UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

 Washington, D.C. 20549

FORM 10-K

(Mark One)
ý	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 2012
Or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from            to

Commission file number: 000-54529

SCIO DIAMOND TECHNOLOGY CORPORATION

 (Exact name of registrant as specified in its charter)

Nevada	45-3849662
(state or other jurisdiction of incorporation or organization)	(I.R.S. Employer I.D. No.)

411 University Ridge, Suite D

Greenville, SC 29601

(Address of principal executive offices)

(864) 751-4880

(Issuer’s telephone number)

Securities registered pursuant to Section 12(b) of the Act:

None.

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, par value $0.001

          Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes     No  þ

          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  þ

          Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 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  þ    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 (§ 332.405 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   (Not required)

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          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  o Accelerated filer  o Non-accelerated filer  o  (Do not check if a smaller reporting company) Smaller reporting company  þ

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

                                The aggregate market value of voting common stock held by non-affiliates of the registrant as of September 30, 2011, the last business day of the registrant's most recently completed second fiscal quarter, computed by reference to the closing sale price of the registrant’s common stock, was approximately $26,974,573.

The number of shares of common stock outstanding as of June 30, 2012, $0.001 par value, was 27,570,567.

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 INDEX

Part I		Page
Item 1.	Business	5
Item 1a.	Risk Factors	11
Item 1b.	Unresolved Staff Comments	22
Item 2.	Properties	22
Item 3.	Legal Proceedings	23
Item 4.	Mine Safety Disclosures	23
Part II
Item 5.	Market for Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities	23
Item 6.	Selected Financial Data	24
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 7a.	Quantitative and Qualitative Disclosures of Market Risk	27
Item 8.	Financial Statements and Supplementary Data	27
Item 9.	Changes in and Disagreements with Accountants and Financial Disclosure	41
Item 9a.	Controls and Procedures	41
Item 9b.	Other Information	42
Part III
Item 10.	Directors, Executive Officers, and Corporate Governance	43
Item 11.	Executive Compensation	44
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	46
Item 13.	Certain Relationships and Related Transactions and Director Independence	47
Item 14.	Principal Accounting Fees and Services	48
Item 15.	Exhibits, Financial Statement Schedules	49
Signatures		50

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CAUTIONARY STATEMENT REGARDING

FORWARD-LOOKING STATEMENTS

This Report, including information included or incorporated by reference in this document, contains statements which constitute forward-looking statements.  Forward looking statements made by penny stock issuers such as the Company are excluded from the safe harbor in Section 21E of the Securities Exchange Act of 1934. Forward-looking statements may relate to our financial condition, results of operation, plans, objectives, or future performance. These statements are based on many assumptions and estimates and are not guarantees of future performance. Our actual results may differ materially from those anticipated in any forward-looking statements, as they will depend on many factors about which we are unsure, including many factors which are beyond our control. The words “may,” “would,” “could,” “should,” “will,” “expect,” “anticipate,” “predict,” “project,” “potential,” “believe,” “continue,” “assume,” “intend,” “plan,” and “estimate,” as well as similar expressions, are meant to identify such forward-looking statements.

Forward-looking statements are subject to certain risks and uncertainties which could cause actual results to differ materially from those anticipated.  Such risk and uncertainties include, without limitation, those described below under Item 1A - Risk Factors and the following: (1) if the Company is not able to obtain further financing, its business operations may fail, (2) the Company has not generated any meaningful revenues, and as a result, faces a high risk of business failure, (3) the Company’s lack of diversification increases the risks associated with the Company’s business and an investment in the Company, and the Company’s financial condition may deteriorate rapidly if it fails to succeed in developing the Company’s business, (4) the Company may not effectively execute the Company’s business plan or manage the Company’s potential future business development, (5) the Company’s business could be impaired if it fails to comply with applicable regulations, (6) the Company may not be able to attract and maintain key management personnel to manage the Company or laboratory scientists to carry out the Company’s business operations, which could have a material adverse effect on the Company’s business, and (7) the Company may expend a substantial amount of time and resources in connection with potential inquiries or legal actions in connection with the restatement of its financial statements and its filings with the Securities and Exchange Commission or otherwise, which may impair the Company’s ability to raise capital and to operate its business.

You are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to publish revised forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrences of unanticipated events. You are also urged to review and consider carefully the various disclosures made hereafter by the Company from time to time with the Securities and Exchange Commission filings.

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PART I

ITEM 1.  BUSINESS

Corporate History

We were incorporated on September 17, 2009 in the State of Nevada under the name Krossbow Holdings Corporation (“Krossbow”).  Krossbow's original business plan was focused on offsetting CO2 emissions through the creation and protection of forest-based carbon “sinks.”  Krossbow planned to assess carbon resource potentials, prescribe and implement ecosystem restorations to develop those resources, and thereby generate carbon offset products.  However, we have since abandoned that original business plan and restructured our business to focus on man-made diamond technology development.  We decided to acquire existing technology and to seek to efficiently and effectively produce man-made diamond.  In connection with this change in business purpose, Krossbow acquired the rights to use and changed its name to Scio Diamond Technology Corporation (the “Company”), to reflect its new business direction.

On August 5, 2011, Edward S. Adams and Michael R. Monahan, both of whom now serve on the Company’s Board of Directors, acquired control of the Company through the purchase of 2,000,000 shares of the Company’s issued and outstanding common stock from Jason Kropp, Krossbow’s sole director and executive officer at that time, in accordance with a common stock purchase agreement among Mr. Kropp, Mr. Adams and Mr. Monahan.  Concurrently with the execution of the stock purchase agreement, Mr. Kropp resigned from all positions with Krossbow, including, but not limited to, that of President, Chief Executive Officer, Chief Financial Officer, Treasurer, Secretary and Director.

On August 5, 2011, the Company executed an Asset Purchase Agreement (the “Scio Asset Purchase Agreement”) with another privately-held Nevada corporation that also had the name “Scio Diamond Technology Corporation” (“Private Scio”).  Under the terms of the Scio Asset Purchase Agreement, the Company purchased the name “Scio Diamond Technology Corporation” and acquired other rights from Private Scio for 13,000,000 newly issued shares of common stock of the Company. Mr. Adams and Mr. Monahan were directors of Private Scio, and Joseph D. Lancia, our President and Chief Executive Officer, was an officer of Private Scio, and they owned 31.5%, 31.5% and 15.4%, respectively, of Private Scio.  Edward S. Adams and Michael R. Monahan each acquired, directly or indirectly, 4,100,000 shares of our common stock pursuant to the Scio Asset Purchase Agreement, and Joseph D. Lancia, our Chief Executive Officer, acquired 2,000,000 shares pursuant to the Scio Asset Purchase Agreement.

           On August 31, 2011, the Company acquired certain assets of Apollo Diamond, Inc. (“ADI”) (the “ADI Asset Purchase”), consisting primarily of diamond growing machines and intellectual property related thereto, for which the Company paid ADI an aggregate of $2,000,000 in a combination of cash and a promissory note to ADI with a September 1, 2012 maturity date (which promissory note had a remaining outstanding balance of $125,000 as of March 31, 2012).   In connection with the ADI Asset Purchase, the Company also agreed to provide certain current and former stockholders of ADI that are accredited investors the opportunity to acquire up to approximately 16 million shares of common stock of the Company for $0.01 per share (the “ADI Offering”).

On June 5, 2012, the Company acquired substantially all of the assets of Apollo Diamond Gemstone Corporation (“ADGC”) (the “ADGC Asset Purchase”), consisting primarily of cultured diamond gemstone-related know-how, inventory, and various intellectual property, in exchange for $100,000 in cash and the opportunity for certain current and former stockholders of ADGC that are accredited investors to acquire up to approximately 1 million shares of common stock of the Company for $0.01 per share (the “ADGC Offering”) with the intent that ADI Offering be conducted substantially concurrently with the ADGC Offering (collectively, the “ADI/ADGC Stockholder Offering”).

Our Business

General

The Company's primary mission is the development of profitable and sustainable commercial applications for its planned mass production of high quality, single-crystal diamond in a laboratory environment using its proprietary chemical vapor deposition process (“Diamond Technology”) and its Mosaic approach to diamond production.  The Company intends to target both the commercial/industrial and gemstone markets and anticipates opportunities in areas including, but not limited to, diamond gemstone jewelry, power switches, optoelectronics, cutting devices, semi-conductors and life sciences.

If the Company is able to produce high-quality, relatively low-cost diamond and diamond materials in reliable quantities, then such products may be incorporated into existing applications and technologies and spur new technologies.  In such case, the Company expects numerous product development and licensing opportunities for the Company.  The unique physical properties of diamond combined with consistent availability made possible by our Diamond Technology and Mosaic production approach may lead to market opportunities in electronics, optics, communications, and computing.

The Diamond Technology

We acquired our Diamond Technology primarily from ADI.  ADI was originally founded in 1990 with the goal of developing and perfecting two advanced semiconductor materials, gallium nitride (now used in light emitting diodes) and diamond.  From 2000 onward, ADI focused solely on diamond and developing a process by which large, single-crystal diamond could be grown in a controlled laboratory environment.  ADI developed the Diamond Technology to produce large, single-crystal diamond in a controlled process reactor environment. It also developed and patented the Mosaic production approach allowing the mass production of diamond.  The core Diamond Technology that was acquired by the Company is based on a chemical vapor deposition (“CVD”) diamond growth system.  Diamond wafers produced through the Diamond Technology CVD process have been shown to be exceptionally pure (nitrogen content < 10 ppb), and possess low levels of structural defects.  Advances in this technology have dramatically improved the quality, and lowered the cost of high-quality diamond, resulting in new applications of diamond in electronics, optics, high power devices and quantum computing.  The patented Mosaic approach allows diamond seeds to be fused, thus creating larger seeds to maximize growth in any given growth run.

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The Diamond Technology provides a materials production platform and is supported by intellectual property, including trade secrets, 21 issued patents (16 in the United States and five in foreign jurisdictions), and approximately 40 pending domestic and foreign patents.

The Company intends to pursue progressive development of core technologies and related intellectual property that will evolve into product opportunities across various applications.  The Company seeks to optimize this strategy through, among other things, its control of the production and sale of large volume, high purity diamond for technology applications. These opportunities may be monetized though joint venture and licensing arrangements with third parties and through continued development of intellectual property.  Anticipated application opportunities for the Company’s diamond materials include the following: diamond gemstone jewelry, power switches, processors, optoelectronics, geosciences, water purification, and MRI and other medical science technology.

Early Stage Company: Additional Financing Will be Critical to Survival and Potential Success

As of March 31, 2012, the Company had cash on hand of $808,516.  We will require additional funding and will seek such funding in the form of equity financing from the sale of our common stock and warrants to acquire our common stock and potentially other securities offerings or sources of financing, however there can be no assurance that such financing will be available on commercially acceptable terms, if at all.

Products and Markets

The current market for laboratory-grown diamond remains largely unknown and uncertain. Sales of laboratory-grown diamond into the gemstone market are thought to be very small currently. The industrial market for these products is more developed, but it is diffused globally and the Company is unable to reliably estimate its size or breadth.  As of March 31, 2012, we had not generated any revenue from the sale of diamond or diamond materials.

Competitive factors that will influence the market for our products include product quality, consistency of supply and price. We believe that we will be able to compete on the basis of these factors.  We believe that we will be able to reliably and efficiently produce cultured diamond possessing substantially the same qualities and characteristics of their mined diamond counterparts.  The chart below shows a comparison of selected characteristics of cultured diamond and high-quality earth-mined diamond.

Comparison of Cultured Diamond and Earth-Mined Diamond: Selected Characteristics
Diamond Characteristic	Cultured Diamond	High-Quality Earth-Mined Diamond	Material Differences
Color	Colorless, near colorless, and fancy colors	Varies	None
Clarity	IF-VVS – VS-SI, etc.	Varies	None(a)
Size	Varies	Varies	None(a)
Color Zoning	None	None	None
Metallic Inclusions	None	None	None
Zoned Fluorescence	None	None	None
Artifacts	None	None	None
Magnetism	None	None	None
Extreme Hardness	90 GPa	90 GPa	None
Thermal Conductivity	>2 x 103 W/m/K	2 x 103 W/m/K	None(a)
Thermal Expansion	0.8 x 10-6 K	0.8 x 10-6 K	None
Optical Transparency	Deep UV to far IR	Deep UV to far IR	None(a)
Electrical Resistivity	1016 Ohm-cm	1016 Ohm-cm	None(a)
Compressibility	8.3 x 10-13 m2/N	8.3 x 10-13 m2/N	None
Bulk Modulus	1.2 x 1012 N/m2	1.2 x 1012 N/m2	None
(a)  Cultured diamond may be superior to earth-mined diamond in these categories because of its high purity and crystal perfection.

We believe that the Diamond Technology will reliably produce single crystal diamond gemstones of colorless, near-colorless and fancy- colored clarities in finished stone generally ranging in sizes from .25 carats to over 2 carats in colors ranging from D (colorless) to fancy colors and clarities of IF (internally flawless) to Si (slightly included).  We believe that the Diamond Technology will produce a regular and consistent supply of cultured diamond material suitable for a wide variety of commercial, industrial, gemstone, and technological applications.

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Gemstones

Within the gemstone industry, our single-crystal diamond can be used in jewelry products requiring the highest quality gemstones and can be regularly grown in matched color sets ranging in polished sizes from 5-points (.05 carats) to over 1.50 carats.  Our diamond may be well suited for jewelry featuring matching diamond of various sizes, clarities and colors, diamond engagement rings, and fashion jewelry.  The potential consistency and other potential characteristics of cultured diamond gemstones grown using the Diamond Technology may provide advantages over their mined counterparts in areas that matter to jewelers, jewelry manufacturers and consumers, with potential characteristics such as:

·   Equal quality and brilliance of diamond product;

·   Matched sizes, colors and clarities (particularly in goods ranging in sizes from .05 - .50 carats);

·   Consistency of diamond finish due to high quality;

·   Opportunity for color palette of diamond gemstones; and

·   Lack of negative issues related to the environmental and social concerns.

We will seek to establish and maintain market acceptance through consumer education and industry cooperation.  We intend to require laser marking of cultured diamond grown using the Diamond Technology (without compromising aesthetics) in order to brand and instill confidence in the consumer and the market as well as to differentiate our cultured diamond from earth-mined diamond.  We intend to educate retailers and consumers on the physical properties of the Company’s cultured diamond as compared to mined diamond and quality of the Company's cultured diamond.  The Company will also market the fact that its cultured diamond are from a reliable and ethical source and are produced without the adverse environmental impact and other negative connotations associated with mining.  The Company believes that it has an attractive selling proposition for its cultured diamond.

Commercial, Industrial and Technological Applications

Diamond has exceptional qualities for use in advanced electronics and optics applications, but to date, development progress has been slow because of, among other things, diamond’s relative scarcity and high cost. Diamond’s unique hardness, clarity and thermal characteristics have made it highly desirable for scientific use for decades. However, material consistency issues and economics have created barriers to mass application adoption of diamond. We believe that our Diamond Technology and patented Mosaic production approach give us the ability to improve the quality and lower the cost of producing diamond materials, creating the opportunity for usage in a wider range of applications.

The demand for computing and communications products has increased significantly.  As devices become more intelligent and ubiquitous, the need for connectivity at very high speeds, data intensive storage needs and ever-faster computer processors are pushing the limits of conventional silicon-based devices.  Diamond enables these technologies to move past their current limitations and may be able to facilitate the development of next-generation devices in key areas such as wireless networking, optical storage, and high speed computing.

The Company anticipates several opportunities to monetize the Diamond Technology and patented Mosaic production approach in various technological applications.  Pursuit of these opportunities is expected to be directed in part in concert with strategic partners.

Several of diamond’s properties provide significant advantages over other materials used in devices/systems, such as high power switches, radiation detectors, and microwave windows suitable for use in plasma fields or other nuclear reactor high-electromagnetic interference (“EMI”) environments.

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 The following chart explains the beneficial properties of diamond across selected applications.

Diamond Property	Application Areas	Function	Impact
Beautiful, relatively scarce, permanent, well-marketed, symbolic significance	Jewelry	Gemstones	+Gem markets
Hardness	Tooling	Wear resistance	+Machine parts +Super abrasives +Cutting tools; drills +Razors, surgical tools +Cogs; gears; bearings +Aerospace materials +MEMS
Compressive Strength	Machinery	Less lubrication
Low Thermal Expansion
Tensile Strength	Composites	Structural strength
Thermal Conductivity	Electronic Substrates	Heat sinks	+High speed CPUs +Laser diodes +Microwave ICs +Small/fast ICs
Excellent Electrical Insulator	Device Packaging	Heat spreaders
Semi-Conducting Properties, Wide Band Gap	Electronics Computing	Power electrics Wireless devices Optical communications Semiconductors Ultra-fast switches Transportation Displays, cold cathode devices	+Schottky diodes +High freq FETs +SAW devices +Utility lines +Ultra-fast computers +Radiation detectors +Aerospace; defense +Flat panel displays +LEDs; TVs
Negative Electron Affinity (excellent electron emitter)	Switching Photonics
Optical Transparency (UV-IR), combined with durability	Optics	Lenses; windows Protective coating	+High power lasers +IR windows +Optical components +Spacecraft
Biocompatible, Chemically Inert	Biotechnology Electrochemistry	Sensors Electrodes	+Medical/implantable +Toxic/corrosive environments +Water/air treatment +Spacecraft

The need for more durable advanced materials generated by technological development creates a broad and deep range of potential opportunities for our cultured diamond materials.

