, or if we encounter deficiencies in our existing systems and controls, then management may receive inadequate information to manage our day-to-day operations. We will also need to effectively train, motivate and manage our employees. Our failure to manage our growth could disrupt our operations and ultimately prevent us from generating the revenues we expect.

We may be unable to secure the government licenses that are necessary for us to engage in the sale of analgesic pharmaceuticals.

The manufacture and marketing of narcotic drugs is highly regulated in China. Prior to marketing any of our products, we are required to satisfy several government protocols, and receive several licenses from the national and local governments. Obtaining these licenses can be expensive and it is usually time consuming. If we are unable to obtain the necessary licenses when we need to have them, our business plan will be delayed. If the delays prevent us from generating positive cash flow or introducing a significant number of products, our business may fail.

7

We may have difficulty defending our intellectual property rights from infringement which may undermine our competitive position.

We have been 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. We regard our service marks, trademarks, trade secrets, patents and similar intellectual property as critical to our success. We rely on trademark, patent and trade secret law, as well as confidentiality agreements to protect our proprietary rights. Certain of our products have received trademark and patent protection in China. No assurance can be given that such patents and licenses will not be challenged, invalidated, infringed or circumvented, or that such intellectual property rights will provide a competitive advantage to us. Our trade secrets may otherwise become known or be independently discovered by our competitors. Policing the unauthorized use of proprietary technology can be difficult and expensive. Also, litigation may be necessary to enforce our intellectual property rights, protect our trade secrets or determine the validity and scope of the proprietary rights of others. The outcome of such potential litigation may not be in our favor and any success in litigation may not be able to adequately protect our rights. Such litigation may be costly and divert management attention away from our business. An adverse determination in any such litigation would impair our intellectual property rights and may harm our business, prospects and reputation. Enforcement of judgments in China is uncertain and even if we are successful in such litigation it may not provide us with an effective remedy. In addition, we have no insurance coverage against litigation costs and would have to bear all costs arising from such litigation to the extent we are unable to recover them from other parties. The occurrence of any of the foregoing could have a material adverse effect on our business, financial condition and results of operations. In addition, there can be no assurance that we will be able to obtain licenses from third-parties that we may need to conduct our business or that such licenses can be obtained at a reasonable cost.

In addition, third parties may file infringement claims against us asserting that we are infringing on their patents or trademarks. In the event that such claims are filed, regardless of the merit of such a claim, we may incur substantial costs and diversion of management as a result of our involvement in such proceedings.

We are dependent on third parties to supply all raw materials used in our products and to provide services for certain core aspects of our business. Any interruption or failure by these suppliers, distributors and collaboration partners to meet their obligations pursuant to various agreements with us could have a material adverse effect on our business, results of operations and financial condition.

We rely on third parties to supply all raw materials used in our products. In addition, we rely on third party suppliers, distributors and collaboration partners to provide services for certain core aspects of our business, including manufacturing, warehousing, distribution, customer service support, medical affairs services, clinical studies, sales and other technical and financial services. All third party suppliers and contractors are subject to the CFDA, and government agency requirements. Our business and financial viability are dependent on the regulatory compliance of these third parties, and on the strength, validity and terms of our various contracts with these third party manufacturers, distributors and collaboration partners. Any interruption or failure by these suppliers, distributors and collaboration partners to meet their obligations pursuant to various agreements with us could have a material adverse effect on our business, financial condition and results of operations.

The government limits the availability of the active ingredients used in many of our current products and products in development and, as a result, our procurement quota may not be sufficient to meet commercial demand or complete clinical trials.

The Chinese government and CFDA regulate the access to supplies of the chemical compounds in some of our current products and products in development, including oxycodone, codeine, buprenorphine, and Tilidine. Consequently, their manufacture, shipment, storage, sale and use are subject to a high degree of regulation.

Furthermore, the government limits the availability of the active ingredients used in many of our current products and products in development and, as a result, our procurement quota of these active ingredients may not be sufficient to meet commercial demand or complete clinical trials. We must annually apply to the government agencies for a procurement quota in order to obtain these substances. Any delay or refusal by the agencies in establishing our procurement quota for controlled substances could delay or stop our clinical trials and product launches or could cause trade inventory disruptions for those products that have already been launched, which could have a material adverse effect on our business, financial position and results of operations.

8

Timing and results of clinical trials to demonstrate the safety and efficacy of products as well as the CFDA's approval of products are uncertain.

Before obtaining regulatory approvals for the sale of our products, we must demonstrate through preclinical studies and clinical trials that the product is safe and effective for each intended use. Preclinical and clinical studies may fail to demonstrate the safety and effectiveness of a product. A failure to demonstrate safety and efficacy would result in our failure to obtain regulatory approvals.

The rate of patient enrollment sometimes delays completion of clinical studies. There is substantial competition to enroll patients in clinical studies, and such competition has delayed clinical development of our products in the past. Delays in planned patient enrollment can result in increased development costs and delays in regulatory approval. In addition, we rely on collaboration partners that may control or make changes in trial protocol and design enhancements that may also delay clinical trials. We cannot assure you that we will not experience delays or undesired results in these or any other of our clinical trials.

We cannot assure you that the CFDA or other regulatory agencies will approve any products developed by us, on a timely basis, if at all, or, if granted, that such approval will not subject the marketing of our products to certain limits on indicated use. Any limitation on use imposed by the CFDA or delay in or failure to obtain CFDA approvals of products developed by us would adversely affect the marketing of these products and our ability to generate product revenue, as well as adversely affect the price of our common stock.

Before obtaining regulatory approvals for certain generic products, we must conduct limited clinical or other trials to show comparability to the branded products. A failure to obtain satisfactory results in these trials would prevent us from obtaining required regulatory approvals.

We do not have product liability insurance and we could be exposed to substantial liability.

We face an inherent business risk of exposure to product liability claims in the event that the use of our products is alleged to have resulted in adverse side effects. Adverse side effects, marketing or manufacturing problems pertaining to any of our products could result in:

  • decreased demand for our products;

 • adverse publicity resulting in injury to our reputation;

 • product liability claims and significant litigation costs;

 • substantial monetary awards to or costly settlements with consumers;

 • product recalls;

 • loss of revenues; or

 • the inability to commercialize future products.

These risks will exist for those products in clinical development and with respect to those products that have received regulatory approval for commercial sale or any product we may acquire. To date, we have not experienced any product liability claims. However, that does not mean that we will not have any such claims with respect to our products in the future. We do not carry product liability insurance. The lack of product liability insurance exposes us to risks associated with potential product liability claims, which can be significant.

9

The pharmaceutical industry is heavily regulated, which creates uncertainty about our ability to bring new products to market and imposes substantial compliance costs on our business.

The CFDA, as well as Department of Health, imposes substantial requirements on the development, manufacture, labeling, sale, distribution, marketing, advertising, promotion and introduction of therapeutic narcotic pharmaceutical products through lengthy and detailed laboratory and clinical testing and other costly and time-consuming procedures. The submission of a drug application alone does not guarantee that the CFDA will grant approval to market the product. Satisfaction of CFDA requirements typically takes a number of years, varies substantially based upon the type, complexity and novelty of the pharmaceutical product and is subject to uncertainty. The drug approval process varies in time, could take several years from the date of application. The timing for the approval process is difficult to estimate and can vary significantly.

The current CFDA standards of approving pharmaceutical products are more stringent than those that were applied in the past. These standards were not applied to many established products currently on the market, including certain narcotics products. We cannot assure you that the CFDA or other regulatory agencies will approve any products developed by us, on a timely basis, if at all, or, if granted, that approval will not entail limiting the indicated uses for which we may market the product, which could limit the potential market for any of these products.

The State Food and Drug Administration of China requires pharmaceutical manufacturers to obtain Good Manufacturing Practices, or GMP, certifications. We have received our certifications. However, should we fail to receive or maintain the GMP certifications in the future, we would no longer be able to manufacture pharmaceuticals in China, and our businesses would be materially and adversely affected. Moreover, the laws and regulations regarding acquisitions in the pharmaceutical industry in China may change, which could significantly impact our ability to grow through acquisitions.

Certain political and economic considerations relating to China could adversely affect our company.

China is transitioning from a planned economy to a market economy. While the PRC government has pursued economic reforms since its adoption of the open-door policy in 1978, a large portion of the Chinese economy is still operating under five-year plans and annual state plans. Through these plans and other economic measures, such as control on foreign exchange, taxation and restrictions on foreign participation in the domestic market of various industries, the PRC government exerts considerable direct and indirect influence on the economy. Many of the economic reforms carried out by the PRC government are unprecedented or experimental, and are expected to be refined and improved. Other political, economic and social factors can also lead to further readjustment of such reforms. This refining and readjustment process may not necessarily have a positive effect on our operations or future business development. Our operating results may be adversely affected by changes in China's economic and social conditions as well as by changes in the policies of the PRC government, such as changes in laws and regulations, or the official interpretation thereof, which may be introduced to control inflation, changes in the interest rate or method of taxation, and the imposition of additional restrictions on currency conversion.

Accordingly, government actions in the future, including any decision not to continue to support recent economic reforms and to return to a more centrally planned economy or regional or local variations in the implementation of economic policies, could have a significant effect on economic conditions in China or particular regions thereof, and could require us to divest ourselves of any interest we then hold in Chinese properties or joint ventures.

Our operations in the PRC are subject to the laws and regulations of the PRC and any changes in the laws or policies of the PRC may have a material impact on our operations and financial performance.

As our drug products businesses are carried out in the PRC, we are subject to and have to operate within the framework of the PRC legal system. Any changes in the laws or policies of the PRC or the implementation thereof, for example in areas such as foreign exchange controls, tariffs, trade barriers, taxes, export license requirements and environmental protection, may have a material impact on our operations and financial performance.

10

Our operations are carried out through our subsidiary which is located in the PRC. As such, the laws of the PRC govern our businesses and operations. The PRC legal system is a codified system of written laws, regulations, circulars, administrative directives and internal guidelines. The PRC government is still in the process of developing its legal system to encourage foreign investment and to align itself with global practices and standards. As the PRC economy is undergoing development at a faster rate than the changes to its legal system, some degree of uncertainty exists in connection with whether and how existing laws and regulations apply to certain events and circumstances. Some of the laws and regulations and the interpretation, implementation and enforcement of such laws and regulations are also at an experimental stage and are subject to policy changes. Hence, precedents on the interpretation, implementation and enforcement of certain PRC laws are limited and court decisions in the PRC do not have binding effect on lower courts. Accordingly, the outcome of dispute resolutions and litigation may not be as consistent or predictable as in other more developed jurisdictions and it may be difficult to obtain swift and equitable enforcement of the laws in the PRC, or to obtain enforcement of a judgment by a court or another jurisdiction.

There is no assurance that these PRC authorities will not issue further directives, regulations, clarifications or implementation rules requiring us to obtain further approvals in relation to our public listing in the U.S.

Restrictions under PRC law on our PRC subsidiary's ability to make dividends and other distributions could materially and adversely affect our ability to grow, make investments or acquisitions that could benefit our business, pay dividends to our shareholders, and otherwise fund and conduct our business.

All of our sales are earned by our PRC subsidiary. However, PRC regulations restrict the ability of our PRC subsidiary to make dividends and other payments to its offshore parent company. PRC legal restrictions permit payments of dividends by our PRC subsidiary only out of its accumulated after-tax profits, if any, determined in accordance with PRC accounting standards and regulations. Our PRC subsidiary is also required under PRC laws and regulations to allocate at least 10% of its annual after-tax profits determined in accordance with PRC Accounting Standards for Business Enterprises ("ASBEs") to a statutory general reserve fund until the amounts in said fund reaches 50% of our registered capital. Allocations to these statutory reserve funds can only be used for specific purposes and are not transferable to us in the form of loans, advances, or cash dividends. Any limitations on the ability of our PRC subsidiary to transfer funds to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends and otherwise fund and conduct our business.

Furthermore, our PRC subsidiary, which is foreign investment entity ("FIE"), is subject to the PRC rules and regulations on currency conversion. In the PRC, the State Administration of Foreign Exchange ("SAFE") regulates the conversion of the Renminbi into foreign currencies. Currently, foreign investment enterprises (including wholly foreign-owned enterprises) are required to apply to the SAFE for "Foreign Exchange Registration Certificates for FIEs". With such registration certification (which have to be renewed annually), FIEs are allowed to open foreign currency accounts including the "current account" and "capital account". Currently, transactions within the scope of the "current account" (for example, remittance of foreign currencies for payment of dividends) can be effected without requiring the approval of the SAFE. However, conversion of currency in the "capital account" (for example, for capital items such as direct investments, loans and securities) still requires the approval of the SAFE.

We may never pay any dividends to our stockholders.

We have not paid any cash dividends on shares of our common stock. We currently intend to retain all available funds and future earnings, if any, to support our operations and finance the growth and development of our business. Our board of directors does not intend to distribute dividends in the foreseeable future. The declaration, payment and amount of future dividends, if any, will be made at the discretion of the board of directors, and will depend upon, among other things, the results of our operations, cash flows and financial condition, operating and capital requirements, and other factors the board of directors considers relevant. There is no assurance that future dividends will be paid, and if dividends are paid, there is no assurance with respect to the amount of any such dividend.

11

The Chinese government does not permit our auditor, or any other independent registered public accounting firm operating in China, to be inspected by the Public Company Accounting Oversight Board, so investors will be deprived of the benefits of such inspection.

The independent registered public accounting firm that issues the audit reports included in our annual reports filed with the SEC, as an auditor of companies that are traded publicly in the United States and a firm registered with the Public Company Accounting Oversight Board (United States), or PCAOB, is required by the laws of the United States to undergo regular inspections by PCAOB to assess its compliance with the laws of the United States and professional standards. Because our auditor is located in China, a jurisdiction where PCAOB is currently unable to conduct inspections without the approval of the PRC authorities, our auditor, like other independent registered public accounting firms operating in China, is currently not inspected by PCAOB. Inspections of other firms that PCAOB has conducted outside of China have, at times, identified deficiencies in those firms' audit procedures and quality control procedures, which may be addressed as part of the inspection process to improve future audit quality. The inability of PCAOB to conduct inspections of independent registered public accounting firms operating in China makes it more difficult to evaluate the effectiveness of our auditor's audit procedures or quality control procedures. As a result, investors will be deprived of the benefits of PCAOB inspections.

A material failure of internal control over financial reporting could materially impact the Company's financial results.

In designing and evaluating its internal control over financial reporting, management recognizes that any internal control or procedure, no matter how well designed and operated, can provide only reasonable assurance of achieving desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Management believes that the Company's internal control over financial reporting currently provides reasonable assurance of achieving their control objectives. However, no system of internal controls can be designed to provide absolute assurance of effectiveness. See ITEM 9A "Controls and Procedures" later in this Report. A material failure of internal control over financial reporting could materially impact the Company's reported financial results and the market price of its stock could significantly decline. Additionally, adverse publicity related to a material failure of internal control over financial reporting could have a negative effect on the Company's reputation and business.

The value of our securities will be affected by the foreign exchange rate between U.S. dollars and Renminbi.

The value of our common stock will be affected by the foreign exchange rate between U.S. dollars and Renminbi, and between those currencies and other currencies in which our sales may be denominated. For example, to the extent that we need to convert U.S. dollars into Renminbi for our operational needs and should the Renminbi appreciate against the U.S. dollar at that time, our financial position, the business of the company, and the price of our common stock may be harmed. Conversely, if we decide to convert our Renminbi into U.S. dollars for the purpose of declaring dividends on our common stock or for other business purposes and the U.S. dollar appreciates against the Renminbi, the U.S. dollar equivalent of our earnings from our subsidiary in China would be reduced.

AOB has significant influence over the outcome of matters submitted to shareholders for approval.

Currently, American Oriental Bioengineering, Inc. ("AOB") owns approximately 22% of our outstanding common stock. As a result, AOB can exercise significant influence over all matters requiring shareholder approval, including the appointment of our directors and the approval of significant corporate transactions. AOB's ownership and control may also have the effect of delaying or preventing a future change in control, impeding merger, consolidation, takeover or other business combination or discourage a potential acquirer from making a tender offer.

Item 1B.  Unresolved Staff Comments

None.

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Item 2. Properties

The Company's facilities are located in Xinle City, Shijiazhuang, Hebei province, about 143 miles from Beijing. We have land use rights that are granted and allocated to us by the People's Republic of China ("PRC") government to the land on which our manufacturing facilities are located. According to Chinese law, the government owns all the land in China, and companies or individuals are authorized to use the land only through land use rights granted or allocated by, or leased from, the PRC government.

The headquarters of Hebei Aoxing currently cover 29.6 acres of the 49.4 acres leased by Hebei Aoxing.  The land lease will expire in 2053. On that land, the Company has located a building complex that offers an aggregate of 32,268 m²in floor space (approximately 347,330 square feet).  The complex includes office facilities, research facilities, 13,000 square meters (approximately 139,931 square feet) of factory space, and a five story residential facility for employees.

The Company's technology center is the 4,600 square meters (approximately 49,514 square feet) Aoxing Special Medicine Research Center. The Research Center is equipped with advanced pharmaceutical research facilities, including  troche testing equipment, capsule testing equipment, injection testing equipment, composition testing equipment, chemical analysis equipment, and Chinese traditional medicine extraction testing equipment. The Center is equipped to conduct the research and pilot experimental production of new medicines. The central laboratory of the Research Center includes a precision instrument room, normal instrument room, heating chamber laboratory, chemical reagent room, bacteria inspection room, culture room, specimen room, and observation room. The facility is capable of conducting the entire quality-control supervision and inspection process of raw material, supplementary materials, crude and finished product. The employee training center located in the Research Center has advanced teaching facilities, and is capable of long-distance training and education. The Company has also established close relationships with the National Institute on Drug Dependence of Beijing University.

The Company's factories are equipped with capsule filling machinery manufactured by the Bosch Group of Germany and automatic box filling equipment manufactured by the Uhlmann Company in Germany. The annual production capacity of the first stage analgesic project can reach 140 million capsules, 160 million pieces of troche, 100 million pieces of injectable, 100 million pieces of oral liquid and 100 million bags of palletized granules. The supporting facilities, such as the extraction workshop, engine house, thermal workshop, storehouse, office building, and employee housing, have all been completed.

The executive and production facilities of Hebei Aoxing are located at No. 1 Industry District, Xinle City, Hebei Province, China, 050700. Aoxing Pharma relocated its U.S. office during fiscal 2016 to 1098 Foster City Blvd., Suite 106-810, Foster City, CA 94404.

Item 3.  Legal Proceedings

At present, the Company is not engaged in or the subject of any material legal proceedings.  

Item 4.    Mine Safety Disclosures

Not Applicable.

PART II

Item 5.  Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

The Company's common stock is listed for trading on the NYSE MKT under the symbol "AXN". Set forth below are the high and low close prices for each quarter in our past two fiscal years.  

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Quarter Ending	High		Low
September 30, 2014	$	0.21	$	0.19
December 31, 2014	$	0.33	$	0.30
March 31, 2015	$	1.73	$	1.58
June 30, 2015	$	1.85	$	1.75
September 30, 2015	$	1.54	$	1.43
December 31, 2015	$	0.82	$	0.62
March 31, 2016	$	0.67	$	0.62
June 30, 2016	$	0.79	$	0.64

Holders

Our shareholders list contained the names of 416 registered stockholders of record of the Company's common stock as of September 25, 2016.

Dividends

The Company has never paid or declared any cash dividends on its Common Stock and does not foresee doing so in the foreseeable future. The Company intends to retain any future earnings for the operation and expansion of the business in the foreseeable future. Any decision as to future payment of dividends will depend on the available earnings, the capital requirements of the Company, its general financial condition and other factors deemed pertinent by the Board of Directors.

Issuer Purchases of Equity Securities

The Company did not make any stock repurchases during the quarter ended June 30, 2016.

Recent Sales of Unregistered Securities

On June 23, 2016 the Company issued 150,000 shares of common stock to six employees, including 20,000 shares to our President for Research and Development. The shares were issued as compensation for services, valued at $0.63 per share, the market value on the date of grant. The sales were exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended, because the shares were offered privately to employees of the Company. The sales were also exempt from registration pursuant to Regulation S, since the purchasers were non-U.S. persons and resale restrictions were imposed

Securities Authorized for Issuance under Equity Compensation Plans

The information set forth in the table below regarding equity compensation plans (which include individual compensation arrangements) was determined as of June 30, 2016.

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	Number of securities to be issued upon exercise of outstanding options, warrants and rights		Weighted average  exercise  price of outstanding options, warrants and rights		Number of securities remaining available  for future issuance  under equity compensation plans
Equity compensation plans approved by security holders.		590,000	$	0.64		3,500,000	(1)
Equity compensation plans not approved by security holders		300,000	$	0.71		-
Total		890,000	$	0.66		3,500,000

_________________________

(1) In 2016 the Board of Directors adopted and the shareholders approved the 2016 Stock Incentive Plan. The Plan authorizes the Board to issue up to 3,500,000 shares. The shares may be awarded to employees or directors of Aoxing Pharmaceutical or its subsidiaries as well as to consultants to those entities. The shares may be awarded as outright grants or in the form of options, restricted stock or performance shares.  

Item 6.  Selected Financial Data

Not applicable.

Item 7.  Management's Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our combined and consolidated financial statements and the related notes included elsewhere in this Annual Report on Form 10-K. The discussion in this section contains forward-looking statements that involve risks and uncertainties. As a result of various factors, including those set forth under "Risk Factors" and elsewhere in this report, our actual future results may be materially different from what we expect.

Results of Operations-Comparison of the years ended June 30, 2016 and 2015

Revenue

Revenue for the year ended June 30, 2016 was $32,329,525, representing a 26.9% increase from the revenue of $25,481,199 for the year ended June 30, 2015. The increase in revenue was primarily attributable to the increase in the sales of herbal therapeutics products, especially these products other than the Zhongtong'an. The Company has increased its effort to evaluate the strength of its product portfolio and market these products with large growth potentials. Zhongtong'an, which represents ~80% of total revenue, has sales growth of ~7% year over year during the Fiscal 2016, which is below our initial expectation partly due to inventory drawdown in the sales channels. On the local currency comparison, total revenue increased 33% year over year while the revenue from Zhongtong'an increased 12% year-over-year. The difference in the growth rate between local currency and U.S. dollar is the result of currency devaluation of Chinese yuan against U.S. dollar during the periods.

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The following table shows the dollar volume of sales of our primary product lines in each of the past two fiscal years:

	Fiscal 2016		Fiscal 2015
Herbal Therapeutics:
Zhongtong'an		25,981,611		24,325,980
Yiqi Qiangshen Granule		2,665,714		87,806
Others		3,682,200		1,067,413
Total	$	32,329,525	$	25,481,199

Cost of Goods Sold; Gross Profit

Cost of sales was $7,775,524 for the fiscal year 2016, representing an increase of 36.7% from $5,688,863 for the fiscal year 2015. Gross Margin was 75.9% for the fiscal year 2016 and relatively flat compared to 77.7% for the fiscal 2015. Lower gross margin was mainly the result of product mix shift as we try to increase sales for the products other than Zhongtong'an.

Research & Development Expense

Research and development ("R&D") expenses were $3,143,233 for the year ended on June 30, 2016, representing a significant increase from the $337,067 expended in fiscal 2015. Our R&D expenses may fluctuate significantly from period to period, reflecting the progress and timing of our various drug development projects. The larger expense this year was mainly due to large payments for clinical trials and a large payment for a key raw material used in our R&D program.

General and Administrative Expenses

Our general and administrative expenses consist primarily of employee compensation and benefits payable to general management, finance and administrative staff, professional and legal fees, and bad debt expenses. In the year ended June 30, 2016, our general and administrative expenses were $3,066,634, an increase of 11.4% compared to the $2,753,534 incurred during the previous year. The increase in general and administrative expense was mainly due to professional fees as a result of the registered direct offering of securities during September 2015,

Selling Expense

Selling expense for the year ended June 30, 2016 was $11,613,220, which was 55.7% higher than the selling expense of $7,457,758 for the year ended June 30, 2015. Sales and marketing efforts to introduce the products other than Zhongtong'an and the new Tilidine tablets are the main reasons for higher selling expenses.

Depreciation and amortization

Depreciation and amortization expense decreased 8.3% from $548,319 in fiscal 2015 to $502,862 in fiscal 2016 in part due to changes in currency exchange as the Chinese government devalue its currency against U.S. dollar from fiscal 2015 to fiscal 2016.

Income from Operations

Income from Operations was $6,228,051 for the year ended June 30, 2016, a decline of 28.4% from $8,695,658 for the fiscal year 2015. The decline was mainly due to higher selling expenses and R&D expenses.

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Other Income (Expense)

Other income/ (expense) comprises:

· Net interest expense was $3,456,638 for fiscal 2016, a decrease of 40.1% compared to interest expense of $5,768,094 incurred in fiscal 2015. The decrease of net interest expense was mainly due to lower debt during the period after equity finance in September, 2015 and debt conversion to equity in November, 2015.

· During the year ended June 30, 2016, we recorded an equity in loss of joint venture of $87,500, which represented our 51% (50% control right) beneficial interest in the loss incurred in that period by our joint venture with Johnson Matthey Plc. The equity in loss of joint venture was $93,352 during fiscal 2015. The losses related to the joint venture with Johnson Mathey Plc will continue at least until the joint venture commences revenue-producing operations.

These non-operating expenses were partially offset by the government subsidies that we recorded as non-operating income. During the year ended June 30, 2016, the Company's subsidiary in China, Hebei Aoxing, received local government subsidies totaling $201,912. These government subsidies were given to the Company with no restrictions and are for operating purposes. We recorded the subsidies and grants as other income. For fiscal 2015, the government subsidy income was $279,893.

Income taxes

Income taxes were $642,245 for the fiscal year 2016. This compares to $2,704,369 Income tax benefits the Company recognized during fiscal 2015. The Company's loss carry forwards for the 5 years prior to fiscal 2015 provided a significant amount of the deferred tax assets.

Net income

The Company realized net income of $2,243,580 for the fiscal year ended June 30, 2016.  However, because the Company owns only 95% of Hebei Aoxing, 5% of that company's net income was attributed to the non-controlling interest.  Therefore the net income for the fiscal year attributable to the shareholders of Aoxing Pharmaceutical was $2,061,224. In comparison, during the fiscal year ended June 30, 2015, the Company's net income was $5,818,473and, after deducting loss attributable to the 5% minority interest in Hebei Aoxing, net loss attributable to shareholders of Aoxing Pharmaceutical was $5,494,713.

Liquidity and Capital Resources

Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations and otherwise operate on an ongoing basis.

 Our cash balance as of June 30, 2016 was $6,912,100, compared to $5,371,545 as of June 30, 2015. Cash used in Operations during the year ended June 30, 2016 was $534,989, while the net cash provided by operations of $3,025,739 for the year ended June 30, 2015. Cash flow from operation was negatively impacted by higher accounts receivables, which was mainly due to the development of new customers and government's procurement policy changes in the pharmaceutical industry. We expect this trend to reverse during fiscal 2017 and believe the cash flow from operation should be positively impacted by the reverse trend in account receivables.

Our investing activities in fiscal 2016 consisted of $117,862 in cash used to purchase additional property and equipment. This compares to $2,705,298 in cash for investing activities in fiscal 2015. Higher investment in fiscal 2015 was mainly for purchasing additional property and equipment relating to the Tilidine project

Our financing activities provided $2,946,484 in cash during the year ended June 30, 2016, which included $2,739,000 cash from sale of common stock.

We have incurred operating losses in the past and had an accumulated deficit of $56.3 million as of June 30, 2016. However, we have reported positive operating results for both fiscal years 2015 and 2016. The income that we incurred during fiscal 2016, coupled with the issuance of common stock in satisfaction of debt, caused our working capital deficit to improve significantly during fiscal 2016. Our working capital deficit on June 30, 2016 was $10,948,767, which was 46.0% lower than the working capital deficit of $20,143,629 on June 30, 2015. The primary reason for our working capital deficit was the fact that there are $25.5 million in short-term debt owed to banks, related and unrelated parties. In accordance with banking customs in China, our bank loans have, throughout our history, been written on a short-term basis. Our business has survived through the years because our banks have proven willing to renew or replace our short-term debt, and we expect that practice to continue.

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Our debt service obligations on June 30, 2016 were as following:

Total		Less than 1 Year		1-2 Years		2-3 Years		3-4 Years		4-5 Years		After 5 Years
$	14,372,630	$	14,372,630		-		-		-		-		-
	13,317		13,317		-		-		-		-		-
	11,070,966		11,070,966		-		-		-		-		-
	15,048		15,048		-		-		-		-		-
$	25,471,961	$	25,471,961	$	-		-		-		-		-

Application of Critical Accounting Policies

In preparing our financial statements, we are required to formulate working policies regarding valuation of our assets and liabilities and to develop estimates of those values. In our preparation of the financial statements for fiscal 2016, there were three estimates made which were (a) subject to a high degree of uncertainty and (b) material to our results. These estimates were:

· The determination, described in Note 2 to our Consolidated Financial Statements, to record an allowance for doubtful accounts in the amount of $1,940,354. The determination was based on our review of the credit history of the relevant customers and the results of our collection efforts.

· The determination, described in Note 2 to our Consolidated Financial Statements, to record an allowance for obsolete inventory in the amount of $584,674. The determination was based on stating at the lower of cost and net realizable value.

· Our determination, described in Note 16 to the financial statements, to eliminate the previously recorded  allowance for our deferred tax assets, and to record a deferred tax asset of $1,878,595.  The determination to record the asset was based on our expectation that it is more likely than not that we will realize sufficient income within the requisite time period to utilize the deferred asset.

We made no material changes to our critical accounting policies in connection with the preparation of financial statements for fiscal 2016.

Impact of Accounting Pronouncements

New accounting rules and disclosure requirements can significantly impact the comparability of our financial statements.  There are no recent accounting pronouncements that have had a material effect on our financial statements.  Please refer to Note 2 of our consolidated financial statements included in Item 8 of this Form 10-K.

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.

18

Item 8. Financial Statements and Supplementary Data

Index to the Consolidated Financial Statements

Page

F-1	Report of Independent Registered Public Accounting Firm
F-2	Consolidated Balance Sheets as of June 30, 2016 and 2015
F-3	Consolidated Statements of Operations and Other Comprehensive Income/(Loss) for the Fiscal Years Ended June 30, 2016 and 2015
F-4	Consolidated Statements of Changes in Stockholders' Equity for the Fiscal Years Ended June 30, 2016 and 2015
F-5	Consolidated Statements of Cash Flows for the Fiscal Years Ended June 30, 2016 and 2015
F-6 to F-24	Notes to Consolidated Financial Statements.

19

REPORT OF INDEPENDENT REGISTERED ACCOUNTING FIRM

Board of Directors

Aoxing Pharmaceutical Co., Inc. and Subsidiaries

We have audited the accompanying consolidated balance sheet of Aoxing Pharmaceutical Co., Inc. and Subsidiaries as of June 30, 2016 and 2015 and the related consolidated statements of operations and comprehensive loss, shareholders' equity, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Aoxing Pharmaceutical Co., Inc. and Subsidiaries at June 30, 2016 and 2015, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the consolidated financial statements, the Company accumulated a large deficit and a working capital deficit that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.Our opinion is not modified with respect to this matter.