Plan of Operation

During the year ended March 31, 2012, the Company focused its efforts on the upfitting of a production facility in Greenville, SC.  This facility, covering 7,500 square feet of leased space including the headquarters offices, was substantially completed and ready for production as of June 30, 2012.  Ten of the production reactors purchased from ADI were installed in the facility as of that time and all systems had been successfully tested.  The remaining three reactors remain in the Hudson, MA research and development facility.

The facility in Greenville includes infrastructure for the Diamond Technology and patented Mosaic production approach which reflects the years of development without the disadvantages of ADI's infrastructure design.  The Company was able to partner with a large regulated electric power company to implement a filtered and nearly uninterruptible power supply.  The Company also designed and built control and cooling systems at the Greenville facility that the Company believes will be more reliable and efficient.

The Industry and Competition

           Our cultured diamond gemstones and diamond materials for use in industrial applications face competition from established producers and sellers of mined diamond, including companies such as De Beers, and other known and current and potential future manufacturers of cultured diamond.  Companies which produce cultured diamond and may compete with the Company in one or more of its markets include Element Six (South Africa), a privately-held subsidiary of De Beers, Gemesis (USA & Malaysia), and Sumitomo Electric Industries, Ltd. (Japan).  Other companies could seek to introduce cultured diamond or other competing diamond or to develop competing processes for production of cultured diamond.  We believe that as cultured diamond continues to gain market acceptance, competition can be expected to increase.

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Many of our competitors have significantly greater financial, technical, manufacturing and marketing resources and greater access to distribution channels than the Company. Our competitors include large multi-national gemstone diamond companies as well as start-up and development-stage gemstone diamond and technology companies, some of whom we may not be aware.  Many of our competitors may be able to devote substantially greater resources to promotion and systems development than we can.  Barriers to developing competitive technology in our market may not be sufficient to prevent competitors from entering the industry, and current and new competitors may be able to develop competing diamond at a relatively low cost.  We believe that our success will depend heavily upon whether we can achieve significant market acceptance before our potential competitors are able to introduce broadly accepted competitive products.

Raw Materials

        The principal raw materials used in the manufacture of our products are diamond seeds and commonly available certified high purity bottled gases.  The diamond seeds can be purchased from other diamond material producers, but the Company intends to build seed inventory through its own self-sustaining seed production.  Seeds are re-used through multiple production runs.

           Our manufacturing process is dependent upon large amounts of electrical power delivered on an uninterrupted basis.  The Company has worked with the local electric utility, a Fortune 200 company, to build and operate equipment at its manufacturing site that will meet its needs.  This equipment is provided to the Company on a long term operating lease which includes warranty, maintenance and the delivery of electrical power at attractive per kilowatt/hour rates.

Customers

If the Company is able to implement high-volume commercial operations and reliably manufacture diamond products, then we anticipate that we will be able to sell our products internationally, given the potential demand for diamond and diamond materials and the variety of potential uses for these products in gemstone, high tech applications, alternative energy technologies, and defense technologies.

As of March 31, 2012, the Company had not produced revenues nor did it have firm orders placed by potential customers.

Patents, Trademarks, Licenses, Franchises, Concessions, Royalty Agreements or Labor Contracts

        At March 31, 2012, we held the following number of patents:

Jurisdiction	No. of Patents
United States	16
Foreign	5
Total	21

Our research and development staff will continue to develop proprietary manufacturing processes and equipment designed to enhance our manufacturing facilities and reduce costs.

We also own various trademarks and trade secrets that we acquired from the ADI and ADGC.

Government Regulations

Laboratory technology activities are subject to various federal, state, foreign and local laws and regulations, which govern research, lab development, taxes, labor standards, occupational health, waste disposal, protection of the environment, mine safety, hazardous substances and several other matters.  We believe that we are in compliance in all material respects with applicable technology, health, safety and environmental statutes and the regulations promulgated by the relevant jurisdictions.  Currently, there are no costs associated with our compliance with such regulations and laws.

Certain federal and state laws and regulations govern the testing, creation and sale of the types of diamond we intend to produce.  The United States Federal Trade Commission (“FTC”) and other comparable regulatory authorities in the United States and in foreign countries may extensively and rigorously regulate our cultured diamond, product development activities and manufacturing processes.  In the United States, the FTC regulates the introduction and labeling of gemstone diamond.  We may be required to:

·   obtain clearance before we can market and sell our cultured diamond;

·   satisfy content requirements applicable to our labeling, sales and promotional materials;

·   comply with manufacturing and reporting requirements; and

·   undergo rigorous inspections.

The process of obtaining marketing clearance for new gemstone diamond from the FTC may prove costly and time consuming.  The FTC has neither approved nor prohibited the use of the term “cultured” to describe the diamond the Company intends to sell as gemstones. However, in December 2006, the Jewelers’ Vigilance Committee submitted a petition (the “Petition”) to the FTC seeking amendment to the Guides for the Jewelry, Precious Metals, and Pewter Industries, 16 C.F.R. Part 23 (“Guides”) to include the term “cultured” as a proscribed term to describe laboratory-created diamond.  By opinion, dated July 21, 2008, the FTC denied the Petition finding it did not demonstrate that the use of the term “cultured” to describe laboratory-created diamond, when qualified by one of the terms provided in the Guides, is deceptive or unfair and declined to amend the Guides as requested by the Petition.  The Company has not procured FTC clearance, and the FTC has not precluded the Company from selling diamond produced using the Diamond Technology.

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FTC has the power to restrict the offer and sale of diamond that could deceive or have the tendency or effect of misleading or deceiving purchasers or prospective purchasers with regard to the type, kind, quality, character, value, origin or other characteristics of a diamond gemstone.  Under current guidelines issued by the FTC, the Company is permitted to market its diamond gemstones as “Scio-created,” “lab-created diamond”, “laboratory created diamond,” “laboratory grown diamond” or “cultured” so long as that term is accompanied by any of the foregoing and such designations may inhibit marketing descriptions that are more favorable to creating consumer demand.  We may come under close scrutiny by governmental agencies and industry testing organizations and also by competitors in the gemstone industry, any of which may challenge our promotion and marketing of our cultured diamond.  If our production or marketing is challenged by governmental agencies or competitors, or if regulations are issued that restrict our ability to produce and market our cultured diamond as “cultured diamond”, “lab-created diamond”, or otherwise as a mined diamond alternative, our business, operating results and financial condition could be materially adversely affected.

Our cultured diamond must also comply with similar laws and regulations of foreign countries in which we market such diamond.  In general, the extent and complexity of gemstone diamond regulation is increasing worldwide.  This trend may continue, and the cost and time required to obtain marketing clearance in any given country may increase as a result.  Should it prove necessary, there can be no assurances that our cultured diamond will obtain any necessary foreign clearances on a timely basis, or at all.

Federal, state, local and foreign laws and regulations (especially those regarding approval of gemstone diamond) are always subject to change, and could have a material adverse effect on the testing and sale of our cultured diamond and, therefore, our business.

Research and Development

Our research and development activities have been significantly limited as we focus attention on the establishment of our production facility.  We expect to invest in new technology and intellectual property development to improve production efficiencies and develop new products in the future.

Environmental Regulations

Our operations are subject to local, state and federal laws and regulations governing environmental quality and pollution control.  To date, our compliance with these regulations has had no material effect on our operations, capital, earnings, or competitive position, and the cost of such compliance has not been material.  We are unable to assess or predict at this time what effect additional regulations or legislation could have on our activities.

Employees

           We had six full-time employees as of March 31, 2012, four of whom were located in South Carolina and two in Massachusetts.

Securities Exchange Act of 1934 Reports

           We maintain an Internet website at the following address: http://www.sciodiamond.com.  The contents of the website are not incorporated into this Form 10-K or into our other filings with the SEC.  The Company makes available on or through our Internet website certain reports and amendments to those reports that are filed or furnished to the Securities and Exchange Commission (“SEC”) pursuant to Section 13(a) or 15(d) of the Exchange Act.  These include annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and beneficial ownership reports on Forms 3, 4 and 5.  This information is available on our website free of charge as soon as reasonably practicable after we electronically file the information with, or furnish it to, the SEC.

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ITEM 1A.  RISK FACTORS.

Our business, financial condition, and results of operations could be harmed by any of the following risks, or other risks that have not been identified or which we currently believe are immaterial or unlikely.  Shareholders should carefully consider the risks described below in conjunction with the other information in this Form 10-K and the information incorporated by reference in this Form 10-K, including our financial statements and related notes.

Risks Related to Our Business

We have a very limited operating history, we have incurred losses to date, and we have not generated a material amount of revenue to date, and therefore, it is difficult to evaluate our business and prospects.

Our Company is in the preliminary stages of development and has not yet begun production, has not finalized the scope of products to bring to market, has not yet engaged in any revenue-producing business activities and may incur substantial losses for the foreseeable future. As a company in the early stages of development, our business is subject to all the risks inherent in a new business enterprise. We have no substantial operating history, and as a young company in a new market, we may encounter various risks including, but not limited to, the following:

·   our need to initiate our sales and marketing activities;

·   our need to quickly hire and integrate new personnel, including various levels of senior management who have been hired relatively recently;

·   acceptance of our cultured diamond in the gemstone marketplace;

·   our ability to produce cultured diamond sufficient to meet anticipated demand;

·   our need to fund and manage our rapidly developing and changing operations; and

·   the need to further refine and improve our technology with respect to the Diamond Technology - including the need to make the diamond growing process commercially viable, acceptable (by our own and third party measures) and economical - and our intellectual property and product offerings, and the need to respond to changing technologies and consumer preferences.

Likewise, the cultured diamond produced using the Diamond Technology and patented Mosaic production approach are in a relatively early stage of development and are subject to the risks inherent in the development and marketing of cultured diamond, including unforeseen design, manufacturing or other problems or failure to develop market acceptance.  Our business is subject to the risks inherent in the transition of technology from research and development and prototype proof-of-concept to commercial production and market acceptance. Failure by the Company to complete and integrate commercial development of the cultured diamond it will market and distribute in sufficient quantities to meet market demand would have a material adverse effect on the Company’s business, operating results and financial condition. Accordingly, the Company’s prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in their early stage of development, particularly technology-based companies operating with developing and unproven manufacturing processes. To address these risks, the Company must, among other things, respond to competitive developments, attract and motivate qualified personnel, develop market acceptance for its diamond, establish effective distribution channels, effectively manage any growth that may occur and continue to upgrade the Diamond Technology and patented Mosaic production approach and successfully commercialize the Diamond Technology and patented Mosaic production approach and cultured diamond incorporating such technology.

The Company purchased its Diamond Technology and patented Mosaic production approach from ADI and ADGC (collectively, the “Apollo Companies”).  Neither of the Apollo Companies was able to successfully (profitably) develop and commercialize their man-made diamond development/growing process.

We expect future losses.

In order to achieve a commercially viable operation, we expect to make significant investments in technology, infrastructure, research and development. We expect to expend substantial financial and other resources on expanding our operations, in particular our diamond growth technology infrastructure and sales and marketing activities. As a result, we must generate significant revenues to achieve and maintain profitability. We expect that our sales and marketing expenses, general and administrative expenses, as well as the continued development expenses will continue to increase.

We will require additional funding.

Our future operations will require additional funding, and we may not be able to obtain such funding on acceptable terms or at all.  We likely will require substantial additional capital to be able to fund continued development and improvement of the process for growing cultured diamond and to fund our expansion of manufacturing capacity to meet projected growth of the market for our cultured diamond. There can be no assurance that such efforts for raising capital will not involve substantial dilution with respect to existing or future shareholders of the Company.

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Our future capital requirements will depend on many factors, including the speed at which our production process can be scaled-up for high yield production, market acceptance of and demand for our cultured diamond, and the timing of our expansion into new diamond markets.  Our future capital requirements depend upon many factors, including, but not limited to:

·   the rate at which we increase our production capacity;

·   the rate at which we expand our sales and marketing operations;

·   the rate at which we attract consumers, distributors and strategic relationships;

·   the extent to which we are able to develop and upgrade the technology and infrastructure; and

·   the response of competitors to our cultured diamond offerings.

We expect additional financing to be required and there can be no assurance that additional equity or debt financing, if required, will be available on acceptable terms or at all.  If we raise additional funds by selling stock, the percentage ownership of our then current shareholders will be reduced, and we may raise these funds with securities that have rights, preferences, or privileges equal or superior to the rights of investors owning our common shares.  If we cannot raise adequate funds to satisfy our capital requirements, we may have to limit our operations significantly, or the Company could terminate operations entirely, resulting in a complete loss of investment for our shareholders. Our inability to obtain financing on acceptable terms when needed would have a material adverse effect on the Company’s business, operating results and financial condition.

Our business model is unproven.

Our initial business model consists of selling laboratory-created diamond for retail gemstone consumption and commercial applications. Although some minimal amounts of laboratory-created diamond has been sold to date by other companies, the full extent of the market for such diamond is unknown. This business model is relatively new, is unproven and is likely to continue to evolve.  Accordingly, our business model may not be successful, and we may need to make substantial changes thereto.  Our ability to generate significant revenues will depend, in large part, on our ability to successfully market our product to consumers, distributors and commercial customers.  We intend to continue to develop our business model as the market for our products evolves.

Neither of the Apollo Companies (from whom the Company purchased its Diamond Technologyand patented Mosaic production approach) was able to successfully (profitably) develop and commercialize their man-made diamond development/growing process.

We are wholly dependent on the Diamond Technology and patented Mosaic production approach.

Our cultured diamond supply depends entirely on our ability to manufacture cultured diamond using the Diamond Technology and patented Mosaic production approach acquired via the August 31, 2011 purchase of assets by the Company from ADI and the June 5, 2012 purchase of assets by the Company from ADGC.

Although the ability to produce limited quantities of high quality cultured diamond has been demonstrated, it has yet to be proven that such success can be transferred into a mass production process that will yield high-quality gemstones and material suitable for retail gemstone distribution and commercial/industrial applications. The inability or difficulty to transfer the Diamond Technologyand patented Mosaic production approach into a high-yield production facility would have a material adverse effect on our business, operating results and financial condition. Any disruption in our ability to produce high quality cultured diamond would have a significant material effect on our business.

The Company purchased its Diamond Technology and patented Mosaic production approach from the Apollo Companies.  Neither of the Apollo Companies was able to successfully (profitably) develop and commercialize their man-made diamond development/growing process.

Our future revenues are unpredictable, and we expect our operating results to fluctuate from period to period.

Our lack of operating history and the emerging nature of the markets in which we expect to compete make it difficult for us to accurately forecast our revenues in any given period. As such, our revenues could fall short of our expectations if we experience production delays or difficulties. Likewise, our revenues could fall short of expectations should our product not be met with the demand we anticipate from the marketplace.  We have no experience in financial planning for our business on which to base our planned operating expenses.

Our operating results are likely to fluctuate substantially from period to period as a result of a number of factors, many of which are beyond our control. These factors include, but are not limited to, the following:

·   outside market influences beyond our control, including extended periods of decreased demand for all diamond gemstones;

·   our ability to enter into successful strategic relationships;

·   our ability to attract purchasers and/or distributors;

·   the amount and timing of operating costs and capital expenditures relating to expansion of our cultured diamond producing operations;

·   the rate at which individuals and organizations accept our product;

·   an announcement or introduction of new or enhanced diamond or services by our competitors;

·   our ability to attract and retain qualified personnel; and

·   pricing policies instituted by our current and possible future competitors.

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The Company has generated limited revenue to date and consequently its operations are subject to all risks inherent in the establishment of a new business enterprise.  For the period from inception, September 17, 2009, through March 31, 2012, the Company has accumulated deficit of $2,103,957.  We currently expect to generate revenue in the future, but there can be no assurances that we will ever generate revenue or generate sufficient revenues to achieve profitability.  If we do achieve profitability, there can be no assurances that we can sustain or increase profitability.

Neither of the Apollo Companies (from whom the Company purchased its Diamond Technology and patented Mosaic production approach) was able to successfully (profitably) develop and commercialize their man-made diamond development/growing process.

Our ability to develop our core technologies is subject to uncertainties.

The process by which we plan to manufacture diamond is highly complex.  We anticipate that customers will have highly specific quality standards that our cultured diamond will be required to meet. The cultured diamond we intend to sell is in the early stages of development and there can be no assurances that it will meet high customer standards.  Product failure or the inability to meet customer requirements would have a material adverse effect on our business, operating results and financial condition.  The process by which we plan to produce our cultured diamond requires the integration of several complex components, some of which will be provided by third-party suppliers.  The successful integration of the Diamond Technology and patented Mosaic production approach with third-party products will determine the performance and scalability of our production process.  We will be dependent upon our employees and vendors to maintain an adequate testing and technical support infrastructure to ensure the successful adoption and rollout of cultured diamond to customers.  We currently have no experience in these areas.  Failing in any of these areas could materially adversely affect our business.

We may not be able to establish effective distribution channels.

We initially intend to sell our cultured diamond gemstones in selected markets in the United States with subsequent distribution in select markets around the world.  We expect that we will be required to enter into distribution agreements with, and will be dependent upon, a number of third parties for distribution and sales of our cultured diamond.  We have not yet entered into distribution agreements with any distributors.  There can be no assurance that we will be able to enter into distribution agreements with distributors or that our distribution strategy will prove to be successful.  Additionally, there can be no assurance that distributors will devote the efforts needed for successful distribution of our cultured diamond gemstones.  The inability of the Company to enter into favorable arrangements with distributors or to achieve desired distribution of our cultured diamond would have a material adverse effect on our business, operating results and financial condition.

Our sales of diamond material for commercial applications will be dependent upon our ability to enter into profitable relationships with businesses best able to reap rewards from the unique characteristics of diamond.  There is no assurance that we will be able to initiate and maintain these relationships.

The Diamond Technology and patented Mosaic production approach may be vulnerable to failure.

Our success depends, in part, on the performance, reliability and availability of the Diamond Technology and patented Mosaic production approach and the cultured diamond we ultimately produce.  The Diamond Technology and patented Mosaic production approach and the cultured diamond produced thereby may be vulnerable to failure.  The failure of the Diamond Technology and patented Mosaic production approach or the cultured diamond produced thereby could adversely affect our business.  The process for manufacturing diamond using the Diamond Technology and patented Mosaic production approach is vulnerable to disruptions due to a variety of factors, which may lead to interruptions, delays, and losses of opportunities or inability to consistently market and sell our cultured diamond.  The occurrence of any of the foregoing events could have a material adverse effect on our business.

We may need to effectively manage rapid growth of our operations.

Our ability to successfully offer cultured diamond and to implement our business plan in a new market requires an effective planning and management process.  We are in the process of initiating our operations and anticipate having to increase our headcount substantially. Beginning our operations and potentially experiencing rapid growth would place a significant strain on our management systems, infrastructure and resources.  We will need to continue to improve our financial and managerial controls and reporting systems and procedures, and will need to continue to expand, train and manage our workforce.  Furthermore, we may be required to manage an increasing number of relationships with various users, customers and other third parties.  Any failure to expand any of the foregoing areas efficiently and effectively could cause our business to suffer.  We could experience a period of rapid and significant growth, which could continue over several years. We believe rapid growth would place a significant strain on our resources.  Our ability to manage growth effectively will require us to implement and improve operational and financial systems and to expand, train and manage our employee base.  We also may be required to manage multiple relationships with various suppliers, customers and other third parties.  Our future operating results will also depend on our ability to expand sales and marketing, research and development and administrative support organizations.  If the Company is unable to manage growth effectively, our business, financial condition and results of operations would be materially adversely affected.

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We depend on our key management personnel.

Our success depends in part upon our ability to retain the services of certain executive officers and other key employees and on the skills, experience and performance of senior management and certain other key personnel, most of whom have either never worked together or who have worked together for only a short period of time.  The loss of the services of our executive officers or other key employees could have a material adverse effect on our business, operating results and financial condition.  Because we are in the early stages of development, we are also dependent on our ability to recruit, retain and motivate personnel with technical, manufacturing and chemical vapor deposition process skills.  There are a limited number of personnel with these qualifications and competition for such personnel may be intense.  Our inability to attract, integrate and retain additional qualified key personnel would materially adversely affect our business, operating results and financial condition.

We will need to hire additional personnel.

Our future success depends on our ability to identify, attract, hire, train, retain and motivate highly skilled executive, technical, managerial, sales and marketing and business development personnel.  We intend to hire a number of executive, technical, sales, and marketing, business development and administrative personnel during the next one or two years.  Competition for qualified personnel may prove intense, particularly in the technology markets.  If we fail to successfully attract, assimilate and retain a sufficient number of qualified executive, technical, managerial, sales and marketing, business development and administrative personnel, our business could suffer.

Our success depends upon achieving a critical mass of customers and strategic relationships.

Our success is largely dependent upon achieving significant market acceptance for our cultured diamond.  As of the date hereof, the Company has not marketed our cultured diamond to consumers.  Our market is at an early stage of development.  Although we believe that our cultured diamond will ultimately achieve broad market acceptance, our existing and potential competitors may offer diamond that could damage our business.

Our success is also dependent upon attracting significant numbers of distributors and strategic relationships in order to market and produce our cultured diamond.  Our ability to enter into beneficial distribution partnerships will depend in large part upon our success in convincing gemstone consumers that our cultured diamond is of a desired quality.  Failure to achieve and maintain a critical mass of market acceptance will seriously harm our business.

We need to establish brand awareness.

Due in part to the emerging nature of the market for “cultured” or “lab-grown” diamond and the substantial resources available to some of our competitors, our opportunity to achieve and maintain a significant market share may be limited.  We believe developing and maintaining awareness of the Scio Diamond brand name, or other brand name(s) to be determined in the future, is critical to achieving widespread acceptance of our business opportunity.  Further, the importance of brand recognition will increase as competition in our market increases. Successfully promoting and positioning the Company’s brand(s) will depend largely on the effectiveness of our production and marketing efforts, as well as our ability to deliver high-quality cultured diamond at competitive prices.  Therefore, we may need to increase our financial commitment to creating and maintaining brand awareness.  If we fail to successfully promote our brand name or if we incur significant expenses promoting and maintaining our brand name, it could have a material adverse effect on the results of our operations.

The current and future state of the global economy may curtail our operations and our anticipated revenues.

Our business may be adversely affected by changes in domestic and international economic conditions, including inflation, changes in consumer preferences and changes in consumer spending rates, personal bankruptcy and the ability to collect our accounts receivable.  Changes in global economic conditions may adversely affect the demand for our products and make it more difficult to collect accounts receivable, thereby negatively affecting our business, operating results and financial condition.  The recent disruptions in credit and other financial markets and deterioration of national and global economic conditions could, among other things, impair the financial condition of some of our customers and suppliers, thereby increasing customer bad debts or non-performance by suppliers.

Acts of war, terrorism or other unknown and unexpected events could disrupt our business and we could be required to cease our operations.

Involvement in a war or other military action or acts of terrorism may cause significant disruption to commerce throughout the world. To the extent that such disruptions result in (i) delays or cancellations of customer orders, (ii) a general decrease in consumer spending, (iii) our inability to effectively market and distribute our products or (iv) our inability to access capital markets, our business and results of operations could be materially and adversely affected.  We are unable to predict whether the involvement in a war or other military action will result in any long-term commercial disruptions or if such involvement or responses will have any long-term material adverse effect on our business, results of operations or financial condition.

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A “going concern” qualification in our financial statements might create additional doubt about our ability to stay in business, which could result in a total loss of investment by our shareholders.

We have no revenues and have negative operating cash flows.  These issues raise substantial doubt about our ability to continue as a “going concern.”

Risks Related to Our Industry

The potential market for our cultured diamond is unproven and may not materialize.

There currently is no widely-developed market for cultured diamond, and we believe that companies operating in the gemstone field may not be fully aware of the existence and attributes of our cultured diamond.  As is the case with any new or potential product, market acceptance and demand are subject to a significant amount of uncertainty.  Neither of the Apollo Companies (from whom the Company purchased its Diamond Technology and patented Mosaic production approach) was able to successfully (profitably) develop and commercialize their man-made diamond development/growing process.  Our future financial performance will depend upon consumer acceptance of cultured diamond as a realistic and comparable alternative to mined diamond and other gemstones.  Because no widely-developed markets now exist for cultured diamond, it is difficult to predict the future growth rate, if any, and the size of the market for our cultured diamond.  We may spend significant amounts of capital to acquire diamond production systems at a time when demand for our cultured diamond is not at a level to fund those expenditures.  The market for our cultured diamond may never develop or may develop at a slower pace than expected due to a general lack of consumer acceptance of cultured diamond.  If the market fails to develop or develops more slowly than expected, or if our cultured diamond does not achieve significant market acceptance, our business, operating results and financial condition would be materially adversely affected.

We face significant competition.

Our cultured gemstone diamond will face competition from established producers and sellers of mined diamond and other known and potential manufacturers of cultured gemstones.  Other companies could seek to introduce cultured diamond or other competing diamond or to develop competing processes for production of cultured diamond.  We believe that the more successful the Company is in creating market acceptance for cultured gemstone diamond, the more competition can be expected to increase.  Increased competition could result in a decrease in the price charged by the Company for our cultured diamond or reduce demand for our cultured diamond, which would have a material adverse effect on our business, operating results and financial condition.  Further, our current and potential competitors may have significantly greater financial, technical, manufacturing and marketing resources and greater access to distribution channels than the Company. There can be no assurance that we will be able to compete successfully with existing or potential competitors.

Widespread consumer acceptance of cultured diamond gemstones is still developing.  At this time, the Company is aware that it may or will be competing with companies that produce or may produce cultured diamond, including Gemesis, Element Six, and Sumitomo.  We believe that as cultured gemstones continue to gain widespread consumer acceptance, the more competition can be expected to increase. Increased competition could result in a decrease in the price expected to be charged by the Company for our cultured diamond or reduce demand for our cultured diamond, which would have a material adverse effect on our business, operating results and financial condition.

Our potential competitors in the gemstone diamond industry may have significantly greater financial, technical, manufacturing and marketing resources and greater access to distribution channels than the Company.  Our competitors will likely include large multi-national gemstone diamond companies as well as numerous start-up and development-stage gemstone diamond and technology companies, some of whom we may not be aware.  We expect intense competition as we execute our business plan.  It is believed that some of our existing and potential competitors, as well as potential entrants into our market, have longer operating histories, larger user bases, greater brand recognition and significantly greater financial, marketing and other resources than the Company.  Many of these potential competitors may be able to devote substantially greater resources to promotion and systems development than we can.  Barriers to developing competitive technology in our market may not be sufficient and current and competitors may be able to develop competing diamond at a relatively low cost.  Accordingly, we believe that our success will depend heavily upon achieving significant market acceptance before our potential competitors introduce competing products. There can be no assurance that we will be able to compete successfully with potential competitors.

Rapid technological change will affect our business.

Rapidly changing technology, evolving industry standards, evolving consumer demands and frequent new product introductions are expected to define our market.  Our market’s early stage of development may exacerbate these characteristics.  Our future success will depend in significant part on our ability to continuously improve the quality of cultured diamond and our production capabilities in response to both the evolving demands of the market and competitive product offerings.  Efforts in these areas may not be successful.

We expect to have limited protection of our intellectual property and proprietary rights.

We regard the patents, trade secrets and similar intellectual property acquired via the ADI Asset Purchase as critical to our success. We must rely on patent law, trade secret protection and confidentiality agreements with our employees, customers, strategic partners, advisors and others to protect those proprietary rights.  Such measures, however, afford only limited protection, and we may not be able to maintain the propriety and/or confidentiality of the technology.  Despite these precautions, unauthorized third parties might use information that we regard as proprietary to compete or help others to compete with us.  There is no assurance that any of the existing patent applications or future patent applications, if made, will be granted, or, if granted, will not be invalidated or circumvented, or that the rights granted there under will provide us with a competitive advantage.  Any misappropriation of our proprietary information by third parties could materially adversely affect our business.  There can be no assurance that any other patents issued will provide any significant commercial protection to the Company, that the Company will have sufficient resources to prosecute its patents or that any patents will be upheld by a court should the Company seek to enforce its respective rights against an infringer.

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 There can be no assurances that:

·   any pending patent applications or any future patent applications will result in the issuance of patents;

·   the scope of any patent protection will be effective to exclude competitors or to provide competitive advantages to us;

·   we will be able to commercially exploit any issued patents before they expire;

·   any of the patents held will be held valid if subsequently challenged

·   others will not claim rights in, or ownership of, the patents and other proprietary rights acquired or produced by the Company;

·   our cultured diamond will not infringe, or be alleged to infringe, the proprietary rights of others; or

·   we will be able to protect meaningful rights in proprietary technology over which the party does not hold patents.

Furthermore, there can be no assurances that others have not developed or will not develop diamond which may duplicate any of the diamond produced using the Diamond Technology and patented Mosaic production approach or our expected manufacturing processes or that others will not design around any of the Company’s patents.  The existence of valid patents does not provide absolute prevention from other companies independently developing competing technologies.  Existing producers of cultured diamond may refine existing processes for growing diamond or develop new technologies for growing diamond in a manner that does not infringe any intellectual property rights of the Company.  Other parties may independently develop or otherwise acquire substantially equivalent techniques, gain access to our acquired proprietary technology or disclose such technology.  In addition, whether or not we obtain additional patents, others may hold or receive patents covering components of diamond we independently develop in the future.  There can be no assurances that third parties will not claim infringement by us, and seek substantial damages, with respect to current or future diamond-related activities.  If we were to become involved in a dispute regarding intellectual property, whether ours or that of another company, we may become involved in material legal proceedings. Any such claims, with or without merit, could be time-consuming, result in costly litigation, cause product shipment delays and require us to:

·   cease manufacturing and selling the product in question, which could seriously harm us;

·   enter into royalty or licensing agreements; or

·   design commercially acceptable non-infringing alternative diamond.

There can be no assurances that we would be able to obtain royalty or licensing agreements, if required, on terms acceptable to us or at all, or that we would be able to develop commercially acceptable non-infringing alternative diamond.  The failure to do so could have a material adverse effect upon our business, financial condition, operating results and cash flows.  We cannot be absolutely certain that the Diamond Technology and patented Mosaic production approach does not infringe issued patents or other intellectual property rights of others. In addition, because patent applications in the United States are not publicly disclosed until the patent is issued, applications may have been filed which relate to the Diamond Technology and patented Mosaic production approach.  There can be no assurance that our business and ability to produce diamond will not be impaired by claims that we are infringing upon the intellectual property of others.  We may be subject to future legal proceedings and claims from time to time in the ordinary course of our business, including claims of alleged infringement of the trademarks and other intellectual property rights of third parties.  Intellectual property litigation is expensive and time-consuming, and could divert the Company’s management’s attention from diamond production and operating our business.  As a result of the foregoing, the limited protection of our acquired intellectual property rights and proprietary information could have a material adverse effect on the Company’s business, operating results and financial condition.

Substantial governmental regulation may restrict our ability to sell our cultured diamond.

Certain federal and state laws and regulations govern the testing, creation and sale of the types of diamond we intend to produce.  The United States Federal Trade Commission (“FTC”) and other comparable regulatory authorities here and in foreign countries may extensively and rigorously regulate our cultured diamond, product development activities and manufacturing processes.  In the United States, the FTC regulates the introduction and labeling of gemstone diamond.  We may be required to:

·   obtain clearance before we can market and sell our cultured diamond;

·   satisfy content requirements applicable to our labeling, sales and promotional materials;

·   comply with manufacturing and reporting requirements; and

·   undergo rigorous inspections.

The process of obtaining marketing clearance for new gemstone diamond from the FTC may prove costly and time consuming.  The FTC has neither approved nor prohibited the use of the term “cultured” to describe the diamond the Company intends to sell as gemstones. However, in December 2006, the Jewelers’ Vigilance Committee submitted a petition (the “Petition”) to the FTC seeking amendment to the Guides for the Jewelry, Precious Metals, and Pewter Industries, 16 C.F.R. Part 23 (“Guides”) to include the term “cultured” as a proscribed term to describe laboratory-created diamond.  By opinion, dated July 21, 2008, the FTC denied the Petition finding it did not demonstrate that the use of the term “cultured” to describe laboratory-created diamond, when qualified by one of the terms provided in the Guides, is deceptive or unfair and declined to amend the Guides as requested by the Petition.  The Company has not procured FTC clearance, and the FTC has precluded the Company from selling diamond produced using the Diamond Technology and patented Mosaic production approach.  Despite its knowledge of the existing limited sales of cultured diamond gemstones, there can be no assurances that the FTC will not preclude the Company, or others similarly situated from marketing and selling cultured diamond.

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The FTC has the power to restrict the offer and sale of diamond that could deceive or have the tendency or effect of misleading or deceiving purchasers or prospective purchasers with regard to the type, kind, quality, character, value, origin or other characteristics of a diamond gemstone.  Under current guidelines issued by the FTC, the Company is permitted to market its diamond gemstones as “Scio-created,” “lab-created diamond”, “laboratory created diamond,” “laboratory grown diamond” or “cultured” so long as that term is accompanied by any of the foregoing and such designations may inhibit marketing descriptions that are more favorable to creating consumer demand.  We may come under close scrutiny by governmental agencies and industry testing organizations and also by competitors in the gemstone industry, any of which may challenge our promotion and marketing of our cultured diamond.  If our production or marketing is challenged by governmental agencies or competitors, or if regulations are issued that restrict our ability to produce and market our cultured diamond as “cultured diamond”, “lab-created diamond”, or otherwise as a mined diamond alternative, our business, operating results and financial condition could be materially adversely affected.