/s/ BDO China Shu Lun Pan Certified Public Accountants LLP

Shanghai, People's Republic of China

October 5, 2016

F - 1

AOXING PHARMACEUTICAL CO., INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	June 30,			June 30,
	2016			2015
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	6,912,100		$	5,371,545
Accounts receivable, net of allowance for doubtful accounts of $1,940,354 and $1,364,330, respectively		11,200,418			5,854,055
Inventories, net		2,841,690			3,240,026
Prepaid expenses and other current assets		5,912,555			6,630,407
TOTAL CURRENT ASSETS		26,866,763			21,096,033
LONG-TERM ASSETS:
Property and equipment, net of accumulated depreciation		25,603,734			28,651,717
Deferred income tax		1,878,595			2,711,610
Other intangible assets, net		1,878,299			484,857
Investment in joint venture		4,200			96,475
TOTAL LONG-TERM ASSETS		29,364,828			31,944,659
TOTAL ASSETS	$	56,231,591		$	53,040,692
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings	$	11,070,966		$	12,484,356
Accounts payable		2,709,819			3,625,139
Notes payable		-			1,631,641
Loan payable – bank		14,372,630			16,316,408
Current portion of loan payable - related parties		13,317			5,793
Current portion of loan payable - others		15,048			-
Accrued expenses and other current liabilities		9,633,750			7,176,325
TOTAL CURRENT LIABILITIES		37,815,530			41,239,662
LONG-TERM LIABILITIES:
Loan payable - related parties		-			8,158
- others		-			1,361,199
Deferred income		340,089			368,751
TOTAL LONG-TERM LIABILITIES		340,089			1,738,108
Common stock, par value $0.001, 100,000,000 shares authorized, 76,209,195and 69,839,259 shares issued and outstanding on June 30, 2016 and June 30, 2015, respectively		76,209			69,839
Additional paid in capital		73,629,751			66,457,250
Accumulated deficit		(56,293,745	)		(58,354,968	)
Accumulated other comprehensive income		1,723,740			3,066,026
TOTAL SHAREHOLDERS' EQUITY OF THE COMPANY		19,135,955			11,238,147
NON-CONTROLLING INTEREST IN SUBSIDIARIES		(1,059,983	)		(1,175,225	)
TOTAL EQUITY		18,075,972			10,062,922
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	56,231,591		$	53,040,692

 See accompanying notes to the consolidated financial statements

F - 2

AOXING PHARMACEUTICAL CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE LOSS
	For the year ended June 30
	2016			2015
SALES	$	32,329,525		$	25,481,199
COST OF SALES		7,775,524			5,688,863
GROSS PROFIT		24,554,001			19,792,336
OPERATING EXPENSES:
Research and development		3,143,233			337,067
General and administrative		3,066,634			2,753,535
Selling expenses		11,613,220			7,457,758
Depreciation and amortization		502,862			548,319
TOTAL OPERATING EXPENSES		18,325,949			11,096,679
INCOME FROM OPERATIONS		6,228,051			8,695,657
OTHER INCOME (EXPENSE):
Interest expense, net of interest income		(3,456,638	)		(5,768,094	)
Equity in loss of joint venture, net		(87,500	)		(93,352	)
Subsidy income		201,912			279,893
TOTAL OTHER EXPENSE		(3,342,226	)		(5,581,553	)
INCOME BEFORE INCOME TAXES		2,885,825			3,114,104
Income taxes/(benefits)		642,245			(2,704,369	)
NET INCOME		2,243,580			5,818,473
Net income attributable to non-controlling interest in subsidiaries		182,356			323,760
NET INCOME ATTRIBUTABLE TO SHAREHOLDERS OF THE COMPANY		2,061,224			5,494,713
OTHER COMPREHENSIVE INCOME (LOSS) :
Foreign currency translation adjustment		(1,342,286	)		91,359
COMPREHENSIVE INCOME		718,938			5,586,072
Other comprehensive income (loss) attributable to non-controlling interest		(67,114	)		4,568
COMPREHENSIVE INCOME ATTRIBUTABLE TO THE COMPANY	$	786,052		$	5,581,504
EARNINGS PER SHARE
Basic	$	0.03		$	0.09
Diluted		0.03			0.09
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
Basic		73,695,338			63,107,104
Diluted		75,467,672			63,167,104

 See accompanying notes to the consolidated financial statements

F - 3

AOXING PHARMACEUTICAL CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
	COMMON STOCK				PREFERRED STOCK				ADDITIONAL PAID-IN		(ACCUMULATED			ACCUMULATED OTHER COMPREHENSIVE			TOTAL STOCKOLDERS'			NON CONTROLLING			TOTAL
	SHARES		VALUE		SHARES		VALUE		CAPITAL		DEFICIT )			INCOME			EQUITY			INTEREST			EQUITY
Balance - June 30,  2014		49,874,822	$	49,875		-		-	$	58,315,446		(63,849,681	)		2,979,235			(2,505,125	)		(1,503,553	)		(4,008,678	)
Common stock issued for services		360,000		360		-		-		81,490		-			-			81,850			-			81,850
Common stock issued for debt conversion		12,863,690		12,864		-		-		5,562,544		-			-			5,575,408			-			5, 575,408
Common stock issued		6,740,747		6,740		-		-		2,406,948		-			-			2,413,688			-			2,413,688
Amortization for stock options		-		-		-		-		22,822		-			-			22,822			-			22,822
Amortization for management equity compensation		-		-		-		-		68,000		-			-			68,000			-			68,000
Translation adjustments		-		-		-		-		-		-			86,791			86,791			4,568			91,359
Net income		-		-		-		-		-		5,494,713			-			5,494,713			323,760			5,818,473
Balance - June 30,  2015		69,839,259	$	69,839		-		-	$	66,457,250		(58,354,968	)		3,066,026			11,238,147			(1,175,225	)		10,062,922
Amortization of Stock options		-		-		-		-		33,196		-			-			33,196			-			33,196
Amortization for managements equity compensation		-		-		-		-		80,381		-			-			80,381			-			80,381
Common stock issued		2,352,941		2,353		-		-		2,736,647		-			-			2,739,000			-			2,739,000
Common stock issued for debt conversion		2,046,995		2,047		-		-		2,659,047		-			-			2,661,094			-			2,661,094
Common stock issued for independent directors		60,000		60		-		-		102,540		-			-			102,600			-			102,600
Common stock issued for services		1,910,000		1,910		-		-		1,560,690		-			-			1,562,600			-			1,562,600
Translation adjustments		-		-		-		-		-		-			(1,342,286	)		(1,342,286	)		(67,114	)		(1,409,400	)
Net income		-		-		-		-		-		2,061,224			-			2,061,224			182,356			2,243,580
Balance - June 30,  2016		76,209,195		76,209		-		-	$	73,629,751		(56,293,744	)		1,723,740			19,135,955			(1,059,983	)		18,075,972

See accompanying notes to the consolidated financial statements

F - 4

AOXING PHARMACEUTICAL CO., INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the Years Ended June 30
	2016			2015
OPERATING ACTIVITIES:
Net income	$	2,061,224		$	5,494,713
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		1,026,016			666,293
Deferred income tax expense (benefit)		642,245			(2,704,369	)
Inventory markdown reversal		-			(7,861	)
Provision for doubtful accounts		703,980			(204,597	)
Common stock issued for services		288,777			169,822
Equity in loss of joint venture, net		87,500			93,352
Net loss attributable to non-controlling interests		182,356			323,760
Changes in operating assets and liabilities:
Accounts receivable		(6,691,735	)		(1,735,368	)
Inventories		151,210			(1,023,777	)
Prepaid expenses and other current assets		138,770			(4,102,425	)
Accounts payable		(2,207,075	)		1,351,651
Accrued expenses and other current liabilities		3,081,742			4,704,545
NET CASH GENERATED FROM (USED IN) OPERATING ACTIVITIES		(534,990	)		3,025,739
INVESTING ACTIVITIES:
Acquisition of property and equipment		(117,862	)		(2,705,298	)
NET CASH USED IN INVESTING ACTIVITIES		(117,862	)		(2,705,298	)

FINANCING ACTIVITIES:
Proceeds from (repayment of) bank loans	(697,281	)	13,018,270
Short-term borrowings	(437,170	)	1,029,387
Repayment of other borrowings	-		(10,186,796	)
Loans from/(to) related party	1,341,936		(3,611,480	)
Sale of common stock	2,739,000		2,423,503

NET CASH PROVIDED BY FINANCING ACTIVITIES		2,946,485			2,672,884
EFFECT OF EXCHANGE RATE ON CASH		(753,078	)		48,560
INCREASE IN CASH		1,540,555			3,041,885
CASH – BEGINNING OF PERIOD		5,371,545			2,329,660
CASH – END OF PERIOD	$	6,912,100		$	5,371,545
Supplemental disclosures of cash flow information:
Cash paid for interest	$	2,388,106		$	3,113,976
Cash paid for income taxes	$	-		$	-
Supplemental Disclosures of non-cash activities:
Debt extinguishment using stock		2,662,597			4,866,288

See accompanying notes to the consolidated financial statements

F - 5

AOXING PHARMACEUTICAL CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2016

1                BUSINESS DESCRIPTION

Aoxing Pharmaceutical Co., Inc. ("the Company" or "Aoxing Pharma") is a specialty pharmaceutical company specializing in research, development, manufacturing and distribution of a variety of narcotic, pain-management, and addiction treatment pharmaceutical products.

As of June 30, 2016, the Company had one operating subsidiary: Hebei Aoxing Pharmaceutical Co., Inc. ("Hebei"), which is organized under the laws of the People's Republic of China ("PRC").  As of June 30, 2016, the Company owned 95% of the issued and outstanding common stock of Hebei.

Since 2002, Hebei has been engaged in developing narcotic, pain management, and addiction treatment pharmaceutical products, building its facilities and obtaining the requisite licenses from the Chinese Government.  Headquartered in Shijiazhuang City, the pharmaceutical capital of China, outside of Beijing, Hebei now has China's largest and the most advanced manufacturing facility for highly regulated narcotic medicines, addressing a very under-served and fast-growing market in China. Its facility is one of the few GMP facilities licensed for manufacturing narcotics medicines. The Company is working closely with the Chinese government and CFDA to assure the strictly regulated availability to medical professionals throughout China of its narcotic drugs and pain medicines.

In April, 2008, Hebei completed the acquisition of 100% of the registered capital of Lerentang ("LRT").  LRT was engaged in the manufacture and distribution of Chinese traditional medicines focusing on pain management related therapeutics within China.  By 2011 the manufacturing operations of LRT had been completely integrated into Hebei.  Currently over 90% of the Company's revenues derive from one herbal extraction, obtained from the acquisition of LRT, which is used to alleviate oral/dental and bone pain. 

Investment in Joint Venture ("JV")

On April 26, 2010, Aoxing Pharma and Johnson Matthey Plc ('JM") entered into an agreement to establish a joint venture focused on research, development, manufacturing and marketing of active pharmaceutical ingredients for narcotics and neurological drugs for the China market. The joint venture represents a significant new opportunity for both companies to expand their business in the rapidly growing pharmaceutical market in China. Under the terms of the agreement, Macfarlan Smith Ltd, a wholly owned subsidiary of Johnson Matthey Plc, headquartered in the United Kingdom, will contribute technology expertise and capital to the joint venture. Hebei will contribute capital, fixed assets and related active pharmaceutical ingredients manufacturing licenses. The joint venture company is called Hebei Aoxing API Pharmaceutical Company, Ltd. ("API"). Hebei Aoxing has a 51% stake in API, while Macfarlan Smith (Hong Kong) Ltd (a wholly owned subsidiary of JM) holds 49%. Each company has equal representation on the board of directors that will oversee a management team responsible for corporate strategies and operations. The new joint venture is located on the Hebei campus in Xinle City, 200 kilometers southwest of Beijing. On March 10, 2010, the joint venture obtained a business license from the City Industry & Commercial Administrative Bureau. The Company accounts for its investment in the Joint Venture under the equity method of accounting.

2                SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant inter-company accounts and transactions have been eliminated. These consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America.  The Company's functional currency is the Chinese Renminbi (RMB). However, the accompanying consolidated financial statements have been translated and presented in United States Dollars (USD).

F - 6

AOXING PHARMACEUTICAL CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2016

Use of estimates in the preparation of financial statements

The preparation of the consolidated financial statements in conformity with generally accepted accounting principles 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 consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. Significant estimates reflected in the consolidated financial statements include, but are not limited to, the recoverability of the carrying amount and estimated useful lives of long-lived assets, allowance for accounts receivable, realizable values for inventories, valuation allowance of deferred tax assets, impairment assessment of goodwill, and share-based compensation expenses. Management makes these estimates using the best information available at the time the estimates are made. However, actual results when ultimately realized could differ significantly from those estimates.

Cash and cash equivalents

The Company maintains cash and cash equivalents with financial institutions in the PRC which are not insured or otherwise protected. Should any of these institutions holding the Company's cash become insolvent, or if the Company is unable to withdraw funds for any reason, the Company could lose the cash on deposit with that institution. Cash and cash equivalents include cash on hand and cash in time deposits, certificates of deposit and all highly liquid debt instruments with original maturities of three months or less.

Accounts Receivable

Accounts receivables represent customer accounts receivables. The allowance for doubtful accounts is based on a combination of current sales, historical charge-offs and specific accounts identified as high risk. Uncollectible accounts receivable are charged against the allowance for doubtful accounts when all reasonable efforts to collect the amounts due have been exhausted. Such allowances, if any, would be recorded in the period the impairment is identified. The balances of allowance for doubtful accounts are $1,940,354 and $1,364,330 at June 30, 2016 and 2015 respectively. The Company recorded bad debt expense of $576,024 for the year ended June 30, 2016 and bad debt written back of $204,597 for the year ended June 30, 2015, respectively.

Inventories, net

Inventories are stated at the lower of cost, determined using the weighted average cost method, and net realizable value. Net realizable value is the estimated selling price, in the ordinary course of business, less estimated costs to complete and dispose. The Company wrote-off $118,846 of obsolete inventory during the year ended June 30, 2016. The Company charged $108,601 against the allowance for obsolete inventory during the year ended June 30, 2015. For the years ended June 30, 2016 and 2015, the Company's allowance for obsolete inventory is $584,674 and $633,948, respectively.

Property and equipment

Property and equipment are recorded at cost.  Depreciation is provided in amounts sufficient to amortize the cost of the related assets over their useful lives using the straight line method for financial reporting purposes.

Construction in progress is stated at cost, which includes the cost of construction, acquisition of plant and equipment and other direct costs attributable to the construction. Construction in progress is not depreciated until such time as the assets are completed and put into operational use. No capitalized interest is incurred during the period of construction.

F - 7

AOXING PHARMACEUTICAL CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2016

All land in the PRC is owned by the PRC government. The government in the PRC, according to the relevant PRC law, may sell the right to use the land for a specified period of time. Thus, all of the Company's land purchases in the PRC are considered to be leasehold land and are stated at cost less accumulated amortization and any recognized impairment loss. Amortization is provided over the term of the land use right agreements on a straight-line basis, which is 50 years and they will expire in 2053.

Maintenance, repairs and minor renewals are charged to expense when incurred. Replacements and major renewals are capitalized.

Estimated useful lives are as follows:

Right to use land	50 years
Building and building improvements	35 years
Machinery and equipment	10 years
Furniture and office equipment	5 years
Automobiles	8 years

Intangible assets

Definite lived intangible assets include drug permits recorded at cost less accumulated amortization and any recognized impairment loss. The drug permits were acquired in 2008 when the Company purchased LRT and are amortized over their estimated useful life of 15 years on a straight-line basis. In addition, the Company acquired the intellectual properties relating to Lorcaserin Hydrochloride, Caffeine tablets and Caffeine buccal tablets, and Buprenorphine/naloxone through issuance of the Company's common stock. An intangible asset that is subject to amortization shall be reviewed for impairment in accordance with the Impairment or Disposal of Long-Lived Assets ASC 360-10. In accordance with Accounting Standards Codification ("ASC") Topic 360-10-5, "Impairment or Disposal of Long-Lived Assets", the Company performs an intangible asset impairment test for its definite-lived intangibles whenever events or changes in circumstances indicate that its carrying amount may not be recoverable.  The intangible assets balance as of June 30, 2016 and June 30, 2015 were $1,878,299 and $484,857 respectively.

Revenue Recognition

In accordance with the ASC Topic 605, "Revenue Recognition", the Company recognizes revenue when persuasive evidence of an arrangement exists, transfer of title has occurred or services have been rendered, the selling price is fixed or determinable and collectability is reasonably assured. Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as advances from customers. The agreements with customers do not contain any rights of return other than for goods that fail to meet the specifications provided by the customer or other quality problems. The Company has not experienced any significant returns from customers and accordingly, in management's opinion, no reserve for returns is provided.

The Company derives revenues from the sale of pharmaceutical products. The Company recognizes its revenues net of value-added taxes ("VAT"). The Company is subject to VAT which is levied on the majority of the products at the rate 17% on the invoiced value of sales. Output VAT is borne by customers in addition to the invoiced value of sales and input VAT is borne by the Company in addition to the invoiced value of purchases to the extent not refunded for export sales.

F - 8

AOXING PHARMACEUTICAL CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2016

The Company recognizes revenue from the sale of products upon customers' receipt of the shipment at the customers' facility or upon when the transfer of title and risk of loss has transferred to the customer. The Company has distributor arrangements with certain parties for sale of its pharmaceutical products. The distributor agreements do not provide chargeback, price protection, or stock rotation rights.

Research and Development

Research and development is charged to expense as incurred.

Share-Based Compensation

Share-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the requisite service period.  The Company's policy is to recognize compensation cost for awards with only service conditions and a graded vesting schedule on a straight-line basis over the requisite service period for the entire award.

Impairment of long lived assets

In accordance with the provisions of ASC Topic 360-10-5, "Impairment or Disposal of Long-Lived Assets," all long-lived assets such as property, plant and equipment, land use rights and intangible assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. For assets that are to be held and used, impairment is recognized when the estimated undiscounted cash flows associated with the asset or group of assets is less than their carrying value. If impairment exists, an adjustment is made to write the asset down to its fair value, and a loss is recorded as the difference between the carrying value and fair value. Fair values are determined based on quoted market values, discounted cash flows or internal and external appraisals, as applicable. Assets to be disposed of are carried at the lower of carrying value or estimated net realizable value.

Income taxes

The Company uses the asset and liability method of accounting for income taxes in accordance with ASC Topic 740, "Income Taxes." Under this method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current year and (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity's financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if based on the weight of the available positive and negative evidence, it is more likely than not some portion or all of the deferred tax assets will not be realized.

ASC Topic 740-10-30 clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740-10-40 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. We have no material uncertain tax positions for any of the reporting periods presented.

Non-controlling interest

Non-controlling interests in our subsidiaries are recorded in accordance with the provisions of ASC Topic 810, "Consolidation", and are reported as a component of our equity, separate from the parent's equity. Purchase or sale of equity interests that do not result in a change of control are accounted for as equity transactions. Results of operations attributable to the non-controlling interests are included in our consolidated results of operations and, upon loss of control, the interest sold, as well as interest retained, If any, will be reported at fair value with any gain or loss recognized in earnings.

F - 9

AOXING PHARMACEUTICAL CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2016

Under ASC 810-10-45-21, losses attributable to the parent and the non-controlling interest in a subsidiary may exceed their interests in the subsidiary's equity. The excess, and any further losses attributable to the parent and the non-controlling interest, shall be attributed to those interests. That is, the non-controlling interest shall continue to be attributed its share of losses even if that attribution results in a deficit non-controlling interest balance

Currency translation

Since the Company operates primarily in the PRC, the Company's functional currency is the Chinese Yuan ("RMB") while the reporting currency is the United States Dollars ("USD"). Revenue and expense accounts are translated at the average rates during the period, and balance sheet items are translated at year-end rates.  Translation adjustments arising from the use of differing exchange rates from period to period are included as a separate component of shareholders' equity.  Gains and losses from foreign currency transactions are recognized in current operations.

	2016		2015
Year ended RMB: US$ exchange rate		6.6453		6.1288
Average yearly RMB: US$ exchange rate		6.4385		6.1452

The RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions. No representation is made that the RMB amounts could have been, or could be, converted into USD at the rates used in translation.

Fair value of financial instruments

The Company has adopted ASC Topic 820, "Fair Value Measurement and Disclosure", which defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. It does not require any new fair value measurements, but provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of the information. It establishes a three-level valuation hierarchy of valuation techniques based on observable and unobservable inputs, which may be used to measure fair value and include the following:

Level 1 - Quoted prices in active markets for identical assets or liabilities.

Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Classification within the hierarchy is determined based on the lowest level of input that is significant to the fair value measurement.

F - 10

AOXING PHARMACEUTICAL CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2016

The carrying amount of cash and cash equivalents, accounts receivable, inventories, prepaid expenses and other current assets, accounts payable and accrued expenses are reasonable estimates of their fair value because of the short term nature of these items.

As of June 30, 2016, the Company does not have any assets or liabilities that are measured on a recurring basis at fair value. The Company's short-term borrowings, loans payable, related party notes payable and unrelated party notes payable that are considered Level 2 financial instruments measured at fair value on a non-recurring basis as of June 30, 2016. 

As of June 30, 2016, the Company does not have any level 3 financial instruments. The Company uses the discounted cash flow approach when determining fair values of its non-recurring fair value measurements when required. We determine the fair value of our goodwill for purposes of comparing to the carrying value on at least an annual basis. Our goodwill would be adjusted to fair value if it is deemed to be impaired. Certain unobservable units for these assets are offered quotes, lack of marketability, long-term revenue growth rates and discounts rates. For Level 3 measurements, significant increases or decreases in long-term growth rates or discount rates in isolation or in combination could result in a significantly lower or higher fair value measurement. In general, a change in the long-term growth rate of our Hebei Aoxing business unit could negatively affect the fair value of our goodwill.

Comprehensive income

ASC Topic 220, "Comprehensive Income", establishes standards for reporting and display of comprehensive income or loss, its components and accumulated balances. Comprehensive income or loss as defined includes all changes in equity during a period from non-owner sources. Accumulated other comprehensive income or loss, as presented in the accompanying statement of changes in shareholders' equity, consists of changes in unrealized gains and losses on foreign currency translation. This comprehensive income is not included in the computation of income tax expense or benefit

Earnings per share

Basic earnings per common share are computed on the basis of the weighted average number of common shares outstanding during the period. Diluted earnings per share are computed on the basis of the weighted average number of common shares and dilutive securities (such as warrants and convertible preferred stock) outstanding. Dilutive securities having an anti-dilutive effect on diluted earnings per share are excluded from the calculation.

Statement of cash flows

In accordance with the provisions of Accounting Standards Codification on "Statement of Cash Flows," cash flows from the Company's operations are calculated based upon the local currencies. As a result, amounts related to assets and liabilities reported on the statement of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheet.

Segment reporting

ASC Topic 280, "Segment Reporting" establishes standards for reporting information about operating segments on a basis consistent with the Company's internal organization structure as well as information about geographical areas, business segments and major customers in financial statements. For the year ended June 30, 2016, ASC 280 has an immaterial effect on the Company's financial statements, as the Company consists of one reportable business segment.  All revenue is from customers in the PRC.  The majority of the Company's assets are located in the PRC.

F - 11

AOXING PHARMACEUTICAL CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2016

Recent accounting pronouncements

The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and does not believe the future adoption of any such pronouncements may be expected to cause a material impact on its financial condition or the results of its operations.

In May 2014, the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers (Topic 606)" ("ASU 2014-09"). ASU 2014-09 supersedes the revenue recognition requirements in "Revenue Recognition (Topic 605)", and requires entities to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. The FASB issued ASU No. 2015-14, "Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date" ("ASU 2015-14") in August 2015. The amendments in ASU 2015-14 defer the effective date of ASU 2014-09. Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier adoption is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period.  Further to ASU 2014-09 and ASU 2015-14, the FASB issued ASU No. 2016-08, "Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)" ("ASU 2016-08") in March 2016, ASU No. 2016-10, "Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing" ("ASU 2016-10") in April 2016, and ASU No. 2016-12, "Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients" ("ASU 2016-12"), respectively.  The amendments in ASU 2016-08 clarify the implementation guidance on principal versus agent considerations, including indicators to assist an entity in determining whether it controls a specified good or service before it is transferred to the customers.  ASU 2016-10 clarifies guideline related to identifying performance obligations and licensing implementation guidance contained in the new revenue recognition standard.  The updates in ASU 2016-10 include targeted improvements based on input the FASB received from the Transition Resource Group for Revenue Recognition and other stakeholders.  It seeks to proactively address areas in which diversity in practice potentially could arise, as well as to reduce the cost and complexity of applying certain aspects of the guidance both at implementation and on an ongoing basis.  ASU 2016-12 addresses narrow-scope improvements to the guidance on collectibility, non-cash consideration, and completed contracts at transition.  Additionally, the amendments in this ASU provide a practical expedient for contract modifications at transition and an accounting policy election related to the presentation of sales taxes and other similar taxes collected from customers.  The effective date and transition requirements for ASU 2016-08, ASU 2016-10 and ASU 2016-12 are the same as ASU 2014-09.  We are currently in the process of evaluating the impact of the adoption of ASU 2014-09, ASU 2016-08, ASU 2016-10 and ASU 2016-12 on our financial statements.

In July 2015, the FASB issued ASU No. 2015-11, "Inventory (Topic 330): Simplifying the Measurement of Inventory" ("ASU 2015-11"). The amendments in this update require an entity to measure inventory within the scope of ASU 2015-11 (the amendments in ASU 2015-11 do not apply to inventory that is measured using last-in, first-out or the retail inventory method. The amendments apply to all other inventory, which includes inventory that is measured using first-in, first-out or average cost) at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is uncharged for inventory measured using last-in, first-out or the retail inventory method. The amendments in ASU 2015-11 more closely align the measurement of inventory in U.S. GAAP with the measurement of inventory in International Financial Reporting Standards ("IFRS"). ASU 2015-11 is effective for public business entities for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The amendments in ASU 2015-11 should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. We do not expect the adoption of ASU No. 2015-11 to have a material impact on our financial statements.

F - 12

AOXING PHARMACEUTICAL CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2016

In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which defers the effective date of ASU 2014-09 for all entities by one year. Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. Currently, the Company is evaluating the impact of our pending adoption of ASU 2014-09 and ASU 2015-14 on its consolidated financial statements and has not yet determined the method by which it will adopt the standard in year 2018.

In November 2015, the FASB issued ASU No. 2015-17, "Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes" ("ASU 2015-17").  Topic 740, Income Taxes, requires an entity to separate deferred income tax liabilities and assets into current and noncurrent amounts in a classified statement of financial position.  Deferred tax liabilities and assets are classified as current or noncurrent based on the classification of the related asset or liability for financial reporting.  Deferred tax liabilities and assets that are not related to an asset or liability for financial reporting are classified according to the expected reversal date of the temporary difference.  To simplify the presentation of deferred income taxes, the amendments in ASU 2015-17 require that deferred income tax liabilities and assets be classified as noncurrent in a classified statement of financial position.  For public business entities, the amendments in this update are effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods.  We do not expect the adoption of ASU 2015-17 to have a material impact on our financial statements.

In January 2016, the FASB issued ASU No. 2016-01, "Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities" ("ASU 2016-01").  The amendments in this update require all equity investments to be measured at fair value with changes in the fair value recognized through net income (other than those accounted for under equity method of accounting or those that result in consolidation of the investee).  The amendments in this update also require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments.  In addition the amendments in this update eliminate the requirement for to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet for public entities.  For public business entities, the amendments in ASU 2016-01 are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years.  Except for the early application guidance discussed in ASU 2016-01, early adoption of the amendments in this update is not permitted.  We do not expect the adoption of ASU 2016-01 to have a material impact on our consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)" ("ASU 2016-02").  The amendments in this update create Topic 842, Leases, and supersede the leases requirements in Topic 840, Leases.  Topic 842 specifies the accounting for leases.  The objective of Topic 842 is to establish the principles that lessees and lessors shall apply to report useful information to users of financial statements about the amount, timing, and uncertainty of cash flows arising from a lease.  The main difference between Topic 842 and Topic 840 is the recognition of lease assets and lease liabilities for those leases classified as operating leases under Topic 840.  Topic 842 retains a distinction between finance leases and operating leases. The classification criteria for distinguishing between finance leases and operating leases are substantially similar to the classification criteria for distinguishing between capital leases and operating leases in the previous leases guidance. The result of retaining a distinction between finance leases and operating leases is that under the lessee accounting model in Topic 842, the effect of leases in the statement of comprehensive income and the statement of cash flows is largely unchanged from previous GAAP.  The amendments in ASU 2016-02 are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years for public business entities.  Early application of the amendments in ASU 2016-02 is permitted.  We are currently in the process of evaluating the impact of the adoption of ASU 2016-02 on our financial statements.

F - 13

AOXING PHARMACEUTICAL CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2016

In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, requiring the recognition of the income tax effects of stock awards in the income statement when the awards are settled and allowing the Company to repurchase more of an employee's shares than allowed under current guidance, without triggering liability accounting. This ASU also addresses simplifications related to statement of cash flows classification and accounting for forfeitures. This ASU is effective for the Company beginning in the first quarter of 2017 and allows for early adoption. The Company is currently evaluating the impact this ASU will have on its Consolidated Financial Statements.

In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-13, "Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" ("ASU 2016-13").  Financial Instruments—Credit Losses (Topic 326) amends guideline on reporting credit losses for assets held at amortized cost basis and available-for-sale debt securities.  For assets held at amortized cost basis, Topic 326 eliminates the probable initial recognition threshold in current GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses.  The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected.  For available-for-sale debt securities, credit losses should be measured in a manner similar to current GAAP, however Topic 326 will require that credit losses be presented as an allowance rather than as a write-down.  ASU 2016-13 affects entities holding financial assets and net investment in leases that are not accounted for at fair value through net income.  The amendments affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash.  The amendments in this ASU will be effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.  We are currently evaluating the impact of the adoption of ASU 2016-13 on our financial statements.

These ASUs are effective for the Company beginning in the first quarter of 2018, allow for early adoption in the first quarter of 2017 and may be applied using either a full retrospective approach or a modified retrospective approach. The Company is currently evaluating the method of adoption and the impact these ASUs will have on its Consolidated Financial Statements.

In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Gross versus Net), clarifying the principal versus agent guidance in the new revenue recognition standard, by revising the indicators to focus on evidence that the company is a principal.

In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, reducing the complexity when applying the guidance for identifying performance obligations and clarifying how to determine whether revenue related to a performance obligation for an intellectual property license is recognized over time or at a point in time.

In May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, clarifying certain core recognition principles including collectability, sales tax presentation, noncash consideration, contract modifications and completed contracts at transition.

F - 14

AOXING PHARMACEUTICAL CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2016

3                 GOING CONCERN

We have incurred operating losses in the past and had an accumulated deficit of $56.3 million as of June 30, 2016. In addition, we had negative working capital of $10.9 million as of June 30, 2016, although this is a significant improvement from the negative working capital of $20.1 million as of June 30, 2015. Currently and historically, the Company has managed to operate the business with negative net working capital. The Company's negative working capital is primarily due to our accumulated deficit, which we funded by short-term bank loans.

The Company is able to operate with negative net working capital because of loans from banks and related parties. The Company believes future positive operating cash flows, continued support from related parties, and the ability to continue to roll over short-term debt, taken together, provide adequate resources to fund ongoing operations in the foreseeable future. The Company may also seek equity financing to replace both short-term and long-term debts. The Company believes that the increased market demand for its main products in the near term and the sales from several new products in future years will produce substantial positive cash flow.

Management of the Company believes that the Company's large negative working capital will continue to improve during fiscal year 2017. Management expects the improvement to come from improved operating results, by extending short term into longer term loans, and by selling equity and converting debt to equity. Management anticipates that these improvements will enable the Company to reduce current high interest expenses and fund on-going operations.  The management of the Company has taken a number of actions and will continue to address this situation in order to restore the Company to a sound financial position going forward. In September 2015, the Company sold 2,352,941 shares of common stock and 1,764,706 common stock purchase warrants to an institutional investor and also issued warrants to purchase 141,176 shares of common stock to the placement agent and its affiliates. The company received a net proceed of $2,739,000. Each warrant will permit the holder to purchase one share of common stock from the Company at $1.74 per share. The Company will receive a total of $3,316,234.68 if the warrants are exercised. In November 2015, the Company converted $2.66 million high interest bearing debt into 2,046,995 shares of common stock.

4                 INVENTORIES, NET

Inventories consist of the following:

	June 30,
	2016		2015
Work in process	$	568,876	$	383,950
Raw materials		805,024		676,590
Finished goods		1,467,790		2,179,486
	$	2,841,690	$	3,240,026

The allowance for obsolete inventory as of June 30, 2016 and 2015 was $584,674 and $465,828, respectively.

F - 15

AOXING PHARMACEUTICAL CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2016

5                PROPERTY AND EQUIPMENT, NET

Property, plant and equipment, net, consisted of the following:

	June 30,
	2016		2015
Right to use land	$	7,526,481	$	8,160,781
Building and building improvements		20,289,583		19,388,880
Machinery and equipment		3,983,597		6,882,678
Furniture and office equipment		608,484		650,851
Automobiles		116,317		126,120
Construction in progress		486,731		460,113
		33,011,193		35,669,423
Accumulated depreciation and amortization		7,407,459		7,017,706
	$	25,603,734	$	28,651,717

Depreciation expense for the years ended June 30, 2016 and 2015 were $508,775 and $634,344, respectively.

6                 EQUITY-METHOD INVESTMENT IN JOINT VENTURE

The Company accounts for its investment in API (see Note 1) under the equity method of accounting.

Summarized unaudited financial information for our investment in API, assuming a 100% ownership interest, is as follows:

	June 30,
	2016			2015
Current assets	$	9,602		$	11,767
Noncurrent assets		654,213			758,649
Current liabilities		710,148			640,416
Noncurrent liabilities		-			-
Equity		(46,333	)		130,000
Revenues		-			-
General and administrative expenses		166,229			183,044
Net loss	$	(166,229	)	$	(183,044	)

The Company recorded a loss on investment of $87,500 and $93,352 for the years ended June 30, 2016 and 2015 respectively for its 51% (50% control right) share of API.

F - 16

AOXING PHARMACEUTICAL CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2016

7                SHORT-TERM BORROWING

Short-term borrowing consists of the following:

	June 30,
	2016		2015
Shijiazhuang Finance Bureau (a)	$	75,241	$	81,582
Shijiazhuang Construction Investment Group Co., Ltd (b)		4,815,426		5,058,086
Mr. Li Hui (c)		-		2,304
Hebei Henghui Investment Management Co., Ltd (d)		2,117,283		3,263,282
TianJin Heng Xing Mirco Finance Bureau (e)		3,762,052		4,079,102
Xinle SASAC Office (f)		300,964		-
Total	$	11,070,966	$	12,484,356

(a) A non-interest bearing note payable to Shijiazhuang Finance Bureau, an agency of a local government, due on demand.

(b) A one-year loan from Shijiazhuang Construction Investment Group, disbursed through China Construction Bank. The notes bear an annual interest rate of 12%. $1,860,234 was due on October 25, 2015 and was extended to October 23, 2016. $3,100,391 was due on July 12, 2015 and was extended to October 25, 2015 and then further extended to October 25, 2016. The notes were secured by certain registered trademarks and renewal certificates relating to Aoxing's Zhongtong'an capsule.

(c) The balance of $2,304 as at June 30, 2015 represents unpaid portion of interest which was already repaid in fiscal 2016.

(d) A six-month term loan from Hebei Henghui Investment Management Co., Ltd. The note bears an annual interest rate of 10% and has been extended to October 20, 2016.

(e) A short term loan from TianJin Heng Xing Mirco Finance Bureau. The note bears an annual interest rate of 20.04%, and was extended to November 18, 2016.

(f) A short term loan from Xinle State-Owned Assets Supervision and Administration Commission. This loan bears an annual interest rate of 9.6%. The term was from January 25, 2016 to June 25, 2016 and was extended to March 31, 2017.

F - 17

AOXING PHARMACEUTICAL CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2016

8                 LOAN PAYABLE – BANK

Loan payable – bank consist of the following loans collateralized by assets of the company:

	June 30,
	2016		2015
Bank Note in the amount of 30 million RMB with Shijiazhuang Huirong Rural Cooperative Bank bearing an annual interest rate of 10% made on September 23, 2014. The note matured on November 22, 2014 and was extended to September 15, 2016	$	4,514,462	$	4,894,922
Bank Note in the amount of 27 million RMB with Postal Savings Bank bearing an annual interest rate of 7.08%, made on July 22, 2014 for one year maturing on July 21, 2015 and was extended to April 6, 2017.		3,859,865		4,894,922
Bank Note in the amount of 20 million RMB with China Merchant Bank bearing an annual floating rate of 5.98%, initially made on December 27, 2013, renewed on January 13, 2015 for one year maturing on April 4, 2017.		2,991,584		3,263,282
Bank Note in the amount of 19.9 million RMB with China Everbright Bank bearing 5.655% interest per annum made on January 16, 2015 for one year maturing on January 15, 2016 and was extended to February 24, 2017.		3,006,719		3,263,282
	$	14,372,630	$	16,316,408

9                 LOAN PAYABLE – OTHER

Loan payable – other consist of loans from unrelated third-parties, bearing interest at an average rate of 10.0% per annum as of June 30, 2016 and June 30, 2015.  

10               LOAN PAYABLE – RELATED PARTIES

Loan payable – related parties bears interest at an average rate of 10.0% per annum as of June 30, 2016 and June 30, 2015.

11               NOTES PAYABLE

Notes payable represents notes payable to the third party banks. It was $0 and $1,631,641 as of June 30, 2016 and 2015, respectively.

12DEFERRED INCOME

The balance of deferred income is the result of government grants received for the improvement of the production line of the Zhongtong'an product. As the project was, this government grants were transferred from construction in progress (CIP) to building and building improvements.  The government grants, which is recorded as deferred income, are recognized as subsidy income on a systematic basis (straight-line method) over the useful life of the fixed asset, which is 35 years in this case.

F - 18

AOXING PHARMACEUTICAL CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2016

13              ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and taxes consist of the following:

	June 30,
	2016		2015
Accrued salaries and benefits	$	1,168,653	$	1,616,963
Accrued interest		2,602,674		2,073,073
Accrued taxes		2,619,533		1,281,704
Accrued marketing fee		569,082		442,460
Accrued office expenses		779,040		166,720
Deposit payable		588,905		572,105
Due to employee		43,316		46,967
Advance from customers		413,848		291,005
Other accounts payable		572,013		241,512
Other accrued expenses and current liabilities		276,686		443,816
	$	9,633,750	$	7,176,325

14              STOCK OPTIONS

On January 1, 2015, the Company issued a total of 300,000 common stock purchase options to management. This stock compensation grant was valued at $74,691 and the Company recorded $22,822 stock option compensation expense for the year ended June 30, 2015.

The unrecognized compensation expense for the Company as of June 30, 2015 and 2016 were $51,869 and $18,673 respectively.

The Company calculated the estimated fair value of the options of the grant date using the Black-Scholes Option Pricing Model with the following assumptions:

	For the  year ended  June 30, 2016
Estimated dividends	None
Expected volatility		101.63	%
Risk-free interest rate		1.65	%
Expected term (years)		5

The model requires the input of subjective assumptions including the expected stock price volatility and the expected dividend yield. The Company uses historical experience of employee turnover and future expectation to estimate forfeiture rate. For expected volatilities, the Company has made reference to historical volatilities of the Company's stock. The risk-free interest rate for periods within the contractual life of the option is based on the U.S. Treasury Bills yield in effect at the time of grant.

On January 5, 2016, the Board of Directors granted options for a total of 590,000 shares of common stock to 25 employees of the Company. The options are exercisable at a price of $.64 per share, which was the closing price for the common stock on January 4, 2016. Each option has a term of five years. The options vested on June 23, 2016 when they were approved by the shareholders of the Company. The Company calculated the estimated fair value of the options of the grant date using the Black-Scholes Option Pricing Model with the following assumptions:

F - 19

AOXING PHARMACEUTICAL CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2016

	For the  year ended  June 30, 2016
Estimated dividends	None
Expected volatility		117.21	%
Risk-free interest rate		2.92	%
Expected term (years)		5

A summary of option activity as of June 30, 2016 and 2015, and changes during the years then ended is as followings:

							Weighted-avg.		Aggregate
				Weighted-avg.			remaining		intrinsic
	Shares			Exercise Price			Term (yr.)		Value
On June 30, 2013		132,000			$	2.00		1.1	$	0
Granted:		-			$	-		-		-
Exercised:		-				-		-		-
Forfeited:		-				-		-		-
On June 30, 2014		132,000			$	2.00		0.1	$	0
Granted:		300,000			$	0.33		5.0		-
Exercised::		-				-		-		-
Forfeited:		(132,000	)			-		-		-
On June 30, 2015		300,000			$	0.33		4.5	$	426,000
Granted:		890,000						-		-
Exercised:		-						-		-
Forfeited:		300,000						-		-
On June 30, 2016		590,000			$	0.33		4.0	$	426,000

15               ISSUANCE OF COMMON STOCK

On September 5, 2014, the Company issued 11,862,278 shares of common stock in satisfaction of $4.6 million in debt. The shares were valued at $0.39 per share, which exceeded the six month average share price as well as the market price at time of issuance. Paid in capital was increased by $4,614,426 as a result of the exchange.

On December 23, 2014 the Company sold to 22 of its employees a total of 4,527,832 shares of common stock for a total of $1,177,236 or $0.26 per share, which exceeded the market price on October 4, 2014, when the contract of sale was made.

On February 3, 2015, the Company issued 300,000 shares of common stock to management at $0.33 per share. The shares are equally vested on January 1, 2016, January 1, 2017 and January 1, 2018. The Company recorded $30,250 stock compensation expense for the year ended June 30, 2015 and the unrecognized compensation expense was $68,750.

On February 3, 2015, the Company issued 40,000 shares of common stock to independent directors at $0.39 per shares for services rendered by them.

F - 20

AOXING PHARMACEUTICAL CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2016

On February 3, 2015, the Company issued 1,704,915 shares of its common stock to six investors, each of whom is either an employee or a consultant to the Company. The average purchase price for the shares was $0.32 per share.

On March 12, 2015, the Company issued 480,000 shares of its common stock to a creditor at $0.5 per share to offset a loan payable.

On April 8 2015, the company sold 508,000 shares of common stock to officers and employees of the Company at a price of $1.36 per share, which exceeded the market price at time of issuance

On April 8 2015, the Company also issued 521,412 shares of common stock at a price of $1.36 per share to a creditor in satisfaction of $709,120 debt.

On September 10, 2015, the Company issued 60,000 shares of common stock to independent directors at $2.01 per share for services rendered by them.

On September 30, 2015 the Company issued 2,352,941 shares of common stock and 1,764,706 common stock purchases warrants pursuant to a securities purchase agreement dated as of September 24, 2015. The purchaser was an institutional investor. Each warrant will permit the holder to purchase one share of common stock from the Company for a price of $1.74 per share. The warrants will be exercisable from March 31, 2016 until March 31, 2021. Cashless exercise of the warrants is permitted only if there is no effective registration statement permitting resale of the common shares underlying the warrants.

The proceeds from the offerings were $2,739,000, net of issuance costs of $261,000 paid to the placement agent. The warrants were classified as equity at the date of issuance. They contained no provision that would require liability classification, and can be exercised on a cashless basis. Accordingly, they were classified as equity at the date of issuance. The proceeds were allocated between common stock and warrant, based on relative fair value. The issuance cost was recorded as a reduction of additional paid in capital.

In connection with the aforesaid sale, the Company issued to the placement agent and its affiliates warrants to purchase 141,176 shares of common stock. The warrants issued to the placement agent and its affiliates are substantially identical to the warrants sold to the institutional investor.

The fair value of these warrants, which amounted to $175,150, was classified as equity at the date of issuance and recorded as an offset to the proceeds from the issuance of the shares and warrants.

The fair value of the warrants issued was estimated by using the Black-Scholes-Merton Option Pricing Model with the following assumptions:

	For the year ended  June 30, 2016
	Investor
Stock price		0.64
Exercise price		1.74
Expected life in years		4.2
Annualized Volatility		140.71	%
Annual Rate of Quarterly Dividends		1.65
Discount Rate - Bond Equivalent Yield		1.01

F - 21

AOXING PHARMACEUTICAL CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2016

The Company applied its best judgment to estimate key assumptions in determining the fair value of the warrants on the date of issuance. The Company used historical data to estimate stock volatilities. The risk-free rates are consistent with the terms of the warrants and are based on the United States Treasury yield curve in effect at the time of issuance.

The weighted average fair value of warrants granted for the year ended June 30, 2016 was $0.49 per share. No warrants were exercised, cancelled or expired during the period ended June 30, 2016.

On November 4, 2015, the Company reached agreement with three of its creditors to convert $2.66 million high interest bearing debt into 2,046,995 shares of common stock. The shares were valued at $1.30 per share and will be restricted under Rule 144.

On January 5, 2016 the Board of Directors approved three technology acquisition agreements made by the Company during December 2015. Pursuant to the agreements, the Company (a) issued 800,000 shares of common stock and paid $123,000 to acquire technology relating to the formulation of Lorcaserin Hydrochloride for $0.66 per each stock, (b) issued 500,000 shares of common stock and paid $77,000 to acquire certain technology relating to the formulation of caffeine tablets for $0.66 per each stock, and (c) issued 500,000 shares of common stock and paid $77,000 to acquire certain technology relating to the formulation of Buprenorphine/ Naloxone for $0.71 per each stock. The share price was determined by the Company's stock price at the issuance date.

On January 5, 2016 the Board of Directors approved two consulting agreements pursuant to which a total of 110,000 shares of common stock were issued in exchange for media and investor relations consulting services for $0.66 per each stock based on the Company's stock price at the issuance date.

16              TAXES

The Company's Chinese subsidiaries are governed by the Income Tax Law of the People's Republic of China concerning private-run enterprises, which are generally subject to tax at a statutory rate of 25% on income reported in the statutory financial statements after appropriate tax adjustments.

The reconciliation of income tax at the U.S. statutory rate to the Company's effective tax rate is as follows:

	Year Ended June 30,
	2016			2015
Tax at U.S. Statutory rate	$	1,010,039		$	1,089,936
Tax rate difference between China and U.S.		(1,271,231	)		(1,046,086	)
Change in Valuation Allowance		233,892			(1,031,621	)
Net operating loss expired		-			955,983
Stock and option compensation		27,300			31,788
Impairment loss on goodwill		-
Effective tax rate	$	-		$	-

F - 22

AOXING PHARMACEUTICAL CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2016

The provisions of income taxes (credit) are summarized as follows:

	Year Ended June 30,
	2016			2015
Current	$	(190,770	)	$	-
Deferred - U.S.		(483,789	)		(229,859	)
Deferred – China		1,082,912			(1,442,889	)
Valuation allowance - U.S.		483,789			229,859
Valuation allowance – China		(249,897	)		(1,261,480	)
Total	$	642,245		$	(2,704,369	)

The tax effects of temporary differences that give rise to the Company's net deferred tax asset as of June 30, 2016 and 2014 are as follows:

	Year Ended June 30,
	2016			2015
Net operating loss carryforward - China	$	213,060		$	1,342,696
Net operating loss carryforward - US		2,418,909			1,935,121
Allowance for doubtful accounts		447,294			823,190
Accrued salary payable		139,330			338,390
Uninvoiced expenses		782,360			-
Others		309,264			469,944
	4,310,217				4,909,341
Less: valuation allowance- U.S.		(2,418,909	)		(1,935,121	)
valuation allowance- China.		(12,713	)		(262,610	)
Deferred tax assets	$	1,878,595		$	2,711,610

The Company's net operating loss was as follows

Fiscal year to be expired	Amount  of net operating  loss
FY 2017	$	8,490,144
FY 2018		2,350,563
FY 2019		7,896,369
FY 2020		1,322,799
FY 2021		1,382,254
		21,442,129

As of June 30, 2015, the Company has recognized deferred tax assets of $1,878,595. The Company's loss carry forwards for the past 5 years produced a significant amount of the deferred tax assets and the realization of tax loss carry forwards are deemed to be probable. Therefore, the Company determined it was appropriate under US GAAP to recognize the deferred tax assets during the Fiscal 2016.

For the year ended June 30, 2016 and 2015, the Company did not have any interest and penalties associated with tax positions. As of June 30, 2016 and 2015, the Company did not have any significant unrecognized uncertain tax positions.

F - 23

AOXING PHARMACEUTICAL CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2016

17              CONCENTRATIONS

Sales to two major customers were 13% and 5% of total sales for the year ended June 30, 2016.  Sales to two major customers were 7% and 5% of total sales for the year ended June 30, 2015.

Sales of one major product represented approximately 85% and 95% of total sales for the years ended June 30, 2016 and 2015, respectively.

Two major customers accounted for 8% and 7% of outstanding accounts receivable as of June 30, 2016. Two major customers accounted for 4% and 0.1% of outstanding accounts receivable as of June 30, 2015. 

 18             SUBSEQUENT EVENTS

In accordance with ASC 855 "Subsequent Events", which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued, we have evaluated all events or transactions that occurred after June 30, 2016 up through the date we issued the consolidated financial statements and has determined that there was no other material event that occurred after the date of the balance sheets included in this report.

F - 24

Item 9.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Not Applicable

Item 9A.  Controls and Procedures

Evaluation of Disclosure Controls and Procedures.

We have established disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to provide reasonable assurance that information required by Aoxing Pharma 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 Aoxing Pharma is required to disclose in the reports it files with the Commission is accumulated and communicated to our Certifying Officers as appropriate to allow timely decisions regarding required disclosure.

The Company's management, with the participation of the Chief Executive Officer and the Chief Financial Officer, has evaluated the effectiveness of the Company's disclosure controls and procedures as of the end of the period covered by this annual report (the "Evaluation Date"). Based on that evaluation, the Company's Chief Executive Officer and Chief Financial Officer have concluded that, as of the Evaluation Date, such controls and procedures were effective.

Changes in Internal Controls.

There have been no changes in our internal control over financial reporting during the fiscal 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Management's Report on Internal Control over Financial Reporting.

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934.  We have assessed the effectiveness of those internal controls as of June 30, 2016, using the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") Internal Control –Integrated Framework (1992) as a basis for our assessment.

A material weakness in internal controls is a deficiency in internal control, or combination of control deficiencies, that adversely affects the Company's ability to initiate, authorize, record, process, or report external financial data reliably in accordance with accounting principles generally accepted in the United States of America such that there is more than a remote likelihood that a material misstatement of the Company's annual or interim financial statements that is more than inconsequential will not be prevented or detected. In the course of making our assessment of the effectiveness of internal controls over financial reporting, we did not identify material weakness in our internal control over financial reporting.   Accordingly, management's assessment is that the Company's internal controls over financial reporting were effective as of June 30, 2016.

Because we are a smaller reporting company, this Annual Report on Form 10-K does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting.  

Item 9B.   Other Information

None.

20

PART III

Item10.       Directors, Executive Officers, and Corporate Governance.

The following individuals are the members of Aoxing Pharma's Board of Directors and/or its executive officers.

Name	Age	Position	Member of the  Board Since
Zhenjiang Yue	57	Chairman of the Board, Chief Executive Officer	2006
Min Jun	57	Director	2008
Guozhu Xu	70	Director	2008
Yang Li	36	Director	2012
Yuelin Zhang	60	Director	2016
Zheng James Chen	51	Chief Financial Officer	--
Guoan Zhang	46	Senior Vice President - Finance	--
Guirong Zhou	62	President of Research & Development	--

Board of Directors  

Our Board oversees our business affairs and monitors the performance of our management. Each director and executive officer holds office until his successor is duly elected and qualified, he resigns or he is removed in the manner provided by our Bylaws. All officers are appointed and serve at the discretion of the Board. All of our officers devote their full-time attention to our business.

Biographical Information of Directors and Executive Officers 

Biographical information with respect to the Company's current executive officers and directors is provided below.

Zhenjiang Yue. In 2000, after securing the approval of the Hebei Provincial Government, Mr. Yue established the Hebei Aoxing Group. Since 2000, Mr. Yue has been employed as the President and General Manager of Hebei Aoxing Pharmaceutical Co. Ltd. Prior to organizing Hebei Aoxing, Mr. Yue was engaged in senior management of a number of private enterprises, including a carpet factory, a precast metal factory, the Hebei Brewery Plant, and China Aoxing Food & Brewery Co. Ltd (all in the PRC). Mr. Yue's day to day leadership, as chief executive officer of the Company, provides him with intimate knowledge of our operations.

Jun Min was one of the founders of American Oriental Bioengineering Company, which is the largest shareholder of Aoxing Pharma. Mr. Min has served as Vice President and a member of Board of Directors of AOB since 2002. Mr. Min has over 20 years of experience in operations management, and has an extensive knowledge of the consumer and pharmaceutical products industries in China. Mr. Min earned a Bachelor's Degree with a concentration in Business Management from the Harbin Broadcast & Television University in 1986, and an Executive Master's in Business Administration degree from Preston University in 2005. Mr. Min brings his extensive experience in operations management in China to the Board and the Company.

Dr. Guozhu Xu has, since 1990, been employed as Director of the China National Drug Dependence Institute at Beijing University, with responsibility for clinical management. Until recently, Dr. Xu served as a Committee Member of the Center for Drug Evaluation at the China State Food and Drug Administration ("CFDA"). In that role, Dr. Xu was the primary investigator for over seventy clinical programs in pain management, representing over 80% of new pain management drugs approved by the CFDA. Dr. Xu is an associate director of China Drug Abuse Prevention magazine and has published over 100 articles regarding drug research and development. Dr Xu received his medical degree from Beijing Medical University in 1970. Dr. Xu brings his technical, industry and operational expertise to the Board.

21

Yang Li, Mr. Yang Li is a member of the institute of chartered accountants of Canada and a member of the institute of chartered accountants of Ireland. She previously worked for PricewaterhouseCoopers LLP, one of the big four accounting firm. She leaded audit team to provide audit services for many U.S. and Canadian public company. After her return to China, she has assisted a well-known company successfully listed in the U.S. stock exchange market. She also led a team that provided audit and tax services to many state-owned enterprises. Ms. Yang received her master's degree in accounting from University College Dublin of the National University of Ireland.   Ms. Li brings to the Board a thorough understanding of U.S. accounting principles and practices, and the knowledge of business gained from her experience as an auditor.

Yuelin Zhang brings to the board more than 30 years of experience in the pharmaceuticals industry in China. Mr. Zhang has been the general manager for Shijiazhuang Xinantai Pharmaceutical Logistics Limited since 2012. From 2007 to 2012 Mr. Zhang was employed as deputy general manager by Hebei Fuge Pharmaceutical Limited. Prior to joining Hebei Fuge Pharmaceutical Limited, Mr. Zhang had been general manager for Shijiazhuang Yuanzheng Keyun Limited and, before that, Wuji Huamao Pharmaceutical Limited.

Dr. Zheng James Chen joined Aoxing Pharma in 2016. From 2012 to 2016 Dr. Chen was employed as the CFO of Origin Agritech Limited (NASDAQ: SEED), an agricultural biotechnology company headquartered in Beijing. From 2008 to 2012 Dr. Chen was employed as an investment manager by Abu Dhabi Investment Authority. From 2003 to 2008 Dr. Chen worked as an equity research analyst with three investment banking firms: Fulcrum Group Partners, Morgan Joseph and BB&T Capital Markets. Dr. Chen is currently a Director and the Chairman of the Audit Committee of the Board of Directors of China Finance Online (NASDAQ: JRJC), and the Chairman of the Board of Supervisors of Linjiang Chemicals, which is listed on the New Third Board in China. Dr. Chen received his Ph.D. Degree in Chemical Engineering from the University of Connecticut in 1996 and his M.B.A degree from New York University in 2004.

Guoan Zhang has been the Company's Senior Vice President of Finance since June 2010. Mr. Zhang also served as the Company's Acting Chief Financial Officer from July 2012 to December 2014. Prior to the appointment of Mr. Zhang as the Company's Senior Vice President of Finance, Mr. Zhang was the Senior Director of Financial Operation of the Company between January 2009 and February 2010. Mr. Zhang was Vice General Manager of Finance of LRT between 2007 and 2008. Mr. Zhang graduated from Heilongjiang School of Business and he is a Certified Public Accountant in China.

Guirong Zhou was appointed President of Research and Development in July 2012. Prior to that, she was deputy director in our R&D department. Ms. Zhou joined the company in 2011 from Shijiazhuang Pharmaceutical Company, where she worked there since 1985 and  held various senior positions especially in R&D   Ms. Zhou has been involved in the registration of many new drug certificates and product licenses, including tablet, injection, transfusion, soft capsule, drop pills, lyophilized powder, quick release preparation and control release preparation. Among all the achievements, Ms. Zhou was the project leader in bringing Pentoxifylline Sustained Release Tablets and Acemetacine capsule to market and they are leading products in China. Ms. Zhou is an academic advisor in pharmaceutical engineering at Tianjin University and Hebei University of Science and Technology.

There are no material legal proceedings to which any director, executive officer or affiliate of the Company, any owner of record or beneficial owner of more than five percent of any class of voting securities of the Company, or any associate of any such director, executive officer, affiliate or security holder is a party adverse to the Company or has a material interest adverse to the Company. There are no family relationships between any of the Company's executive officers or directors and there are no arrangements or understandings between a director and any other person pursuant to which such person was elected as director.

22

No director or officer of the Company has, during the last 10 years, been subject to or involved in any legal proceedings described under Item 401(f) of Regulation S-K, been convicted of any criminal proceeding (excluding traffic violations or similar misdemeanors), or been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, United States federal or state securities laws or finding any violations with respect to such laws.

There were no material changes to the procedures by which shareholders may recommend nominees to the Board since the Company's last disclosure of such policies.

Board Committees

Our Board has three committees: Audit Committee, Compensation Committee, and the Nominating and Governance Committee.  The membership and responsibilities of these current committees are summarized below.

Below are the current committee memberships and other information about the Board committees. The membership of each of the standing committees of the Board is comprised solely of independent directors, as described below.

Name	Board of Directors	Audit Committee	Compensation Committee	Nominating  and Corporate Governance Committee
Zhenjiang Yue	**
Jun Min	*
Yang Li  (1)	*	**	*	*
Guozhu Xu	*	*	**	**
Yuelin Zhang (2)	*	*	*	*
Meetings in fiscal 2016	11	4	3	3

*	Denotes membership
**	Denotes chairmanship
(1)	Audit Committee financial expert
(2)	Yuelin Zhang was appointed to the Board of Directors in June 2016.

Audit Committee  

Yang Li currently serves as Chairman of the Audit Committee. The Board has determined that Yang Li is an audit committee financial expert as defined by Item 407(d)(5) of Regulation S-K under the Securities Act and is "independent" as defined under applicable rules and regulations. Guozhu Xu and Yuelin Zhang are the other members of the Audit Committee. The Board has determined that each of the members of the Audit Committee satisfies the independence requirements of the NYSE MKT.

The purposes of the Audit Committee are to assist the Board in its general oversight of Aoxing's financial reporting, internal controls and audit functions.  As described in the Audit Committee Charter, the Audit Committee's primary responsibilities are to oversee on behalf of the Board:

· the Company's accounting financial reporting processes and the integrity of its financial statements;

· the audits of the Company's financial statements and the appointment, compensation, qualification, independence and performance of the Company's independent auditors;

· the Company's compliance with legal and regulatory requirement; and

· the performance of the Company's internal audit function and internal control over financial reporting.

23

Compensation Committee  

Guozhu Xu serves as Chairman of the Compensation Committee. Yang Li and Yuelin Zhang are the other members of this Committee. The Board has determined that each of the members of the Compensation Committee satisfies the independence requirements of the NYSE MKT. The purpose of the Compensation Committee is to assist the Board in determining the compensation of the Chief Executive Officer and make recommendations to the Board with respect to the compensation of the Chief Financial Officer, other executive officers of the Company and the independent directors.  In furtherance of this purpose, the Compensation Committee has the following authority and responsibilities: 

· annually review the Company's corporate goals and objectives relevant to the CEO's compensation;

· evaluate the CEO's performance in light of such goals and objectives; and, either as a Compensation Committee or, together with the other independent directors (as directed by the Board), determine and approve the CEO's compensation level based on this evaluation; annually review and make recommendations to the Board with respect to non-CEO executive officer and independent director compensation to assist the Board in making the final determination as to non-CEO executive officer and independent director compensation;

· establish measurements that will ensure that the Company's compensation program is effective in attracting and retaining key employees, reinforce business strategies and objectives for enhanced stockholder value, and administer the compensation program in a fair and equitable manner consistent with established policies and guidelines;

· make recommendations to the Board with respect to the Company's incentive-compensation plans and equity-based plans that are subject to the Board's approval;

· make recommendations to the Board regarding approval, disapproval, modification, or termination of existing or proposed employee benefit plans; approve any stock option award or any other type of award as may be required for complying with any tax, securities, or other regulatory requirement, or otherwise determined to be appropriate or desirable by the Compensation Committee or Board;

· review and assess the adequacy of this charter annually; review and approve the compensation disclosure and analysis prepared by the Company's management, as required to be included in the Company's proxy statement or annual report on Form 10-K filed with the SEC;

· produce a Compensation Committee report on executive officer compensation as required by the SEC to be included in the Company's proxy statement or annual report on Form 10-K filed with the SEC.

The CEO of the Company may not be present during voting or deliberations of the Compensation Committee with respect to his compensation. Moreover, the Compensation Committee has the authority to delegate any of its responsibilities to subcommittees as it may deem appropriate in its sole discretion.  The Compensation Committee also annually reviews its own performance. The Committee may retain and receive advice, in its sole discretion, from compensation consultants. The Compensation Committee does not currently employ compensation consultants in determining or recommending the amount or form of executive and director compensation. None of the members of our Compensation Committee is one of our officers or employees. None of our executive officers currently serves, or in the past year has served, as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving on our Board or Compensation Committee.

Nominating and Corporate Governance Committee

Guozhu Xu serves as Chairman of the Nominating and Corporate Governance Committee.  Yang Li and Yuelin Zhang are the other members of this Committee. The Nominating and Corporate Governance Committee has the following responsibilities as set forth in its charter:

· to review and recommend to the Board with regard to policies for the composition of the Board;

· to review any director nominee candidates recommended by any director or executive officer of the Company, or by any shareholder if submitted properly;

· to identify, interview and evaluate director nominee candidates and have sole authority to retain and terminate any search firm to be used to assist the Committee in identifying director candidates and approve the search firm's fees and other retention terms;

· to recommend to the Board the slate of director nominees to be presented by the Board;

· to recommend director nominees to fill vacancies on the Board, and the members of each Board committee;

· to lead the annual review of Board performance and effectiveness and make recommendations to the Board as appropriate; and to review and recommend corporate governance policies and principles for the Company, including those relating to the structure and operations of the Board and its committees.

24

Code of Ethics

The Company has adopted a Code of Ethics that applies to its executive officers and directors.  A copy of the Code of Ethics was filed as Exhibit 14 to the Current Report on Form 8-K filed on November 30, 2009.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires our officers, directors and persons who own more than 10% of a registered class of our equity securities within the specified time periods to file certain reports of ownership and changes in ownership with the SEC.

Based solely upon a review the Forms 3 and Forms 4 furnished to the Company pursuant to Rule 16a-3 under the Exchange Act during the Company's most recent fiscal year, it is the Company's understanding that all such required filings have been made on a timely basis, except that Zhenjiang Yue was late in filing one Form 4.

Item 11.  Executive Compensation

The following table sets forth all compensation earned by Zhenjiang Yue for services as Chief Executive Officer during the years ended June 30, 2016, 2015 and 2014 and by Zheng James Chen for services as Chief Financial Officer during the year ended June 30, 2016. There were no other executive officers whose total salary and bonus for the fiscal year ended June 30, 2016 exceeded $100,000.

Summary Compensation Table

	Year	Salary				Bonus		Stock Award		Option Award				Other Compensation		Total
Zhenjiang Yue	2016	$	155,316	(1	)		-		-		-				-	$	155,316
	2015	$	162,729	(2	)		-		-		-				-	$	162,729
	2014	$	162,689	(3	)		-		-		-				-	$	162,689
Zheng James Chen	2016	$	137,500	(4	)		-		-		300,000	(5	)		-	$	330,000

(1)	The dollar equivalent of 1,000,000 RMB, based on the exchange rate of 6.4385 RMB per dollar
(2)	The dollar equivalent of 1,000,000 RMB, based on the exchange rate of 6.1452 RMB per dollar
(3)	The dollar equivalent of 1,000,000 RMB, based on the exchange rate of 6.1467  RMB per dollar
(4)	Zheng James Chen was first employed on February 1, 2016
(5)	300,000 stock option award at $0.71 exercise price vesting over 3 years

Employment Contracts, Termination of Employment and Change-in-Control Arrangements  

The Company has employment agreements with the following named executive officer. The following is a description of those agreements.  

Executive Employment Agreement dated as of January 13, 2010 with Zhenjiang Yue.  This agreement provides that Mr. Yue will serve as the Company's Chief Executive Officer.  The Company agreed to pay Mr. Yue an annual salary of 1 million Chinese Yuan (approximately US$158,000).  The Company may also pay him a cash bonus, within the discretion of the Board.  In addition, subject to the approval of the Board, Mr. Yue is eligible to receive equity based award in the form of restricted common stock, stock option or other securities by the Company from time to time.  The term of the agreement ended on January 13, 2014, but it renewed for consecutive one year terms unless affirmatively terminated by either party.  The Company can terminate the agreement at any time without cause, but will be liable for six months' severance pay.   The agreement contains a covenant of non-competition by Mr. Yue for one year after termination, unless he is terminated without cause or he terminates for good reason.

25

Executive Employment Agreement dated as of January 28, 2016 with James Chen.  This agreement provides that Dr. Chen will serve as the Company's Chief Financial Officer.  The Company agreed to pay Dr. Chen an annual salary of US$330,000.  Dr. Chen is entitled to choose to receive common stock in lieu of salary for one or more periods of one, three or six months, with the shares valued at market price at the beginning of each such periodThe Company also grant Dr. Chen 300,000 stock options at exercise price of $0.71 vesting over 3 years.  The term of the agreement ends on January 28, 2019. The Company can terminate the agreement at any time without cause, but will be liable for two months' severance pay.   The agreement contains a covenant of non-competition by Dr, Chen during the employment period.

Equity Grants in Fiscal 2016

The following tables set forth certain information regarding the stock options and restricted shares acquired by the Company's Executive Officer and Financial Officer during the year ended June 30, 2016 and those options held by them on June 30, 2016.

Option Grants in the Last Fiscal Year

	Number of securities underlying Unexercised options (#) exercisable		Number of Securities Underlying Unexercised Options (#) unexercisable		Option Exercise Price ($)		Option Expiration Date
Zhenjiang Yue		-		-		-		-
James Chen		-		300,000		0.71	January 28, 2021

Restricted shares Grants in the Last Fiscal Year

	Number of restricted shares  vested		Number of Restricted shares unvested		Grant date  share price ($)		Vesting period
Zhenjiang Yue		-		-		-		-
James Chen		-		-		-		-

 Compensation of Directors

The members of the Board receive remuneration in cash and/or restricted shares of the common stock for the period of their duties as shown below:

· No compensation for  Zhenjiang Yue or Jun Min

· RMB 4,000 per month and 20,000 shares of common stock annually for Yang Li

· RMB 4,000 per month and 20,000 shares of common stock annually for Guozhu Xu

 - RMB 4,000 per month and 20,000 shares of common stock annually for Yuelin Zhang

26

The following table sets forth all compensation paid or to be paid by the Company, as well as certain other compensation paid or accrued, for each of the directors for the fiscal year ended June 30, 2016. The Board members have the option of receiving fees earned in cash or restricted stock.

Name	Fees Earned  or Paid  in Cash ($)		Stock Awards ($)		All Other Compensation ($)		Total ($)
Zhenjiang Yue		-		-		-		-
Jun Min		-		-		-		-
Yang Li		7,455		8,061		-		15,516
Hui Shao (1)		7,455		8,061		-		15,516
Yuelin Zhang (2)		-		-		-		-
Guozhu Xu		7,455		8,061		-		15,516

(1)	Hui Shao was appointed to the Board of Directors in January 2015 and served until June, 2016.
(2)	Yuelin Zhang was appointed to the Board of Director in June, 2016.

Item 12.  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Set forth below is information regarding the beneficial ownership of our common stock, by:

· each person known to us that beneficially owns more than 5% of our outstanding shares  of common stock;

· each of our directors;

· each of our named executive officers; and

· all of our current directors and executive officers as a group.