Our cultured diamond must also comply with similar laws and regulations of foreign countries in which we market such diamond.  In general, the extent and complexity of gemstone diamond regulation is increasing worldwide.  This trend may continue, and the cost and time required to obtain marketing clearance in any given country may increase as a result.  Should it prove necessary, there can be no assurances that our cultured diamond will obtain any necessary foreign clearances on a timely basis, or at all.  Our inability to satisfy specific requirements for approval by domestic and/or foreign regulatory agencies could materially adversely affect our ability to bring diamond to market and generate revenue.

Federal, state, local and foreign laws and regulations (especially those regarding approval of gemstone diamond) are always subject to change, and could have a material adverse effect on the testing and sale of our cultured diamond and, therefore, our business.

Regulatory authorities may limit our business in the future.

We will be subject to extensive regulatory requirements.  Government authorities can withdraw marketing clearance due to our failure to comply with regulatory standards or due to the occurrence of unforeseen problems following initial clearance.  Ongoing regulatory requirements are wide-ranging and govern, among other things:

·   product manufacturing;

·   annual inspections related to ISO certification of our quality system;

·   supplier substitution;

·   product changes;

·   process modifications;

·   the process of assuring origin of mine and/or production of diamond;

·   gemstone diamond reporting; and

·   product sales and distribution.

We expect that various government agencies may inspect our facilities from time to time to determine whether we are in compliance with applicable laws and regulations.  If we fail to comply or maintain compliance with gemstone diamond laws or regulations, regulatory authorities may fine us and bar us from selling our cultured diamond. If a regulatory agency believes we are not in compliance with such laws or regulations, it may be able to:

·   seize our cultured diamond;

·   require a recall;

·   withdraw previously granted market clearances;

·   implement procedures to stop future violations; and/or

·   seek civil and criminal penalties against us.

Risks Related to an Investment in our Common Stock

An investment in the Company involves a high degree of risk.

An investment in the Company is speculative and involves a high degree of risk, including the loss of an investor’s entire investment in the Company.  There is no guaranteed rate of return an investment in the Company, and there is no assurance that an investor will be able to resell his or her shares for the amount paid for them or for any other amount.  Investors should not invest in the Company unless they can afford to lose their entire investment.

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Shareholders may be unable to exercise control because directors and officers own and control a large percentage of the Company’s stock.

As of June 30, 2012, the Company had 27,570,567 shares of common stock outstanding.

The following table shows the percentage of shares of common stock of the Company beneficially owned by our directors and executive officers as of June 30, 2012.  Each stockholder’s beneficial ownership percentage is based on: (1) 27,570,567 shares of common stock outstanding as of June 30, 2012, and (2) the assumed sale and issuance of 17,000,000 shares of common stock to the certain current and former stockholders of ADI and ADGC for $0.01 per share in the ADI/ADGC Stockholder Offering.

The number of shares of the Company’s common stock reflected in the Pro Forma % Fully-Diluted Ownership calculation also includes:

·   2,538,750 shares of our common stock issuable upon the exercise of outstanding warrants; and

·   4,660,000 shares of our common stock issuable upon the exercise of vested and unvested outstanding stock options granted to our executive officers.

						% Beneficially Owned
Name	Outstanding Shares Owned1			Vested Options4		Before the ADI/ADGC Stockholder Offering			After the ADI/ADGC Stockholder Offering			Pro Forma % Fully-Diluted Ownership
Directors
Edward S. Adams		4,890,000	2		-		18.0	%		11.1	%		9.1	%
Joseph D. Lancia		2,290,000			750,000		10.9	%		6.8	%		9.9	%
Michael R. Monahan		4,890,000	3		-		18.0	%		11.1	%		9.1	%
Theodorus Strous		-			61,500		-			-			0.3	%
Executive Officers (Non-Directors)
Charles G. Nichols		-			200,000		0.7	%		0.5	%		0.8	%
Michael W. McMahon		-			330,000		1.2	%		0.7	%		1.1	%
Total (6 persons)		12,070,000			1,341,500		48.8	%		30.2	%		30.3	%

1 Includes shares for which the named person has sole voting and investment power, has shared voting and investment power, or holds in an IRA or other retirement plan and shares held by the named person’s spouse.

2 Includes 2,000,000 shares owned by Mr. Adams’ wife, for which Mr. Adams disclaims beneficial ownership.

3 Includes 1,000,000 shares owned by Mr. Monahan’s wife, for which Mr. Monahan disclaims beneficial ownership.

4 Includes shares that may be acquired within 60 days of the date hereof by exercising stock options.  In calculating the number of shares beneficially owned by an individual and the percentage ownership of that individual, shares underlying options held by that individual that are either currently exercisable or exercisable within 60 days from June 30, 2012 are deemed outstanding.  These shares, however, are not deemed outstanding for the purpose of computing the percentage ownership of any other individual or entity.

In addition to vested options, Mr. Lancia, Mr. Nichols and Mr. McMahon hold unvested options to acquire 2,250,000 shares, 275,000 shares and 270,000 shares, respectively, and such shares are deemed to be outstanding for the purpose of computing Pro Forma % Fully-Diluted Ownership.

5 Granted to Mr. Strous pursuant to the terms of the consulting agreement entered between the Company and Mr. Strous prior to Mr. Strous’ election to the board of directors.

Therefore, our executive officers and directors collectively have considerable influence to:

·   elect or defeat the election of our directors;

·   amend or prevent amendment of our Articles of Incorporation or Bylaws;

·   effect or prevent a merger, sale of assets or other corporate transaction; and

·   determine the outcome of any other matter submitted to the shareholders for vote.

The limited ability of shareholders to exercise control over the Company may adversely affect the future market price for our securities and the rights of our shareholders.

Company transactions could be influenced and affected by conflicts of interest.

Certain board members of the Company are partners in the law firm of Adams Monahan, LLP, which has previously provided legal services to the Apollo Companies and the Company.  This relationship may continue going forward and Adams Monahan, LLP may continue to provide legal services to the Company.  See “Shareholders may be unable to exercise control because directors and officers own and control a large percentage of the Company’s common stock,” above, for information regarding the percentage of ownership of the Company beneficially owned by held our directors, Edward S. Adams, who serves as our Chairman, and Michael R. Monahan, both of whom are partners in Adams Monahan LLP.

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On August 5, 2011, we purchased the name “Scio Diamond Technology Corporation” and acquired other rights from Private Scio for 13,000,000 newly issued shares of common stock of the Company, of which Mr. Adams and Mr. Monahan each acquired, directly or indirectly, 4,100,000 shares of our common stock, and Mr. Lancia acquired 2,000,000 shares.  Mr. Adams and Mr. Monahan were directors of Private Scio, and Mr. Lancia was an officer of Private Scio, and they owned 31.5%, 31.5% and 15.4%, respectively, of Private Scio

We purchased certain assets, consisting primarily of diamond growing machines and intellectual property related thereto, from ADI on August 31, 2011. We and ADI have substantial common ownership, and both Mr. Adams, in an executive role, and Mr. Monahan previously served in various capacities with ADI until 2011.

In addition, on June 5, 2012, we acquired certain assets, consisting primarily of cultured diamond gemstone-related know-how, inventory, and various intellectual property, from ADGC. ADGC and the Company have substantial common ownership.  Mr. Adams and Mr. Monahan also served in various capacities with ADGC through early 2011. ADI and certain of its shareholders also own or owned a substantial interest in ADGC.

In connection with the purchase of assets from ADGC and the prior purchase of assets from ADI, we are, among other things, providing certain current and former stockholders of ADI and ADGC the opportunity to acquire up to approximately 17 million shares of our common stock at a nominal purchase price in the ADI/ADGC Stockholder Offering.

The Company understands that most of the outstanding shares of ADI and ADGC were redeemed prior to and in anticipation of the Company’s purchase of assets from ADI and ADGC.  Mr. Adams and his spouse owned approximately 2% of the common stock of ADI and 11% of the common stock of ADGC (prior to the stock repurchases by such companies in 2011).  Neither Mr. Adams nor his spouse is participating in the ADI/ADGC Stockholder Offering.  Mr. Monahan held no stock of ADI and approximately 4% of the stock of ADGC (prior to the stock repurchases by ADGC in 2011).  Mr. Monahan is not participating in the ADI/ADGC Stockholder Offering.  Mr. Adams and Mr. Monahan and their law firm have provided legal services to each of ADI, ADGC and the Company.  Robert C. Linares, the Chairman of the Board of each of ADI and ADGC, who is also the largest stockholder of each of ADI and ADGC, is the father-in-law of Mr. Adams.  Mr. R. Linares is expected to purchase up to 250,000 shares of common stock of the Company as a former ADI stockholder in connection with the ADI/ADGC Stockholder Offering. Bryant R. Linares, a former executive officer of both ADI and ADGC, and the second largest stockholder previously of both ADI and ADGC, is expected to purchase up to 1,000,000 shares of common stock of the Company as a former ADI stockholder in connection with the ADI/ADGC Stockholder Offering.  Mr. B. Linares is the brother-in-law of Mr. Adams.

Provisions in our Articles of Incorporation and bylaws or Nevada law might discourage, delay or prevent a change of control of us or changes in our management and, therefore, depress the trading price of the common stock.

The actual issuance of any preferred stock could diminish the rights of holders of our common stock, and therefore could reduce the value of such common stock.  In addition, specific rights granted to future holders of preferred stock could be used to restrict our ability to merge with, or sell assets to, a third party.  The ability of our board of directors to issue preferred stock could make it more difficult, delay, discourage, prevent or make it more costly to acquire or effect a change-in-control, which in turn could prevent our shareholders from recognizing a gain in the event that a favorable offer is extended and could materially and negatively affect the market price of our common stock.

In addition, Nevada corporate law and our Articles of Incorporation and Bylaws also contain other provisions that could discourage, delay or prevent a change in control of our Company or changes in its management that our shareholders may deem advantageous. These provisions include the following:

·   deny holders of our common stock cumulative voting rights in the election of directors, meaning that shareholders owning a majority of our outstanding shares of common stock will be able to elect all of our directors;

·   require any stockholder wishing to properly bring a matter before a meeting of shareholders to comply with specified procedural and advance notice requirements; and

·   allow any vacancy on the board of directors, however the vacancy occurs, to be filled by the directors.

There is no active public market for any of our securities, which are not listed on any stock exchange, and transfer of our securities, is restricted.

There is presently no active market, private or public, for our securities, and there can be no assurance that a trading market will ever develop or, if developed, that it will be maintained.  Our securities are not listed on any stock exchange.  We believe that we currently may not have enough shareholders or outstanding shares to support an active trading market, even if the securities were listed on a recognized trading exchange.  There can be no assurance that our investors will be able to resell any of our securities at any price.  The Company makes no representation to investors regarding the value of its securities, and, particularly in light of the thin trading in the Company's securities, trading prices may or may not reasonably reflect the intrinsic value, if any, of the Company's securities.

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We may be deemed to be a former shell company in accordance with the Securities Act.  We filed a Form 8-K on August 18, 2011, which stated management’s conclusion that we were no longer a shell corporation.  However, we intend to amend our Form 8-K filed on September 2, 2011 with respect to the purchase of assets from ADI, to reflect our current conclusion that we were still a shell company immediately prior to the purchase of such assets.  Therefore, it is unclear as to what date we will be deemed to have filed our Form 10 information.  Assuming that we are now a former shell company (which we currently believe to be the case), then our shares of common stock may not be resold under Rule 144 of the Securities Act except pursuant to Rule 144(i).  Resales under Rule 144(i) generally require, that, in addition to the normal Rule 144 requirements and limitations: (1) we have ceased to be a shell company; (2) we are subject to the reporting requirements of the Securities Exchange Act of 1934 (the “Exchange Act”); (3) we have filed all Exchange Act reports required for the past 12 months; and (4) a minimum of one year has elapsed since we filed current Form 10 information on Form 8-K changing our status from a shell company to a non-shell company.  An investment in the Company should be considered a long-term, illiquid investment, and investors should be able to withstand a complete loss of their investment.

Our Bylaws specifically provide that we shall not be required to effectuate the transfer of any shares of our common stock without first receiving from the transferring stockholder (i) an opinion of counsel satisfactory to the Company that a proposed transfer may be made lawfully without the registration of such shares pursuant to the Securities Act of 1933, as amended (the “Securities Act”), and applicable state securities laws, or (ii) evidence that the shares proposed to be transferred have been registered under the Securities Act.  The existence of the foregoing restrictions may, therefore, adversely affect the future market price for our securities and the rights of our shareholders.

Future stock issuances could severely dilute our current shareholders’ interests.

The future issuance of common stock or preferred stock may result in dilution in the percentage of our common stock held by our existing shareholders.  Also, any stock we sell in the future may be valued on an arbitrary basis by us and the issuance of shares of common stock or preferred stock for future services, acquisitions or other corporate actions may have the effect of diluting the value of the shares held by our existing shareholders.

In addition to Company securities to be issued in connection with ongoing capital raising and pursuant to the ADI/ADGC Stockholder Offering, as of June 30, 2012, the Company had reserved 4,660,000 shares of common stock for issuance upon the exercise of vested and unvested options (with such unvested options being subject to performance-based vesting criteria) to purchase shares of the Company’s common stock that have been previously issued to certain executive officers and other employees of the Company.

In addition, it is the Company’s current intention (depending on the development of the business plan and other factors) to raise substantial additional capital during 2012, which we expect to result in substantial dilution in the percentage of our common stock held by our existing shareholders.

Any additional funding we arrange through the sale of our common stock will result in dilution to existing shareholders’ voting power and may result in dilution to the book value per share held by existing shareholders.

We must raise additional capital in order for our business plan to succeed.  Our most likely source of additional capital will be through the sale of additional shares of common stock.  Such stock issuances would cause shareholders’ voting interests in our Company to be diluted and may cause the book value per share held by existing shareholders to be diluted.  Such dilution could negatively affect the value of investors’ shares.

We do not expect to pay cash dividends in the foreseeable future.

We are not obligated to pay dividends with respect to our capital stock, and we do not anticipate the payment of cash dividends on our capital stock in the foreseeable future.  Any decision to pay dividends will depend upon our profitability at the time, cash available, and other factors; however, it is currently anticipated that any future profits received from operations will be retained for operations.  Therefore, no assurance can be given that there will ever be any such cash dividend or distribution in the future.  Accordingly, investors must rely on sales of their capital stock after price appreciation, which may never occur, or a sale of our Company or other similar transaction as the only way to realize a gain on their investment.

If we do not obtain additional financing, our business may fail.

We anticipate that additional funding will be needed for general administrative expenses, operating costs and marketing costs.  There is no guarantee that we will be able to raise the required cash and because of this our business may fail.  We have not generated any revenue from operations to date.  The specific cost requirements needed to maintain operations will depend upon the production we are able to generate.  If we are not able to raise the capital necessary to fund our business objectives, we may have to delay the implementation of our business plan.  Obtaining additional funding will be subject to a number of factors, including general market conditions, investor acceptance of our business plan and initial results from our business operations.  These factors may impact the timing, amount, terms or conditions of additional financing available to us.  The most likely source of future funds available to us is through the sale of additional shares of common stock.  There is no guarantee that we will be able to raise the funds required by the Company and, if we are not able to raise such funds, then our business may fail.

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Because our continuation as a going concern is in doubt, we may be forced to cease business operations unless we can generate profitable operations in the future.

We will be incurring losses until we build a break-even level of revenue.  Further losses are anticipated in the development of our business.  As a result, there is substantial doubt about our ability to continue as a going concern.  Our ability to continue as a going concern is dependent upon our ability to generate profitable operations in the future and/or to obtain the necessary financing to meet our obligations and repay our liabilities arising from normal business operations when they come due.  We will require additional funds in order to provide proper service to our potential clients.  At this time, we cannot assure investors that we will be able to obtain financing. If we are unable to raise needed financing, we will have to delay or abandon further operations.  If we cannot raise financing to meet our obligations, we will be insolvent and may be forced to cease our business operations.

If an active trading market for our common stock does not develop, shareholders may be unable to sell their shares.

There is currently no active trading market for our common stock and we can provide no assurance that a market will develop.  We may decide to apply for listing of our common stock on a U.S. exchange.  However, we can provide no assurances that we will apply or that our common stock would be accepted for listing on any stock exchange.  Accordingly, we can provide investors with no assurance that our shares will be traded on a U.S. exchange or, if traded, that an active public trading market will materialize.  If no active trading market is ever developed for our shares, it will be difficult for shareholders to sell their stock.  In such a case, shareholders may find that they are unable to sell their shares of our common stock.

Our shares of common stock are subject to the “penny stock” rules of the Securities and Exchange Commission and the trading market in our securities will be limited, which will make transactions in our stock cumbersome and may reduce the value of an investment in our stock.

The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in “penny stocks.”  Penny stocks generally are equity securities with a price of less than $5.00 (other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system).  Penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized risk disclosure document prepared by the SEC, which specifies information about penny stocks and the nature and significance of risks of the penny stock market.  A broker-dealer must also provide the customer with bid and offer quotations for the penny stock, the compensation of the broker-dealer, and sales person in the transaction, and monthly account statements indicating the market value of each penny stock held in the customer’s account.  In addition, the penny stock rules require that, prior to a transaction in a penny stock not otherwise exempt from those rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction.  These disclosure requirements may have the effect of reducing the trading activity in the secondary market for stock that becomes subject to those penny stock rules.  If a trading market for our common stock develops, our common stock will probably become subject to the penny stock rules, and shareholders may have difficulty in selling their shares.