There are 76,209,195 shares of our common stock issued and outstanding. Except as otherwise indicated, we believe that the beneficial owners of the common stock listed below have sole voting power and investment power with respect to their shares, subject to community property laws where applicable.

Name of Beneficial Owner	Amount and Nature of Beneficial Ownership(1)			Percent of Class
Zhenjiang Yue		12,161,375	(2)		16.0	%
Jun Min		0(3	)		*
Yang Li		40,000			*
Guozhu Xu		120,000			*
Yuelin Zhang		0			*
All directors and officers as a group (7 persons)		13,533,588			17.8	%
American Oriental Bioengineering, Inc.		16,789,203	(4)		22.0	%

___________________

*Less than 1%

(1)	For purposes of determining the amount of securities beneficially owned, share amounts include all Common stock owned outright plus all shares of common stock issuable upon conversion of convertible notes, or the exercise of options or warrants currently exercisable, or exercisable within 60 days of the record date. The Percent of Class is based on the number of shares of the Company's common stock outstanding as of the record date. Shares of common stock issuable upon conversion of convertible notes, or the exercise of options or warrants currently exercisable, or exercisable within 60 days of the record date, are deemed outstanding for the purpose of computing the percentage ownership of the person holding such options or warrants, but are not deemed outstanding for computing the percentage ownership of any other owners. The address of all persons named in this table is: c/o Aoxing Pharmaceutical Company, Inc., 444 Washington Blvd, Suite 3338, Jersey City, NJ 07302.
(2)	Includes (i) 10,661,375 shares of common stock held by Mr. Yue and (ii) 1,500,000 shares of common stock held of record by Mr. Yue's spouse, Cuiying Hao.
(3)	Does not include 16,789,203 shares owned of record by American Oriental Bioengineering, Inc., of which Mr. Min is Vice President and a member of the Board of Directors.
(4)	The address for AOB is 1 Liangshuihe First Ave, Beijing E-Town Economic and Technology Development Area, E-Town, Beijing, 100176, People's Republic of China.

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 Item 13.  Certain Relationships and Related Transactions, and Director Independence

Certain Relationships and Related Transactions

During the 2016 fiscal year, there were no transactions between the Company and any related person, the amount of which exceeded the lesser of $120,000 and one percent of the average of the Company's total assets at the end of the last two completed fiscal years. . 

Pursuant to Board policies, our executive officers and directors, and principal shareholders, including their immediate family members and affiliates, are not permitted to enter into a related party transaction without the prior consent of the Board. Any request for such related party transaction with an executive officer, director, principal stockholder, or any of such persons' immediate family members or affiliates, in which the amount involved exceeds $120,000 must first be presented to the Audit Committee and the Board for review, consideration and approval. All of our directors, executive officers and employees are required to report to the Board any such related party transaction. In approving or rejecting the proposed agreement, the Board will consider the relevant facts and circumstances available and deemed relevant to the Board which will approve only those agreements that, in light of known circumstances, are in, or are not inconsistent with, our best interests, as the Board determines in the good faith exercise of its discretion.

Director Independence

Our Board is subject to the independence requirements of the NYSE MKT LLC.  Pursuant to the requirements, the Nominating and Corporate Governance Committee of the Board reviews director independence.  During this review, the Committee considers transactions and relationships between each director or any member of his immediate family and Aoxing and its affiliates, including those transactions that are contemplated under Item 404(a) of Regulation S-K.  The purpose of this review was to determine whether any such relationships or transactions existed that were inconsistent with a determination that the director is independent.  Based on this review, the Committee has determined that all but two of our directors are "independent" as defined by the listing standards of the NYSE MKT LLC Company Guide. Mr. Zhenjiang Yue, who also serves as our Chief Executive Officer, and Mr. Jun Min, who is an officer of a 10% shareholder, are not considered independent, and neither Mr. Yue nor Mr. Jun serves on the Audit, Nominating, or Compensation Committees.  The Committee has also determined that the members of the Audit Committee are  "independent" for purposes of Section 10A-3 of the Exchange Act and Section 803 of the NYSE MKT LLC Company Guide.  The Committee based these determinations primarily on a review of the responses of the directors and executive officers to questions regarding employment and transaction history, affiliations and family and other relationships and on discussions with the directors.  None of our directors engages in any transaction, relationship, or arrangement contemplated under Item 404(a) of Regulation S-K.

Item 14.  Principal Accountant Fees and Services

Our current principal independent auditor is BDO China Shu Lun Pan Certified Accountants LLP, which we initially engaged on April 29, 2013.

The following table presents fees for professional services rendered by BDO China Shu Lun Pan Certified Accountants LLP with respect to the year ended June 30, 2016 and 2015.

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Services Performed	2016		2015
Audit Fees (1)	$	148,000,	$	148,000,
Audit-Related Fees (2)	$	-	$	-
Tax Fees (3)	$	-	$	-
All Other Fees (4)	$	-	$	-
Total Fees	$	148,000	$	148,000

(1) Audit fees represent fees billed for professional services provided in connection with the audit of the Company's annual financial statements and reviews of its quarterly financial statements.  All work on the engagements to audit the Company's financial statements for the years ended June 30, 2016 and 2015 was performed by full-time permanent employees of BDO China Shu Lun Pan Certified Accountants LLP.

(2) Audit-related fees represent fees billed primarily for assurance and related services not reported under Audit fees.

(3) Tax fees principally represent fees billed for tax preparation, tax advice and tax planning services.

(4) All other fees principally would include fees billed for products and services provided by the accountant, other than the services reported under the three captions above.

Our Audit Committee has the sole authority to pre-approve all audit and non-audit services provided by our independent auditors.  The Audit Committee on an annual basis reviews audit and non-audit services performed by the independent auditors.  All audit and non-audit services are pre-approved by the Audit Committee, which considers, among other things, the possible effect of the performance of such services on the auditors' independence.  As permitted under the Sarbanes-Oxley Act of 2002, the Audit Committee may delegate pre-approval authority to one or more of its members.  Any service pre-approved by a delegate must be reported to the Audit Committee at the next scheduled quarterly meeting.  The Audit Committee considered whether the provision of the auditors' services, other than for the annual audit and quarterly reviews, is compatible with its independence and concluded that it is compatible.  In 2016 and 2015, all such services were pre-approved by the Audit Committee.

Item 15.  Exhibit List and Financial Statement Schedules

(a) Financial Statements

Report of Independent Registered Accounting Firm

Balance Sheets – June 30, 2016 and 2015

Consolidated Statements of Operations – Years Ended June 30, 2016 and 2015

Consolidated Statement of Changes in Stockholders' Equity - Years Ended June 30, 2016 and 2015

Consolidated Statements of Cash Flows - Years ended June 30, 2016 and 2015

Notes to Consolidated Financial Statements

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(b) Exhibit List

3-a(1)	Certificate of Incorporation, as amended through December 29, 2005 – filed as an exhibit to the Annual Report on Form 10-KSB for the year ended June 30, 2006 and incorporated herein by reference.
3-a(2)	Certificate of Amendment of the Certificate of Incorporation effective on July 6, 2010 – filed as an Exhibit to the Current Report on Form 8-K filed on July 13, 2006 and incorporated herein by reference.
3-a(3)	Certificate of Amendment of the Certificate of Incorporation effective on January 6, 2010 – filed as an exhibit to the Current Report on Form 8-K filed on January 7, 2010 and incorporated herein by reference.
3-a(4)	Articles of Amendment of the Certificate of Incorporation effective on March 19, 2010 – filed as an Exhibit to the Current Report on Form 8-K filed on March 29, 2010 and incorporated herein by reference.
3-b	Amended and Restated Bylaws - filed as an exhibit to the Current Report on Form 8-K filed on November 16, 2009 and incorporated herein by reference.
4-a	Form of Common Stock Purchase Warrant issued on September 30, 2015 - filed as an exhibit to the Current Report on Form 8-K filed on September 30, 2015 and incorporated herein by reference.
10.1	Joint Strategic Alliance and Securities Purchase Agreement dated April 15, 2008 between China Aoxing Pharmaceutical Company, Inc. and American Oriental Bioengineering, Inc. - filed as an exhibit to the Company's Current  Report on Form 8-K dated April 15, 2008 and incorporated by reference herein.
10.2	2016 Stock Incentive Plan .*
14	Code of Ethics of China Aoxing Pharmaceutical Company, Inc. - filed as an Exhibit to the Current  Report on Form 8-K filed on November 30, 2009 and incorporated herein by reference.
21.1	List of Subsidiaries *
23	Consent of BDO Shu Lun Pan Certified Public Accountants *
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *
32.1	Certificate of Chief Executive Officer pursuant to 18 U.S.C.ss.1350.*
32.2	Certificate of Chief Financial Officer pursuant to 18 U.S.C.ss.1350.*

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101 INS	XBRL Instance Document**
101 SCH	XBRL Schema Document**
101 CAL	XBRL Calculation Linkbase Document**
101 DEF	XBRL Definition Linkbase Document**
101 LAB	XBRL Labels Linkbase Document**
101 PRE	XBRL Presentation Linkbase Document**

*  Filed herewith.

**The XBRL related information in Exhibit 101 shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that section and shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing or document.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Aoxing Pharmaceutical Company, Inc.

Date:   October 5, 2016	By:/s/ Zhenjiang Yue
	Zhenjiang Yue, Chief Executive Officer
	(Principal Executive Officer)

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, this Report has been signed below on  October 5, 2016  by the following persons on behalf of the Registrant and in the capacities indicated.

/s/ Zhenjiang Yue	Date:   October 5, 2016
Zhenjiang Yue, Director,
Chief Executive Officer
/s/ Zheng James Chen	Date:   October 5, 2016
Zheng James Chen, Chief Financial Officer
(Principal Accounting and Financial Officer)
/s/Yang Li	Date:  October 5, 2016
Yang Li, Director
/s/ Jun Min	Date:  October 5, 2016
Jun Min, Director
/s/ Guozhu Xu	Date:  October 5, 2016
Guozhu Xu, Director
/s/ Yuelin Zhang	Date:  October 5, 2016
Yuelin Zhang, Director

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EX-10.2

Exhibit 10.2

AOXING PHARMACEUTICAL COMPANY, INC.

2016 STOCK INCENTIVE PLAN

1.Purpose of Plan.

The purpose of this Plan is to advance the interests of the Company and its shareholders by enabling the Company and its Subsidiaries to attract and retain qualified individuals to perform services for the Company and its Subsidiaries, providing incentive compensation for such individuals in a form that is linked to the growth and profitability of the Company and increases in shareholder value, and providing opportunities for equity participation that align the interests of such individuals with the interests of Company shareholders.

2.Definitions.

The following terms will have the meanings set forth below, unless the context clearly otherwise requires. Terms defined elsewhere in this Plan will have the same meaning throughout this Plan.

2.1"Adverse Action" means any action or conduct by a Participant that the Committee, in its sole discretion, determines to be injurious, detrimental, prejudicial or adverse to the interests of the Company or any Subsidiary, including: (a) disclosing confidential information of the Company or any Subsidiary to any person not authorized by the Company or Subsidiary to receive it, (b) engaging, directly or indirectly, in any commercial activity that in the judgment of the Committee competes with the business of the Company or any Subsidiary or (c) interfering with the relationships of the Company or any Subsidiary and their respective employees, independent contractors, customers, prospective customers and vendors.

2.2"Board" means the Board of Directors of the Company.

2.3"Broker Exercise Notice" means a written notice pursuant to which a Participant, upon exercise of an Option, irrevocably instructs a broker or dealer to sell a sufficient number of shares of Common Stock or loan a sufficient amount of money to pay all or a portion of the exercise price of the Option or any related withholding tax obligations and remit such sums to the Company and directs the Company to deliver shares of Common Stock to be issued upon such exercise directly to such broker or dealer or their nominee.

2.4"Cash-Based Award" means an Incentive Award made pursuant to this Plan that is denominated and paid in cash.

2.5"Cause" means (a) dishonesty, fraud, misrepresentation, embezzlement or deliberate injury or attempted injury, in each case related to the Company or any Subsidiary, (b) any unlawful or criminal activity of a serious nature, (c) any intentional and deliberate breach of a duty or duties that, individually or in the aggregate, are material in relation to the Participant's overall duties, or (d) any material breach by a Participant of any employment, service, confidentiality, non-compete or non-solicitation agreement entered into with the Company or any Subsidiary.

2.6"Change in Control" means an event described in Section 13.1 of this Plan.

2.7"Code" means the Internal Revenue Code of 1986, as amended. Any reference to a section of the Code herein will be deemed to include a reference to any applicable regulations thereunder and any successor or amended section of the Code.

2.8"Committee" means the Compensation Committee of the Board or a subcommittee thereof, or any other committee comprised solely of Directors designated by the Board to administer this Plan who are (a) "non-employee directors" within the meaning of Rule 16b-3 under the Exchange Act, (b) "independent directors" as defined in the Listing Rules of the NYSE MKT (or other applicable exchange or market on which the Common Stock may be traded or quoted) and (c) "outside directors" within the meaning of Section 162(m) of the Code. The members of the Committee will be appointed from time to time by and will serve at the discretion of the Board. If the Committee does not exist or cannot function for any reason, the Board may take any action under this Plan that would otherwise be the responsibility of the Committee, except as otherwise provided in this Plan.

2.9"Common Stock" means the common stock of the Company, par value $0.01 per share, or the number and kind of shares of stock or other securities into which such Common Stock may be changed in accordance with Section 4.2 of this Plan.

2.10"Company" means Aoxing Pharmaceutical Company, Inc. and any successor thereto.

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2.11"Consultant" means a person engaged to provide consulting or advisory services (other than as an Employee or a Director) to the Company or any Subsidiary that: (a) are not in connection with the offer and sale of the Company's securities in a capital raising transaction and (b) do not directly or indirectly promote or maintain a market for the Company's securities.

2.12"Covered Employee" means any Employee who is or may become a "Covered Employee," as defined in Section 162(m) of the Code, and who is designated, either as an individual Employee or class of Employees, by the Committee within the shorter of: (a) ninety (90) days after the beginning of any Performance Period, or (b) twenty-five percent (25%) of any Performance Period has elapsed, as a "Covered Employee" under this Plan for such applicable Performance Period.

2.13"Director" means a member of the Board.

2.14"Disability" means the permanent and total disability of the Participant within the meaning of Section 22(e)(3) of the Code.

2.15"Effective Date" means April 7, 2016, or such later date as this Plan is initially approved by the Company's shareholders.

2.16"Eligible Recipients" means all Employees, all Non-Employee Directors and all Consultants.

2.17"Employee" means any individual performing services for the Company or a Subsidiary and designated as an employee of the Company or a Subsidiary on the payroll records thereof. An individual will not cease to be an Employee in the case of: (a) any leave of absence approved by the Company, or (b) transfers between locations of the Company or between the Company or any Subsidiaries. For purposes of Incentive Stock Options, no such leave may exceed ninety (90) days, unless reemployment upon expiration of such leave is guaranteed by statute or contract. If reemployment upon expiration of a leave of absence approved by the Company or a Subsidiary, as applicable, is not so guaranteed, then three (3) months following the ninety-first (91st) day of such leave, any Incentive Stock Option held by a Participant will cease to be treated as an Incentive Stock Option and will be treated for tax purposes as a Non-Statutory Stock Option. Neither service as a Director nor payment of a Director's fee by the Company will be sufficient to constitute "employment" by the Company.

2.18"Exchange Act" means the Securities Exchange Act of 1934, as amended. Any reference to a section of the Exchange Act herein will be deemed to include a reference to any applicable rules and regulations thereunder and any successor or amended section of the Exchange Act.

2.19"Fair Market Value" means, with respect to the Common Stock, as of any date: (a) the closing sale price of the Common Stock as of such date at the end of the regular trading session, as reported by the Nasdaq Stock Market, the New York Stock Exchange or any national securities exchange on which the Common Stock is then listed (or, if no shares were traded on such date, as of the next preceding date on which there was such a trade); or (b) if the Common Stock is not so listed or reported, such price as the Committee determines in good faith in the exercise of its reasonable discretion, and consistent with the definition of "fair market value" under Section 409A of the Code. If determined by the Committee, such determination will be final, conclusive and binding for all purposes and on all persons, including the Company, the shareholders of the Company, the Participants and their respective successors-in-interest. No member of the Committee will be liable for any determination regarding the fair market value of the Common Stock that is made in good faith.

2.20"Full Value Award" means an Incentive Award other than in the form of an Option or Stock Appreciation Right, and which is settled by the issuance of shares of Common Stock.

2.21"Good Reason" has the meaning set forth in Section 13.2 of this Plan.

2.22"Grant Date" means the date an Incentive Award is granted to a Participant pursuant to this Plan and as determined pursuant to Section 5 of this Plan.

2.23"Incentive Award" means, individually or collectively, an Option, Stock Appreciation Right, Restricted Stock Award, Restricted Stock Unit, Performance Award, or Non-Employee Director Award, in each case granted to an Eligible Recipient pursuant to this Plan.

2.24"Incentive Award Agreement" means either: (a) a written or electronic agreement entered into by the Company and a Participant setting forth the terms and provisions applicable to an Incentive Award granted under this Plan, including any amendment or modification thereof, or (b) a written or electronic statement issued by the Company to a Participant describing the terms and provisions of such an Incentive Award, including any amendment or modification thereof.

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 2.25"Incentive Stock Option" means a right to purchase Common Stock granted to an Employee pursuant to Section 6 of this Plan that is designated as and intended to meet the requirements of an "incentive stock option" within the meaning of Section 422 of the Code.

 2.26"Non-Employee Director" means a Director who is not an Employee.

2.27"Non-Employee Director Award" means any Non-Statutory Stock Option, Stock Appreciation Right or Full Value Award granted, whether singly, in combination, or in tandem, to an Eligible Recipient who is a Non-Employee Director, pursuant to such applicable terms, conditions and limitations as the Board or Committee may establish in accordance with this Plan, including any Non-Employee Director Option.

2.28"Non-Employee Director Option" means a Non-Statutory Stock Option granted to a Non-Employee Director pursuant to Section 10.1 of this Plan.

2.29"Non-Statutory Stock Option" means a right to purchase Common Stock granted to an Eligible Recipient pursuant to Section 6 of this Plan that is not intended to meet the requirements of or does not qualify as an Incentive Stock Option.

2.30"Option" means an Incentive Stock Option or a Non-Statutory Stock Option, including a Non-Employee Director Option.

2.31"Participant" means an Eligible Recipient who receives one or more Incentive Awards under this Plan.

2.32"Performance Award" means a right granted to an Eligible Recipient pursuant to Section 9 of this Plan to receive an amount of cash, number of shares of Common Stock, or a combination of both, contingent upon and the value of which at the time it is payable is determined as a function of the extent of the achievement of one or more Performance Goals during a specified Performance Period or the achievement of other objectives during a specified period.

2.33"Performance-Based Compensation" means compensation under an Incentive Award that is intended to satisfy the requirements of Section 162(m) of the Code for certain performance-based compensation paid to Covered Employees. Notwithstanding the foregoing, nothing in this Plan will be construed to mean that an Incentive Award which does not satisfy the requirements for performance-based compensation under Section 162(m) of the Code does not constitute performance-based compensation for other purposes, including Section 409A of the Code.

2.34"Performance Goals" mean with respect to any applicable Incentive Award, one or more targets, goals or levels of attainment required to be achieved in terms of the specified Performance Measures during the specified Performance Period, as set forth in the related Incentive Award Agreement.

2.35"Performance Measures" mean any performance measures as determined by the Committee in its sole discretion and set forth in the applicable Incentive Award Agreement for purposes of determining the applicable Performance Goal.

2.36"Performance Period" means the period of time, as determined by the Committee, during which the Performance Goals must be met in order to determine the degree of payout or vesting with respect to an Incentive Award.

2.37"Plan" means the Aoxing Pharmaceutical Company, Inc. 2016 Stock Incentive Plan, as may be amended from time to time.

2.38"Plan Year" means the Company's fiscal year.

2.39"Previously Acquired Shares" means shares of Common Stock that are already owned by the Participant or, with respect to any Incentive Award, that are to be issued to the Participant upon the grant, exercise, vesting or settlement of such Incentive Award.

2.40"Restricted Stock Award" means an award of Common Stock granted to an Eligible Recipient pursuant to Section 8 of this Plan that is subject to the restrictions on transferability and the risk of forfeiture imposed by the provisions of such Section 8.

2.41"Restricted Stock Unit" means an award denominated in shares of Common Stock granted to an Eligible Recipient pursuant to Section 8 of this Plan.

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2.42"Securities Act" means the Securities Act of 1933, as amended. Any reference to a section of the Securities Act herein will be deemed to include a reference to any applicable rules and regulations thereunder and any successor or amended section of the Securities Act.

2.43"Stock Appreciation Right" means a right granted to an Eligible Recipient pursuant to Section 7 of this Plan to receive a payment from the Company, in the form of shares of Common Stock, cash or a combination of both, equal to the difference between the Fair Market Value of one or more shares of Common Stock and the grant price of such shares under the terms of such Stock Appreciation Right.

2.44"Stock-Based Award" means any equity-based or equity-related Incentive Award made pursuant to this Plan, including Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance Awards denominated or payable in shares of Common Stock and Other Stock-Based Awards.

2.45"Subsidiary" means any corporation or other entity, whether domestic or foreign, in which the Company has or obtains, directly or indirectly, an interest of more than fifty percent (50%) by reason of stock ownership or otherwise.

2.46"Tax Date" means the date any withholding tax obligation arises under the Code for a Participant with respect to an Incentive Award.

3.Plan Administration.

3.1The Committee. The Plan will be administered by the Committee. The Committee will act by majority approval of the members either at a meeting or by written consent, and a majority of the members of the Committee will constitute a quorum. The Committee may exercise its duties, power and authority under this Plan in its sole discretion without the consent of any Participant or other party, unless this Plan specifically provides otherwise. The Committee will not be obligated to treat Participants or Eligible Recipients uniformly, and determinations made under this Plan may be made by the Committee selectively among Participants or Eligible Recipients, whether or not such Participants and Eligible Recipients are similarly situated. Each determination, interpretation or other action made or taken by the Committee pursuant to the provisions of this Plan will be final, conclusive and binding for all purposes and on all persons, and no member of the Committee will be liable for any action or determination made in good faith with respect to this Plan or any Incentive Award granted under this Plan.

3.2Authority of the Committee. In accordance with and subject to the provisions of this Plan, the Committee will have full and exclusive discretionary power and authority to take such actions as it deems necessary and advisable with respect to the administration of this Plan, including the following:

(a)To designate the Eligible Recipients to be selected as Participants;

(b)To determine the nature and extent of the Incentive Awards to be made to each Participant, including the amount of cash or number of shares of Common Stock to be subject to each Incentive Award, any exercise price, the manner in which Incentive Awards will vest or become exercisable and whether Incentive Awards will be granted in tandem with other Incentive Awards, and the form of Incentive Award Agreement, if any, evidencing such Incentive Award;

(c)To determine the time or times when Incentive Awards will be granted;

(d)To determine the duration of each Incentive Award;

(e)To determine the restrictions and other conditions to which the payment or vesting of Incentive Awards may be subject;

(f)To construe and interpret this Plan and Incentive Awards granted under it, and to establish, amend and revoke rules and regulations for its administration and in so doing, to correct any defect, omission, or inconsistency in this Plan or in an Incentive Award Agreement, in a manner and to the extent it shall deem necessary or expedient to make this Plan fully effective;

(g)To determine Fair Market Value in accordance with Section 2.19 of this Plan;

(h)To amend this Plan or any Incentive Award Agreement, as provided in this Plan;

(i)To authorize any person to execute on behalf of the Company any Incentive Award Agreement or any other instrument required to effect the grant of an Incentive Award previously granted by the Committee;

(j)To determine whether Incentive Awards will be settled in shares of Common Stock, cash or in any combination thereof;

4

(k)To impose such restrictions, conditions or limitations as it determines appropriate as to the timing and manner of any resales by a Participant or other subsequent transfers by the Participant of any shares of Common Stock, including restrictions under an insider trading policy, restrictions as to the use of a specified brokerage firm for such resales or other transfers and other restrictions designed to increase equity ownership by Participants or otherwise align the interests of Participants with the Company's shareholders.

3.3Incentive Award Grants to Non-Employee Directors. Notwithstanding any other provision of this Plan, all grants of Non-Employee Director Awards will only be granted and administered by a Committee comprised solely of members of the Board who are "independent directors" within the meaning of the Listing Rules of the NYSE MKT (or other applicable exchange or market on which the Common Stock may be traded or quoted).

4.Shares Available for Issuance.

4.1Maximum Number of Shares Available. Subject to adjustment as provided in Section 4.2 of this Plan, the maximum number of shares of Common Stock that will be available for issuance under this Plan shall equal 3,500,000 shares.

4.2Adjustments to Shares and Incentive Awards.

(a)In the event of any reorganization, merger, consolidation, recapitalization, liquidation, reclassification, stock dividend, stock split, combination of shares, rights offering, divestiture or extraordinary dividend (including a spin off) or any other similar change in the corporate structure or shares of the Company, the Committee (or, if the Company is not the surviving corporation in any such transaction, the board of directors of the surviving corporation) will make appropriate adjustment (which determination will be conclusive) as to: (i) the number and kind of securities or other property (including cash) available for issuance or payment under this Plan, and (ii) in order to prevent dilution or enlargement of the rights of Participants, the number and kind of securities or other property (including cash) subject to outstanding Incentive Awards and the exercise price of outstanding Incentive Awards. The determination of the Committee as to the foregoing adjustments, if any, will be final, conclusive and binding on Participants under this Plan.

(b)Notwithstanding anything else herein to the contrary, without affecting the number of shares of Common Stock reserved or available hereunder, the Committee may authorize the issuance or assumption of benefits under this Plan in connection with any merger, consolidation, acquisition of property or stock or reorganization upon such terms and conditions as it may deem appropriate, subject to compliance with the rules under Sections 422, 424 and 409A of the Code, as and where applicable.

5.Participation.

Participants in this Plan will be those Eligible Recipients who, in the judgment of the Committee, have contributed, are contributing or are expected to contribute to the achievement of the objectives of the Company or its Subsidiaries. Eligible Recipients may be granted from time to time one or more Incentive Awards, singly or in combination or in tandem with other Incentive Awards, as may be determined by the Committee in its sole discretion. Incentive Awards will be deemed to be granted as of the date specified in the grant resolution of the Committee, which date will be the Grant Date of any related Incentive Award Agreement with the Participant.

6.Options.

6.1Grant. An Eligible Recipient may be granted one or more Options under this Plan, and such Options will be subject to such terms and conditions, consistent with the other provisions of this Plan, as may be determined by the Committee in its sole discretion. Incentive Stock Options may be granted solely to eligible Employees of the Company or a Subsidiary. The Committee may designate whether an Option is to be considered an Incentive Stock Option or a Non-Statutory Stock Option. To the extent that any Incentive Stock Option (or portion thereof) granted under this Plan ceases for any reason to qualify as an "incentive stock option" for purposes of Section 422 of the Code, such Incentive Stock Option (or portion thereof) will continue to be outstanding for purposes of this Plan but will thereafter be deemed to be a Non-Statutory Stock Option. Options may be granted to an Eligible Recipient for services provided to a Subsidiary only if, with respect to such Eligible Recipient, the underlying shares of Common Stock constitute "service recipient stock" within the meaning of Treas. Reg. Section 1.409A-1(b)(5)(iii).

6.2Incentive Award Agreement. Each Option grant will be evidenced by an Incentive Award Agreement that will specify the exercise price of the Option, the maximum duration of the Option, the number of shares of Common Stock to which the Option pertains, the conditions upon which an Option will become vested and exercisable, and such other provisions as the Committee will determine which are not inconsistent with the terms of this Plan. The Incentive Award Agreement also will specify whether the Option is intended to be an Incentive Stock Option or a Non-Statutory Stock Option.

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6.3Exercise Price. The per share price to be paid by a Participant upon exercise of an Option granted pursuant to this Section 6 will be determined by the Committee in its sole discretion at the time of the Option grant; provided, however,  that such price will not be less than one hundred percent (100%) of the Fair Market Value of one share of Common Stock on the Grant Date (one hundred and ten percent (110%) of the Fair Market Value if, at the time the Incentive Stock Option is granted, the Participant owns, directly or indirectly, more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any parent or subsidiary corporation of the Company).

6.4Exercisability and Duration. An Option will become exercisable at such times and in such installments and upon such terms and conditions as may be determined by the Committee in its sole discretion at the time of grant, including (i) the achievement of one or more of the Performance Goals; or that (ii) the Participant remain in the continuous employment or service with the Company or a Subsidiary for a certain period; provided, however, that no Option may be exercisable after ten (10) years from the Grant Date (five (5) years from the Grant Date in the case of an Incentive Stock Option that is granted to a Participant who owns, directly or indirectly, more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any parent or subsidiary corporation of the Company). Notwithstanding the foregoing, if the exercise of an Option that is exercisable in accordance with its terms is prevented by the provisions of Section 15, the Option will remain exercisable until thirty (30) days after the date such exercise first would no longer be prevented by such provisions, but in any event no later than the expiration date of such Option.

6.5Payment of Exercise Price.

(a)The total purchase price of the shares to be purchased upon exercise of an Option will be paid entirely in cash (including check, bank draft or money order); provided, however, that the Committee, in its sole discretion and upon terms and conditions established by the Committee, may allow such payments to be made, in whole or in part, by (i) tender of a Broker Exercise Notice; (ii) by tender, either by actual delivery or attestation as to ownership, of Previously Acquired Shares; (iii) a "net exercise" of the Option (as further described in paragraph (b), below); (iv) by a combination of such methods; or (v) any other method approved or accepted by the Committee in its sole discretion.

(b)In the case of a "net exercise" of an Option, the Company will not require a payment of the exercise price of the Option from the Participant but will reduce the number of shares of Common Stock issued upon the exercise by the largest number of whole shares that has a Fair Market Value on the exercise date that does not exceed the aggregate exercise price for the shares exercised under this method. Shares of Common Stock will no longer be outstanding under an Option (and will therefore not thereafter be exercisable) following the exercise of such Option to the extent of (i) shares used to pay the exercise price of an Option under the "net exercise," (ii) shares actually delivered to the Participant as a result of such exercise and (iii) any shares withheld for purposes of tax withholding pursuant to Section 12 of this Plan.

(c)For purposes of such payment, Previously Acquired Shares tendered or covered by an attestation will be valued at their Fair Market Value on the exercise date of the Option.

6.6Manner of Exercise. An Option may be exercised by a Participant in whole or in part from time to time, subject to the conditions contained in this Plan and in the Incentive Award Agreement evidencing such Option, by delivery in person, by facsimile or electronic transmission or through the mail of written notice of exercise to the Company at its principal executive office (or to the Company's designee as may be established from time to time by the Company and communicated to Participants) and by paying in full the total exercise price for the shares of Common Stock to be purchased in accordance with Section 6.5 of this Plan.

7.Stock Appreciation Rights.

7.1Grant. An Eligible Recipient may be granted one or more Stock Appreciation Rights under this Plan, and such Stock Appreciation Rights will be subject to such terms and conditions, consistent with the other provisions of this Plan, as may be determined by the Committee in its sole discretion. Stock Appreciation Rights may be granted to an Eligible Recipient for services provided to a Subsidiary only if, with respect to such Eligible Recipient, the underlying shares of Common Stock constitute "service recipient stock" within the meaning of Treas. Reg. Section 1.409A-1(b)(5)(iii).

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7.2Incentive Award Agreement. Each Stock Appreciation Right will be evidenced by an Incentive Award Agreement that will specify the grant price of the Stock Appreciation Right, the term of the Stock Appreciation Right, and such other provisions as the Committee will determine which are not inconsistent with the terms of this Plan.

7.3Grant Price. The grant price of a Stock Appreciation Right will be determined by the Committee, in its discretion, at the Grant Date; provided, however, that such price may not be less than one hundred percent (100%) of the Fair Market Value of one share of Common Stock on the Grant Date.

7.4Exercisability and Duration. A Stock Appreciation Right will become exercisable at such times and in such installments as may be determined by the Committee in its sole discretion at the time of grant; provided, however, that no Stock Appreciation Right maybe exercisable after ten (10) years from its Grant Date. Notwithstanding the foregoing, if the exercise of a Stock Appreciation Right that is exercisable in accordance with its terms is prevented by the provisions of Section 15, the Stock Appreciation Right will remain exercisable until thirty (30) days after the date such exercise first would no longer be prevented by such provisions, but in any event no later than the expiration date of such Stock Appreciation Right.

7.5Manner of Exercise. A Stock Appreciation Right will be exercised by giving notice in the same manner as for Options, as set forth in Section 6.6, subject to any other terms and conditions consistent with the other provisions of this Plan as may be determined by the Committee in its sole discretion.

7.6Settlement. Upon the exercise of a Stock Appreciation Right, a Participant will be entitled to receive payment from the Company in an amount determined by multiplying:

(a)The excess of the Fair Market Value of a share of Common Stock on the date of exercise over the per share grant price; by

(b)The number of shares of Common Stock with respect to which the Stock Appreciation Right is exercised.

7.7Form of Payment. Payment, if any, with respect to a Stock Appreciation Right settled in accordance with Section 7.6 will be made in accordance with the terms of the applicable Incentive Award Agreement, in cash, shares of Common Stock or a combination thereof, as the Committee determines.

8.Restricted Stock Awards and Restricted Stock Units.

8.1Grant. An Eligible Recipient may be granted one or more Restricted Stock Awards or Restricted Stock Units under this Plan, and such awards will be subject to such terms and conditions, consistent with the other provisions of this Plan, as may be determined by the Committee in its sole discretion. Restricted Stock Units will be similar to Restricted Stock Awards except that no shares of Common Stock are actually awarded to the Participant on the Grant Date of the Restricted Stock Units. Restricted Stock Units will be denominated in shares of Common Stock but paid in cash, shares of Common Stock or a combination of cash and shares of Common Stock as the Committee, in its sole discretion, will determine, and as provided in the Incentive Award Agreement.

8.2Incentive Award Agreement. Each Restricted Stock Award or Restricted Stock Unit grant will be evidenced by an Incentive Award Agreement that will specify the type of Incentive Award, the period(s) of restriction, the number of shares of restricted Common Stock, or the number of Restricted Stock Units granted, and such other provisions as the Committee will determine that are not inconsistent with the terms of this Plan.

8.3Conditions and Restrictions. The Committee will impose such restrictions or conditions, not inconsistent with the provisions of this Plan, to the vesting of such Restricted Stock Awards or Restricted Stock Units as it deems appropriate, including (a) the achievement of one or more of the Performance Goals; or that (b) the Participant remain in the continuous employment or service with the Company or a Subsidiary for a certain period.

8.4Rights as a Shareholder. Except as provided in Sections 8.1, 8.5, 8.6 and 14.3 of this Plan, upon a Participant becoming the holder of record of shares of Common Stock issued under a Restricted Stock Award pursuant to this Section 8, the Participant will have all voting, dividend, liquidation and other rights with respect to such shares (other than the right to sell or transfer such shares) as if such Participant were a holder of record of shares of unrestricted Common Stock. A Participant will have no voting, dividend, liquidation and other rights with respect to any Restricted Stock Units granted hereunder.

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8.5Dividends and Distributions.

(a)  Unless the Committee determines otherwise in its sole discretion (either in the Incentive Award Agreement evidencing the Restricted Stock Award at the time of grant or at any time after the grant of the Restricted Stock Award), any dividends or other distributions paid with respect to shares of Common Stock subject to the unvested portion of a Restricted Stock Award will be subject to the same restrictions as the shares to which such dividends or distributions relate. The Committee will determine in its sole discretion whether any interest will be paid on such dividends or distributions.

(b)  Unless the Committee determines otherwise in its sole discretion (either in the Incentive Award Agreement evidencing the Restricted Stock Unit at the time of grant or at any time after the grant of the Restricted Stock Unit), any Restricted Stock Unit shall carry with it a right to "dividend equivalents." Such right entitles the Participant to be credited with an amount equal to all dividends or other distributions paid on one share of Common Stock while the Restricted Stock Unit is outstanding. Dividend equivalents may be converted into additional Restricted Stock Units and in all cases will be subject to the same conditions and restrictions as the Restricted Stock Units to which they relate.

8.6Enforcement of Restrictions. To enforce the restrictions referred to in this Section 8, the Committee may place a legend on the stock certificates representing Restricted Stock Awards referring to such restrictions and may require the Participant, until the restrictions have lapsed, to keep the stock certificates, together with duly endorsed stock powers, in the custody of the Company or its transfer agent, or to maintain evidence of stock ownership, together with duly endorsed stock powers, in a certificateless book entry stock account with the Company's transfer agent. Alternatively, Restricted Stock Awards may be held in non-certificated form pursuant to such terms and conditions as the Company may establish with its registrar and transfer agent or any third-party administrator designated by the Company to hold Restricted Stock Awards on behalf of Participants.

8.7Lapse of Restrictions; Settlement. Except as otherwise provided in this Section 8 or Section 15, shares of Common Stock underlying a Restricted Stock Award will become freely transferable by the Participant after all conditions and restrictions applicable to such shares have been satisfied or lapse (including satisfaction of any applicable tax withholding obligations). Upon the vesting of a Restricted Stock Unit, the Restricted Stock Unit will be settled, subject to the terms and conditions of the applicable Incentive Award Agreement, (a) in cash, based upon the Fair Market Value of the vested underlying shares of Common Stock, (b) in shares of Common Stock or (c) a combination thereof, as provided in the Incentive Award Agreement, except to the extent that a Participant has properly elected to defer income that may be attributable to a Restricted Stock Unit under a Company deferred compensation plan or arrangement.

8.8Section 83(b) Election for Restricted Stock Award. If a Participant makes an election pursuant to Section 83(b) of the Code with respect to a Restricted Stock Award, the Participant must file, within thirty (30) days following the Grant Date of the Restricted Stock Award, a copy of such election with the Company and with the Internal Revenue Service, in accordance with the regulations under Section 83 of the Code. The Committee may provide in the Incentive Award Agreement that the Restricted Stock Award is conditioned upon the Participant's making or refraining from making an election with respect to the award under Section 83(b) of the Code.

9.Performance Awards.

9.1Grant. An Eligible Recipient may be granted one or more Performance Awards under this Plan, and such awards will be subject to such terms and conditions, consistent with the other provisions of this Plan, as may be determined by the Committee in its sole discretion, including the achievement of one or more Performance Goals.

9.2Incentive Award Agreement. Each Performance Award will be evidenced by an Incentive Award Agreement that will specify the amount of cash, shares of Common Stock or combination of both to be received by the Participant upon payout of the Performance Award, any Performance Goals upon which the Performance Award is subject, any Performance Period during which any Performance Goals must be achieved and such other provisions as the Committee will determine which are not inconsistent with the terms of this Plan.

9.3Vesting. The Committee may impose such restrictions or conditions, not inconsistent with the provisions of this Plan, to the vesting of such Performance Awards as it deems appropriate, including the achievement of one or more of the Performance Goals.

9.4Form and Timing of Performance Award Payment. Subject to the terms of this Plan, after the applicable Performance Period has ended, the holder of Performance Awards will be entitled to receive payment on the value and number of Performance Awards earned by the Participant over the Performance Period, to be determined as a function of the extent to which the corresponding Performance Goals have been achieved. Payment of earned Performance Awards will be as determined by the Committee and as evidenced in the Incentive Award Agreement. Subject to the terms of this Plan, the Committee, in its sole discretion, may pay earned Performance Awards in the form of cash or in shares of Common Stock (or in a combination thereof) equal to the value of the earned Performance Awards at the close of the applicable Performance Period. Payment of any Performance Award will be made as soon as practicable after the Committee has determined the extent to which the applicable Performance Goals have been achieved and not later than the fifteenth day of the third month immediately following the later of the end of the Company's fiscal year in which the performance period ends or the end of the calendar year in which the performance period ends, except to the extent that a Participant has properly elected to defer payment that may be attributable to a Performance Award under a Company deferred compensation plan or arrangement. The determination of the Committee with respect to the form of payment of Performance Awards will be set forth in the Incentive Award Agreement pertaining to the grant of the award. Any shares of Common Stock issued in payment of earned Performance Awards may be granted subject to any restrictions deemed appropriate by the Committee, including that the Participant remain in the continuous employment or service with the Company or a Subsidiary for a certain period.

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10.Non-Employee Director Awards.

10.1Automatic and Non-Discretionary Awards to Non-Employee Directors. The Committee at anytime and from time to time may approve resolutions providing for the automatic grant to Non-Employee Directors of Non-Employee Director Awards granted under this Plan and may grant to Non-Employee Directors such discretionary Non-Employee Director Awards on such terms and conditions, consistent with the other provisions of this Plan, except as otherwise provided in this Section 10, as may be determined by the Committee in its sole discretion, and set forth in an applicable Award Agreement.

10.2Deferral of Incentive Award Payment. The Committee may permit a Non-Employee Director the opportunity to defer the grant or payment of an Incentive Award pursuant to such terms and conditions as the Committee may prescribe from time to time.

10.3Composition of Committee. For purposes of this Section 10, all references to "Committee" in this Section 10 will mean a Committee that consists solely of Directors who are "independent directors" as defined in the Listing Rules of the NYSE MKT (or other applicable exchange or market on which the Common Stock may be traded or quoted).

10.4Timing and Vesting of Automatic Grants. Automatic grants, if any, of Non-Employee Director Awards under this Plan shall generally be made as of the date of the annual meeting of shareholders of the Company each year, and such Awards shall be subject to vesting restrictions, as determined by the Committee, provided that no Non-Employee Director Awards granted under this Plan may be granted with a vesting restriction of less than one year, except in connection with the death or Disability of a Non-Employee Director or a Change in Control (as provided in Section 13). In the case of a Non-Employee Director whose term expires not more than twenty-nine (29) days prior to what would otherwise be the natural vesting date of an Award, the Non-Employee Director shall be deemed to have remained in service with the Company until such natural vesting date, but only for purposes of satisfying the vesting restrictions of any Non-Employee Director Award under the Plan.

11.Effect of Termination of Employment or Other Service.

11.1Termination Due to Death or Disability. Unless otherwise expressly provided by the Committee in its sole discretion in an Incentive Award Agreement, and subject to Sections 11.3 and 11.4 of this Plan, in the event a Participant's employment or other service with the Company and all Subsidiaries is terminated by reason of death or Disability:

(a)All outstanding Options (including Non-Employee Director Options) and Stock Appreciation Rights held by the Participant as of the effective date of such termination will become immediately exercisable and will remain exercisable for a period of one year after such termination (but in no event after the expiration date of any such Option or Stock Appreciation Right);

(b)  All outstanding Restricted Stock Awards held by the Participant as of the effective date of such termination will become fully vested; and

(c)All outstanding but unvested Restricted Stock Units and Performance Awards held by the Participant as of the effective date of such termination will be terminated and forfeited; provided, however, that with respect to any such Incentive Awards the vesting of which is based on the achievement of Performance Goals, if a Participant's employment or other service with the Company or any Subsidiary, as the case may be, is terminated by reason of death or Disability prior to the end of the Performance Period of such Incentive Award, but after the conclusion of a portion of the Performance Period (but in no event less than one year), the Committee may, in its sole discretion, cause shares of Common Stock to be delivered or payment made with respect to the Participant's Incentive Award, but only if otherwise earned for the entire Performance Period and only with respect to the portion of the applicable Performance Period completed at the date of such event, with proration based on full fiscal years only and no shares to be delivered for partial fiscal years. The Committee will consider the provisions of Section 11.5 of this Plan and will have the discretion to consider any other fact or circumstance in making its decision as to whether to deliver such shares of Common Stock or other payment, including whether the Participant again becomes employed.

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11.2Termination for Reasons Other than Death or Disability. Unless otherwise expressly provided by the Committee in its sole discretion in an Incentive Award Agreement, and subject to Sections 10.4, 11.3 and 11.4 of this Plan, in the event a Participant's employment or other service with the Company and all Subsidiaries is terminated for any reason other than death or Disability:

(a)All outstanding Options (including Non-Employee Director Options) and Stock Appreciation Rights held by the Participant as of the effective date of such termination will, to the extent exercisable as of such termination, remain exercisable for a period of three months after such termination (but in no event after the expiration date of any such Option or Stock Appreciation Right) and Options and Stock Appreciation Rights not exercisable as of such termination will be terminated and forfeited.

(b)All Restricted Stock Awards held by the Participant as of the effective date of such termination that have not vested as of such termination will be terminated and forfeited; and

(c)All outstanding unvested Restricted Stock Units and Performance Awards held by the Participant as of the effective date of such termination will be terminated and forfeited.

11.3Modification of Rights upon Termination. Notwithstanding the other provisions of this Section 11, upon a Participant's termination of employment or other service with the Company or any Subsidiary, as the case may be, the Committee may, in its sole discretion (which may be exercised at any time on or after the Grant Date, including following such termination) cause Options or Stock Appreciation Rights (or any part thereof) held by such Participant as of the effective date of such termination to terminate, become or continue to become exercisable or remain exercisable following such termination of employment or service, and Restricted Stock, Restricted Stock Units, Performance Awards, and Non-Employee Director Awards held by such Participant as of the effective date of such termination to terminate, vest or become free of restrictions and conditions to payment, as the case may be, following such termination of employment or service, in each case in the manner determined by the Committee; provided, however, that (a) no Option or Stock Appreciation Right may remain exercisable beyond its expiration date; (b) the Committee taking any such action relating to Non-Employee Director Awards will consist solely of "independent directors" as defined in the Listing Rules of the NYSE MKT (or other applicable exchange or market on which the Common Stock may be traded or quoted); and (c) any such action by the Committee adversely affecting any outstanding Incentive Award will not be effective without the consent of the affected Participant (subject to the right of the Committee to take whatever action it deems appropriate under Section 4.2, 11.5, 13 or 17).

11.4Determination of Termination of Employment or Other Service.

(a)The change in a Participant's status from that of an Employee to that of a Consultant will, for purposes of this Plan, be deemed to result in a termination of such Participant's employment with the Company and its Subsidiaries, unless the Committee otherwise determines in its sole discretion.

(b)The change in a Participant's status from that of a Consultant to that of an Employee will not, for purposes of this Plan, be deemed to result in a termination of such Participant's service as a Consultant, and such Participant will thereafter be deemed to be an Employee until such Participant's employment is terminated, in which event such Participant will be governed by the provisions of this Plan relating to termination of employment or service (subject to paragraph (a) above).

(c)Unless the Committee otherwise determines in its sole discretion, a Participant's employment or other service will, for purposes of this Plan, be deemed to have terminated on the date recorded on the personnel or other records of the Company or the Subsidiary for which the Participant provides employment or other service, as determined by the Committee in its sole discretion based upon such records.

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(d)Notwithstanding the foregoing, if payment of an Incentive Award that is subject to Section 409A of the Code is triggered by a termination of a Participant's employment or other service, such termination must also constitute a "separation from service" within the meaning of Section 409A of the Code, and any change in employment status that constitutes a "separation from service" under Section 409A of the Code will be treated as a termination of employment or service, as the case may be.

11.5Additional Forfeiture Events.

(a)Effect of Actions Constituting Cause or Adverse Action. Notwithstanding anything in this Plan to the contrary and in addition to the other rights of the Committee under this Section 11.5, if a Participant is determined by the Committee, acting in its sole discretion, to have taken any action that would constitute Cause or an Adverse Action during or after the termination of employment or other service with the Company or a Subsidiary, irrespective of whether such action or the Committee's determination occurs before or after termination of such Participant's employment or other service with the Company or any Subsidiary and irrespective of whether or not the Participant was terminated as a result of such Cause or Adverse Action, (i) all rights of the Participant under this Plan and any Incentive Award Agreements evidencing an Incentive Award then held by the Participant will terminate and be forfeited without notice of any kind, and (ii) the Committee in its sole discretion will have the authority to rescind the exercise, vesting or issuance of, or payment in respect of, any Incentive Awards of the Participant that were exercised, vested or issued, or as to which such payment was made, and to require the Participant to pay to the Company, within ten (10) days of receipt from the Company of notice of such rescission, any amount received or the amount of any gain realized as a result of such rescinded exercise, vesting, issuance or payment (including any dividends paid or other distributions made with respect to any shares subject to any Incentive Award). The Company may defer the exercise of any Option or Stock Appreciation Right for a period of up to six (6) months after receipt of the Participant's written notice of exercise or the issuance of share certificates upon the vesting of any Incentive Award for a period of up to six (6) months after the date of such vesting in order for the Committee to make any determination as to the existence of Cause or an Adverse Action. The Company will be entitled to withhold and deduct from future wages of the Participant (or from other amounts that may be due and owing to the Participant from the Company or a Subsidiary) or make other arrangements for the collection of all amounts necessary to satisfy such payment obligations. Unless otherwise provided by the Committee in an applicable Incentive Award Agreement, this Section 11.5(a) will not apply to any Participant following a Change in Control.

(b)Forfeiture of Incentive Awards. If the Company is required to prepare an accounting restatement due to the material noncompliance of the Company, as a result of misconduct, with any financial reporting requirement under the securities laws, then any Participant who is one of the individuals subject to automatic forfeiture under Section 304 of the Sarbanes-Oxley Act of 2002 will reimburse the Company for the amount of any Incentive Award received by such individual under this Plan during the 12-month period following the first public issuance or filing with the Securities and Exchange Commission, as the case may be, of the financial document embodying such financial reporting requirement. In addition, all Awards under this Plan will be subject to forfeiture or other penalties pursuant to any clawback or forfeiture policy of the Company, as in effect from time to time, and such forfeiture and/or penalty conditions or provisions as determined by the Committee and set forth in the applicable Award agreement.

12.Payment of Withholding Taxes.

12.1General Rules. The Company is entitled to (a) withhold and deduct from future wages of the Participant (or from other amounts that may be due and owing to the Participant from the Company or a Subsidiary), or make other arrangements for the collection of, all legally required amounts necessary to satisfy any and all federal, foreign, state and local withholding and employment related tax requirements attributable to an Incentive Award, including the grant, exercise, vesting or settlement of, or payment of dividends with respect to, an Incentive Award or a disqualifying disposition of stock received upon exercise of an Incentive Stock Option, or (b) require the Participant promptly to remit the amount of such withholding to the Company before taking any action, including issuing any shares of Common Stock, with respect to an Incentive Award. When withholding for taxes is effected under this Plan, it shall be withheld only up to the minimum required tax withholding rates or such other rate that will not trigger a negative accounting impact on the Company.

12.2Special Rules. The Committee may, in its sole discretion and upon terms and conditions established by the Committee, permit or require a Participant to satisfy, in whole or in part, any withholding or employment related tax obligation described in Section 12.1 of this Plan by withholding shares of Common Stock underlying an Award, by electing to tender, or by attestation as to ownership of, Previously Acquired Shares, by delivery of a Broker Exercise Notice or a combination of such methods. For purposes of satisfying a Participant's withholding or employment-related tax obligation, shares of Common Stock withheld by the Company or Previously Acquired Shares tendered or covered by an attestation will be valued at their Fair Market Value.

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13.Change in Control.

13.1Change in Control. For purposes of this Section 13, a "Change in Control" of the Company will mean (a) if any "person" or "group" as those terms are used in Sections 13(d) and 14(d) of the Exchange Act or any successors thereto, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act or any successor thereto), directly or indirectly, of securities of the Company representing 50% or more of the combined voting power of the Company's then outstanding securities, provided, that the acquisition of additional securities by any person or group that owns 50% or more of the voting power prior to such acquisition of additional securities shall not be a Change in Control, (b) during any twelve-month period, individuals who at the beginning of such period constitute the Board and any new Directors whose election by the Board or nomination for election by the Company's shareholders was approved by at least a majority of the Directors then still in office who either were Directors at the beginning of the period or whose election was previously so approved, cease for any reason to constitute a majority thereof, (c) the shareholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation (i) which would result in all or a portion of the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 50% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation or (ii) by which the corporate existence of the Company is not affected and following which the Company's chief executive officer and Directors retain their positions with the Company (and constitute at least a majority of the Board) and such merger or consolidation is consummated, or (d) the shareholders of the Company approve an agreement for the sale or disposition by the Company of all or substantially all the Company's assets and such sale or disposition is consummated.

13.2Good Reason. For purposes of this Section 13, with respect to any Participant, "Good Reason" will be defined as set forth in any individual agreement applicable to such Participant or, in the case of a Participant who does not have an individual agreement that defines Good Reason, then Good Reason will mean any refusal to accept:

(a)a material diminution in the Participant's base compensation, which for purposes of this Plan will mean a reduction of 10% or more in the Participant's salary plus target bonus;

(b)discontinuation of eligibility to participate in a material long-term cash or equity award or equity-based grant program (or in a comparable substitute program) in which other Participants at a comparable level are generally eligible to participate;

(c)any material diminution of authority, duties or responsibilities, including any change in the authority, duties or responsibilities of the Participant that is inconsistent in any material and adverse respect with the Participant's then-current position(s), authority, duties and responsibilities with the Company or any Subsidiary; provided, however, that "Good Reason" will not be deemed to exist pursuant to this clause (c) solely on account of the Company no longer being a publicly traded entity or solely on account of a change in the reporting relationship of the Participant; or

(d)a material adverse change in the geographic location at which the Company requires the Participant to be based as compared to the location where the Participant was based immediately prior to the change, which for purposes of this Plan will mean:

(i)a relocation that results in an increase in the commuting distance from the Participant's principal residence to his or her new job location of more than 50 miles, or

(ii)a relocation that requires the Participant to relocate his or her principal residence; provided, however, that no Incentive Award will be cashed out upon a Participant's termination of employment or service on account of the occurrence of a Good Reason event or circumstance as defined under the terms of any individual agreement applicable to such Participant or as defined in this Section 13.2 if such termination must be an "involuntary separation from service", unless the event or circumstances constituting Good Reason also constitute "good reason" as determined under Section 409A of the Code. The payment of any other Incentive Awards in the event of a Participant's termination of employment or service for Good Reason will be as determined by the Committee in connection with the grant thereof, as reflected in the applicable Award Agreement.

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Notwithstanding the foregoing, however, "Good Reason" will not be deemed to exist as a result of any of the actions stated in clauses (a) or (b) above to the extent that such actions are in connection with an across-the-board change or termination that equally affects at least ninety percent (90%) of all Participants. An act or omission will not constitute a "Good Reason" unless the Participant gives written notice to the Company of the existence of such act or omission within ninety (90) days of its initial existence, the Company fails to cure the act or omission within thirty (30) days after the notification, and actual termination of employment or services occurs within two (2) years of the initial existence of the act or omission.

13.3Acceleration of Vesting. Without limiting the authority of the Committee under Sections 3.2 and 4.2 of this Plan, if a Change in Control of the Company occurs, then, unless otherwise provided by the Committee in its sole discretion either in the Incentive Award Agreement evidencing an Incentive Award at the time of grant or at any time after the grant of an Incentive Award the following provisions will apply:

(a)If the Company is not the surviving corporation following a Change in Control, and the surviving corporation following such Change in Control or the acquiring corporation (such acquiring corporation or acquiring corporation is hereinafter referred to as the "Acquiror") does not assume the outstanding Incentive Awards or does not substitute equivalent equity awards relating to the securities of such Acquiror or its affiliates for such Incentive Awards, then (a) all outstanding Options and Stock Appreciation Rights will become immediately exercisable in full and will remain exercisable for the remainder of their terms, regardless of whether the Participant to whom such Options or Stock Appreciation Rights have been granted remains in employment or service with the Company or any Subsidiary; (b) all restrictions and vesting requirements applicable to any Incentive Award based solely on the continued service of the Participant will terminate; and (c) all Incentive Awards the vesting or payment of which are based on Performance Goals will vest as though such Performance Goals were fully achieved at target and will become immediately payable; provided, however, that no Incentive Award that provides for a deferral of compensation within the meaning of Section 409A of the Code will be cashed out upon the occurrence of a Change in Control unless the event or circumstances constituting the Change in Control also constitute a "change in the ownership" of the Company, a "change in the effective control" of the Company or a "change in the ownership of a substantial portion of the assets" of the Company, in each case as determined under Section 409A of the Code. The treatment of any other Incentive Awards in the event of a Change in Control will be as determined by the Committee in connection with the grant thereof, as reflected in the applicable Award Agreement.

(b)If the Company is the surviving corporation following a Change in Control, or the Acquiror assumes the outstanding Incentive Awards or substitutes equivalent equity awards relating to the securities of such Acquiror or its affiliates for such Incentive Awards, then all such Incentive Awards or such substitutes therefore shall remain outstanding and be governed by their respective terms and the provisions of the Plan or its successor.

(c)If (i) a Participant's employment or other service with the Company and all Subsidiaries is terminated (A) without Cause or Adverse Action or (B) by the Participant for Good Reason, in either case within two (2) years following a Change in Control, and (ii) the Company is the surviving corporation following such Change in Control or the Acquiror assumes the outstanding Incentive Awards or substitutes equivalent equity awards relating to the securities of such Acquiror or its affiliates for such Incentive Awards, then (x) all outstanding Options and Stock Appreciation Rights will become immediately exercisable in full and will remain exercisable for the remainder of their terms; (y) all restrictions and vesting requirements applicable to any Incentive Award based solely on the continued service of the Participant will terminate; and (z) all Incentive Awards the vesting or payment of which are based on Performance Goals will vest as though such Performance Goals were fully achieved at target and will become immediately payable; provided, however, that no Incentive Award that provides for a deferral of compensation within the meaning of Section 409A of the Code will be cashed out upon the termination of the Participant's employment or service with the Company and all Subsidiaries following a Change in Control unless such termination also constitutes a "separation from service" and unless the event or circumstances constituting the Change in Control also constitute a "change in the ownership" of the Company, a "change in the effective control" of the Company or a "change in the ownership of a substantial portion of the assets" of the Company, in each case as determined under Section 409A of the Code. The treatment of any other Incentive Awards in the event of a Participant's termination of employment or service with the Company and all Subsidiaries following a Change in Control will be as determined by the Committee in connection with the grant thereof, as reflected in the applicable Award Agreement.

(d)If (i) a Participant's employment or other service with the Company and all Subsidiaries is terminated for Cause or Adverse Action within two (2) years following a Change in Control, and (ii) the Company is the surviving corporation following such Change in Control, or the Acquiror assumes the outstanding Incentive Awards or substitutes equivalent equity awards relating to the securities of such Acquiror or its affiliates for such Incentive Awards, then all rights of the Participant under this Plan and any Incentive Award Agreements evidencing an Incentive Award then held by the Participant will terminate and be forfeited without notice of any kind.

13

14.Rights of Eligible Recipients and Participants; Transferability.

14.1Employment. Nothing in this Plan or an Incentive Award Agreement will interfere with or limit in any way the right of the Company or any Subsidiary to terminate the employment or service of any Eligible Recipient or Participant at any time, nor confer upon any Eligible Recipient or Participant any right to continue employment or other service with the Company or any Subsidiary.

14.2No Rights to Awards. No Participant or Eligible Individual will have any claim to be granted any Incentive Award under this Plan.

14.3Rights as a Shareholder. Except as otherwise provided herein, a Participant will have no rights as a shareholder with respect to shares of Common Stock covered by any Stock-Based Award unless and until the Participant becomes the holder of record of such shares.

14.4Restrictions on Transfer.

(a)Except pursuant to testamentary will or the laws of descent and distribution or as otherwise expressly permitted by subsections (b) and (c) below, no right or interest of any Participant in an Incentive Award prior to the exercise (in the case of Options or Stock Appreciation Rights) or vesting, issuance or settlement of such Incentive Award will be assignable or transferable, or subjected to any lien, during the lifetime of the Participant, either voluntarily or involuntarily, directly or indirectly, by operation of law or otherwise.

(b)A Participant will be entitled to designate a beneficiary to receive an Incentive Award upon such Participant's death, and in the event of such Participant's death, payment of any amounts due under this Plan will be made to, and exercise of any Options or Stock Appreciation Rights (to the extent permitted pursuant to Section 11 of this Plan) may be made by, such beneficiary. If a deceased Participant has failed to designate a beneficiary, or if a beneficiary designated by the Participant fails to survive the Participant, payment of any amounts due under this Plan will be made to, and exercise of any Options or Stock Appreciation Rights (to the extent permitted pursuant to Section 11 of this Plan) may be made by, the Participant's legal representatives, heirs and legatees. If a deceased Participant has designated a beneficiary and such beneficiary survives the Participant but dies before complete payment of all amounts due under this Plan or exercise of all exercisable Options or Stock Appreciation Rights, then such payments will be made to, and the exercise of such Options or Stock Appreciation Rights may be made by, the legal representatives, heirs and legatees of the beneficiary.

(c)Upon a Participant's request, the Committee may, in its sole discretion, permit a transfer of all or a portion of a Non-Statutory Stock Option, other than for value, to such Participant's child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, any person sharing such Participant's household (other than a tenant or employee), a trust in which any of the foregoing have more than fifty percent (50%) of the beneficial interests, a foundation in which any of the foregoing (or the Participant) control the management of assets, and any other entity in which these persons (or the Participant) own more than fifty percent (50%) of the voting interests. Any permitted transferee will remain subject to all the terms and conditions applicable to the Participant prior to the transfer. A permitted transfer may be conditioned upon such requirements as the Committee may, in its sole discretion, determine, including execution or delivery of appropriate acknowledgements, opinion of counsel, or other documents by the transferee.

15.Securities Law and Other Restrictions.

Notwithstanding any other provision of this Plan or any Incentive Award Agreements entered into pursuant to this Plan, the Company will not be required to issue any shares of Common Stock under this Plan, and a Participant may not sell, assign, transfer or otherwise dispose of shares of Common Stock issued pursuant to Incentive Awards granted under this Plan, unless (a) there is in effect with respect to such shares a registration statement under the Securities Act and any applicable securities laws of a state or foreign jurisdiction or an exemption from such registration under the Securities Act and applicable state or foreign securities laws, and (b) there has been obtained any other consent, approval or permit from any other U.S. or foreign regulatory body which the Committee, in its sole discretion, deems necessary or advisable. The Company may condition such issuance, sale or transfer upon the receipt of any representations or agreements from the parties involved, and the placement of any legends on certificates representing shares of Common Stock, as may be deemed necessary or advisable by the Company in order to comply with such securities law or other restrictions.

14

16.Deferred Compensation; Compliance with Section 409A.

(a)It is intended that all Incentive Awards issued under the Plan be in a form and administered in a manner that will comply with the requirements of Section 409A of the Code, or the requirements of an exception to Section 409A of the Code, and the Incentive Award Agreements and this Plan will be construed and administered in a manner that is consistent with and gives effect to such intent. The Committee is authorized to adopt rules or regulations deemed necessary or appropriate to qualify for an exception from or to comply with the requirements of Section 409A of the Code.

(b)Notwithstanding anything in this Section 16 to the contrary, with respect to any Incentive Award subject to Section 409A of the Code, (i) no amendment to or payment under such Incentive Award will be made except and only to the extent permitted under Section 409A of the Code; (ii) if any amount is payable under such Incentive Award upon a termination of employment or service, a termination of employment or service will be treated as having occurred only at such time the Participant has experienced a "separation from service" as such term is defined for purposes of Section 409A of the Code; (iii) if any amount is payable under such Incentive Award upon a Disability, a Disability will be treated as having occurred only at such time the Participant has experienced a "disability" as such term is defined for purposes of Section 409A of the Code; (iv) if any amount is payable under such Incentive Award on account of the occurrence of a Change of Control, a Change of Control will be treated as having occurred only at such time a "change in the ownership or effective control of the corporation or in the ownership of a substantial portion of the assets of the corporation" as such terms are defined for purposes of Section 409A of the Code, and (v) if any amount becomes payable under such Award on account of a Participant's separation from service at such time as the Participant is a "specified employee" within the meaning of Section 409A of the Code, then no payment shall be made, except as permitted under Section 409A of the Code, prior to the first business day after the earlier of (y) the date that is six months after the date of the Participant's separation from service or (z) the Participant's death.

17.Amendment, Modification and Termination.

17.1Generally. Subject to other subsections of this Section 17 the Board at any time may suspend or terminate this Plan (or any portion thereof) or terminate any outstanding Incentive Award Agreement and the Committee, at any time and from time to time, may amend this Plan or amend or modify the terms of an outstanding Incentive Award. The Committee's power and authority to amend or modify the terms of an outstanding Incentive Award includes the authority to modify the number of shares or other terms and conditions of an Incentive Award, extend the term of an Incentive Award, accept the surrender of any outstanding Incentive Award or, to the extent not previously exercised or vested, authorize the grant of new Incentive Awards in substitution for surrendered Incentive Awards; provided, however that the amended or modified terms are permitted by this Plan as then in effect and that any Participant adversely affected by such amended or modified terms has consented to such amendment or modification. The Committee will not have the authority to waive, lapse or accelerate the exercisability or vesting of any Incentive Award held by any Participant who is an Employee, except (a) in connection with the death or Disability of the Participant or a Change in Control (as provided in Section 13), or (b) to the extent that the number of Shares covered by such waived, lapsed or accelerated Award (together with the number of Shares covered by all other Incentive Awards, the exercisability or vesting of which previously have been waived, lapsed or accelerated by the Committee under this Plan) do not exceed five percent (5%) of the total number of Shares authorized for Incentive Awards under this Plan.

17.2Shareholder Approval. No amendments to this Plan will be effective without approval of the Company's shareholders if: (a) shareholder approval of the amendment is then required pursuant to Section 422 of the Code, the rules of the primary stock exchange or stock market on which the Common Stock is then traded, applicable U.S. state corporate laws or regulations, applicable U.S. federal laws or regulations, and the applicable laws of any foreign country or jurisdiction where Incentive Awards are, or will be, granted under this Plan; or (b) such amendment would: (i) materially increase benefits accruing to Participants; (ii) increase the aggregate number of shares of Common Stock issued or issuable under this Plan; (iii) increase any limitation set forth in this Plan on the number of shares of Common Stock which may be issued or the aggregate value of Incentive Awards which may be made, in respect of any type of Incentive Award to any single Participant during any specified period; (iv) modify the eligibility requirements for Participants in this Plan; or (v) reduce the minimum exercise price as set forth in Sections 6.3 and 7.3.

15

17.3Amendments to Conform to Law. Notwithstanding any other provision of this Plan to the contrary, the Committee may amend this Plan or an Incentive Award Agreement, to take effect retroactively or otherwise, as deemed necessary or advisable for the purpose of conforming this Plan or an Incentive Award Agreement to any present or future law relating to plans of this or similar nature, and to the administrative regulations and rulings promulgated thereunder. By accepting an Incentive Award under this Plan, a Participant agrees to any amendment made pursuant to this Section 17.3 to any Incentive Award granted under this Plan without further consideration or action.