Any additional funding we arrange through the sale of our common stock will result in dilution to existing shareholders’ voting power and may result in dilution to the book value per share held by existing shareholders.

We must raise additional capital in order for our business plan to succeed.  Our most likely source of additional capital will be through the sale of additional shares of common stock. Such stock issuances would cause shareholders’ voting interests in our Company to be diluted and may cause the book value per share held by existing shareholders to be diluted.  Such dilution could negatively affect the value of investors’ shares.

We have very little experience as a public company and may not be able to operate successfully as a public company, regardless of whether our operations are successful.

We have operated as a public company for a very limited period of time.  We have little experience in complying with the various rules and regulations which are required of a public company.  As a result, we may not be able to operate successfully as a public company, regardless of whether our operations are successful.

Our board of directors has concluded that the issuance of shares of the Company’s common stock to certain current and former stockholders of ADI (as part of the ADI/ADGC Stockholder Offering) in connection with our purchase of assets from ADI should have been treated as part of the purchase price of the ADI assets and that we are required to restate our quarterly financial statements for each of the quarters ended September 30, 2011 and December 31, 2011 and to amend our Form 10-Qs for each such period.  We also intend to amend our Form 8-K filed on September 2, 2011 with respect to the purchase of assets from ADI to reflect our current conclusion that we were a shell company immediately prior to the purchase of such assets.  Therefore, it is unclear as to what date we will be deemed to have filed our Form 10 information.

If we cannot operate successfully as a public company, an investment in our Company may be adversely affected.  Our inability to operate as a public company could be the basis of an investor losing his or her entire investment in us.  As a public company, we will incur significant costs including but not limited to the following: audit, legal, internal costs related to compliance, market maker, transfer agent, and EDGAR filing fees.  These costs are expected to be substantial and will vary depending on the Company’s activity and the SEC’s review of the Company.

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Material weaknesses in our disclosure controls and procedures or our failure to remediate such material weaknesses could result in a material misstatement in our financial statements not being prevented or detected and could affect investor confidence in the accuracy and completeness of our financial statements, as well as our common stock price.

We have identified material weaknesses in our disclosure controls and procedures, including a lack of sufficient internal accounting resources, necessary to ensure that adequate review of our financial statements and notes thereto is performed, and have concluded that our internal control over financial reporting was not effective as of March 31, 2012.  These material weaknesses and our remediation plans are described further in Item 9A.  Weaknesses in our disclosure controls and procedures could result in material misstatements in our financial statements not being prevented or detected.  We may experience difficulties or delays in completing remediation or may not be able to successfully remediate material weaknesses at all.  Any material weakness or unsuccessful remediation could affect our ability to file periodic reports on a timely basis and investor confidence in the accuracy and completeness of our financial statements, which in turn could harm our business and have an adverse effect on our stock price and our ability to raise additional funds.

We may expend a substantial amount of time and resources in connection with SEC, other regulatory, or shareholder-related inquiries or legal actions related to our restatement of our previously filed financial statements and other disclosures and the transactions related thereto or other matters.

We may expend a substantial amount of time and resources in connection with SEC, other regulatory or shareholder-related inquiries or legal actions related to our restatement of our previously filed financial statements and other disclosures and the transactions related thereto or other matters.  Such actions could have a material adverse effect on the Company's liquidity and financial condition and could also affect our ability to file periodic reports on a timely basis and investor confidence in the accuracy and completeness of our financial statements, which in turn could harm our business and have an adverse effect on our stock price and our ability to raise additional funds.

We have been served with a complaint filed by a former shareholder of ADI.

                On or about August 3, 2012, we were served with a complaint filed by Kenneth Fink, a former shareholder of ADI, against our Chairman, Edward S. Adams and our director Michael R. Monahan, their respective spouses, Robert C. Linares, the Chairman of ADI and ADGC, the law firm of Adams Monahan LLP, Loblolly, Inc., which was formerly known as Scio Diamond Technology Corporation and is referred to in this Annual Report as “Private Scio”, the Company, and, as a nominal defendant, ADI, in the U.S. District Court for the District of Minnesota. 

                The complaint alleges (i) against Adams, Monahan, Linares, Adams Monahan LLP, and the Company, violations of SEC Rule 10b-5 promulgated under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, (ii) against Adams, Monahan, Linares, Adams Monahan LLP, and the Company, violations of the Minnesota Securities Act, Minn. Stat. § 80A.68 and 80A.76, (iii) against Adams, Monahan, Linares, and Adams Monahan LLP, constructive fraud – rescission of security redemption, and (iv) against all defendants, constructive fraud – rescission.  Each of the allegations relates to, among other things, certain actions taken in connection with the ADI Asset Purchase, the ADGC Asset Purchase, and the ADI/ADGC Stockholder Offering.

                Mr. Fink is seeking direct and consequential damages in an amount to be established through proof at trial, plus pre-judgment and post-judgment interest and reasonable attorney’s fees and costs, rescission of the alleged improper corporate transactions and disgorgement of improperly obtained fees, and other appropriate equitable relief. 

ITEM 1B. UNRESOLVED STAFF COMMENTS.

Disclosure under this item is not applicable because the Company is a smaller reporting company.

ITEM 2. PROPERTIES.

           Our corporate headquarters and production facility is located in Greenville, South Carolina.  The production facility includes approximately 3,200 square feet adjoining our headquarters office. We have a seven-year lease on the facility, which is a 9,003 square foot facility, located at 411 University Ridge, Greenville, SC 29601.

We also have a research and development facility located in Hudson, Massachusetts, which is partially completed.  We anticipate that the upfitting of this facility will be completed in 2012.  This facility is under a two-year lease.  We believe that both of our properties are adequately insured.

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Annual rental payments for the next seven years are as follows:

2013	$       176,445
2014	169,545
2015	135,045
2016	198,516
2017 and thereafter	595,548

ITEM 3. LEGAL PROCEEDINGS.

On or about August 3, 2012, we were served with a complaint filed by Kenneth Fink, a former shareholder of ADI, against our Chairman, Edward S. Adams, and his wife, Denise L. Adams, our director Michael R. Monahan, and his wife, Julie C. Monahan, Robert C. Linares, the Chairman of ADI and ADGC, the law firm of Adams Monahan LLP, Loblolly, Inc., which was formerly known as Scio Diamond Technology Corporation and is referred to in this Annual Report as “Private Scio”, the Company, and, as a nominal defendant, ADI, in the U.S. District Court for the District of Minnesota.

The complaint alleges (i) against Adams, Monahan, Linares, Adams Monahan LLP, and the Company, violations of SEC Rule 10b-5 promulgated under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, (ii) against Adams, Monahan, Linares, Adams Monahan LLP, and the Company, violations of the Minnesota Securities Act, Minn. Stat. § 80A.68 and 80A.76, (iii) against Adams, Monahan, Linares, and Adams Monahan LLP, constructive fraud – rescission of security redemption, and (iv) against all defendants, constructive fraud – rescission.  Each of the allegations relates to, among other things, certain actions taken in connection with the ADI Asset Purchase, the ADGC Asset Purchase, and the ADI/ADGC Stockholder Offering.

Mr. Fink is seeking direct and consequential damages in an amount to be established through proof at trial, plus pre-judgment and post-judgment interest and reasonable attorney’s fees and costs, rescission of the alleged improper corporate transactions and disgorgement of improperly obtained fees, and other appropriate equitable relief.  The Company denies any liability and intends to vigorously defend this action.

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

Our common stock is currently quoted on the OTC Bulletin Board under the ticker “SCIO”.  Beginning November 16, 2010, our common stock was quoted on the OTC Bulletin Board under the symbol “KHRB.OB”; however, on August 5, 2011, our symbol was changed to “KHRBD.OB”, and later to “SCIO” to reflect the Company’s name change.  Because we are quoted on the OTC Bulletin Board, our common stock may be less liquid, receive less coverage by security analysts and news media, and generate lower prices than might otherwise be obtained if it were listed on a national securities exchange.  The OTC Bulletin Board prices are quotations, which reflect inter-dealer prices without retail mark-up, mark-down, or commissions and may not represent actual transactions.

After the acquisition of the Scio Diamond Technology Corporation name on August 5, 2011, trading of our common stock did not begin on the OTC Bulletin Board until September 23, 2011.  The following table sets forth the low and high closing sales prices of shares of our common stock from September 23, 2011 through March 31, 2012, as reported by the OTC Bulletin Board.

Fiscal Year Ended March 31, 2012	High	Low
Fourth Fiscal Quarter	$4.16	$2.55
Third Fiscal Quarter	4.47	3.23
September 23, 2011 through the end of the Second Fiscal Quarter	3.18	2.50

Holders

As of June 30, 2012, there were 27,570,567 shares of common stock outstanding held by approximately 107 stockholders of record.

Dividends

We have not declared or paid any cash dividends on our common stock since our inception, and we do not intend to declare cash dividends for the foreseeable future.  Any decision to pay dividends will depend upon our profitability at the time, cash available, and other factors; however, it is currently anticipated that any future profits received from operations will be retained for operations.

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Securities Authorized for Issuance under Equity Compensation Plans

We did not have an equity compensation plan in effect as of our most recent fiscal year, which ended March 31, 2012.  Subsequently on May 7, 2012, we implemented equity compensation arrangements for our executive officers and several key employees.

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 in conjunction with the financial statements of the Company, and the notes to those statements, included elsewhere in this Form 10-K, as well as the rest of this Annual Report on Form 10-K.  The statements in this discussion regarding outlook, our expectations regarding our future performance, liquidity and capital resources and other non-historical statements in this discussion are forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described in the “Risk Factors” and “Cautionary Notice Regarding Forward Looking Statements” sections of this Annual Report on Form 10-K.  Our actual results may differ materially from those contained in or implied by any forward-looking statements.

GENERAL

Corporate History

We were incorporated on September 17, 2009 in the State of Nevada under the name Krossbow Holdings Corporation.  Krossbow's original business plan was focused on offsetting CO2 emissions through the creation and protection of forest-based carbon “sinks.”  Krossbow planned to assess carbon resource potentials, prescribe and implement ecosystem restorations to develop those resources, and thereby generate carbon offset products.  However, we have since abandoned that original business plan and restructured our business to focus on man-made diamond technology development.  We decided to acquire existing technology and to seek to efficiently and effectively produce man-made diamond. In connection with this change in business purpose, Krossbow changed its name to Scio Diamond Technology Corporation to reflect its new business direction.

On August 5, 2011, Edward S. Adams and Michael R. Monahan, both of whom now serve on the Company’s Board of Directors, acquired control of the Company through the purchase of two million (2,000,000) shares of the Company’s issued and outstanding common stock from Jason Kropp, Krossbow’s sole director and executive officer at that time, in accordance with a common stock purchase agreement among Mr. Kropp, Mr. Adams and Mr. Monahan.  Concurrently with the execution of the stock purchase agreement, Mr. Kropp resigned from all positions with Krossbow, including, but not limited to, that of President, Chief Executive Officer, Chief Financial Officer, Treasurer, Secretary and Director.

On August 5, 2011, the Company executed an Asset Purchase Agreement (the “Scio Asset Purchase Agreement”) with another privately-held Nevada corporation that also had the name “Scio Diamond Technology Corporation” (“Private Scio”).  Under the terms of the Scio Asset Purchase Agreement, the Company purchased the name “Scio Diamond Technology Corporation” and acquired other rights from Private Scio for 13,000,000 newly issued shares of common stock of the Company. Mr. Adams and Mr. Monahan were directors of Private Scio, and Mr. Lancia was an officer of Private Scio, and they owned 31.5%, 31.5% and 15.4%, respectively, of Private Scio.  Edward S. Adams and Michael R. Monahan each acquired, directly or indirectly, 4,100,000 shares of our common stock pursuant to the Scio Asset Purchase Agreement, Joseph D. Lancia, our Chief Executive Officer, acquired 2,000,000 shares pursuant to the Scio Asset Purchase Agreement.

On August 31, 2011, the Company acquired certain assets of Apollo Diamond, Inc. (“ADI”) (the “ADI Asset Purchase”), consisting primarily of diamond growing machines and intellectual property related thereto, for which the Company paid ADI an aggregate of $2,000,000 in a combination of cash and a promissory note to ADI with a September 1, 2012 maturity date (which promissory note had a remaining outstanding balance of $125,000 as of March 31, 2012).  In connection with the ADI Asset Purchase, the Company also agreed to provide certain current and former stockholders of ADI that are accredited investors the opportunity to acquire up to approximately 16 million shares of common stock of the Company for $0.01 per share (the “ADI Offering”).

On June 5, 2012, the Company acquired substantially all of the assets of Apollo Diamond Gemstone Corporation (“ADGC”) (the “ADGC Asset Purchase”), consisting primarily of cultured diamond gemstone-related know-how, inventory, and various intellectual property, in exchange for $100,000 in cash and the opportunity for certain current and former stockholders of ADGC that are accredited investors to acquire up to approximately 1 million shares of common stock of the Company for $0.01 per share (the “ADGC Offering”) with the intent that ADI Offering be conducted substantially concurrently with the ADGC Offering (collectively, the “ADI/ADGC Stockholder Offering”).

Business Overview

The Company's primary mission is the development of profitable and sustainable commercial applications for its planned mass production of high quality, single-crystal diamond in a laboratory environment using its Diamond Technology and patented Mosaic production approach.  The Company intends to target both the commercial/industrial and gemstone markets and anticipates opportunities in areas including, but not limited to, diamond gemstone jewelry, power switches, optoelectronics, cutting devices, semi-conductors and life sciences.

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As of March 31, 2012, the Company had not generated any revenue from the sale of diamond or diamond materials nor did it have firm orders placed by potential customers.  However, if the Company is able to produce high-quality, relatively low-cost diamond and diamond materials in reliable quantities, then such products may be incorporated into existing applications and technologies and spur new technologies.  In such case, the Company expects numerous product development and licensing opportunities for the Company.  The unique physical properties of diamond combined with consistent availability made possible by our Diamond Technology and patented Mosaic production approach lead to potential market opportunities in electronics, optics, communications, and computing.

See Part I, Item 1. (Business) for additional information regarding our business.

Critical Accounting Policies

        We have adopted various accounting policies that govern the application of accounting principles generally accepted in the United States "GAAP". We describe our significant accounting policies in the notes to our audited financial statements as of March 31, 2012.

        Some of the accounting policies involve significant judgments and assumptions by us that have a material impact on the carrying value of our assets and liabilities. We consider these accounting policies to be critical accounting policies. The judgment and assumptions we use are based on historical experience and other factors that we believe to be reasonable under the circumstances. Because of the nature of the judgments and assumptions we make, actual results could differ from these judgments and estimates and could materially affect the carrying values of our assets and liabilities and our results of operations.

        The following is a summary of the more significant judgmental estimates and complex accounting principles, which represent our critical accounting policies.

Development Stage Company

The Company's financial statements have been prepared in accordance with generally accepted accounting principles related to development-stage companies.  A development-stage company is one in which planned principal operations have not commenced or if its operations have commenced, there have been no significant revenues therefrom.

Asset Purchases

The Company purchased certain assets from ADI on August 31, 2011, consisting primarily of diamond growing machines and intellectual property related thereto.  The purchase price consisted of an aggregate of $2,000,000 in a combination of cash and a promissory note bearing interest at 4.00% annually and due and owing in full on September 1, 2012, plus the opportunity for certain current and former stockholders of ADI to acquire approximately 16 million shares of common stock of the Company for $0.01 per share.  The Company has estimated the fair value of such rights to acquire shares of common stock of the Company for $0.01 per share to be $0.69 per right.

The following table reflects our purchase price allocation of the assets:

Machinery and Equipment	$	943,685
Reactors		2,311,818
In Process Research & Development		9,784,497
Total	$	13,040,000

The Company completed a third-party valuation to determine the fair value of the assets acquired.  The final amounts allocated to the assets acquired are based upon the results of that valuation appraisal.

We believe that the acquisition of these assets from ADI was not the acquisition of a “business” within the definition set forth in Rule GAAP or 11-01(d).

Property, Plant and Equipment

Depreciation of property, plant and equipment is on a straight line basis beginning at the time it is placed in service, based on the following estimated useful lives:

	Years
Machinery and equipment	3–15
Furniture and fixtures	3–10
Engineering equipment	5–12

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Leasehold improvements are depreciated at the lesser of the remaining term of the lease or the life of the asset (generally three to five years).

Expenditures for major renewals and betterments that extend the useful lives of property and equipment are capitalized. Expenditures for maintenance and repairs are charged to expense as incurred.  Equipment has not been placed into service as of March 31, 2012.