17.4Non-Employee Director Awards. Notwithstanding any other provision of this Plan to the contrary, no action may be taken with respect to any outstanding Non-Employee Director Award other than by the Committee, which for such actions will consist solely of "independent directors" as defined in the Listing Rules of the NYSE MKT (or other applicable exchange or market on which the Common Stock may be traded or quoted).

18.Effective Date and Duration of this Plan.

18.1Effective Date. The Plan shall be effective as of the Effective Date.

18.2Term of the Plan. No Incentive Award shall be granted under the Plan, and the Plan shall terminate on the tenth anniversary of the Effective Date of the Plan or any earlier date of discontinuation or termination established pursuant to Section 17 of the Plan. Unless otherwise expressly provided in the Plan or in an applicable Incentive Award Agreement, any Incentive Award theretofore granted may extend beyond such dates, and the authority of the Committee provided for hereunder with respect to the Plan and any Awards, and the authority of the Board to amend the Plan, shall extend beyond the termination of the Plan.

16

EX-21.1

Exhibit 21.1

List of Subsidiaries

 The Company has the following subsidiaries:

· Ostar Pharmaceutical, Inc., a Delaware corporation

· Hebei Aoxing Pharmaceutical Co., Inc., a PRC company

EX-23

Exhibit 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No.333-205148) and Form S-8s (No. 333-177641) of Aoxing Pharmaceutical Company, Inc. and its subsidiaries of our reports dated October 5, 2016, relating to the consolidated financial statements, which appears in this Annual Report on Form 10-K for the fiscal year ended June 30, 2016 filed with the Securities and Exchange Commission.

BDO CHINA SHU LUN PAN Certified Public Accountants LLP

October 5, 2016

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Zhenjiang Yue, certify that:

1.           I have reviewed this Form 10-K of Aoxing Pharmaceutical Company, Inc.;

2.           Based on my knowledge, this 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 report;

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

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

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

(b)          Designed such internal control over financial reporting, or caused such internal control over financial reporting 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 registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

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

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

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

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

Date:   October 5, 2016

/s/ Zhenjiang Yue

Zhenjiang Yue, Chief Executive Officer

(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Zheng James Chen, certify that:

1.           I have reviewed this Form 10-K of Aoxing Pharmaceutical Company, Inc.;

2.           Based on my knowledge, this 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 report;

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

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

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

(b)          Designed such internal control over financial reporting, or caused such internal control over financial reporting 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 registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

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

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

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

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

Date:   October 5, 2016

/s/ Zheng James Chen

Zheng James Chen, Chief Financial Officer

(Principal Financial and Accounting Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. §1350

Pursuant to 18 U.S.C. §1350 and in connection with the Annual Report on Form 10-K of Aoxing Pharmaceutical Company, Inc.; (the "Company") for the fiscal year ended June 30, 2016 (the "Report"), I, Zhenjiang Yue, Chief Executive Officer of the Company, hereby certify that to the best of my knowledge and belief:

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 for said period.

/s/ Zhenjiang Yue

Zhenjiang Yue, Chief Executive Officer

Date:   October 5, 2016

 A signed original of this written statement has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request

EX-32.2

Exhibit 32.2

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. §1350

Pursuant to 18 U.S.C. §1350 and in connection with the Annual Report on Form 10-K of Aoxing Pharmaceutical Company, Inc. (the "Company") for the fiscal year ended June 30, 2016 (the "Report"), I, Zheng James Chen, Chief Financial Officer of the Company, hereby certify that to the best of my knowledge and belief:

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 for said period.

/s/ Zheng James Chen

Zheng James Chen, Chief Financial Officer

Date:   October 5, 2016

 A signed original of this written statement has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request

XML

Document and Entity Information - USD ($)	12 Months Ended
	Jun. 30, 2016	Sep. 27, 2016	Dec. 31, 2015
Document and Entity Information:
Entity Registrant Name	AOXING PHARMACEUTICAL COMPANY, INC.
Document Type	10-K
Document Period End Date	Jun. 30, 2016
Trading Symbol	axn
Amendment Flag	false
Entity Central Index Key	0001060426
Current Fiscal Year End Date	--06-30
Entity Common Stock, Shares Outstanding		76,209,195
Entity Public Float			$ 30,727,141
Entity Filer Category	Smaller Reporting Company
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Well-known Seasoned Issuer	No
Document Fiscal Year Focus	2016
Document Fiscal Period Focus	FY

XML

CONSOLIDATED BALANCE SHEETS - USD ($)	Jun. 30, 2016	Jun. 30, 2015
CURRENT ASSETS:
Cash and cash equivalents	$ 6,912,100	$ 5,371,545
Accounts receivable, net of allowance for doubtful accounts of $1,940,354 and $1,364,330, respectively	11,200,418	5,854,055
Inventories, net	2,841,690	3,240,026
Prepaid expenses and other current assets	5,912,555	6,630,407
TOTAL CURRENT ASSETS	26,866,763	21,096,033
LONG-TERM ASSETS:
Property and equipment, net of accumulated depreciation	25,603,734	28,651,717
Deferred income tax	1,878,595	2,711,610
Other intangible assets, net	1,878,299	484,857
Investment in joint venture	4,200	96,475
TOTAL LONG-TERM ASSETS	29,364,828	31,944,659
TOTAL ASSETS	56,231,591	53,040,692
CURRENT LIABILITIES:
Short-term borrowings	11,070,966	12,484,356
Accounts payable	2,709,819	3,625,139
Notes payable	0	1,631,641
Loan payable - bank	14,372,630	16,316,408
Current portion of loan payable - related parties	13,317	5,793
Current portion of loan payable - others	15,048
Accrued expenses and other current liabilities	9,633,750	7,176,325
TOTAL CURRENT LIABILITIES	37,815,530	41,239,662
LONG-TERM LIABILITIES:
Loan payable - related parties		8,158
Loan payable - others	0	1,361,199
Deferred income	340,089	368,751
TOTAL LONG-TERM LIABILITIES	340,089	1,738,108
Stockholder's Equity
Common stock, par value $0.001, 100,000,000 shares authorized, 76,209,195 and 69,839,259 shares issued and outstanding on June 30, 2016 and June 30, 2015, respectively	76,209	69,839
Additional paid in capital	73,629,751	66,457,250
Accumulated deficit	(56,293,745)	(58,354,968)
Accumulated other comprehensive income	1,723,740	3,066,026
TOTAL SHAREHOLDERS' EQUITY OF THE COMPANY	19,135,955	11,238,147
NON-CONTROLLING INTEREST IN SUBSIDIARIES	(1,059,983)	(1,175,225)
TOTAL EQUITY	18,075,972	10,062,922
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$ 56,231,591	$ 53,040,692

XML

CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE LOSS - USD ($)	12 Months Ended
	Jun. 30, 2016	Jun. 30, 2015
Revenue
SALES	$ 32,329,525	$ 25,481,199
COST OF SALES	7,775,524	5,688,863
GROSS PROFIT	24,554,001	19,792,336
OPERATING EXPENSES:
Research and development	3,143,233	337,067
General and administrative	3,066,634	2,753,535
Selling expenses	11,613,220	7,457,758
Depreciation and amortization	502,862	548,319
TOTAL OPERATING EXPENSES	18,325,949	11,096,679
INCOME FROM OPERATIONS	6,228,051	8,695,657
OTHER INCOME (EXPENSE):
Interest expense, net of interest income	(3,456,638)	(5,768,094)
Equity in loss of joint venture, net	(87,500)	(93,352)
Subsidy income	201,912	279,893
TOTAL OTHER EXPENSE	(3,342,226)	(5,581,553)
INCOME BEFORE INCOME TAXES	2,885,825	3,114,104
Income taxes/(benefits)	642,245	(2,704,369)
NET INCOME	2,243,580	5,818,473
Net income attributable to non-controlling interest in subsidiaries	182,356	323,760
NET INCOME ATTRIBUTABLE TO SHAREHOLDERS OF THE COMPANY	2,061,224	5,494,713
OTHER COMPREHENSIVE INCOME (LOSS) :
Foreign currency translation adjustment	(1,342,286)	91,359
COMPREHENSIVE INCOME	718,938	5,586,072
Other comprehensive income (loss) attributable to non-controlling interest	(67,114)	4,568
COMPREHENSIVE INCOME ATTRIBUTABLE TO THE COMPANY	$ 786,052	$ 5,581,504
EARNINGS PER SHARE: Basic	$ 0.03	$ 0.09
EARNINGS PER SHARE: Diluted	$ 0.03	$ 0.09
WEIGHTED AVERAGE SHARES OUTSTANDING: Basic	73,695,338	63,107,104
WEIGHTED AVERAGE SHARES OUTSTANDING: Diluted	75,467,672	63,167,104

XML

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY - USD ($)	Common Stock	Preferred Stock	Additional Paid in Capital	Accumulated Deficit	Accumulated Other Comprehensive Income	Total Shareholders' Equity	Non Controlling Interest	Total
Balance at Jun. 30, 2014	$ 49,875		$ 58,315,446	$ (63,849,681)	$ 2,979,235	$ (2,505,125)	$ (1,503,553)	$ (4,008,678)
Balance - Shares at Jun. 30, 2014	49,874,822
Common stock issued for services	$ 360		81,490			81,850		81,850
Common stock issued for services - shares	360,000
Common stock issued for debt conversion	$ 12,864		5,562,544			5,575,408		5,575,408
Common stock issued for debt conversion - shares	12,863,690
Common stock issued	$ 6,740		2,406,948			2,413,688		2,413,688
Common stock issued - shares	6,740,747
Amortization for stock options			22,822			22,822		22,822
Amortization for management equity compensation			68,000			68,000		68,000
Common stock issued for independent directors
Common stock issued for independent directors - shares
Translation adjustments					86,791	86,791	4,568	91,359
NET INCOME				5,494,713		5,494,713	323,760	5,818,473
Balance at Jun. 30, 2015	$ 69,839		66,457,250	(58,354,968)	3,066,026	11,238,147	(1,175,225)	10,062,922
Balance - Shares at Jun. 30, 2015	69,839,259
Common stock issued for services	$ 1,910		1,560,690			1,562,600		1,562,600
Common stock issued for services - shares	1,910,000
Common stock issued for debt conversion	$ 2,047		2,659,047			2,661,094		2,661,094
Common stock issued for debt conversion - shares	2,046,995
Common stock issued	$ 2,353		2,736,647			2,739,000		2,739,000
Common stock issued - shares	2,352,941
Amortization for stock options			33,196			33,196		33,196
Amortization for management equity compensation			80,381			80,381		80,381
Common stock issued for independent directors	$ 60		102,540			102,600		102,600
Common stock issued for independent directors - shares	60,000
Translation adjustments					(1,342,286)	(1,342,286)	(67,114)	(1,409,400)
NET INCOME				2,061,224		2,061,224	182,356	2,243,580
Balance at Jun. 30, 2016	$ 76,209		$ 73,629,751	$ (56,293,744)	$ 1,723,740	$ 19,135,955	$ (1,059,983)	$ 18,075,972
Balance - Shares at Jun. 30, 2016	76,209,195

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CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)	12 Months Ended
	Jun. 30, 2016	Jun. 30, 2015
OPERATING ACTIVITIES:
NET INCOME ATTRIBUTABLE TO SHAREHOLDERS OF THE COMPANY	$ 2,061,224	$ 5,494,713
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	1,026,016	666,293
Deferred income tax expense (benefit)	642,245	(2,704,369)
Inventory markdown reversal		(7,861)
Provision for doubtful accounts	703,980	(204,597)
Common stock issued for services	288,777	169,822
Equity in loss of joint venture, net	87,500	93,352
Net loss attributable to non-controlling interests	182,356	323,760
Changes in operating assets and liabilities:
Change in accounts receivable	(6,691,735)	(1,735,368)
Change in inventories	151,210	(1,023,777)
Change in prepaid expenses and other current assets	138,770	(4,102,425)
Change in accounts payable	(2,207,075)	1,351,651
Change in accrued expenses and other current liabilities	3,081,742	4,704,545
NET CASH GENERATED FROM (USED IN) OPERATING ACTIVITIES	(534,990)	3,025,739
INVESTING ACTIVITIES:
Acquisition of property and equipment	(117,862)	(2,705,298)
NET CASH USED IN INVESTING ACTIVITIES	(117,862)	(2,705,298)
FINANCING ACTIVITIES:
Proceeds from (repayment of) bank loans	(697,281)	13,018,270
Short-term borrowings	(437,170)	1,029,387
Repayment of other borrowings		(10,186,796)
Loans from/(to) related party	1,341,936	(3,611,480)
Sale of common stock	2,739,000	2,423,503
NET CASH PROVIDED BY FINANCING ACTIVITIES	2,946,485	2,672,884
EFFECT OF EXCHANGE RATE ON CASH	(753,078)	48,560
INCREASE IN CASH	1,540,555	3,041,885
CASH - BEGINNING OF PERIOD	5,371,545	2,329,660
CASH - END OF PERIOD	6,912,100	5,371,545
Supplemental disclosures of cash flow information:
Cash paid for interest	2,388,106	3,113,976
Cash paid for income taxes
Supplemental Disclosures of non-cash activities:
Debt extinguishment using stock	$ 2,662,597	$ 4,866,288

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1 Business Description

12 Months Ended

Jun. 30, 2016

Notes

1 Business Description

1                BUSINESS DESCRIPTION

Aoxing Pharmaceutical Co., Inc. (“the Company” or “Aoxing Pharma”) is a specialty pharmaceutical company specializing in research, development, manufacturing and distribution of a variety of narcotic, pain-management, and addiction treatment pharmaceutical products.

As of June 30, 2016, the Company had one operating subsidiary: Hebei Aoxing Pharmaceutical Co., Inc. (“Hebei”), which is organized under the laws of the People’s Republic of China (“PRC”).  As of June 30, 2016, the Company owned 95% of the issued and outstanding common stock of Hebei.

Since 2002, Hebei has been engaged in developing narcotic, pain management, and addiction treatment pharmaceutical products, building its facilities and obtaining the requisite licenses from the Chinese Government.  Headquartered in Shijiazhuang City, the pharmaceutical capital of China, outside of Beijing, Hebei now has China's largest and the most advanced manufacturing facility for highly regulated narcotic medicines, addressing a very under-served and fast-growing market in China. Its facility is one of the few GMP facilities licensed for manufacturing narcotics medicines. The Company is working closely with the Chinese government and CFDA to assure the strictly regulated availability to medical professionals throughout China of its narcotic drugs and pain medicines.

In April, 2008, Hebei completed the acquisition of 100% of the registered capital of Lerentang (“LRT”).  LRT was engaged in the manufacture and distribution of Chinese traditional medicines focusing on pain management related therapeutics within China.  By 2011 the manufacturing operations of LRT had been completely integrated into Hebei.  Currently over 90% of the Company’s revenues derive from one herbal extraction, obtained from the acquisition of LRT, which is used to alleviate oral/dental and bone pain. 

Investment in Joint Venture (“JV”)

On April 26, 2010, Aoxing Pharma and Johnson Matthey Plc (‘JM”) entered into an agreement to establish a joint venture focused on research, development, manufacturing and marketing of active pharmaceutical ingredients for narcotics and neurological drugs for the China market. The joint venture represents a significant new opportunity for both companies to expand their business in the rapidly growing pharmaceutical market in China. Under the terms of the agreement, Macfarlan Smith Ltd, a wholly owned subsidiary of Johnson Matthey Plc, headquartered in the United Kingdom, will contribute technology expertise and capital to the joint venture. Hebei will contribute capital, fixed assets and related active pharmaceutical ingredients manufacturing licenses. The joint venture company is called Hebei Aoxing API Pharmaceutical Company, Ltd. (“API”). Hebei Aoxing has a 51% stake in API, while Macfarlan Smith (Hong Kong) Ltd (a wholly owned subsidiary of JM) holds 49%. Each company has equal representation on the board of directors that will oversee a management team responsible for corporate strategies and operations. The new joint venture is located on the Hebei campus in Xinle City, 200 kilometers southwest of Beijing. On March 10, 2010, the joint venture obtained a business license from the City Industry & Commercial Administrative Bureau. The Company accounts for its investment in the Joint Venture under the equity method of accounting.

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2 Significant Accounting Policies

12 Months Ended

Jun. 30, 2016

Notes

2 Significant Accounting Policies

2                SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant inter-company accounts and transactions have been eliminated. These consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America.  The Company’s functional currency is the Chinese Renminbi (RMB). However, the accompanying consolidated financial statements have been translated and presented in United States Dollars (USD).

Use of estimates in the preparation of financial statements

The preparation of the consolidated financial statements in conformity with generally accepted accounting principles 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 consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. Significant estimates reflected in the consolidated financial statements include, but are not limited to, the recoverability of the carrying amount and estimated useful lives of long-lived assets, allowance for accounts receivable, realizable values for inventories, valuation allowance of deferred tax assets, impairment assessment of goodwill, and share-based compensation expenses. Management makes these estimates using the best information available at the time the estimates are made. However, actual results when ultimately realized could differ significantly from those estimates.

Cash and cash equivalents

The Company maintains cash and cash equivalents with financial institutions in the PRC which are not insured or otherwise protected. Should any of these institutions holding the Company’s cash become insolvent, or if the Company is unable to withdraw funds for any reason, the Company could lose the cash on deposit with that institution. Cash and cash equivalents include cash on hand and cash in time deposits, certificates of deposit and all highly liquid debt instruments with original maturities of three months or less.

Accounts Receivable

Accounts receivables represent customer accounts receivables. The allowance for doubtful accounts is based on a combination of current sales, historical charge-offs and specific accounts identified as high risk. Uncollectible accounts receivable are charged against the allowance for doubtful accounts when all reasonable efforts to collect the amounts due have been exhausted. Such allowances, if any, would be recorded in the period the impairment is identified. The balances of allowance for doubtful accounts are $1,940,354 and $1,364,330 at June 30, 2016 and 2015 respectively. The Company recorded bad debt expense of $576,024 for the year ended June 30, 2016 and bad debt written back of $204,597 for the year ended June 30, 2015, respectively.

Inventories, net

Inventories are stated at the lower of cost, determined using the weighted average cost method, and net realizable value. Net realizable value is the estimated selling price, in the ordinary course of business, less estimated costs to complete and dispose. The Company wrote-off $118,846 of obsolete inventory during the year ended June 30, 2016. The Company charged $108,601 against the allowance for obsolete inventory during the year ended June 30, 2015. For the years ended June 30, 2016 and 2015, the Company’s allowance for obsolete inventory is $584,674 and $633,948, respectively.

Property and equipment

Property and equipment are recorded at cost.  Depreciation is provided in amounts sufficient to amortize the cost of the related assets over their useful lives using the straight line method for financial reporting purposes.

Construction in progress is stated at cost, which includes the cost of construction, acquisition of plant and equipment and other direct costs attributable to the construction. Construction in progress is not depreciated until such time as the assets are completed and put into operational use. No capitalized interest is incurred during the period of construction.

All land in the PRC is owned by the PRC government. The government in the PRC, according to the relevant PRC law, may sell the right to use the land for a specified period of time. Thus, all of the Company’s land purchases in the PRC are considered to be leasehold land and are stated at cost less accumulated amortization and any recognized impairment loss. Amortization is provided over the term of the land use right agreements on a straight-line basis, which is 50 years and they will expire in 2053.

Maintenance, repairs and minor renewals are charged to expense when incurred. Replacements and major renewals are capitalized.

Estimated useful lives are as follows:

Right to use land	50 years
Building and building improvements	35 years
Machinery and equipment	10 years
Furniture and office equipment	5 years
Automobiles	8 years

Intangible assets

Definite lived intangible assets include drug permits recorded at cost less accumulated amortization and any recognized impairment loss. The drug permits were acquired in 2008 when the Company purchased LRT and are amortized over their estimated useful life of 15 years on a straight-line basis. In addition, the Company acquired the intellectual properties relating to Lorcaserin Hydrochloride, Caffeine tablets and Caffeine buccal tablets, and Buprenorphine/naloxone through issuance of the Company’s common stock. An intangible asset that is subject to amortization shall be reviewed for impairment in accordance with the Impairment or Disposal of Long-Lived Assets ASC 360-10. In accordance with Accounting Standards Codification (“ASC”) Topic 360-10-5, “Impairment or Disposal of Long-Lived Assets”, the Company performs an intangible asset impairment test for its definite-lived intangibles whenever events or changes in circumstances indicate that its carrying amount may not be recoverable.  The intangible assets balance as of June 30, 2016 and June 30, 2015 were $1,878,299 and $484,857 respectively.

Revenue Recognition

In accordance with the ASC Topic 605, “Revenue Recognition”, the Company recognizes revenue when persuasive evidence of an arrangement exists, transfer of title has occurred or services have been rendered, the selling price is fixed or determinable and collectability is reasonably assured. Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as advances from customers. The agreements with customers do not contain any rights of return other than for goods that fail to meet the specifications provided by the customer or other quality problems. The Company has not experienced any significant returns from customers and accordingly, in management’s opinion, no reserve for returns is provided.

The Company derives revenues from the sale of pharmaceutical products. The Company recognizes its revenues net of value-added taxes (“VAT”). The Company is subject to VAT which is levied on the majority of the products at the rate 17% on the invoiced value of sales. Output VAT is borne by customers in addition to the invoiced value of sales and input VAT is borne by the Company in addition to the invoiced value of purchases to the extent not refunded for export sales.

The Company recognizes revenue from the sale of products upon customers’ receipt of the shipment at the customers’ facility or upon when the transfer of title and risk of loss has transferred to the customer. The Company has distributor arrangements with certain parties for sale of its pharmaceutical products. The distributor agreements do not provide chargeback, price protection, or stock rotation rights.

Research and Development

Research and development is charged to expense as incurred.

Share-Based Compensation

Share-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the requisite service period.  The Company’s policy is to recognize compensation cost for awards with only service conditions and a graded vesting schedule on a straight-line basis over the requisite service period for the entire award.

Impairment of long lived assets

In accordance with the provisions of ASC Topic 360-10-5, “Impairment or Disposal of Long-Lived Assets,” all long-lived assets such as property, plant and equipment, land use rights and intangible assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. For assets that are to be held and used, impairment is recognized when the estimated undiscounted cash flows associated with the asset or group of assets is less than their carrying value. If impairment exists, an adjustment is made to write the asset down to its fair value, and a loss is recorded as the difference between the carrying value and fair value. Fair values are determined based on quoted market values, discounted cash flows or internal and external appraisals, as applicable. Assets to be disposed of are carried at the lower of carrying value or estimated net realizable value.

Income taxes

The Company uses the asset and liability method of accounting for income taxes in accordance with ASC Topic 740, “Income Taxes.” Under this method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current year and (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if based on the weight of the available positive and negative evidence, it is more likely than not some portion or all of the deferred tax assets will not be realized.

ASC Topic 740-10-30 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740-10-40 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. We have no material uncertain tax positions for any of the reporting periods presented.

Non-controlling interest

Non-controlling interests in our subsidiaries are recorded in accordance with the provisions of ASC Topic 810, “Consolidation”, and are reported as a component of our equity, separate from the parent’s equity. Purchase or sale of equity interests that do not result in a change of control are accounted for as equity transactions. Results of operations attributable to the non-controlling interests are included in our consolidated results of operations and, upon loss of control, the interest sold, as well as interest retained, If any, will be reported at fair value with any gain or loss recognized in earnings.

Under ASC 810-10-45-21, losses attributable to the parent and the non-controlling interest in a subsidiary may exceed their interests in the subsidiary’s equity. The excess, and any further losses attributable to the parent and the non-controlling interest, shall be attributed to those interests. That is, the non-controlling interest shall continue to be attributed its share of losses even if that attribution results in a deficit non-controlling interest balance

Currency translation

Since the Company operates primarily in the PRC, the Company’s functional currency is the Chinese Yuan (”RMB”) while the reporting currency is the United States Dollars (“USD”). Revenue and expense accounts are translated at the average rates during the period, and balance sheet items are translated at year-end rates.  Translation adjustments arising from the use of differing exchange rates from period to period are included as a separate component of shareholders’ equity.  Gains and losses from foreign currency transactions are recognized in current operations.

	2016	2015
Year ended RMB: US$ exchange rate	6.6453	6.1288
Average yearly RMB: US$ exchange rate	6.4385	6.1452

The RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions. No representation is made that the RMB amounts could have been, or could be, converted into USD at the rates used in translation.

Fair value of financial instruments

The Company has adopted ASC Topic 820, ”Fair Value Measurement and Disclosure”, which defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. It does not require any new fair value measurements, but provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of the information. It establishes a three-level valuation hierarchy of valuation techniques based on observable and unobservable inputs, which may be used to measure fair value and include the following:

Level 1 - Quoted prices in active markets for identical assets or liabilities.

Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Classification within the hierarchy is determined based on the lowest level of input that is significant to the fair value measurement.

The carrying amount of cash and cash equivalents, accounts receivable, inventories, prepaid expenses and other current assets, accounts payable and accrued expenses are reasonable estimates of their fair value because of the short term nature of these items.

As of June 30, 2016, the Company does not have any assets or liabilities that are measured on a recurring basis at fair value. The Company’s short-term borrowings, loans payable, related party notes payable and unrelated party notes payable that are considered Level 2 financial instruments measured at fair value on a non-recurring basis as of June 30, 2016. 

As of June 30, 2016, the Company does not have any level 3 financial instruments. The Company uses the discounted cash flow approach when determining fair values of its non-recurring fair value measurements when required. We determine the fair value of our goodwill for purposes of comparing to the carrying value on at least an annual basis. Our goodwill would be adjusted to fair value if it is deemed to be impaired. Certain unobservable units for these assets are offered quotes, lack of marketability, long-term revenue growth rates and discounts rates. For Level 3 measurements, significant increases or decreases in long-term growth rates or discount rates in isolation or in combination could result in a significantly lower or higher fair value measurement. In general, a change in the long-term growth rate of our Hebei Aoxing business unit could negatively affect the fair value of our goodwill.

Comprehensive income

ASC Topic 220, “Comprehensive Income”, establishes standards for reporting and display of comprehensive income or loss, its components and accumulated balances. Comprehensive income or loss as defined includes all changes in equity during a period from non-owner sources. Accumulated other comprehensive income or loss, as presented in the accompanying statement of changes in shareholders’ equity, consists of changes in unrealized gains and losses on foreign currency translation. This comprehensive income is not included in the computation of income tax expense or benefit

Earnings per share

Basic earnings per common share are computed on the basis of the weighted average number of common shares outstanding during the period. Diluted earnings per share are computed on the basis of the weighted average number of common shares and dilutive securities (such as warrants and convertible preferred stock) outstanding. Dilutive securities having an anti-dilutive effect on diluted earnings per share are excluded from the calculation.

Statement of cash flows

In accordance with the provisions of Accounting Standards Codification on “Statement of Cash Flows,” cash flows from the Company’s operations are calculated based upon the local currencies. As a result, amounts related to assets and liabilities reported on the statement of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheet.

Segment reporting

ASC Topic 280, “Segment Reporting” establishes standards for reporting information about operating segments on a basis consistent with the Company’s internal organization structure as well as information about geographical areas, business segments and major customers in financial statements. For the year ended June 30, 2016, ASC 280 has an immaterial effect on the Company’s financial statements, as the Company consists of one reportable business segment.  All revenue is from customers in the PRC.  The majority of the Company’s assets are located in the PRC.

Recent accounting pronouncements

The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and does not believe the future adoption of any such pronouncements may be expected to cause a material impact on its financial condition or the results of its operations.

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”). ASU 2014-09 supersedes the revenue recognition requirements in “Revenue Recognition (Topic 605)”, and requires entities to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. The FASB issued ASU No. 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date” (“ASU 2015-14”) in August 2015. The amendments in ASU 2015-14 defer the effective date of ASU 2014-09. Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier adoption is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period.  Further to ASU 2014-09 and ASU 2015-14, the FASB issued ASU No. 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)” (“ASU 2016-08”) in March 2016, ASU No. 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing” (“ASU 2016-10”) in April 2016, and ASU No. 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients” (“ASU 2016-12”), respectively.  The amendments in ASU 2016-08 clarify the implementation guidance on principal versus agent considerations, including indicators to assist an entity in determining whether it controls a specified good or service before it is transferred to the customers.  ASU 2016-10 clarifies guideline related to identifying performance obligations and licensing implementation guidance contained in the new revenue recognition standard.  The updates in ASU 2016-10 include targeted improvements based on input the FASB received from the Transition Resource Group for Revenue Recognition and other stakeholders.  It seeks to proactively address areas in which diversity in practice potentially could arise, as well as to reduce the cost and complexity of applying certain aspects of the guidance both at implementation and on an ongoing basis.  ASU 2016-12 addresses narrow-scope improvements to the guidance on collectibility, non-cash consideration, and completed contracts at transition.  Additionally, the amendments in this ASU provide a practical expedient for contract modifications at transition and an accounting policy election related to the presentation of sales taxes and other similar taxes collected from customers.  The effective date and transition requirements for ASU 2016-08, ASU 2016-10 and ASU 2016-12 are the same as ASU 2014-09.  We are currently in the process of evaluating the impact of the adoption of ASU 2014-09, ASU 2016-08, ASU 2016-10 and ASU 2016-12 on our financial statements.

In July 2015, the FASB issued ASU No. 2015-11, “Inventory (Topic 330): Simplifying the Measurement of Inventory” (“ASU 2015-11”). The amendments in this update require an entity to measure inventory within the scope of ASU 2015-11 (the amendments in ASU 2015-11 do not apply to inventory that is measured using last-in, first-out or the retail inventory method. The amendments apply to all other inventory, which includes inventory that is measured using first-in, first-out or average cost) at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is uncharged for inventory measured using last-in, first-out or the retail inventory method. The amendments in ASU 2015-11 more closely align the measurement of inventory in U.S. GAAP with the measurement of inventory in International Financial Reporting Standards (“IFRS”). ASU 2015-11 is effective for public business entities for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The amendments in ASU 2015-11 should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. We do not expect the adoption of ASU No. 2015-11 to have a material impact on our financial statements.

In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which defers the effective date of ASU 2014-09 for all entities by one year. Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. Currently, the Company is evaluating the impact of our pending adoption of ASU 2014-09 and ASU 2015-14 on its consolidated financial statements and has not yet determined the method by which it will adopt the standard in year 2018.

In November 2015, the FASB issued ASU No. 2015-17, “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes” (“ASU 2015-17”).  Topic 740, Income Taxes, requires an entity to separate deferred income tax liabilities and assets into current and noncurrent amounts in a classified statement of financial position.  Deferred tax liabilities and assets are classified as current or noncurrent based on the classification of the related asset or liability for financial reporting.  Deferred tax liabilities and assets that are not related to an asset or liability for financial reporting are classified according to the expected reversal date of the temporary difference.  To simplify the presentation of deferred income taxes, the amendments in ASU 2015-17 require that deferred income tax liabilities and assets be classified as noncurrent in a classified statement of financial position.  For public business entities, the amendments in this update are effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods.  We do not expect the adoption of ASU 2015-17 to have a material impact on our financial statements.

In January 2016, the FASB issued ASU No. 2016-01, “Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities” (“ASU 2016-01”).  The amendments in this update require all equity investments to be measured at fair value with changes in the fair value recognized through net income (other than those accounted for under equity method of accounting or those that result in consolidation of the investee).  The amendments in this update also require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments.  In addition the amendments in this update eliminate the requirement for to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet for public entities.  For public business entities, the amendments in ASU 2016-01 are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years.  Except for the early application guidance discussed in ASU 2016-01, early adoption of the amendments in this update is not permitted.  We do not expect the adoption of ASU 2016-01 to have a material impact on our consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)” (“ASU 2016-02”).  The amendments in this update create Topic 842, Leases, and supersede the leases requirements in Topic 840, Leases.  Topic 842 specifies the accounting for leases.  The objective of Topic 842 is to establish the principles that lessees and lessors shall apply to report useful information to users of financial statements about the amount, timing, and uncertainty of cash flows arising from a lease.  The main difference between Topic 842 and Topic 840 is the recognition of lease assets and lease liabilities for those leases classified as operating leases under Topic 840.  Topic 842 retains a distinction between finance leases and operating leases. The classification criteria for distinguishing between finance leases and operating leases are substantially similar to the classification criteria for distinguishing between capital leases and operating leases in the previous leases guidance. The result of retaining a distinction between finance leases and operating leases is that under the lessee accounting model in Topic 842, the effect of leases in the statement of comprehensive income and the statement of cash flows is largely unchanged from previous GAAP.  The amendments in ASU 2016-02 are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years for public business entities.  Early application of the amendments in ASU 2016-02 is permitted.  We are currently in the process of evaluating the impact of the adoption of ASU 2016-02 on our financial statements.

In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, requiring the recognition of the income tax effects of stock awards in the income statement when the awards are settled and allowing the Company to repurchase more of an employee's shares than allowed under current guidance, without triggering liability accounting. This ASU also addresses simplifications related to statement of cash flows classification and accounting for forfeitures. This ASU is effective for the Company beginning in the first quarter of 2017 and allows for early adoption. The Company is currently evaluating the impact this ASU will have on its Consolidated Financial Statements.

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”).  Financial Instruments—Credit Losses (Topic 326) amends guideline on reporting credit losses for assets held at amortized cost basis and available-for-sale debt securities.  For assets held at amortized cost basis, Topic 326 eliminates the probable initial recognition threshold in current GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses.  The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected.  For available-for-sale debt securities, credit losses should be measured in a manner similar to current GAAP, however Topic 326 will require that credit losses be presented as an allowance rather than as a write-down.  ASU 2016-13 affects entities holding financial assets and net investment in leases that are not accounted for at fair value through net income.  The amendments affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash.  The amendments in this ASU will be effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.  We are currently evaluating the impact of the adoption of ASU 2016-13 on our financial statements.

These ASUs are effective for the Company beginning in the first quarter of 2018, allow for early adoption in the first quarter of 2017 and may be applied using either a full retrospective approach or a modified retrospective approach. The Company is currently evaluating the method of adoption and the impact these ASUs will have on its Consolidated Financial Statements.

In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Gross versus Net), clarifying the principal versus agent guidance in the new revenue recognition standard, by revising the indicators to focus on evidence that the company is a principal.

In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, reducing the complexity when applying the guidance for identifying performance obligations and clarifying how to determine whether revenue related to a performance obligation for an intellectual property license is recognized over time or at a point in time.

In May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, clarifying certain core recognition principles including collectability, sales tax presentation, noncash consideration, contract modifications and completed contracts at transition.

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3 Going Concern

12 Months Ended

Jun. 30, 2016

Notes

3 Going Concern

3                 GOING CONCERN

We have incurred operating losses in the past and had an accumulated deficit of $56.3 56,293,745million as of June 30, 2016. In addition, we had negative working capital of $10.9 10,900,000million as of June 30, 2016, although this is a significant improvement from the negative working capital of $20.1 million as of June 30, 2015. Currently and historically, the Company has managed to operate the business with negative net working capital. The Company’s negative working capital is primarily due to our accumulated deficit, which we funded by short-term bank loans.

The Company is able to operate with negative net working capital because of loans from banks and related parties. The Company believes future positive operating cash flows, continued support from related parties, and the ability to continue to roll over short-term debt, taken together, provide adequate resources to fund ongoing operations in the foreseeable future. The Company may also seek equity financing to replace both short-term and long-term debts. The Company believes that the increased market demand for its main products in the near term and the sales from several new products in future years will produce substantial positive cash flow.

Management of the Company believes that the Company's large negative working capital will continue to improve during fiscal year 2017. Management expects the improvement to come from improved operating results, by extending short term into longer term loans, and by selling equity and converting debt to equity. Management anticipates that these improvements will enable the Company to reduce current high interest expenses and fund on-going operations.  The management of the Company has taken a number of actions and will continue to address this situation in order to restore the Company to a sound financial position going forward. In September 2015, the Company sold 2,352,941 shares of common stock and 1,764,706 common stock purchase warrants to an institutional investor and also issued warrants to purchase 141,176 shares of common stock to the placement agent and its affiliates. The company received a net proceed of $2,739,000. Each warrant will permit the holder to purchase one share of common stock from the Company at $1.74 per share. The Company will receive a total of $3,316,234.68 if the warrants are exercised. In November 2015, the Company converted $2.66 million high interest bearing debt into 2,046,995 shares of common stock.

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4 Inventories, Net

12 Months Ended

Jun. 30, 2016

Notes

4 Inventories, Net

4                 INVENTORIES, NET

Inventories consist of the following:

	June 30,
	2016		2015
Work in process	$	568,876	$	383,950
Raw materials		805,024		676,590
Finished goods		1,467,790		2,179,486
	$	2,841,690	$	3,240,026

The allowance for obsolete inventory as of June 30, 2016 and 2015 was $584,674 and $465,828, respectively.  

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5 Property and Equipment, Net

12 Months Ended

Jun. 30, 2016

Notes

5 Property and Equipment, Net

5                PROPERTY AND EQUIPMENT, NET

Property, plant and equipment, net, consisted of the following:

	June 30,
	2016		2015
Right to use land	$	7,526,481	$	8,160,781
Building and building improvements		20,289,583		19,388,880
Machinery and equipment		3,983,597		6,882,678
Furniture and office equipment		608,484		650,851
Automobiles		116,317		126,120
Construction in progress		486,731		460,113
		33,011,193		35,669,423
Accumulated depreciation and amortization		7,407,459		7,017,706
	$	25,603,734	$	28,651,717

Depreciation expense for the years ended June 30, 2016 and 2015 were $508,775 and $634,344, respectively.

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6 Equity-method Investment in Joint Venture

12 Months Ended

Jun. 30, 2016

Notes

6 Equity-method Investment in Joint Venture

6                 EQUITY-METHOD INVESTMENT IN JOINT VENTURE

The Company accounts for its investment in API (see Note 1) under the equity method of accounting.

Summarized unaudited financial information for our investment in API, assuming a 100% ownership interest, is as follows:

	June 30,
	2016			2015
Current assets	$	9,602		$	11,767
Noncurrent assets		654,213			758,649
Current liabilities		710,148			640,416
Noncurrent liabilities		-			-
Equity		(46,333)			130,000
Revenues
General and administrative expenses		166,229			183,044
Net loss	$	(166,229	)	$	(183,044	)

The Company recorded a loss on investment of $84,500 and $93,352 for the years ended June 30, 2016 and 2015 respectively for its 51% (50% control right) share of API.

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7 Short-term Borrowing

12 Months Ended

Jun. 30, 2016

Notes

7 Short-term Borrowing

7                SHORT-TERM BORROWING

Short-term borrowing consists of the following:

	June 30,
	2016			2015
Shijiazhuang Finance Bureau (a)		$	75,241		$	81,582
Shijiazhuang Construction Investment Group Co., Ltd (b)			4,815,426			5,058,086
Mr. Li Hui (c)			-			2,304
Hebei Henghui Investment Management Co., Ltd (d)			2,117,283			3,263,282
TianJin Heng Xing Mirco Finance Bureau (e)			3,762,052			4,079,102
Xinle SASAC Office (f)			300,964			-
Total		$	11,070,966		$	12,484,356

(a) A non-interest bearing note payable to Shijiazhuang Finance Bureau, an agency of a local government, due on demand.

(b) A one-year loan from Shijiazhuang Construction Investment Group, disbursed through China Construction Bank. The notes bear an annual interest rate of 12%. $1,860,234 was due on October 25, 2015 and was extended to October 23, 2016. $3,100,391 was due on July 12, 2015 and was extended to October 25, 2015 and then further extended to October 25, 2016. The notes were secured by certain registered trademarks and renewal certificates relating to Aoxing’s Zhongtong’an capsule.

(c) The balance of $2,304 as at June 30, 2015 represents unpaid portion of interest which was already repaid in fiscal 2016.

(d) A six-month term loan from Hebei Henghui Investment Management Co., Ltd. The note bears an annual interest rate of 10% and has been extended to October 20, 2016.

(e) A short term loan from TianJin Heng Xing Mirco Finance Bureau. The note bears an annual interest rate of 20.04%, and was extended to November 18, 2016.

(f) A short term loan from Xinle State-Owned Assets Supervision and Administration Commission. This loan bears an annual interest rate of 9.6%. The term was from January 25, 2016 to June 25, 2016 and was extended to March 31, 2017.

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8 Loan Payable - Bank

12 Months Ended

Jun. 30, 2016

Notes

8 Loan Payable - Bank

8                 LOAN PAYABLE – BANK

Loan payable – bank consist of the following loans collateralized by assets of the company:

	June 30,
	2016		2015
Bank Note in the amount of 30 million RMB with Shijiazhuang Huirong Rural Cooperative Bank bearing an annual interest rate of 10% made on September 23, 2014. The note matured on November 22, 2014 and was extended to September 15, 2016	$	4,514,462	$	4,894,922
Bank Note in the amount of 27 million RMB with Postal Savings Bank bearing an annual interest rate of 7.08%, made on July 22, 2014 for one year maturing on July 21, 2015 and was extended to April 6, 2017.		3,859,865		4,894,922
Bank Note in the amount of 20 million RMB with China Merchant Bank bearing an annual floating rate of 5.98%, initially made on December 27, 2013, renewed on January 13, 2015 for one year maturing on April 4, 2017.		2,991,584		3,263,282
Bank Note in the amount of 19.9 million RMB with China Everbright Bank bearing 5.655% interest per annum made on January 16, 2015 for one year maturing on January 15, 2016 and was extended to February 24, 2017.		3,006,719		3,263,282
	$	14,372,630	$	16,316,408

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9 Loan Payable - Other

12 Months Ended

Jun. 30, 2016

Notes

9 Loan Payable - Other

9                LOAN PAYABLE – OTHER

Loan payable – other consist of loans from unrelated third-parties, bearing interest at an average rate of 10.0% per annum as of June 30, 2016 and June 30, 2015.  

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10 Loan Payable - Related Parties

12 Months Ended

Jun. 30, 2016

Notes

10 Loan Payable - Related Parties

10                LOAN PAYABLE – RELATED PARTIES

Loan payable – related parties bears interest at an average rate of 10.0% per annum as of June 30, 2016 and June 30, 2015.

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11 Notes Payable - Related Parties

12 Months Ended

Jun. 30, 2016

Notes

11 Notes Payable - Related Parties

11          NOTES PAYABLE

Notes payable represents notes payable to the third party banks. It was $0 and $1,631,641 as of June 30, 2016 and 2015, respectively.

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12 Deferred Income

12 Months Ended

Jun. 30, 2016

Notes

12 Deferred Income

12           DEFERRED INCOME    

The balance of deferred income is the result of government grants received for the improvement of the production line of the Zhongtong’an product. As the project was, this government grants were transferred from construction in progress (CIP) to building and building improvements.  The government grants, which is recorded as deferred income, are recognized as subsidy income on a systematic basis (straight-line method) over the useful life of the fixed asset, which is 35 years in this case.

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13 Accrued Expenses and Other Current Liabilities

12 Months Ended

Jun. 30, 2016

Notes

13 Accrued Expenses and Other Current Liabilities

13              ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and taxes consist of the following:

	June 30,
	2016		2015
Accrued salaries and benefits	$	1,168,653	$	1,616,963
Accrued interest		2,602,674		2,073,073
Accrued taxes		2,619,533		1,281,704
Accrued marketing fee		569,082		442,460
Accrued office expenses		779,040		166,720
Deposit payable		588,905		572,105
Due to employee		43,316		46,967
Advance from customers		413,848		291,005
Other accounts payable		572,013		241,512
Other accrued expenses and current liabilities		276,686		443,816
	$	9,633,750	$	7,176,325

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14 Stock Options

12 Months Ended

Jun. 30, 2016

Notes

14 Stock Options

14              STOCK OPTIONS

On January 1, 2015, the Company issued a total of 300,000 common stock purchase options to management. This stock compensation grant was valued at $74,691 and the Company recorded $22,822 stock option compensation expense for the year ended June 30, 2015.

The unrecognized compensation expense for the Company as of June 30, 2015 and 2016 were $51,869 and $18,673 respectively.

The Company calculated the estimated fair value of the options of the grant date using the Black-Scholes Option Pricing Model with the following assumptions:

	For the year ended June 30, 2016
Estimated dividends	None
Expected volatility		101.63	%
Risk-free interest rate		1.65	%
Expected term (years)		5

The model requires the input of subjective assumptions including the expected stock price volatility and the expected dividend yield. The Company uses historical experience of employee turnover and future expectation to estimate forfeiture rate. For expected volatilities, the Company has made reference to historical volatilities of the Company’s stock. The risk-free interest rate for periods within the contractual life of the option is based on the U.S. Treasury Bills yield in effect at the time of grant.

On January 5, 2016, the Board of Directors granted options for a total of 590,000 shares of common stock to 25 employees of the Company. The options are exercisable at a price of $.64 per share, which was the closing price for the common stock on January 4, 2016. Each option has a term of five years. The options vested on June 23, 2016 when they were approved by the shareholders of the Company. The Company calculated the estimated fair value of the options of the grant date using the Black-Scholes Option Pricing Model with the following assumptions:

	For the year ended June 30, 2016
Estimated dividends	None
Expected volatility		117.21	%
Risk-free interest rate		2.92	%
Expected term (years)		5

A summary of option activity as of June 30, 2016 and 2015, and changes during the years then ended is as followings:

						Weighted-avg.		Aggregate
				Weighted-avg.		remaining		intrinsic
	Shares			Exercise Price		Term (yr.)		Value
On June 30, 2013		132,000		$	2.00	1.1		$	0
Granted:		-		$	-	-			-
Exercised:		-			-	-			-
Forfeited:		-		-		-		-
On June 30, 2014		132,000		$	2.00	0.1		$	0
Granted:		300,000		$	0.33		5.0	-
Exercised:		-		-		-		-
Forfeited:		(132,000	)	-		-		-
On June 30, 2015		300,000		$	0.33		4.5	$	426,000
Granted:		890,000					-		-
Exercised:		-					-		-
Forfeited:		300,000					-		-
On June 30, 2016		590,000		$	0.33		4.0	$	426,000

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15 Issuance of Common Stock

12 Months Ended

Jun. 30, 2016

Notes

15 Issuance of Common Stock

15             ISSUANCE OF COMMON STOCK

On September 5, 2014, the Company issued 11,862,278 shares of common stock in satisfaction of $4.6 million in debt. The shares were valued at $0.39 per share, which exceeded the six month average share price as well as the market price at time of issuance. Paid in capital was increased by $4,614,426 as a result of the exchange.

On December 23, 2014 the Company sold to 22 of its employees a total of 4,527,832 shares of common stock for a total of $1,177,236 or $0.26 per share, which exceeded the market price on October 4, 2014, when the contract of sale was made.

On February 3, 2015, the Company issued 300,000 shares of common stock to management at $0.33 per share. The shares are equally vested on January 1, 2016, January 1, 2017 and January 1, 2018. The Company recorded $30,250 stock compensation expense for the year ended June 30, 2015 and the unrecognized compensation expense was $68,750.

On February 3, 2015, the Company issued 40,000 shares of common stock to independent directors at $0.39 per shares for services rendered by them.

On February 3, 2015, the Company issued 1,704,915 shares of its common stock to six investors, each of whom is either an employee or a consultant to the Company. The average purchase price for the shares was $0.32 per share.

On March 12, 2015, the Company issued 480,000 shares of its common stock to a creditor at $0.5 per share to offset a loan payable.

On April 8 2015, the company sold 508,000 shares of common stock to officers and employees of the Company at a price of $1.36 per share, which exceeded the market price at time of issuance.

On April 8 2015, the Company also issued 521,412 shares of common stock at a price of $1.36 per share to a creditor in satisfaction of $709,120 debt.

On September 10, 2015, the Company issued 60,000 shares of common stock to independent directors at $2.01 per share for services rendered by them.

On September 30, 2015 the Company issued 2,352,941 shares of common stock and 1,764,706 common stock purchases warrants pursuant to a securities purchase agreement dated as of September 24, 2015. The purchaser was an institutional investor. Each warrant will permit the holder to purchase one share of common stock from the Company for a price of $1.74 per share. The warrants will be exercisable from March 31, 2016 until March 31, 2021. Cashless exercise of the warrants is permitted only if there is no effective registration statement permitting resale of the common shares underlying the warrants.

The proceeds from the offerings were $2,739,000, net of issuance costs of $261,000 paid to the placement agent. The warrants were classified as equity at the date of issuance. They contained no provision that would require liability classification, and can be exercised on a cashless basis. Accordingly, they were classified as equity at the date of issuance. The proceeds were allocated between common stock and warrant, based on relative fair value. The issuance cost was recorded as a reduction of additional paid in capital.

In connection with the aforesaid sale, the Company issued to the placement agent and its affiliates warrants to purchase 141,176 shares of common stock. The warrants issued to the placement agent and its affiliates are substantially identical to the warrants sold to the institutional investor. The fair value of these warrants, which amounted to $175,150, was classified as equity at the date of issuance and recorded as an offset to the proceeds from the issuance of the shares and warrants.

The fair value of the warrants issued was estimated by using the Black-Scholes-Merton Option Pricing Model with the following assumptions:

	For the year ended June 30, 2016
	Investor
Stock price	0.64
Exercise price	1.74
Expected life in years	4.2
Annualized Volatility		140.71%
Annual Rate of Quarterly Dividends		1.65
Discount Rate - Bond Equivalent Yield		1.01

The Company applied its best judgment to estimate key assumptions in determining the fair value of the warrants on the date of issuance. The Company used historical data to estimate stock volatilities. The risk-free rates are consistent with the terms of the warrants and are based on the United States Treasury yield curve in effect at the time of issuance.

The weighted average fair value of warrants granted for the year ended June 30, 2016 was $0.49 per share. No warrants were exercised, cancelled or expired during the period ended June 30, 2016.

On November 4, 2015, the Company reached agreement with three of its creditors to convert $2.66 million high interest bearing debt into 2,046,995 shares of common stock. The shares were valued at $1.30 per share and will be restricted under Rule 144.

On January 5, 2016 the Board of Directors approved three technology acquisition agreements made by the Company during December 2015. Pursuant to the agreements, the Company (a) issued 800,000 shares of common stock and paid $123,000 to acquire technology relating to the formulation of Lorcaserin Hydrochloride for $0.66 per each stock, (b) issued 500,000 shares of common stock and paid $77,000 to acquire certain technology relating to the formulation of caffeine tablets for $0.66 per each stock, and (c) issued 500,000 shares of common stock and paid $77,000 to acquire certain technology relating to the formulation of Buprenorphine/ Naloxone for $0.71 per each stock. The share price was determined by the Company’s stock price at the issuance date.

On January 5, 2016 the Board of Directors approved two consulting agreements pursuant to which a total of 110,000 shares of common stock were issued in exchange for media and investor relations consulting services for $0.66 per each stock based on the Company’s stock price at the issuance date.

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16 Taxes

12 Months Ended

Jun. 30, 2016

Notes

16 Taxes

16              TAXES

The Company’s Chinese subsidiaries are governed by the Income Tax Law of the People’s Republic of China concerning private-run enterprises, which are generally subject to tax at a statutory rate of 25% on income reported in the statutory financial statements after appropriate tax adjustments.

The reconciliation of income tax at the U.S. statutory rate to the Company’s effective tax rate is as follows:

	Year Ended June 30,
	2016		2015
Tax at U.S. Statutory rate	$	1,010,039	$	1,089,936
Tax rate difference between China and U.S.		(1,271,231)		(1,046,086)
Change in Valuation Allowance		233,892		(1,031,621)
Net operating loss expired		-		955,983
Stock and option compensation		27,300		31,788
Impairment loss on goodwill		-
Effective tax rate	$	-	$	-

The provisions of income taxes (credit) are summarized as follows:

	Year Ended June 30,
	2016			2015
Current	$	(190,770	)	$	-
Deferred - U.S.		(483,789	)		(229,859	)
Deferred – China		1,082,912			(1,442,889	)
Valuation allowance - U.S.		483,789			229,859
Valuation allowance – China		(249,897	)		(1,261,480	)
Total	$	642,245		$	(2,704,369	)

The tax effects of temporary differences that give rise to the Company’s net deferred tax asset as of June 30, 2016 and 2014 are as follows:

	Year Ended June 30,
	2016		2015
Net operating loss carryforward - China	$	213,060	$	1,342,696
Net operating loss carryforward - US		2,418,909		1,935,121
Allowance for doubtful accounts		447,294		823,190
Accrued salary payable		139,330		338,390
Uninvoiced expenses		782,360		-
Others		309,264		469,944
		4,310,217		4,909,341
Less: valuation allowance- U.S.		(2,418,909)		(1,935,121)
valuation allowance- China.		(12,713)		(262,610)
Deferred tax assets	$	1,878,595	$	2,711,610

The Company’s net operating loss was as follows

Fiscal year to be expired		Amount of net operating loss
FY 2017	$		8,490,144
FY 2018			2,350,563
FY 2019			7,896,369
FY 2020			1,322,799
FY 2021			1,382,254
			21,442,129

As of June 30, 2015, the Company has recognized deferred tax assets of $1,878,595. The Company’s loss carry forwards for the past 5 years produced a significant amount of the deferred tax assets and the realization of tax loss carry forwards are deemed to be probable. Therefore, the Company determined it was appropriate under US GAAP to recognize the deferred tax assets during the Fiscal 2016.

For the year ended June 30, 2016 and 2015, the Company did not have any interest and penalties associated with tax positions. As of June 30, 2016 and 2015, the Company did not have any significant unrecognized uncertain tax positions.

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17 Concentrations

12 Months Ended

Jun. 30, 2016

Notes

17 Concentrations

17              CONCENTRATIONS

Sales to two major customers were 13% and 5% of total sales for the year ended June 30, 2016.  Sales to two major customers were 7% and 5% of total sales for the year ended June 30, 2015.

Sales of one major product represented approximately 85% and 95% of total sales for the years ended June 30, 2016 and 2015, respectively.

Two major customers accounted for 8% and 7% of outstanding accounts receivable as of June 30, 2016. Two major customers accounted for 4% and 0.1% of outstanding accounts receivable as of June 30, 2015. 

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18 Subsequent Events

12 Months Ended

Jun. 30, 2016

Notes

18 Subsequent Events

18              SUBSEQUENT EVENTS

In accordance with ASC 855 “Subsequent Events”, which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued, we have evaluated all events or transactions that occurred after June 30, 2016 up through the date we issued the consolidated financial statements and has determined that there was no other material event that occurred after the date of the balance sheets included in this report.

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2 Significant Accounting Policies: Basis of Presentation (Policies)

12 Months Ended

Jun. 30, 2016

Policies

Basis of Presentation

Basis of presentation

The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant inter-company accounts and transactions have been eliminated. These consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America.  The Company’s functional currency is the Chinese Renminbi (RMB). However, the accompanying consolidated financial statements have been translated and presented in United States Dollars (USD).

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2 Significant Accounting Policies: Use of Estimates in The Preparation of Financial Statements (Policies)

12 Months Ended

Jun. 30, 2016

Policies

Use of Estimates in The Preparation of Financial Statements

Use of estimates in the preparation of financial statements

The preparation of the consolidated financial statements in conformity with generally accepted accounting principles 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 consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. Significant estimates reflected in the consolidated financial statements include, but are not limited to, the recoverability of the carrying amount and estimated useful lives of long-lived assets, allowance for accounts receivable, realizable values for inventories, valuation allowance of deferred tax assets, impairment assessment of goodwill, and share-based compensation expenses. Management makes these estimates using the best information available at the time the estimates are made. However, actual results when ultimately realized could differ significantly from those estimates.

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2 Significant Accounting Policies: Cash and Cash Equivalents (Policies)

12 Months Ended

Jun. 30, 2016

Policies

Cash and Cash Equivalents

Cash and cash equivalents

The Company maintains cash and cash equivalents with financial institutions in the PRC which are not insured or otherwise protected. Should any of these institutions holding the Company’s cash become insolvent, or if the Company is unable to withdraw funds for any reason, the Company could lose the cash on deposit with that institution. Cash and cash equivalents include cash on hand and cash in time deposits, certificates of deposit and all highly liquid debt instruments with original maturities of three months or less.

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2 Significant Accounting Policies: Accounts Receivable (Policies)

12 Months Ended

Jun. 30, 2016

Policies

Accounts Receivable

Accounts Receivable

Accounts receivables represent customer accounts receivables. The allowance for doubtful accounts is based on a combination of current sales, historical charge-offs and specific accounts identified as high risk. Uncollectible accounts receivable are charged against the allowance for doubtful accounts when all reasonable efforts to collect the amounts due have been exhausted. Such allowances, if any, would be recorded in the period the impairment is identified. The balances of allowance for doubtful accounts are $1,940,354 and $1,364,330 at June 30, 2016 and 2015 respectively. The Company recorded bad debt expense of $576,024 for the year ended June 30, 2016 and bad debt written back of $204,597 for the year ended June 30, 2015, respectively.

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2 Significant Accounting Policies: Inventories, Net (Policies)

12 Months Ended

Jun. 30, 2016

Policies

Inventories, Net

Inventories, net

Inventories are stated at the lower of cost, determined using the weighted average cost method, and net realizable value. Net realizable value is the estimated selling price, in the ordinary course of business, less estimated costs to complete and dispose. The Company wrote-off $118,846 of obsolete inventory during the year ended June 30, 2016. The Company charged $108,601 against the allowance for obsolete inventory during the year ended June 30, 2015. For the years ended June 30, 2016 and 2015, the Company’s allowance for obsolete inventory is $584,674 and $633,948, respectively.

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2 Significant Accounting Policies: Property and Equipment (Policies)

12 Months Ended

Jun. 30, 2016

Policies

Property and Equipment

Property and equipment

Property and equipment are recorded at cost.  Depreciation is provided in amounts sufficient to amortize the cost of the related assets over their useful lives using the straight line method for financial reporting purposes.

Construction in progress is stated at cost, which includes the cost of construction, acquisition of plant and equipment and other direct costs attributable to the construction. Construction in progress is not depreciated until such time as the assets are completed and put into operational use. No capitalized interest is incurred during the period of construction.

All land in the PRC is owned by the PRC government. The government in the PRC, according to the relevant PRC law, may sell the right to use the land for a specified period of time. Thus, all of the Company’s land purchases in the PRC are considered to be leasehold land and are stated at cost less accumulated amortization and any recognized impairment loss. Amortization is provided over the term of the land use right agreements on a straight-line basis, which is 50 years and they will expire in 2053.

Maintenance, repairs and minor renewals are charged to expense when incurred. Replacements and major renewals are capitalized.

Estimated useful lives are as follows:

Right to use land	50 years
Building and building improvements	35 years
Machinery and equipment	10 years
Furniture and office equipment	5 years
Automobiles	8 years

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2 Significant Accounting Policies: Intangible Assets (Policies)

12 Months Ended

Jun. 30, 2016

Policies

Intangible Assets

Intangible assets

Definite lived intangible assets include drug permits recorded at cost less accumulated amortization and any recognized impairment loss. The drug permits were acquired in 2008 when the Company purchased LRT and are amortized over their estimated useful life of 15 years on a straight-line basis. In addition, the Company acquired the intellectual properties relating to Lorcaserin Hydrochloride, Caffeine tablets and Caffeine buccal tablets, and Buprenorphine/naloxone through issuance of the Company’s common stock. An intangible asset that is subject to amortization shall be reviewed for impairment in accordance with the Impairment or Disposal of Long-Lived Assets ASC 360-10. In accordance with Accounting Standards Codification (“ASC”) Topic 360-10-5, “Impairment or Disposal of Long-Lived Assets”, the Company performs an intangible asset impairment test for its definite-lived intangibles whenever events or changes in circumstances indicate that its carrying amount may not be recoverable.  The intangible assets balance as of June 30, 2016 and June 30, 2015 were $1,878,299 and $484,857 respectively.

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2 Significant Accounting Policies: Revenue Recognition (Policies)

12 Months Ended

Jun. 30, 2016

Policies

Revenue Recognition

Revenue Recognition

In accordance with the ASC Topic 605, “Revenue Recognition”, the Company recognizes revenue when persuasive evidence of an arrangement exists, transfer of title has occurred or services have been rendered, the selling price is fixed or determinable and collectability is reasonably assured. Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as advances from customers. The agreements with customers do not contain any rights of return other than for goods that fail to meet the specifications provided by the customer or other quality problems. The Company has not experienced any significant returns from customers and accordingly, in management’s opinion, no reserve for returns is provided.

The Company derives revenues from the sale of pharmaceutical products. The Company recognizes its revenues net of value-added taxes (“VAT”). The Company is subject to VAT which is levied on the majority of the products at the rate 17% on the invoiced value of sales. Output VAT is borne by customers in addition to the invoiced value of sales and input VAT is borne by the Company in addition to the invoiced value of purchases to the extent not refunded for export sales.

The Company recognizes revenue from the sale of products upon customers’ receipt of the shipment at the customers’ facility or upon when the transfer of title and risk of loss has transferred to the customer. The Company has distributor arrangements with certain parties for sale of its pharmaceutical products. The distributor agreements do not provide chargeback, price protection, or stock rotation rights.

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2 Significant Accounting Policies: Research and Development (Policies)

12 Months Ended

Jun. 30, 2016

Policies

Research and Development

Research and Development

Research and development is charged to expense as incurred.

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2 Significant Accounting Policies: Share-based Compensation (Policies)

12 Months Ended

Jun. 30, 2016

Policies

Share-based Compensation

Share-Based Compensation

Share-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the requisite service period.  The Company’s policy is to recognize compensation cost for awards with only service conditions and a graded vesting schedule on a straight-line basis over the requisite service period for the entire award.

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2 Significant Accounting Policies: Impairment of Long Lived Assets (Policies)

12 Months Ended

Jun. 30, 2016

Policies

Impairment of Long Lived Assets

Impairment of long lived assets

In accordance with the provisions of ASC Topic 360-10-5, “Impairment or Disposal of Long-Lived Assets,” all long-lived assets such as property, plant and equipment, land use rights and intangible assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. For assets that are to be held and used, impairment is recognized when the estimated undiscounted cash flows associated with the asset or group of assets is less than their carrying value. If impairment exists, an adjustment is made to write the asset down to its fair value, and a loss is recorded as the difference between the carrying value and fair value. Fair values are determined based on quoted market values, discounted cash flows or internal and external appraisals, as applicable. Assets to be disposed of are carried at the lower of carrying value or estimated net realizable value.

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2 Significant Accounting Policies: Income Taxes (Policies)

12 Months Ended

Jun. 30, 2016

Policies

Income Taxes

Income taxes

The Company uses the asset and liability method of accounting for income taxes in accordance with ASC Topic 740, “Income Taxes.” Under this method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current year and (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if based on the weight of the available positive and negative evidence, it is more likely than not some portion or all of the deferred tax assets will not be realized.

ASC Topic 740-10-30 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740-10-40 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. We have no material uncertain tax positions for any of the reporting periods presented.

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2 Significant Accounting Policies: Non-controlling Interest (Policies)

12 Months Ended

Jun. 30, 2016

Policies

Non-controlling Interest

Non-controlling interest

Non-controlling interests in our subsidiaries are recorded in accordance with the provisions of ASC Topic 810, “Consolidation”, and are reported as a component of our equity, separate from the parent’s equity. Purchase or sale of equity interests that do not result in a change of control are accounted for as equity transactions. Results of operations attributable to the non-controlling interests are included in our consolidated results of operations and, upon loss of control, the interest sold, as well as interest retained, If any, will be reported at fair value with any gain or loss recognized in earnings.

Under ASC 810-10-45-21, losses attributable to the parent and the non-controlling interest in a subsidiary may exceed their interests in the subsidiary’s equity. The excess, and any further losses attributable to the parent and the non-controlling interest, shall be attributed to those interests. That is, the non-controlling interest shall continue to be attributed its share of losses even if that attribution results in a deficit non-controlling interest balance

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2 Significant Accounting Policies: Currency Translation (Policies)

12 Months Ended

Jun. 30, 2016

Policies

Currency Translation

Currency translation

Since the Company operates primarily in the PRC, the Company’s functional currency is the Chinese Yuan (”RMB”) while the reporting currency is the United States Dollars (“USD”). Revenue and expense accounts are translated at the average rates during the period, and balance sheet items are translated at year-end rates.  Translation adjustments arising from the use of differing exchange rates from period to period are included as a separate component of shareholders’ equity.  Gains and losses from foreign currency transactions are recognized in current operations.

	2016	2015
Year ended RMB: US$ exchange rate	6.6453	6.1288
Average yearly RMB: US$ exchange rate	6.4385	6.1452

The RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions. No representation is made that the RMB amounts could have been, or could be, converted into USD at the rates used in translation.

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2 Significant Accounting Policies: Fair Value Measurement (Policies)

12 Months Ended

Jun. 30, 2016

Policies

Fair Value Measurement

Fair value of financial instruments

The Company has adopted ASC Topic 820, ”Fair Value Measurement and Disclosure”, which defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. It does not require any new fair value measurements, but provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of the information. It establishes a three-level valuation hierarchy of valuation techniques based on observable and unobservable inputs, which may be used to measure fair value and include the following:

Level 1 - Quoted prices in active markets for identical assets or liabilities.

Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Classification within the hierarchy is determined based on the lowest level of input that is significant to the fair value measurement.

The carrying amount of cash and cash equivalents, accounts receivable, inventories, prepaid expenses and other current assets, accounts payable and accrued expenses are reasonable estimates of their fair value because of the short term nature of these items.

As of June 30, 2016, the Company does not have any assets or liabilities that are measured on a recurring basis at fair value. The Company’s short-term borrowings, loans payable, related party notes payable and unrelated party notes payable that are considered Level 2 financial instruments measured at fair value on a non-recurring basis as of June 30, 2016. 

As of June 30, 2016, the Company does not have any level 3 financial instruments. The Company uses the discounted cash flow approach when determining fair values of its non-recurring fair value measurements when required. We determine the fair value of our goodwill for purposes of comparing to the carrying value on at least an annual basis. Our goodwill would be adjusted to fair value if it is deemed to be impaired. Certain unobservable units for these assets are offered quotes, lack of marketability, long-term revenue growth rates and discounts rates. For Level 3 measurements, significant increases or decreases in long-term growth rates or discount rates in isolation or in combination could result in a significantly lower or higher fair value measurement. In general, a change in the long-term growth rate of our Hebei Aoxing business unit could negatively affect the fair value of our goodwill.