After initial recognition, tangible assets acquired that are used in commercialization activities are accounted for in accordance with their nature.  FASB ASC 360 requires that these assets be classified as indefinite-lived until the completion or abandonment of the associated commercialization efforts, at which time the asset would be considered to be placed in service and the entity would determine the assets’ appropriate useful lives.  In consideration thereof, we believe that the useful life of the reactors (the primary tangible assets) is indefinite until such time as the production and effective commercialization of the production of the reactors (lab-grown diamond) occurs or is more definite. The mechanical components of the reactors have relatively long lives, upwards of ten (10) years, but the capacity limitations of the reactors may render them obsolete from an efficiency perspective as technology in the industry continues to evolve. We, therefore, plan to reassess or redetermine the useful lives of such assets on an annual basis. The lives of the remainder of the tangible assets will be considered based on their technological and functional obsolescence and depreciated accordingly once they are placed in service.

Intangible Assets

Regarding intangible assets including the patents, the Company believes that, due to the inability to identify unique, specific commercialization potential with any degree of certainty, it is appropriate to consider the entire portfolio “In Process Research and Development,” or “IPRD”.  The Company believes that the IPRD has alternative future uses.  At such time that production begins and commercialization of separate components of the intellectual property portfolio are then marketed to varying distribution channels, segmentation  and bifurcation of the IPRD asset to finite-lived commercialized intellectual property assets will be considered.  Applicable accounting guidance requires an indefinite life for IPRD assets until such time as the commercialization can be reasonably estimated at which time the assets will be available for their intended use   At such time as those requirements are met, we believe that consideration of the legal life of the intellectual property protection should be of considerable importance in determining the useful life.  Upon commercialization and determination of the useful life of the intellectual property assets, consideration will be given to the eventual expiration of the intellectual property rights underlying certain critical aspects of our manufacturing process.

RESULTS OF OPERATIONS

Year Ended March 31, 2012 Compared to the Year Ended March 31, 2011

Our net loss for the year ended March 31, 2012 was ($2,066,900), compared to net losses of ($30,846) for the year ended March 31, 2011.  Our cumulative net loss since inception (September 17, 2009) through March 31, 2012 was ($2,103,957).  Through March 31, 2012, we had not generated any revenue since inception.

During the year ended March 31, 2012, we incurred total expenses of $2,190,957, compared to total expenses of $30,846 during the year ended March 31, 2011.  Since inception (September 17, 2009) through March 31, 2012, we have incurred total expenses of $2,152,957, which have generally related to corporate overhead, marketing, financial and administrative contracted services, such as legal and accounting, developmental costs, and expenses associated with the filing of our registration statement and other SEC filings.

 We have not had any revenue to offset our expenses, and so we have incurred net losses.  During the year ended March 31, 2012, the Company received grant income of $75,000 which was included in other income on the statement of operations.  Our net loss per share for the year ended March 31, 2012 was ($0.12) per share, compared to a net loss per share of ($0.00) per share for the year ended March 31, 2011.  The weighted average number of shares outstanding was 17,401,174 and 6,400,000, respectively, for the years ended March 31, 2012 and 2011.

FINANCIAL CONDITION

At March 31, 2012, we had total assets of $14,323,173, compared to total assets of $933 at March 31, 2011.  This increase in assets was primarily related to the ADI Asset Purchase.  We had cash of $808,516 at March 31, 2012.

Total liabilities at March 31, 2012 were $723,501 compared to total liabilities of $11,990 at March 31, 2011.  Total liabilities as of March 31, 2012 were comprised primarily of notes payable, accounts payable and accrued expenses.

    Total shareholders’ equity was $13,599,672 at March 31, 2012, compared to ($11,057) at March 31, 2011.  Shareholders’ equity increased during the year primarily due to issuance of subscription rights in connection with the issuance of subscrption right in connection with ADI Asset Purchase.  Other components of the change in shareholders’ equity related sales and to sales and issuances of common stock and net losses during the period.

Page - 26

CASH FLOWS

Operating Activities

We have not generated positive cash flows from operating activities. For the year ended March 31, 2012, net cash flows used in operating activities were ($1,375,518), consisting primarily of a net loss of ($2,066,900) offset by an increase in current liabilities of ($588,569), compared to net cash flows used in operating activities for the year ended March 31, 2011 of ($31,928).  Since inception (September 17, 2009) through March 31, 2012, net cash flows used in operating activities were ($1,409,075).

Investing Activities

For the year ended March 31, 2012, net cash flows used in investing activities were ($1,396,520), consisting primarily of the ADI Asset Purchase.  Net cash flows used in investing activities were ($0) for the year ended March 31, 2011 and ($1,396,520) for the period from inception (September 17, 2009) to March 31, 2012.

Financing Activities

We have financed our operations primarily through advancements or the issuance of equity and debt instruments.  For the years ended March 31, 2012 and March 31, 2011, we generated $3,579,622 and $7,411 from financing activities, respectively.  For the period from inception (September 17, 2009) to March 31, 2012, net cash flows provided by financing activities were $3,614,112, consisting primarily of proceeds from the sale of our common stock.

LIQUIDITY AND CAPITAL RESOURCES

We expect that working capital requirements will continue to be funded through a combination of our existing funds and further issuances of securities. Our working capital requirements are expected to increase in line with the growth of our business.

    Existing cash of $1,274,994 as of June 30, 2012, is expected to be adequate to fund our operations over the next fiscal quarter through September 30, 2012. We have no lines of credit or other bank financing arrangements. Generally, we have financed operations through March 31, 2012 through the proceeds of sales of our common stock.  As of June 30, 2012, we have commitments from existing shareholders for the purchase of over $1,000,000 in units consisting of common stock and warrants for the purchase of shares of common stock.  These commitments are contingent upon our passing certain operating milestones.  In connection with our business plan, management anticipates additional increases in operating expenses and capital expenditures relating to: (i) manufacturing operations; (ii) developmental expenses associated with a start-up business; and (iii) marketing expenses. We intend to finance these expenses with further issuances of securities. Thereafter, we expect we will need to raise additional capital and generate revenues to meet long-term operating requirements.

Additional issuances of equity or convertible debt securities will result in dilution to our current shareholders. Such securities might have rights, preferences or privileges senior to our common stock. Additional financing may not be available upon acceptable terms, or at all. If adequate funds are not available or are not available on acceptable terms, we may not be able to take advantage of prospective new business endeavors or opportunities, which could significantly and materially restrict our business operations.

OFF BALANCE SHEET ARRANGEMENTS

As of the date of this Annual Report, 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, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and

Shareholders of SCIO Diamond Technology Corporation

We have audited the accompanying balance sheet of SCIO Diamond Technology Corporation (the “Company”) as of March 31, 2012, and the related statements of operations, shareholders’ equity, and cash flows for the year ended March 31, 2012 and for the period September 17, 2009 (inception) through March 31, 2012. The Company’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audit.

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 financial statements referred to above present fairly, in all material respects, the financial position of SCIO Diamond Technology Corporation as of March 31, 2012, and the results of its operations and its cash flows for the year ended March 31, 2012 and for the period September 17, 2009 (inception) through March 31, 2012 in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has generated no revenue, incurred net losses and incurred negative operating cash flows since inception and will require additional financing to fund the continued development of products.  The availability of such financing cannot be assured.  These conditions raise substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters also are described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ Cherry, Bekaert & Holland, L.L.P.

Greenville, South Carolina

August 16, 2012

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Scio Diamond Technology Corporation
(Formerly Krossbow Holding Corp.)
(a development stage company)
BALANCE SHEETS
	March 31,			March 31,
	2012			2011
ASSETS
Current Assets:
Cash and cash equivalents	$	808,516		$	933
Inventory		2,503			-
Prepaid expenses		23,295			-
Total current assets		834,313			933
Property, plant and equipment
Facility		145,301			-
Construction in progress		270,000			-
Manufacturing equipment		3,178,577			-
Other equipment		58,144			-
Total property, plant and equipment		3,652,022			-
Less accumulated depreciation		(3,397	)		-
Net property, plant and equipment		3,648,625			-
Intangible assets		9,784,497			-
Prepaid assets, noncurrent		41,938			-
Other assets		13,800			-
TOTAL ASSETS	$	14,323,173		$	933
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Notes payable	$	125,000		$	-
Accounts payable		66,080			-
Accounts payable - related parties		131,984			-
Notes payable - related party		-			8,490
Accrued expenses		400,437			3,500
Total current liabilities		723,501			11,990
Shareholders' Equity (Deficit):
Common stock, $0.001 par value, 75,000,000 shares authorized
26,013,070 and 6,400,000 shares issued and outstanding at
March 31, 2012 and March 31, 2011, respectively		26,013			6,400
Additional paid-in capital		15,937,616			19,600
Deficit accumulated during the development stage		(2,363,957	)		(37,057	)
Total shareholders' equity (deficit)		13,599,672			(11,057	)
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)	$	14,323,173		$	933
The accompanying notes are an integral part of these financial statements.

Page - 29

Scio Diamond Technology Corporation
(Formerly Krossbow Holding Corp.)
(a development stage company)
STATEMENTS OF OPERATIONS
For the years ended March 31, 2012 and 2011 and for the period September 17, 2009 (inception) through March 31, 2012
	Year			Year			September 17, 2009
	Ended			Ended			(Inception) through
	March 31,2012			March 31, 2011			March 31,2012
Revenue
Gross revenue	$	-		$	-		$	-
Operating expenses
Professional  and consulting fees		1,534,518			28,788			1,566,806
Salaries and benefits		284,353			-			284,353
Rent, equipment lease and facilities expense		97,015			-			97,015
Marketing costs		28,347			-			28,347
Depreciation		3,397			-			3,397
Corporate general and administrative		190,306			2,058			195,075
Loss from operations		(2,137,936	)		(30,846	)		(2,,174,993	)
Other income (expense)
Interest (expense)		(15,021	)		-			(15,021	)
Gain on restructuring		11,057			-			11,057
Other income (expense)		75,000			-			75,000
Net loss	$	(2,066,900	)	$	(30,846	)	$	(2,103,957	)
Loss per share
Basic:
Weighted average number of shares outstanding		17,401,174			6,400,000
Loss per share	$	(0.12	)	$	(0.00	)
Fully diluted:
Weighted average number of shares outstanding		17,401,174			6,400,000
Loss per share	$	(0.12	)	$	(0.00	)
The accompanying notes are an integral part of these financial statements.

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Scio Diamond Technology Corporation
(Formerly Krossbow Holding Corp.)
(a development stage company)
STATEMENTS OF SHAREHOLDERS' EQUITY
For the years ended March 31, 2012 and 2011 and for the period September 17, 2009 (inception) through March 31, 2012
	Common Stock				Additional Paid in		Deficit Accumulated During the
	Shares		Amount		Capital		Development Stage			Total
Inception, September 17, 2009		-	$	-	$	-	$	-		$	-
Common stock issued to founder
at $.0.002 per share		2,000,000		2,000		2,000		-			4,000
Common stock issued for cash
at $.0.005 per share		4,400,000		4,400		17,600		-			22,000
Net loss for period ended March 31, 2010		-		-		-		(6,211	)		(6,211	)
Balance, March 31, 2010		6,400,000		6,400		19,600		(6,211	)		19,789
Net loss for period ended March 31, 2011		-		-		-		(30,846	)		(30,846	)
Balance, March 31, 2011		6,400,000		6,400		19,600		(37,057	)		11,057
Shares issued for purchase of trade name		13,000,000		13,000		247,000		-			260,000
Common stock issued for cash, net of fees,
at $0.70 per share		6,613,070		6,613		4,439,009		-			4,445,622
Deemed distribution		-		-		-		(260,000	)		(260,000	)
Subscription rights issued for purchase of assets		-		-		11,040,000		-			11,040,000
Warrants issued for services from non-employees		-		-		192,007		-			192,007
Net loss for the year ended
March 31, 2012		-		-		-		(2,066,900	)		(2,066,900	)
Balance, March 31, 2012		26,013,070	$	26,013	$	15,937,616	$	(2,363,957	)	$	13,599,672
The accompanying notes are an integral part of these financial statements.

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Scio Diamond Technology Corporation
(Formerly Krossbow Holding Corp.)
(a development stage company)
STATEMENTS OF CASH FLOW
For the years ended March 31, 2012 and 2011 and for the period September 17, 2009 (inception) through March 31, 2012
	Year			Year			September 17, 2009
	Ended			Ended			(Inception) through
	March 31,2012			March 31,2011			March 31,2012
Cash flows from operating activities:
Net loss	$	(2,066,900	)	$	(30,846	)	$	(2,103,957	)
Adjustments to reconcile net loss to net cash used in
operating activities:
					-
Depreciation		3,397			-			3,397
Gain on restructuring		(11,057	)		-			11,057
Expense for warrants issued in exchange for services		192,007			-			192,007
Changes in assets and liabilities:
(Increase) in prepaid expenses		(65,232	)		-			(65,232	)
(Increase) decrease in inventory and other assets		(16,303	)		-			(16,303	)
Increase in accounts payable		198,065			-			198,065
Increase (decrease) in accrued expenses		390,505			(1,082	)		394,005
Net cash from operating activities		(1,375,518	)		(31,928	)		(1,409,075	)
Cash flows from investing activities:
Purchase of assets		(1,000,000	)		-			(1,000,000	)
Proceeds from disposal of property, plant and equipment		97,270			-			97,270
Purchase of property, plant and equipment		(493,790	)		-			(493,790	)
Net cash from investing activities		(1,396,520	)		-			(1,396,520	)
Cash flows from financing activities
Services financed with a note payable		250,000						250,000
Proceeds from note payable - related party		9,000			7,411			17,490
Sale of common stock - net of fees		4,445,622			-			4,471,622
Payments on notes payable		(1,125,000	)		-			(1,125,000	)
Net cash from financing activities		3,579,622			7,411			3,614,112
Change in cash and cash equivalents		807,584			(24,517	)		808,517
Cash and cash equivalents, beginning of period		933			25,450			-
Cash and cash equivalents, end of period	$	808,517		$	933		$	808,517
The accompanying notes are an integral part of these financial statements (Continued)

Page - 32

Scio Diamond Technology Corporation
(Formerly Krossbow Holding Corp.)
(a development stage company)
STATEMENTS OF CASH FLOW
For the years ended March 31, 2012 and 2011 and for the period September 17, 2009 (inception) through March 31, 2012 (Continued)
	Year		Year		September 17, 2009
	Ended		Ended		(Inception) through
	March 31,2012		March 31,2011		March 31,2012
Supplemental cash flow disclosures:
Cash paid for:
Interest	$	3,000	$	-	$	3,000
Income Taxes	$	-	$	-	$	-
Non-cash investing and financing activities:
Purchase of assets funded by note payable	$	1,000,000	$	-	$	1,000,000
Purchase of assets funded through subscription rights	$	11,040,000	$	-	$	11,040,000
Common stock issued for purchase of trade name	$	260,000	$	-	$	260,000

The accompanying notes are an integral part of these financial statements

Page - 33

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Business

Scio Diamond Technology Corporation (the “Company”) was incorporated under the laws of the State of Nevada as Krossbow Holding Corp. on September 17, 2009.  The original business plan of the Company was focused on offsetting C02 emissions through the creation and protection of forest-based carbon “sinks.” The Company has since abandoned its original business plan and restructured its business to focus on man-made diamond technology development and commercialization.

On July 13, 2011 the Board of Directors of the Company resolved to authorize a 2-for-1 forward split of its issued and outstanding common shares, whereby every one (1) old share of common stock was to be exchanged for two (2) new shares of the Company’s common stock, effective on August 5, 2011. As a result, once the forward split was declared effective by the Financial Industry Regulatory Authority, the issued and outstanding shares of common stock increased from 3,200,000 prior to the forward split to 6,400,000 following the forward split.  The forward split shares are payable upon surrender of certificates to the Company’s transfer agent.  The accompanying financial statements and notes give retroactive effect to the forward split for all periods presented.

Going Concern

The Company has not generated any revenue to date and consequently its operations are subject to all risks inherent in the establishment of a new business enterprise.  For the period from inception, September 17, 2009, through March 31, 2012, the Company has accumulated losses of ($2,103,957).

These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management has responded to these circumstances by taking the following actions:

·   Focused efforts on the construction and start-up of its state-of-the-art manufacturing facility in South Carolina in order to bwegin production and generat revenue.

·   Ongoing solicitation of investment in the Company in the form of a private placement of common shares to accredited investors.

·   Responded to potential customer contacts in order to meet potential orders immediately upon production start-up.

In the opinion of management, these actions will be sufficient to provide the Company with the liquidity it needs to meet its obligations and continue as a going concern.  There can be no assurance, however, that the Company will successfully implement these plans.  The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

Accounting Basis

The Company’s financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

Estimates and Assumptions

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

Fair Value of Financial Instruments

The carrying value of cash, accounts payable and notes payable approximate their fair value due to the short period of these instruments.

Development Stage Company

The financial statements have been prepared following the requirements of GAAP for development-stage companies.  A development-stage company is one in which planned principal operations have not commenced or if its operations have commenced, there have been no significant revenues therefrom.

Cash and Cash Equivalents

For purposes of the statement of cash flows, the Company considers highly liquid financial instruments purchased with an original maturity of three months or less when purchased to be cash equivalents.  At March 31, 2012, the Company held no cash equivalents.

Page - 34

\

Revenue Recognition

The Company will recognize revenue when products are fully delivered or services have been provided and collection is reasonably assured.