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2 Significant Accounting Policies: Comprehensive Income (Policies)

12 Months Ended

Jun. 30, 2016

Policies

Comprehensive Income

Comprehensive income

ASC Topic 220, “Comprehensive Income”, establishes standards for reporting and display of comprehensive income or loss, its components and accumulated balances. Comprehensive income or loss as defined includes all changes in equity during a period from non-owner sources. Accumulated other comprehensive income or loss, as presented in the accompanying statement of changes in shareholders’ equity, consists of changes in unrealized gains and losses on foreign currency translation. This comprehensive income is not included in the computation of income tax expense or benefit

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2 Significant Accounting Policies: Earnings Per Share (Policies)

12 Months Ended

Jun. 30, 2016

Policies

Earnings Per Share

Earnings per share

Basic earnings per common share are computed on the basis of the weighted average number of common shares outstanding during the period. Diluted earnings per share are computed on the basis of the weighted average number of common shares and dilutive securities (such as warrants and convertible preferred stock) outstanding. Dilutive securities having an anti-dilutive effect on diluted earnings per share are excluded from the calculation.

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2 Significant Accounting Policies: Statement of Cash Flows (Policies)

12 Months Ended

Jun. 30, 2016

Policies

Statement of Cash Flows

Statement of cash flows

In accordance with the provisions of Accounting Standards Codification on “Statement of Cash Flows,” cash flows from the Company’s operations are calculated based upon the local currencies. As a result, amounts related to assets and liabilities reported on the statement of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheet.

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2 Significant Accounting Policies: Segment Reporting (Policies)

12 Months Ended

Jun. 30, 2016

Policies

Segment Reporting

Segment reporting

ASC Topic 280, “Segment Reporting” establishes standards for reporting information about operating segments on a basis consistent with the Company’s internal organization structure as well as information about geographical areas, business segments and major customers in financial statements. For the year ended June 30, 2016, ASC 280 has an immaterial effect on the Company’s financial statements, as the Company consists of one reportable business segment.  All revenue is from customers in the PRC.  The majority of the Company’s assets are located in the PRC.

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2 Significant Accounting Policies: Recent Accounting Pronouncements (Policies)

12 Months Ended

Jun. 30, 2016

Policies

Recent Accounting Pronouncements

Recent accounting pronouncements

The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and does not believe the future adoption of any such pronouncements may be expected to cause a material impact on its financial condition or the results of its operations.

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”). ASU 2014-09 supersedes the revenue recognition requirements in “Revenue Recognition (Topic 605)”, and requires entities to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. The FASB issued ASU No. 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date” (“ASU 2015-14”) in August 2015. The amendments in ASU 2015-14 defer the effective date of ASU 2014-09. Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier adoption is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period.  Further to ASU 2014-09 and ASU 2015-14, the FASB issued ASU No. 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)” (“ASU 2016-08”) in March 2016, ASU No. 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing” (“ASU 2016-10”) in April 2016, and ASU No. 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients” (“ASU 2016-12”), respectively.  The amendments in ASU 2016-08 clarify the implementation guidance on principal versus agent considerations, including indicators to assist an entity in determining whether it controls a specified good or service before it is transferred to the customers.  ASU 2016-10 clarifies guideline related to identifying performance obligations and licensing implementation guidance contained in the new revenue recognition standard.  The updates in ASU 2016-10 include targeted improvements based on input the FASB received from the Transition Resource Group for Revenue Recognition and other stakeholders.  It seeks to proactively address areas in which diversity in practice potentially could arise, as well as to reduce the cost and complexity of applying certain aspects of the guidance both at implementation and on an ongoing basis.  ASU 2016-12 addresses narrow-scope improvements to the guidance on collectibility, non-cash consideration, and completed contracts at transition.  Additionally, the amendments in this ASU provide a practical expedient for contract modifications at transition and an accounting policy election related to the presentation of sales taxes and other similar taxes collected from customers.  The effective date and transition requirements for ASU 2016-08, ASU 2016-10 and ASU 2016-12 are the same as ASU 2014-09.  We are currently in the process of evaluating the impact of the adoption of ASU 2014-09, ASU 2016-08, ASU 2016-10 and ASU 2016-12 on our financial statements.

In July 2015, the FASB issued ASU No. 2015-11, “Inventory (Topic 330): Simplifying the Measurement of Inventory” (“ASU 2015-11”). The amendments in this update require an entity to measure inventory within the scope of ASU 2015-11 (the amendments in ASU 2015-11 do not apply to inventory that is measured using last-in, first-out or the retail inventory method. The amendments apply to all other inventory, which includes inventory that is measured using first-in, first-out or average cost) at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is uncharged for inventory measured using last-in, first-out or the retail inventory method. The amendments in ASU 2015-11 more closely align the measurement of inventory in U.S. GAAP with the measurement of inventory in International Financial Reporting Standards (“IFRS”). ASU 2015-11 is effective for public business entities for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The amendments in ASU 2015-11 should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. We do not expect the adoption of ASU No. 2015-11 to have a material impact on our financial statements.

In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which defers the effective date of ASU 2014-09 for all entities by one year. Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. Currently, the Company is evaluating the impact of our pending adoption of ASU 2014-09 and ASU 2015-14 on its consolidated financial statements and has not yet determined the method by which it will adopt the standard in year 2018.

In November 2015, the FASB issued ASU No. 2015-17, “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes” (“ASU 2015-17”).  Topic 740, Income Taxes, requires an entity to separate deferred income tax liabilities and assets into current and noncurrent amounts in a classified statement of financial position.  Deferred tax liabilities and assets are classified as current or noncurrent based on the classification of the related asset or liability for financial reporting.  Deferred tax liabilities and assets that are not related to an asset or liability for financial reporting are classified according to the expected reversal date of the temporary difference.  To simplify the presentation of deferred income taxes, the amendments in ASU 2015-17 require that deferred income tax liabilities and assets be classified as noncurrent in a classified statement of financial position.  For public business entities, the amendments in this update are effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods.  We do not expect the adoption of ASU 2015-17 to have a material impact on our financial statements.

In January 2016, the FASB issued ASU No. 2016-01, “Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities” (“ASU 2016-01”).  The amendments in this update require all equity investments to be measured at fair value with changes in the fair value recognized through net income (other than those accounted for under equity method of accounting or those that result in consolidation of the investee).  The amendments in this update also require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments.  In addition the amendments in this update eliminate the requirement for to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet for public entities.  For public business entities, the amendments in ASU 2016-01 are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years.  Except for the early application guidance discussed in ASU 2016-01, early adoption of the amendments in this update is not permitted.  We do not expect the adoption of ASU 2016-01 to have a material impact on our consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)” (“ASU 2016-02”).  The amendments in this update create Topic 842, Leases, and supersede the leases requirements in Topic 840, Leases.  Topic 842 specifies the accounting for leases.  The objective of Topic 842 is to establish the principles that lessees and lessors shall apply to report useful information to users of financial statements about the amount, timing, and uncertainty of cash flows arising from a lease.  The main difference between Topic 842 and Topic 840 is the recognition of lease assets and lease liabilities for those leases classified as operating leases under Topic 840.  Topic 842 retains a distinction between finance leases and operating leases. The classification criteria for distinguishing between finance leases and operating leases are substantially similar to the classification criteria for distinguishing between capital leases and operating leases in the previous leases guidance. The result of retaining a distinction between finance leases and operating leases is that under the lessee accounting model in Topic 842, the effect of leases in the statement of comprehensive income and the statement of cash flows is largely unchanged from previous GAAP.  The amendments in ASU 2016-02 are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years for public business entities.  Early application of the amendments in ASU 2016-02 is permitted.  We are currently in the process of evaluating the impact of the adoption of ASU 2016-02 on our financial statements.

In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, requiring the recognition of the income tax effects of stock awards in the income statement when the awards are settled and allowing the Company to repurchase more of an employee's shares than allowed under current guidance, without triggering liability accounting. This ASU also addresses simplifications related to statement of cash flows classification and accounting for forfeitures. This ASU is effective for the Company beginning in the first quarter of 2017 and allows for early adoption. The Company is currently evaluating the impact this ASU will have on its Consolidated Financial Statements.

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”).  Financial Instruments—Credit Losses (Topic 326) amends guideline on reporting credit losses for assets held at amortized cost basis and available-for-sale debt securities.  For assets held at amortized cost basis, Topic 326 eliminates the probable initial recognition threshold in current GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses.  The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected.  For available-for-sale debt securities, credit losses should be measured in a manner similar to current GAAP, however Topic 326 will require that credit losses be presented as an allowance rather than as a write-down.  ASU 2016-13 affects entities holding financial assets and net investment in leases that are not accounted for at fair value through net income.  The amendments affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash.  The amendments in this ASU will be effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.  We are currently evaluating the impact of the adoption of ASU 2016-13 on our financial statements.

These ASUs are effective for the Company beginning in the first quarter of 2018, allow for early adoption in the first quarter of 2017 and may be applied using either a full retrospective approach or a modified retrospective approach. The Company is currently evaluating the method of adoption and the impact these ASUs will have on its Consolidated Financial Statements.

In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Gross versus Net), clarifying the principal versus agent guidance in the new revenue recognition standard, by revising the indicators to focus on evidence that the company is a principal.

In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, reducing the complexity when applying the guidance for identifying performance obligations and clarifying how to determine whether revenue related to a performance obligation for an intellectual property license is recognized over time or at a point in time.

In May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, clarifying certain core recognition principles including collectability, sales tax presentation, noncash consideration, contract modifications and completed contracts at transition.

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2 Significant Accounting Policies: Property and Equipment: Schedule of Property, Plant and Equipment - Estimated Useful Lives (Tables)

12 Months Ended

Jun. 30, 2016

Tables/Schedules

Schedule of Property, Plant and Equipment - Estimated Useful Lives

Right to use land	50 years
Building and building improvements	35 years
Machinery and equipment	10 years
Furniture and office equipment	5 years
Automobiles	8 years

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2 Significant Accounting Policies: Currency Translation: Schedule of Currency Translation (Tables)

12 Months Ended

Jun. 30, 2016

Tables/Schedules

Schedule of Currency Translation

	2016	2015
Year ended RMB: US$ exchange rate	6.6453	6.1288
Average yearly RMB: US$ exchange rate	6.4385	6.1452

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4 Inventories, Net: Schedule of Inventory, Current (Tables)

12 Months Ended

Jun. 30, 2016

Tables/Schedules

Schedule of Inventory, Current

	June 30,
	2016		2015
Work in process	$	568,876	$	383,950
Raw materials		805,024		676,590
Finished goods		1,467,790		2,179,486
	$	2,841,690	$	3,240,026

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5 Property and Equipment, Net: Property, Plant and Equipment (Tables)

12 Months Ended

Jun. 30, 2016

Tables/Schedules

Property, Plant and Equipment

	June 30,
	2016		2015
Right to use land	$	7,526,481	$	8,160,781
Building and building improvements		20,289,583		19,388,880
Machinery and equipment		3,983,597		6,882,678
Furniture and office equipment		608,484		650,851
Automobiles		116,317		126,120
Construction in progress		486,731		460,113
		33,011,193		35,669,423
Accumulated depreciation and amortization		7,407,459		7,017,706
	$	25,603,734	$	28,651,717

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6 Equity-method Investment in Joint Venture: Schedule of Equity Method Investments (Tables)

12 Months Ended

Jun. 30, 2016

Tables/Schedules

Schedule of Equity Method Investments

	June 30,
	2016			2015
Current assets	$	9,602		$	11,767
Noncurrent assets		654,213			758,649
Current liabilities		710,148			640,416
Noncurrent liabilities		-			-
Equity		(46,333)			130,000
Revenues
General and administrative expenses		166,229			183,044
Net loss	$	(166,229	)	$	(183,044	)

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7 Short-term Borrowing: Schedule of Short Term Debt (Tables)

12 Months Ended

Jun. 30, 2016

Tables/Schedules

Schedule of Short Term Debt

	June 30,
	2016			2015
Shijiazhuang Finance Bureau (a)		$	75,241		$	81,582
Shijiazhuang Construction Investment Group Co., Ltd (b)			4,815,426			5,058,086
Mr. Li Hui (c)			-			2,304
Hebei Henghui Investment Management Co., Ltd (d)			2,117,283			3,263,282
TianJin Heng Xing Mirco Finance Bureau (e)			3,762,052			4,079,102
Xinle SASAC Office (f)			300,964			-
Total		$	11,070,966		$	12,484,356

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8 Loan Payable - Bank: Schedule of Long-term Debt Instruments (Tables)

12 Months Ended

Jun. 30, 2016

Tables/Schedules

Schedule of Long-term Debt Instruments

	June 30,
	2016		2015
Bank Note in the amount of 30 million RMB with Shijiazhuang Huirong Rural Cooperative Bank bearing an annual interest rate of 10% made on September 23, 2014. The note matured on November 22, 2014 and was extended to September 15, 2016	$	4,514,462	$	4,894,922
Bank Note in the amount of 27 million RMB with Postal Savings Bank bearing an annual interest rate of 7.08%, made on July 22, 2014 for one year maturing on July 21, 2015 and was extended to April 6, 2017.		3,859,865		4,894,922
Bank Note in the amount of 20 million RMB with China Merchant Bank bearing an annual floating rate of 5.98%, initially made on December 27, 2013, renewed on January 13, 2015 for one year maturing on April 4, 2017.		2,991,584		3,263,282
Bank Note in the amount of 19.9 million RMB with China Everbright Bank bearing 5.655% interest per annum made on January 16, 2015 for one year maturing on January 15, 2016 and was extended to February 24, 2017.		3,006,719		3,263,282
	$	14,372,630	$	16,316,408

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13 Accrued Expenses and Other Current Liabilities: Schedule of Accounts Payable and Accrued Liabilities (Tables)

12 Months Ended

Jun. 30, 2016

Tables/Schedules

Schedule of Accounts Payable and Accrued Liabilities

	June 30,
	2016		2015
Accrued salaries and benefits	$	1,168,653	$	1,616,963
Accrued interest		2,602,674		2,073,073
Accrued taxes		2,619,533		1,281,704
Accrued marketing fee		569,082		442,460
Accrued office expenses		779,040		166,720
Deposit payable		588,905		572,105
Due to employee		43,316		46,967
Advance from customers		413,848		291,005
Other accounts payable		572,013		241,512
Other accrued expenses and current liabilities		276,686		443,816
	$	9,633,750	$	7,176,325

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14 Stock Options: Schedule of Share-based Compensation, Stock Options, Activity (Tables)

12 Months Ended

Jun. 30, 2016

Tables/Schedules

Schedule of Share-based Compensation, Stock Options, Activity

						Weighted-avg.		Aggregate
				Weighted-avg.		remaining		intrinsic
	Shares			Exercise Price		Term (yr.)		Value
On June 30, 2013		132,000		$	2.00	1.1		$	0
Granted:		-		$	-	-			-
Exercised:		-			-	-			-
Forfeited:		-		-		-		-
On June 30, 2014		132,000		$	2.00	0.1		$	0
Granted:		300,000		$	0.33		5.0	-
Exercised:		-		-		-		-
Forfeited:		(132,000	)	-		-		-
On June 30, 2015		300,000		$	0.33		4.5	$	426,000
Granted:		890,000					-		-
Exercised:		-					-		-
Forfeited:		300,000					-		-
On June 30, 2016		590,000		$	0.33		4.0	$	426,000

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15 Issuance of Common Stock: Assumptions Used Textblock (Tables)

12 Months Ended

Jun. 30, 2016

Tables/Schedules

Assumptions Used Textblock

	For the year ended June 30, 2016
	Investor
Stock price	0.64
Exercise price	1.74
Expected life in years	4.2
Annualized Volatility		140.71%
Annual Rate of Quarterly Dividends		1.65
Discount Rate - Bond Equivalent Yield		1.01

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16 Taxes: Schedule of Effective Income Tax Rate Reconciliation (Tables)

12 Months Ended

Jun. 30, 2016

Tables/Schedules

Schedule of Effective Income Tax Rate Reconciliation

	Year Ended June 30,
	2016		2015
Tax at U.S. Statutory rate	$	1,010,039	$	1,089,936
Tax rate difference between China and U.S.		(1,271,231)		(1,046,086)
Change in Valuation Allowance		233,892		(1,031,621)
Net operating loss expired		-		955,983
Stock and option compensation		27,300		31,788
Impairment loss on goodwill		-
Effective tax rate	$	-	$	-

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16 Taxes: Schedule of Components of Income Tax Expense (Benefit) (Tables)

12 Months Ended

Jun. 30, 2016

Tables/Schedules

Schedule of Components of Income Tax Expense (Benefit)

	Year Ended June 30,
	2016			2015
Current	$	(190,770	)	$	-
Deferred - U.S.		(483,789	)		(229,859	)
Deferred – China		1,082,912			(1,442,889	)
Valuation allowance - U.S.		483,789			229,859
Valuation allowance – China		(249,897	)		(1,261,480	)
Total	$	642,245		$	(2,704,369	)

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16 Taxes: Schedule of Deferred Tax Assets and Liabilities (Tables)

12 Months Ended

Jun. 30, 2016

Tables/Schedules

Schedule of Deferred Tax Assets and Liabilities

	Year Ended June 30,
	2016		2015
Net operating loss carryforward - China	$	213,060	$	1,342,696
Net operating loss carryforward - US		2,418,909		1,935,121
Allowance for doubtful accounts		447,294		823,190
Accrued salary payable		139,330		338,390
Uninvoiced expenses		782,360		-
Others		309,264		469,944
		4,310,217		4,909,341
Less: valuation allowance- U.S.		(2,418,909)		(1,935,121)
valuation allowance- China.		(12,713)		(262,610)
Deferred tax assets	$	1,878,595	$	2,711,610

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16 Taxes: Summary of Operating Loss Carryforwards (Tables)

12 Months Ended

Jun. 30, 2016

Tables/Schedules

Summary of Operating Loss Carryforwards

Fiscal year to be expired		Amount of net operating loss
FY 2017	$		8,490,144
FY 2018			2,350,563
FY 2019			7,896,369
FY 2020			1,322,799
FY 2021			1,382,254
			21,442,129

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2 Significant Accounting Policies: Accounts Receivable (Details) - USD ($)	12 Months Ended
	Jun. 30, 2016	Jun. 30, 2015
Details
Allowance for doubtful accounts	$ 1,940,354	$ 1,364,330
Allowance for Doubtful Accounts Receivable, Write-offs	$ 576,024	$ 204,597

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2 Significant Accounting Policies: Inventories, Net (Details) - USD ($)	12 Months Ended
	Jun. 30, 2016	Jun. 30, 2015
Inventory Valuation Reserves	$ 584,674	$ 465,828
Obsolete Inventory
Inventory Write-down	108,601
Inventory Valuation Reserves	$ 584,674	$ 633,948

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2 Significant Accounting Policies: Property and Equipment: Schedule of Property, Plant and Equipment - Estimated Useful Lives (Details)	12 Months Ended
	Jun. 30, 2016
Right to use land
Property, Plant and Equipment, Useful Life	50 years
Building and Building Improvements
Property, Plant and Equipment, Useful Life	35 years
Machinery and Equipment
Property, Plant and Equipment, Useful Life	10 years
Furniture and Fixtures
Property, Plant and Equipment, Useful Life	5 years
Automobiles
Property, Plant and Equipment, Useful Life	8 years

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2 Significant Accounting Policies: Intangible Assets (Details) - USD ($)	Jun. 30, 2016	Jun. 30, 2015
Details
Intangible Assets, Current	$ 1,878,299	$ 484,857

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2 Significant Accounting Policies: Currency Translation: Schedule of Currency Translation (Details)	12 Months Ended
	Jun. 30, 2016	Jun. 30, 2015
Details
Year ended RMB: US$ exchange rate	6.6453	6.1288
Average yearly RMB: US$ exchange rate	6.4385	6.1452

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3 Going Concern (Details) - USD ($)	Jun. 30, 2016	Jun. 30, 2015
Details
Accumulated deficit	$ 56,293,745	$ 58,354,968
Working Capital Deficit	$ 10,900,000

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4 Inventories, Net: Schedule of Inventory, Current (Details) - USD ($)	Jun. 30, 2016	Jun. 30, 2015
Details
Inventory, Work in Process, Gross	$ 568,876	$ 383,950
Inventory, Raw Materials, Gross	805,024	676,590
Inventory, Finished Goods, Gross	1,467,790	2,179,486
Inventories, net	$ 2,841,690	$ 3,240,026

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4 Inventories, Net (Details) - USD ($)	Jun. 30, 2016	Jun. 30, 2015
Details
Inventory Valuation Reserves	$ 584,674	$ 465,828

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5 Property and Equipment, Net: Property, Plant and Equipment (Details) - USD ($)	Jun. 30, 2016	Jun. 30, 2015
Property, Plant and Equipment, Gross	$ 33,011,193	$ 35,669,423
Accumulated Depreciation, Depletion and Amortization, Property, Plant, and Equipment	7,407,459	7,017,706
Property and equipment, net of accumulated depreciation	25,603,734	28,651,717
Right to use land
Property, Plant and Equipment, Gross	7,526,481	8,160,781
Building
Property, Plant and Equipment, Gross	20,289,583	19,388,880
Machinery and Equipment
Property, Plant and Equipment, Gross	3,983,597	6,882,678
Furniture and Fixtures
Property, Plant and Equipment, Gross	608,484	650,851
Automobiles
Property, Plant and Equipment, Gross	116,317	126,120
Construction in Progress
Property, Plant and Equipment, Gross	$ 486,731	$ 460,113

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5 Property and Equipment, Net (Details) - USD ($)	12 Months Ended
	Jun. 30, 2016	Jun. 30, 2015
Details
Depreciation, Nonproduction	$ 508,775	$ 634,344

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6 Equity-method Investment in Joint Venture: Schedule of Equity Method Investments (Details) - USD ($)	12 Months Ended
	Jun. 30, 2016	Jun. 30, 2015
Details
Equity Method Investment, Summarized Financial Information, Current Assets	$ 9,602	$ 11,767
Equity Method Investment, Summarized Financial Information, Noncurrent Assets	654,213	758,649
Equity Method Investment, Summarized Financial Information, Current Liabilities	710,148	640,416
Equity Method Investment Summarized Financial Information, Equity	(46,333)	130,000
Equity Method Investment, Summarized Financial Information, Cost of Sales	166,229	183,044
Equity Method Investment, Summarized Financial Information, Gross Profit (Loss)	$ (166,229)	$ (183,044)

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6 Equity-method Investment in Joint Venture (Details) - USD ($)	12 Months Ended
	Jun. 30, 2016	Jun. 30, 2015
Details
Equity Method Investment, Summarized Financial Information, Net Income (Loss)	$ 84,500	$ 93,352

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7 Short-term Borrowing: Schedule of Short Term Debt (Details) - USD ($)		Jun. 30, 2016	Jun. 30, 2015
Short-term borrowings		$ 11,070,966	$ 12,484,356
Shijiazhuang Finance Bureau
Short-term borrowings	[1]	75,241	81,582
Shijiazhuang Construction Investment Group Co., Ltd
Short-term borrowings	[2]	4,815,426	5,058,086
Mr. Li Hui
Short-term borrowings	[3]		2,304
Hebei Henghui Investment Management Co., Ltd.
Short-term borrowings	[4]	2,117,283	3,263,282
TianJin Heng Xing Mirco Finance Bureau
Short-term borrowings	[5]	3,762,052	$ 4,079,102
XinleSASACOfficeMember
Short-term borrowings	[6]	$ 300,964

[1] A non-interest bearing note payable to Shijiazhuang Finance Bureau, an agency of a local government, due on demand.

[2] A one-year term loan from Shijiazhuang Construction Investment Group, disbursed through China Construction Bank. The notes bear an annual interest rate of 12%. $1,860,234 was due on October 25, 2015 and was extended to October 23, 2016. $3,100,391 was due on July 12, 2015 and extended to October 25, 2015 and then further extended to October 25, 2016. The notes were secured by certain registered trademarks and renewal certificates relating to Aoxing’s Zhongtongan capsule.

[3] The balance of $2,304 as at June 30, 2015 represents unpaid portion of interest which was already repaid in fiscal 2016.

[4] A six-month term loan from Hebei Henghui Investment Management Co., Ltd. The note bears an annual interest rate of 10% and has been extended to October 20, 2016.

[5] A short term loan from TianJin Heng Xing Mirco Finance Bureau. The note bears an annual interest rate of 20.04%, and was extended to November 18, 2016.

[6] A short term loan from Xinle State-Owned Assets Supervision and Administration Commission. This loan bears an annual interest rate of 9.6%. The term is from January 25, 2016 to June 25, 2016 and was extended to March 19, 2017.

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8 Loan Payable - Bank: Schedule of Long-term Debt Instruments (Details) - USD ($)		Jun. 30, 2016	Jun. 30, 2015
LoansPayableToBankCurrent		$ 14,372,630	$ 16,316,408
ShijiazhuangHuirongRuralCooperativeBankMember
LoansPayableToBankCurrent	[1]	4,514,462	4,894,922
Postal Savings Bank
LoansPayableToBankCurrent	[2]	3,859,865	4,894,922
China Merchant Bank
LoansPayableToBankCurrent	[3]	2,991,584	3,263,282
China Everbright Bank
LoansPayableToBankCurrent	[4]	$ 3,006,719	$ 3,263,282

[1] Bank Note in the amount of 30 million RMB with Shijiazhuang Huirong Rural Cooperative Bank bearing an annual interest rate of 10% made on September 23, 2014. The note matured on November 22, 2014 and was extended to September 15, 2016

[2] Bank Note in the amount of 27 million RMB with Postal Savings Bank bearing an 7.08% interest per annum, made on July 22, 2014 for one year maturing on July 21, 2015 and was extended to April 6, 2017.

[3] Bank Note in the amount of 20 million RMB with China Merchant Bank bearing an annual floating rate of 5.98%, initially made on December 27, 2013, renewed on January 13, 2015 for one year maturing on April 4, 2017

[4] Bank Note in the amount of 19.9 million RMB with China Everbright Bank bearing 5.655% interest per annum, made on January 16, 2015 for one year maturing on January 15, 2016 and was extended to February 24, 2017.

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9 Loan Payable - Other (Details)	Jun. 30, 2016	Jun. 30, 2015
Details
Accounts Payable, Interest-bearing, Interest Rate	10.00%	10.00%

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10 Loan Payable - Related Parties (Details)	Jun. 30, 2016	Jun. 30, 2015
Details
Accounts Payable Related Parties Interest Bearing Interest Rate	10.00%	10.00%

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11 Notes Payable - Related Parties (Details) - USD ($)	Jun. 30, 2016	Jun. 30, 2015
Details
Notes payable	$ 0	$ 1,631,641

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13 Accrued Expenses and Other Current Liabilities: Schedule of Accounts Payable and Accrued Liabilities (Details) - USD ($)	Jun. 30, 2016	Jun. 30, 2015
Details
Accrued Salaries, Current	$ 1,168,653	$ 1,616,963
Accrued interest	2,602,674	2,073,073
Accrued Income Taxes, Current	2,619,533	1,281,704
Deposit Liability, Current	588,905	572,105
Other Employee-related Liabilities, Current	43,316	46,967
Customer Advances, Current	413,848	291,005
Accounts Payable, Other, Current	572,013	241,512
Other Accrued Liabilities, Current	276,686	443,816
Accrued expenses and other current liabilities	$ 9,633,750	$ 7,176,325

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14 Stock Options (Details) - USD ($)	12 Months Ended
	Jun. 30, 2016	Jun. 30, 2015
Unrecognized Compensation Expense	$ 51,869	$ 18,673
Common Stock
Common stock issued for services - shares	1,910,000	360,000
Common Stock | Option 1 - January 1, 2015
Common stock issued for services - shares	300,000
Additional Paid in Capital | Option 1 - January 1, 2015
Common stock issued for services - shares	74,691
Allocated Share-based Compensation Expense	$ 22,822

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14 Stock Options: Schedule of Share-based Compensation, Stock Options, Activity (Details) - USD ($)	12 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2013
Details
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number	590,000	300,000	132,000	132,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price	$ 0.33	$ 0.33	$ 2.00	$ 2.00
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Remaining Contractual Term	4 years	4 years 6 months	1 month 6 days	1 year 1 month 6 days
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Intrinsic Value	$ 426,000	$ 426,000	$ 0	$ 0
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross	890,000	300,000
Share-based Compensation Arrangements by Share-based Payment Award, Options, Grants in Period, Weighted Average Exercise Price		$ 0.33
Share-based Compensation Arrangement by Share-based Payment Award, Options, Nonvested Options Forfeited, Number of Shares	300,000	(132,000)

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15 Issuance of Common Stock (Details) - Common Stock - shares	12 Months Ended
	Jun. 30, 2016	Jun. 30, 2015
Common stock issued for debt conversion - shares	2,046,995	12,863,690
Common stock issued - shares	2,352,941	6,740,747
Common stock issued for services - shares	1,910,000	360,000
Option1September52014Member
Common stock issued for debt conversion - shares		11,862,278
Option2December232014Member
Common stock issued - shares		4,527,832
Option3February32015Member
Common stock issued for services - shares		300,000
Option 4 - February 3, 2015
Common stock issued for services - shares		40,000
Option5February32015Member
Common stock issued - shares		1,704,915
Option6March122015Member
Common stock issued for debt conversion - shares		480,000
Option 7 - April 8, 2015
Common stock issued - shares		508,000
Option8April82015Member
Common stock issued for debt conversion - shares		521,412
Option9September102015Member
Common stock issued for services - shares	60,000
Option10September302015Member
Common stock issued - shares	2,352,941
Common stock warrants issued during period	1,764,706

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15 Issuance of Common Stock: Assumptions Used Textblock (Details)	12 Months Ended
	Jun. 30, 2016 $ / shares
Details
Fair Value Assumptions, Stock Price	$ 0.64
Fair Value Assumptions, Exercise Price	$ 1.74
Fair Value Assumptions, Expected Term	4 years 2 months 12 days
Fair Value Assumptions, Expected Volatility Rate	140.71%
Fair Value Assumptions, Weighted Average Expected Dividend	$ 1.65
Fair Value Assumptions, Risk Free Interest Rate	1.01%

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16 Taxes: Schedule of Effective Income Tax Rate Reconciliation (Details) - USD ($)	12 Months Ended
	Jun. 30, 2016	Jun. 30, 2015
Details
Effective Income Tax Rate Reconciliation at Federal Statutory Income Tax Rate, Amount	$ 1,010,039	$ 1,089,936
Effective Income Tax Rate Reconciliation, Foreign Income Tax Rate Differential, Amount	(1,271,231)	(1,046,086)
Effective Income Tax Rate Reconciliation, Change in Deferred Tax Assets Valuation Allowance, Amount	233,892	(1,031,621)
Effective Income Tax Rate Reconciliation, Net operating loss expired		955,983
Effective Income Tax Rate Reconciliation, Nondeductible Expense, Share-based Compensation Cost, Amount	$ 27,300	$ 31,788

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16 Taxes: Schedule of Components of Income Tax Expense (Benefit) (Details) - USD ($)	12 Months Ended
	Jun. 30, 2016	Jun. 30, 2015
Details
Current Income Tax Expense (Benefit)	$ (190,770)
Deferred Federal Income Tax Expense (Benefit)	(483,789)	$ (229,859)
Deferred Foreign Income Tax Expense (Benefit)	1,082,912	(1,442,889)
Deferred Taxes, Business Combination, Valuation Allowance, Available to Reduce Income Tax Expense	483,789	229,859
Deferred Taxes Business Combination Valuation Allowance Available To Reduce Income Tax Expense China	(249,897)	(1,261,480)
Deferred income tax expense (benefit)	$ 642,245	$ (2,704,369)

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16 Taxes: Schedule of Deferred Tax Assets and Liabilities (Details) - USD ($)	Jun. 30, 2016	Jun. 30, 2015
Deferred Tax Assets, Operating Loss Carryforwards, Foreign	$ 213,060	$ 1,342,696
Deferred Tax Assets, Operating Loss Carryforwards, Domestic	2,418,909	1,935,121
Deferred Tax Assets, Tax Deferred Expense, Reserves and Accruals, Allowance for Doubtful Accounts	447,294	823,190
Deferred Tax Assets, Tax Deferred Expense, Other	139,330	338,390
Deferred Tax Assets, Other	309,264	469,944
Deferred Tax Assets, Gross	4,310,217	4,909,341
Deferred income tax	1,878,595	2,711,610
U.S.
Deferred Tax Assets, Valuation Allowance	(2,418,909)	(1,935,121)
China
Deferred Tax Assets, Valuation Allowance	$ (12,713)	$ (262,610)

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16 Taxes: Summary of Operating Loss Carryforwards (Details)	Jun. 30, 2016 USD ($)
Operating Loss Carryforwards	$ 21,442,129
FY 2017
Operating Loss Carryforwards	8,490,144
FY 2018
Operating Loss Carryforwards	2,350,563
FY 2019
Operating Loss Carryforwards	7,896,369
FY 2020
Operating Loss Carryforwards	1,322,799
FY 2021
Operating Loss Carryforwards	$ 1,382,254

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17 Concentrations (Details)	12 Months Ended
	Jun. 30, 2016	Jun. 30, 2015
Details
Concentration Risk, Customer	Sales to two major customers were 13% and 5% of total sales for the year ended June 30, 2016.	Sales to two major customers were 7% and 5% of total sales for the year ended June 30, 2015.
Concentration Risk, Service Provided	Sales of one major product represented approximately 85% and 95% of total sales for the years ended June 30, 2016 and 2015, respectively.
Concentration Risk, Other Risk	Two major customers accounted for 8% and 7% of outstanding accounts receivable as of June 30, 2016.	Two major customers accounted for 4% and 0.1% of outstanding accounts receivable as of June 30, 2015.