Income Taxes

The Company utilizes the asset and liability method of accounting for income taxes.  Under the asset and liability method, deferred tax assets and liabilities are determined based on the differences between financial reporting basis and the tax basis of the assets and liabilities and are measured using enacted tax rates and laws that will be in effect when the differences are expected to reverse.  An allowance against deferred tax assets is recognized when it is more likely than not that such tax benefits will not be realized.

Management has evaluated the potential impact in accounting for uncertainties in income taxes and has determined that it has no significant uncertain income tax positions as of March 31, 2012.  Income tax returns subject to review by taxing authorities include March 31, 2010, 2011, and 2012.

Basic and Diluted Net Loss per Share

Net loss per share is presented under two formats: basic net loss per common share, which is computed using the weighted average number of common shares outstanding during the period, and diluted net loss per common share, which is computed using the weighted average number of common shares outstanding, and the weighted average dilutive potential common shares outstanding, computed using the treasury stock method. Currently, for all periods presented, diluted net loss per share is the same as basic net loss per share as the inclusion of weighted average shares of common stock issuable upon the exercise of warrants would be anti-dilutive.

The following table summarizes the number of securities outstanding at each of the periods presented, which were not included in the calculation of diluted net loss per share as their inclusion would be anti-dilutive:

	March 31,
	2012	2011
Warrants for common stock	370,014	-

Property, Plant and Equipment

Depreciation of property, plant and equipment is on a straight line basis beginning at the time it is placed in service, based on the following estimated useful lives:

	Years
Machinery and equipment	3–15
Furniture and fixtures	3–10
Engineering equipment	5–12

Leasehold improvements are depreciated over the lesser of the remaining term of the lease or the life of the asset (generally three to five years).

Expenditures for major renewals and betterments that extend the useful lives of property and equipment are capitalized. Expenditures for maintenance and repairs are charged to expense as incurred.  Equipment has not been placed into service as of March 31, 2012.

Intangible Assets

Intangible assets, such as aquired in-process research and development costs, are considered to have an indefinite useful life until such time as they are put into service at which time they will be amortized on a straight-line basis over the shorter of their economic or legal useful life.  Management evaluates indefinite life intangible assets for impairment on an annual basis and on an interim basis if events or changes in circumstances between annual impairment tests indicate that the asset might be impaired. The ongoing evaluation for impairment of its indefinite life intangible assets requires significant management estimates and judgment.  Management reviews definite life intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. There were no impairment charges in 2012.

Fair Value Measurement

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The fair value hierarchy prescribed by the accounting literature contains three levels as follows:

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

Page - 35

 Level 2— Observable inputs other than Level 1 prices 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. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

In addition, GAAP requires the Company to disclose the fair value for financial assets on both a recurring and non-recurring basis.

 At March 31, 2012, the Company has issued warrants valued at $192,007 to non-employees for services and subscription rights valued at $11,040,000 for the purchase of assets measured at fair value on a nonrecurring basis.  The fair value of the warrants and subscription rights was determined based on an appraisal which used the Black-Scholes model whose assumptions are considered by management to be level 3 inputs.

 At March 31, 2012, the Company has issued warrants and options valued at $192,007 to non-employees for services and options valued at $11,040,000 for the purchase of assets measured at fair value on a nonrecurring basis.  The fair value of the warrants was determined based on an appraisal which used the Black-Scholes model whose assumptions are considered by management to be level 3 inputs.

Recent Accounting Pronouncements

In September 2011, the FASB issued ASU 2011-08, Guidance on Testing Goodwill for Impairment.  ASU 2011-08 gives entities testing goodwill for impairment the option of performing a qualitative assessment before calculating the fair value of a reporting unit in Step 1 of the goodwill impairment test.  If entities determine, on the basis of qualitative factors, that the fair value of a reporting unit is more likely than not less than the carrying amount, the two-step impairment test would be required.  Otherwise, further testing would not be needed.  ASU 2011-08 will be effective for fiscal and interim reporting periods within those years beginning after December 15, 2011.  The adoption of this accounting standard did not have a material effect on the Company's financial statements.

In July 2012 the FASB issued new ASU No. 2012-02, Testing Indefinite-Lived Intangible Assets for Impairment (the revised standard).  The revised standard is intended to reduce the cost and complexity of testing indefinite-lived intangible assets other than goodwill for impairment.  It allows companies to perform a "qualitative" assessment to determine whether further impairment testing of indefinite-lived intangible assets is necessary, similar in approach to the goodwill impairment test.  The revised standard is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted.  The Company will adopt this new standard in 2013.

        There are currently no other accounting standards that have been issued that will have a significant impact on the Company's financial position, results of operations or cash flows upon adoption.

Page - 36

NOTE 2 – ASSET PURCHASE

 The Company purchased certain assets from Apollo Diamond Inc. (“ADI”) on August 31, 2011, consisting primarily of diamond growing machines and certain intellectual property related thereto.  The purchase price consisted of an aggregate of $2,000,000 in a combination of cash and a promissory note bearing interest at 4.00% annually and due and owing in full on September 1, 2012, plus subscription rights for certain current and former stockholders of ADI to acquire approximately 16 million shares of common stock of the Company for $0.01 per share (the “ADI Offering”).  The Company has estimated the fair value of such rights to acquire shares of common stock of the Company for $0.01 per share to be $0.69 per right.  At the date of the transaction, the fair value of the subscription rights was $11,040,000, and this amount was credited to additional paid-in capital. The fair value of the subscription rights was determined using the Black-Scholes model with the following assumptions: estimated volatility of 100%, risk free interest rate of 0.1%, and an expected life of 1 year.

The following table reflects our purchase price allocation of the assets:

Machinery and Equipment	$	943,685
Reactors		2,311,818
In-Process Research and Development		9,784,497
Total	$	13,040,000

The Company completed a third-party valuation to determine the fair value of the assets acquired.  The final amounts allocated to the assets acquired are based upon the results of that valuation appraisal.

NOTE 3 – INTANGIBLE ASSETS

Intangible assets consist of the following:

		March 31 ,
	Life	2012		2011
In-process research and development	Indefinite	$	9,784,497	$ -

NOTE 4 – NOTES PAYABLE

In conjunction with the purchase of certain assets from ADI on August 31, 2011, the Company entered into a promissory note bearing interest at 4.00% annually and due and payable in full on September 1, 2012.  As of March 31, 2012, $125,000 of the promissory note to ADI remained unpaid.

NOTE 5 – CAPITAL STOCK

The authorized capital of the Company is 75,000,000 common shares with a par value of $ 0.001 per share.

In December 2009, the Company issued 2,000,000 shares of common stock, post 2-for-1 forward split, at a price of $0.002 per share for total cash proceeds of $4,000.

In January through March 2010, the Company issued 4,400,000 shares of common stock, post 2-for-1 forward split, at a price of $0.005 per share for total cash proceeds of $22,000.

   During the three months ended September 30, 2011, the Company issued 18,717,570 shares of common stock.  On August 5, 2011, 3,200,000 shares were issued in a 2-for-1 forward split from Krossbow Holding Corp. shareholders.  As part of a private placement, 2,517,570 shares were issued at a price of $0.70 per share for total cash proceeds, net of fees, of $1,679,064.  13,000,000 shares were issued at a market value price of $0.02 per share purchasing the name “Scio Diamond Technology Corporation” (“the Scio name”) for a total purchase price of $260,000.  The Company purchased the Scio name from a privately-held Nevada corporation (“Private Scio”) that also had the Scio name.  The Company and Private Scio are entities under common control.  Accounting Standards Codification 805-50-30-5 states that when accounting for a transfer of assets between entities under common control, the entity that receives the asset shall initially measure the recognized asset at the carrying amount in the accounts of the transferring entity at the date of the transfer.  As the Scio name acquired had no carrying value, the value of the shares given to purchase the Scio name were recorded as a deemed distribution so that the accounting basis of the Scio name remained at zero.  In addition, the Company issued 16 million subscription rights with an exercise price of $0.01 per share to certain current and former stockholders of ADI as part of the asset purchase discussed in Note 2.

During the the months ended ending December 31, 2011, the Company issued 3,908,000 shares at a price of $0.70 per share for total cash proceeds, net of fees, of $2,672,059.  In January 2012, the Company issued 187,500 shares of common stock at a share price of $0.70 for total cash proceeds of approximately $94,499.  The Company has 26,013,070 shares of common stock issued and outstanding as of March 31, 2012.

As of March 31, 2012 the Company had 370,014 warrants outstanding with exercise prices of $.70 per share. The warrants expire in 2016 and 2017.  The warrants were issued by the Company as compensation for consulting work and valued at $.52 per warrant using the Black-Scholes model.

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NOTE 6 – OTHER INCOME

During the year ended March 31, 2012, the Company received grants totaling $75,000 as incentive for locating its production facilities in Greenville, South Carolina.  At March 31, 2012, the Company had met all conditions with respect to the grants and accordingly has included them in other income for the period ended March 31, 2012.

NOTE 7 – OPERATING LEASES

The Company leases office space at locations in Hudson, Massachusetts and Greenville, South Carolina.  Under the terms of the leases, the Company is obligated to pay escalation rentals for certain operating expenses and real estate taxes.  The Company also leases electrical equipment in its production facility in South Carolina.  Minimum future rental payments under the leases are summarized as follows:

Years ending March 31:

2013                                $389,945

2014                                 352,545

2015                                 318,045

2016                                 381,516

2017 and thereafter      $732,798                                

NOTE 8 – RELATED PARTIES

Accounts payable at March 31, 2012 included $131,984 owed to AdamsMonahan, LLP, a firm in which our board members, Edward S. Adams and Michael R. Monahan, are partners.  For the year ended March 31, 2012 and for the period September 17, 2009 (inception) through March 31, 2012, the Company incurred expenses of $239,988 for professional and consulting services provided by AdamsMonahan, LLP.  For the year ended March 31, 2011, the Company did not incurexpenses for professional and consulting services provided by AdamsMonahan, LLP.

On August 5, 2011, the Company executed the Scio Asset Purchase Agreement with another privately-held Nevada corporation that also had the name “Scio Diamond Technology Corporation” (“Private Scio”).  Under the terms of the Scio Asset Purchase Agreement, the Company purchased the name “Scio Diamond Technology Corporation” and acquired other rights from Private Scio for 13,000,000 newly issued shares of common stock of the Company.  Our directors Edward S. Adams and Michael R. Monahan were directors of Private Scio and Joseph D. Lancia was an officer of Private Scio, and they owned 31.5%, 31.5% and 15.4%, respectively, of Private Scio.  At the time that the Scio Asset Purchase Agreement was executed, our directors Edward S. Adams and Michael R. Monahan had control of the Company.  Edward S. Adams and Michael R. Monahan each acquired, directly or indirectly, 4,100,000 shares of our common stock pursuant to the Scio Asset Purchase Agreement, and Joseph D. Lancia acquired 2,000,000 shares pursuant to the Scio Asset Purchase Agreement.

The Company purchased certain assets from ADI on August 31, 2011, consisting primarily of diamond growing machines and intellectual property related thereto.  The purchase price consisted of an aggregate of $2,000,000 in a combination of cash and a promissory note bearing interest at 4.00% annually and due and owing in full on September 1, 2012, plus the opportunity for certain current and former stockholders of ADI to acquire approximately 16 million shares of common stock of the Company for $0.01 per share.  These rights were valued at $11,040,000 in total using the Black-Scholes option pricing model.  Both Mr. Adams, in an executive role, and Mr. Monahan previously served in various capacities with ADI through early 2011.

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NOTE 9 – INCOME TAXES

There was no current or deferred tax expense (benefit) for the years ended March 31, 2011 and 2012.

The deferred tax asset (liability) at March 31, 2011 and 2012 consists of the following types of temporary differences and their related tax effects:

	At March 31,
	2012			2011
Accrued expenses	$	27,659			-
Property and equipment		(3,321	)		-
Capitalized startup/acquisition costs		679,697			-
Federal and state net operating loss carry-forward Trade name Warrants		15,302 97,888 72,440			12,600 -
Valuation allowance		(889,665	)		(12,600	)
Total	$	-			-

The Company recorded a valuation allowance against its net deferred tax asset at March 31, 2012 and March 31, 2011, as the Company believes that it is more likely than not that this asset will not be realized.

	At March 31, 2012						At March, 31, 2011
	Amount			%			Amount			%
Tax at statutory federal income tax rate	$	(702,746	)		(34.0	)%		(10,488	)		(34.0	)%
Increase (decrease) resulting from:
State income tax expense		(69,190	)		(3.3	)%		-			-
Change in valuation allowance   Other, net		779,177	(7,241)		37.7%	(0.4)%		10,488 -			34.0	% -
Total	$	-			0	%		-			0	%

At the end of 2012, the Company had federal and state net operating loss carry-forward (“carry-forward”) in the amount of approximately $41,000 that expires beginning in the year 2031.

NOTE 10 – SUBSEQUENT EVENTS

Beginning in April 2012 through June 30, 2012, the Company issued 2,538,750 units each consisting of one share of common stock and one warrant for the purchase of a share of common stock at an exercise price of $1.60 for a unit price of $0.80 for total net cash proceeds of approximately $1,999,920.  As of the date of this filing, the total number of units issued is 4,458,750 for net cash proceeds of $3,522,760.

On May 7, 2012, the Company implemented equity compensation arrangements for our executive officers and several key employees. These included grant agreements wit certain of its executive officers pursuant to which such executive officers were granted options to purchase shares of the Company's common stock. Under certain of the agreements, the Company granted options with each such option bieng subjet to the achievement of certain performance milestones by the Company. Under certain of the agreements, the Company also granted options with each of these options vesting immediately upon execution of such agreements. The options are intended to qualify as incentive stock options within the meaning of Section 422A of the Internal Revenue Code. The exercise price for each option is $0.70 per share. The options on the last business day proceeding the three year anniversary of the grant date unless fully exercised or terminate earlier.

On June 5, 2012, the Company acquired substantially all of the assets of Apollo Diamond Gemstone Corporation (“ADGC”) (the “ADGC Asset Purchase”), consisting primarily of cultured diamond gemstone-related know-how, inventory, and various intellectual property, in exchange for $100,000 in cash and the opportunity for certain current and former stockholders of ADGC that are accredited investors to acquire up to approximately 1 million shares of common stock of the Company for $0.01 per share (the “ADGC Offering”) with the intent that ADI Offering be conducted substantially concurrently with the ADGC Offering (collectively, the “ADI/ADGC Stockholder Offering”).  The ADI/ADG Stockholder Offering began in June and is expected to close on or about August 30, 2012.

On July 24, 2012, the Company announced that it had signed a purchase order with an international supplier of precision diamond cutting tool products pursuant to which the Company will be providing CVD single crystal diamond in specified wafer sizes.  The purchase order calls for near term Company sales of an estimated minimum of $1,000,000, with such sales to occur in the second and third fiscal quarters of the fiscal year ending March 31, 2013, and under certain circumstances and depending upon, among other things, ongoing demand as estimated by the end product manufacturer, could produce aggregate sales by the Company of up to an estimated $5,000,000 during the first 24 months of the order.

 The Company, certain directors and others were served with a complaint in August 2012 filed by a former shareholder of Apoolo Diamond, (ADI) The complaint alleges certain security and other law violations in connection with the ADI Asset Purchase (see note). The claimant seeks damages to the established at trail and has not specified monetary damages.

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On August 3, the Company entered into amended and restated employment agreements and change in control agreements with our executive officers.  In addition, the Company authorized equity compensation arrangements for our executive officers and adopted an amended and restated Code of Ethics and Business Conduct.

On August 13, 2012, the Company named Bernard M. McPheely to the Board of Directors.

END NOTES TO FINANCIALS

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND FINANCIAL DISCLOSURE.

None.

ITEM 9A. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures refer to controls and other procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to the Company’s management, including its President and Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.  As of March 31, 2012, we carried out an evaluation, under the supervision and with the participation of our management, including our President and Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Exchange Act Rule 13a-15.  We applied our judgment in the process of reviewing these controls and procedures, which, by their nature, can provide only reasonable assurance regarding our control objectives. Based upon that evaluation, our President and Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were not effective as of March 31, 2012, because we were not able to timely file this Report due to a delay in preparing our financial statements as of March 31, 2012, due to weaknesses in our internal control over financial reporting that required the restatement of our financial statements for the quarterly periods ended September 30, 2011 and December 31, 2011 and the amendment of our Form 10-Qs for each such period.

Management’s Annual 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 Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act.  The Company’s internal control over financial reporting is a process designed 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.  The Company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and the dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of the management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on its financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

         Management, including our President and Chief Executive Officer and Chief Financial Officer, conducted an assessment of the effectiveness of our internal control over financial reporting as of March 31, 2012 based on the criteria set forth in the Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.  During that assessment, management identified the following material weaknesses and significant deficiencies in our internal control over financial reporting, which are common in small companies.  These material weaknesses were identified by our President and Chief Executive Officer and Chief Financial Officer following the end of the fiscal year covered by this report:

·   Lack of written documentation of our internal control policies and procedures.

·   Lack of a functioning audit committee due to a lack of a majority of independent members and a lack of a majority of outside directors on our board of directors, resulting in ineffective oversight in the establishment and functioning of required internal controls and procedures.

·   Insufficient communication processes in connection with period end financial disclosure and reporting.

·   Due to our small size, limited segregation of duties in certain areas of our financial reporting and other accounting processes and procedures.

A material weakness (within the meaning of PCAOB Auditing Standard No. 5) is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of our financial reporting.

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During the period covered by this annual report on Form 10-K, we have not been able to remediate the material weaknesses identified above.  We have taken steps to enhance and improve the design of our internal control over financial reporting, and we plan to take additional steps during our fiscal year ending March 31, 2013.

 We engaged a new outside law firm in March 2012.  To further remediate such weaknesses, we hope to implement the following changes during our fiscal year ending March 31, 2013:

·   Adding one or more independent directors and establishing an audit committee.

·   Refining our internal procedures, including our communication and data gathering processes in connection with period end financial disclosure and reporting

This annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to an exemption for non-accelerated filers set forth in Section 989G of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Changes in Internal Controls

Other than described above, there were no significant changes in our internal controls over financial reporting that occurred during our fourth fiscal quarter ended March 31, 2012, that materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

ITEM 9B. OTHER INFORMATION.

None.

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PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE.

Directors and Executive Officers

The following table sets forth the names and ages of our current directors and executive officers:

Name	Age	Position with the Company	Since
Directors
Edward S. Adams	47	Chairman	August 5, 2011
Joseph D. Lancia	51	Director, President and Chief Executive Officer	August 5, 2011
Michael R. Monahan	46	Director	August 5, 2011
Theodorus Strous	62	Director	December 21, 2011
Non-Director Executive Officers
Michael W. McMahon	62	Chief Operating Officer	October 1, 2011
Charles G. Nichols	47	Chief Financial Officer	January 9, 2012

Our directors are to be elected annually by the shareholders and serve until his or her successor is elected and qualified, unless he or she resigns or is removed earlier.  Each of our officers is elected by the Board of Directors to a term of one year and serves until his or her successor is duly elected and qualified, or until he or she is earlier removed from office or resigns.

Set forth below is certain information about our directors and executive officers, including information regarding their business experience for at least the past five years, the names of other publicly-held companies where they currently serve as a director or served as a director during the past five years, and additional information about the specific experience, qualifications, attributes, or skills that led to the board’s conclusion that such person should serve as a director for the Company.

EDWARD S. ADAMS. Edward S. Adams is the chairman of the board of directors of the Company.  In 2006, Mr. Adams co-founded, and since that time he has been the chief executive officer and a senior managing director of, Focus Capital Group, Inc. (“Focus Capital”), an investment banking firm. Also, since 2006, Mr. Adams has been a founding partner in the corporate law firm of Adams Monahan, LLP.  Mr. Adams also served in an executive role with ADI, and in various capacities with ADGC, through early 2011.  Mr. Adams also serves as a director of Private Scio.  Mr. Adams holds an endowed chair in finance and law at the University of Minnesota Law School and teaches courses at both the Law School and in the graduate MBA program at the Carlson School at the University of Minnesota.  His financial and legal experience, and knowledge of the cultured diamond industry qualify him to serve as a director.

JOSEPH D. LANCIA. Joseph D. Lancia is the president and chief executive officer of the Company and the only executive officer of the Company on the board of directors.  From 2003 until 2010, Mr. Lancia served as the chief executive officer of D&W Fine Pack, LLC, a packaging and plastics company based out of Fountain Inn, South Carolina that produces a variety of quality products for the food service industry. Mr. Lancia served as the President & CEO of Dispoz-o Products, Inc. until 2009 it merged with two other companies, with C&M Fine Pack, Inc. being the surviving entity in the merger.  Mr. Lancia also previously served in an executive capacity with Private Scio.  Mr. Lancia's experience as a chief executive officer growing and combining businesses enables him to be an effective director.

MICHAEL R. MONAHAN.  Michael R. Monahan is a non-executive director of the Company. In 2007, Mr. Monahan co-founded, and since that time he has been a senior managing director of, Focus Capital.  Also, since 2005 Mr. Monahan has been a founding partner in the corporate law firm of Adams Monahan, LLP.  Mr. Monahan also served in various capacities with ADI and ADGC through early 2011.  Mr. Monahan also serves as a director of Private Scio.   His financial and legal experience and knowledge of the cultured diamond industry qualify him to serve as a director.

THEODORUS STROUS. Theodorus Strous is a non-executive director of the Company and the board's only non-executive committee member.  Mr. Strous is currently a Senior Advisor to the Board of Diamond Asset Advisors AG. Mr. Strous was a managing director and a member of the executive committee of the Antwerp Diamond Bank from 1999 until 2010.  Prior to working with Antwerp Diamond Bank, Mr. Strous ran a diamond industry consultancy business. As an executive with ABN Amro and ABN Amro Bank, Mr. Strous held numerous management positions from 1988 to 1997. From 1985 to 1988, Mr. Strous was employed by ABN Amro Bank to help salvage and restructure the bank’s diamond credit portfolio.  Mr. Strous' extensive diamond industry experience provides him with relevant insight as a director.

Each of our officers is elected by the Board of Directors to a term of one year and serves until his or her successor is duly elected and qualified, or until he or she is earlier removed from office or resigns. Additional information is set forth below regarding other officers of our Company.

MICHAEL W. MCMAHON. Michael W. McMahon is the Chief Operating Officer.  From May 2006 until September 2011, Mr. McMahon was the President of Unique Solutions, LLC.  From September of 2001 until May of 2006, Mr. McMahon was a Senior Vice President with Fluor Corporation.  From August 1994 until August of 2001, Mr. McMahon was a Senior Vice President with Jacobs Engineering Corporation.  

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CHARLES G. NICHOLS. Charles G. Nichols is the Chief Financial Officer, leading the strategic financing and the operational finance functions of the Company.  From 2010 through 2011, Mr. Nichols was the Chief Operating Officer with Swiftwater Capital, an investment management company.  From 2008 until 2010, Mr. Nichols was the Treasurer with Wellstone Mills, a privately-held textile company.  From 2006 until 2008, Mr. Nichols was the Treasurer of Kemet Electronics Corporation, a NYSE electronic components manufacturer.

Family Relationships.  We currently do not have any directors or executive officers of our Company who are related to each other.

Compliance with Section 16(a) of the Securities Exchange Act of 1934

Section 16(a) of the Securities Exchange Act requires directors, executive officers and 10% shareholders to file reports of holdings and transactions in our common stock with the SEC.  Based on a review of Section 16(a) reports and written representations from our directors and executive officers, each of Mssrs. Strous, McMahon and Nichols filed late Form 3's after they had initially been incorrectly advised that such form was not required to be filed since they did not hold Company stock.  Mr. Adams and Mr. Monahan also filed late Form 3's based on advice from prior counsel.

Code of Ethics and Business Conduct

We have adopted a Code of Ethics and Business Conduct that is applicable to our executive officers, including our principal executive officer and our principal financial officer.  A copy of this Code of Ethics and Business Conduct is available without charge to stockholders upon request to the Company at 411 University Ridge, Suite D, Greenville, SC 29601.We will disclose any future amendments to, or waivers from, provisions of Code of Ethics on our website as promptly as practicable, as and to the extent required under and applicable stock market standards and applicable SEC rules.

Audit Committee and Audit Committee Financial Expert

The Company does not have an audit committee or an audit committee financial expert (as defined in Item 407 of Regulation S-K) serving on its Board of Directors. All current members of the Board of Directors lack sufficient financial expertise for overseeing financial reporting responsibilities.  The Company has not have an audit committee financial expert on its Board because the Company is still an early stage business and has not yet added a substantial number of independent directors or any directors who would qualify as an audit committee financial expert (as defined in Item 407 of Regulation S-K).

ITEM 11. EXECUTIVE COMPENSATION.

The following table shows the compensation paid to our named executive officers for the fiscal years ended March 31, 2012 and 2011.

Summary Compensation Table
Name and Principal Position	Year Ended March 31,	Salary			Bonus		All Other Compensation			Total
Joseph D. Lancia	2012	$	97,827	(1)	$	---	$	190,668	(2)	$	288,495
President and Chief Executive Officer	2011		---			---		---			---
Charles G. Nichols	2012		25,962			---		---			25,962
Chief Financial Officer	2011		---			---		---			---
Michael W. McMahon	2012		40,384			---		33,350	(3)		73,734
Chief Operating Officer	2011		---			---		---			---
Jason Kropp(4)	2012		---			---		---			---
President, Chief Executive Officer, Chief Financial Officer, Treasurer, Secretary and Director	2011		---			---		---			---

(1) Includes $37,250 paid to Mr. Lancia as director and member of the executive committee of the board of directors in accordance with our director compensation policy described below.

(2) Includes $187,500, plus $3,168 in expenses, paid to SCA, Ltd., of which Mr. Lancia is a consultant, for consulting services provided to the Company.

(3) Includes $31,250, plus $2,100 in expenses, paid to Unique Solutions, LLC, of which Mr. McMahon is the president, for consulting services provided to the Company.

(4) See Part 3, Item 13. Certain Relationships and Related Transactions and Director Independence.

Narrative Disclosure to Summary Compensation Table

Mr. Kropp organized Krossbow.  He resigned from all positions with the Company on August 5, 2012 in connection with the consummation of the Scio Asset Purchase Agreement.

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Each of Messrs. Lancia, McMahon and Nichols is party to an employment agreement with the Company pursuant to which they are paid base annual salaries of $225,000, $150,000, and $125,000, respectively, subject to potential increases in connection with an annual salary review by the board of directors.  The Board of Directors, in its discretion, may award any of the executives with an annual bonus.  Each such executive is entitled during their term of employment, to such vacation, medical and other employee benefits (including eligibility to participate in any 401(k) retirement plan that may be adopted and offered by the Company, subject to the terms and conditions thereof) as the Company may offer from time to time, subject to applicable eligibility requirements, and is entitled to 15 days paid vacation each calendar year.  Mr. Lancia and Mr. McMahon are each entitled to one year of salary and reimbursement of their COBRA costs if they are terminated without cause, provided that they cease to receive these post-termination benefits if they become entitled to receive benefits under their respective change in control agreements.  The employment agreements contain one year non-compete agreements and two year customer and employee non-solicitation provisions.

Each named executive officer is entitled to receive stock options, which were granted on May 7, 2012.  Each named executive officer is also eligible to participate in any stock option plan adopted by the Company, with the extent, terms and conditions of any options provided to a named executive officer to be determined by the Company’s Board of Directors or its Compensation Committee, if any, in its sole and unilateral discretion.   Each executive officer is subject to a proprietary information and inventions agreement.  Each named executive officer is an employee-at-will.

Each named executive officer is subject to a change on control agreement which provides that the named executive officer will be entitled to the following benefits if the executive's employment is terminated pursuant to a "qualifying termination" during the four-month period before or the 12-month period after a “change in control” that implies a Company value of $50 million or more:

·   a lump-sum cash payment equal to the sum of:

·   2.0 times the executive officer’s annual base salary; plus,

·   any base salary and/or bonus earned or accrued through the date of termination and not previously paid (including any amounts awarded for previous years but which were not yet vested); and

·   payment of $2,700 per month for 24 months, which payments are intended to offset potential medical, dental and life insurance expenses of the named executive officer for a period of two years, but which payments shall be made regardless of whether such expenses are greater or less than such payments.

In such event, the named executive officer will be subject to non-solicitation and non-compete obligations for a period of two years. Each Change in Control Agreement has an initial two-year term and the agreements automatically renew for subsequent one-year periods unless a termination notice is given at least ninety (90) days prior to the end of the then current term.

A “change in control” is defined to mean a change in the ownership or effective control of the Company, or in the ownership of a substantial portion of the assets of the Company (in accordance with Treasury Regulation § 1.409A-3(i)(5) (as it may be amended and including any successor regulation).  A qualifying termination is a termination by the named executive officer for "good reason" or a termination of the named executive officer by the Company without “cause.”  “Good reason” means “good reason” within the meaning of the safe harbor under Treasury Regulation § 1.409A-1(n)(2).  A termination of a named executive officer by us is for “cause” if it is for any of the following reasons:

·   the willful and continued failure of the named executive officer to perform substantially his or her duties with the company (other than any such failure resulting from such named executive officer's incapacity due to physical or mental illness or any such failure subsequent to the named executive officer being delivered a notice of termination without cause by us or the named executive officer delivering a notice of termination for good reason to us) that is not remedied within 30 days after a written demand for substantial performance is delivered to the named executive officer by the Chairman of our Board of Directors or the Chairman of the Compensation Committee or, in the case of named executive officers other than the Chief Executive Officer, the Chief Executive Officer, which specifically identifies the manner in which the named executive officer has not substantially performed his or her duties; or

·   the named executive officer's conviction by a court of law, admission in a legal proceeding that he is guilty or plea of nolo contendere, in each case, with respect to a felony.

        For purposes of the definition of the term “cause,” no act or failure to act by a named executive officer will be considered “willful” unless it was done or omitted to be done by the named executive officer in bad faith and without reasonable belief that his or her action or omission was in, or not opposed to, our best interests.

        Each named executive officers' change of control agreement provides that he agrees to reduce the aggregate amount of any payments or benefits that constitute “parachute payments” under Section 280G of the Code to the extent necessary so that such payments and benefits do not equal or exceed three times the named executive officer's “base amount” (and therefore are not subject to the excise tax imposed by Section 4999).

Outstanding Equity Awards

No executive officer had any outstanding equity awards as of March 31, 2012.

Page - 45

Director Compensation

The following table shows the compensation paid to our directors who are not named executive officers for the fiscal year ended March 31, 2012.

Name and Principal Position	Fees Earned or Paid in Cash ($)			All Other Compensation ($)			Total
Edward S. Adams	$	40,755	(1)	$	15,510		$	56,265
Michael R. Monahan		37,250			1,193			38,443
Theodorus Strous		2,500			43,000	(2)		45,500

(1)  Includes a $3,505 reimbursement of expenses related to board and executive committee meetings.

(2)  Paid to Mr. Strous in January 2012 for consulting work performed for the Company prior to his joining the board of directors.  Mr. Strous also received warrants for the purchase of 61,500 shares of common stock of the Company at a strike price of $0.70 per share related to this work. These warrants have a five year term.

Our directors receive $1,250, plus related expenses, per board meeting.  In addition, each of Mssrs. Adams, Monahan, and Lancia receive $4,000 per month for serving on our executive committee.

Compensation Committee

           We currently do not have a compensation committee of the Board of Directors. The Board of Directors as a whole determines executive compensation.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

The following table sets forth, as of June 30, 2012, the beneficial ownership of the outstanding common stock by: (i) any holder of more than five (5%) percent; (ii) each of our executive officers and directors; and (iii) our directors and executive officers as a group. Unless otherwise indicated, each of the stockholders named in the table below has sole voting and dispositive power with respect to such shares of common stock. 

Name and Address of Beneficial Owner	Amount and Nature of Beneficial Ownership(1)(2)			Percentage of Beneficial Ownership
Directors and Executive Officers
Edward S. Adams 4824 Thomas Ave. S., Minneapolis, MN 55410		4,890,000	(3)		17.7	%
Joseph D. Lancia 109 Thornblade Ave., Greer, SC 29650		3,040,000	(4)		10.7	%
Michael W. McMahon 5 St. Helaine Place, Greer, SC 29650		330,000	(5)		1.2	%
Michael R. Monahan(3) 4824 Thomas Ave. S., Minneapolis, MN 55410		4,890,000	(6)		17.7	%
Charles G. Nichols 305 Riverside Drive, Greenville, SC 29605		200,000	(7)		0.7	%
Theodorus Strous Urbanizasão do Barrocal N°1 Rua do Tomilho, Lote A22 8365-204 Pêra Portugal		61,500	(8)		0.2	%
All directors and executive officers as a group (6 persons)		13,411,500			46.4	%
Other 5% Stockholders
Thomas P. Hartness Revocable Trust dated July 30, 2010 1200 Garlington Road, Greenville, SC 29615		2,500,000	(9)		8.7	%

1 Includes shares for which the named person has sole voting and investment power, has shared voting and investment power, or holds in an IRA or other retirement plan and shares held by the named person’s spouse.

2 Includes shares that may be acquired within 60 days of the date hereof by exercising stock options.  In calculating the number of shares beneficially owned by an individual and the percentage ownership of that individual, shares underlying options held by that individual that are either currently exercisable or exercisable within 60 days from June 30, 2012 are deemed outstanding. These shares, however, are not deemed outstanding for the purpose of computing the percentage ownership of any other individual or entity.

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  In addition to vested options, Mr. Lancia, Mr. Nichols and Mr. McMahon hold unvested options to acquire 2,250,000 shares, 275,000 shares and 270,000 shares, respectively, and such shares are deemed to be outstanding for the purpose of computing Pro Forma % Fully-Diluted Ownership.

3 Includes 2,000,000 shares owned by Mr. Adams’ wife, for which Mr. Adams disclaims beneficial ownership.

4 Includes unexercised vested options to acquire 750,000 shares.