The following management's discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements and the notes thereto and the other financial information appearing elsewhere in this item. In addition to historical information, the following discussion contains certain forward-looking statements within the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. These statements relate to our future plans, objectives, expectations and intentions. These statements may be identified by the use of words such as "may," "will," "could," "expect," "anticipate," "intend," "believe," "estimate," "plan," "predict," and similar terms or terminology, or the negative of such terms or other comparable terminology. Although we believe the expectations expressed in these forward-looking statements are based on reasonable assumptions within the bound of our knowledge of our business, our actual results could differ materially from those discussed in these statements. Factors that could contribute to such differences include, but are not limited to, those discussed in the "Risk Factors" section of our annual report on Form 10-K for the year ended March 31, 2012 and filed with the SEC on July 2, 2012. We undertake no obligation to update publicly any forward-looking statements for any reason even if new information becomes available or other events occur in the future.

Our financial statements are prepared in U.S. Dollars and in accordance with accounting principles generally accepted in the United States. See "Exchange Rates" below for information concerning the exchanges rates at which Renminbi ("RMB") were translated into U.S. Dollars at various pertinent dates and for pertinent periods.

Overview

We are a retailer and wholesale distributor of pharmaceutical and other healthcare products typically found in a retail pharmacy in the People's Republic of China ("PRC" or "China"). Prior to acquiring Zhejiang Jiuxin Medicine Co., Ltd. ("Jiuxin Medicine") in August 2011, we were primarily a retail pharmacy operator. Our drugstores provide customers with a wide variety of medicinal products, including prescription and over-the-counter ("OTC") drugs, nutritional supplements, traditional Chinese Medicine ("TCM") products, personal care products, family care products, medical devices, as well as convenience products including consumable, seasonal and promotional items. In addition to these products, we have licensed doctors of both western medicine and TCM onsite for consultation, examination and treatment of common ailments at scheduled hours. Since May 2010, our retail business also includes an online drugstore that sells non-prescription OTC drugs and nutritional supplements.

In addition to our retail business, we operate a wholesale business distributing TCM herbs that we have been cultivating, and, through Jiuxin Medicine, third-party pharmaceutical products (similar to those we carry in our own pharmacies) primarily to trading companies throughout China.

Critical Accounting Policies and Estimates

In preparing our unaudited condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States of America, we are required to make judgments, estimates and assumptions that affect: (i) the reported amounts of our assets and liabilities; (ii) the disclosure of our contingent assets and liabilities at the end of each reporting period; and (iii) the reported amounts of revenue and expenses during each reporting period. We continually evaluate these estimates based on our own historical experience, knowledge and assessment of current business and other conditions, our expectations regarding the future based on available information and reasonable assumptions, which together form our basis for making judgments about matters that are not readily apparent from other sources. Since the use of estimates is an integral component of the financial reporting process, our actual results could differ materially from those estimates.

We believe that any reasonable deviation from those judgments and estimates would not have a material impact on our financial condition or results of operations. To the extent that the estimates used differ from actual results, however, adjustments to the statement of operations and corresponding balance sheet accounts would be necessary. These adjustments would be made in future financial statements.

When reading our financial statements, you should consider: (i) our critical accounting policies; (ii) the judgment and other uncertainties affecting the application of such policies; and (iii) the sensitivity of reported results to changes in conditions and assumptions. The critical accounting policies and related judgments and estimates used to prepare our financial statements are identified in Note 2 to our unaudited condensed consolidated financial statements accompanying in this report. We have not made any material changes in the methodology used in our accounting policies that are inconsistent with those discussed in our annual report on Form 10-K for the year ended March 31, 2012.

Accounts receivable

Accounts receivable, which are unsecured, are stated at the amount we expect to collect. We continuously monitor collections and payments from our customers (our distributors) and maintain a provision for estimated credit losses based upon historical experience and any specific customer collection issues that have been identified. Historically, our credit losses have not been significant and within our expectations. However, we cannot guarantee that we will continue to experience the same credit loss rates that have been experienced in the past.

Our accounts receivable aging was as follows for the periods described below:

                                              Retail                             Chinese Herb
From date of invoice to customer            Drugstores       Drug Wholesale        Farming        Total Amount
1- 3 months                                $  2,666,064     $     11,991,552     $  2,405,129     $  17,062,745
4- 6 months                                      16,628            4,494,067          605,453         5,116,148
7- 9 months                                       1,479            1,867,135                          1,868,614
10 - 12 months                                        -              351,575                            351,575
Between one and two years                         3,075              155,352                            158,427
Over two years                                      774                    -                                774
Allowance for doubtful accounts                  (3,092 )           (917,794 )                         (920,886 )
Total accounts receivable                  $  2,684,928     $     17,941,887     $  3,010,582     $  23,637,397

Accounts receivable from our retail business mainly consists of reimbursements from the government health insurance bureau and certain commercial health insurance programs. Usually we collect our receivables within one to two months. We directly write off those accounts that we believe are uncollectible after confirmation with the government health insurance bureau and the commercial health insurance programs.

Accounts receivable from our drug wholesale business and farming business consist of receivables from our customers such as drug distributors. Usually we collect our receivable within six months. Our ability to collect is attributed to the steps that we take prior to extending credit to our distributors as discussed above. If we are having difficulty collecting from a distributor, we take the following steps: cease existing shipments to the distributor, visit the distributor to request payment on past due invoice, and if necessary, take legal recourse. If all of these steps are unsuccessful, management would then determine whether or not the receivable should be reserved or written off.

Results of Operations

The following table summarizes our results of operations for the three months
ended June 30, 2012 and 2011:

                                                             Three months ended June 30,
                                                       2012                               2011
                                                             Percentage                         Percentage
                                                              of total                           of total
                                              Amount          revenue            Amount          revenue
Revenue                                    $ 32,847,330            100.0 %    $ 21,427,859            100.0 %
Gross profit                               $  5,144,777             15.7 %    $  6,869,323             32.1 %
Selling expenses                           $  1,858,225              5.7 %    $  1,378,300              6.4 %
General and administrative expenses        $  2,846,578              8.7 %    $  1,074,783              5.0 %
Income from operations                     $    439,974              1.3 %    $  4,416,240             20.6 %
Other income (expense), net                $     98,698              0.3 %    $     19,420              0.1 %
Change in fair value of purchase option
derivative liability                       $       (158 )           (0.0 )%   $     62,632              0.3 %
Income tax expense                         $      3,882              0.0 %    $  1,255,563              5.9 %
Net income attributable to controlling
interest                                   $    534,887              1.6 %    $  3,242,729             15.1 %
Net loss attributable to noncontrolling
interest                                   $       (255 )           (0.0 )%   $          -              0.0 %

Revenue. We had three revenue streams for the three months ended June 30, 2012:
(i) store and online retail sales of pharmaceutical and other healthcare products, (ii) wholesale distribution of pharmaceutical and other healthcare products, and (iii) our self-cultivated TCM herbs that were sold primarily to third-party pharmaceutical trading companies. Included in our wholesale revenue are: (i) wholesales of pharmaceutical and healthcare products that we purchased from third-party manufacturers or suppliers, and (ii) direct group sales or sales to non-distributors. In contrast, store retail sales provided all of our revenue for the three months ended June 30, 2011.

Our revenue increased by $11,419,471 or 53.3% period over period, primarily due to the expansion of our wholesale business and Chinese herb farming business, offset by a decrease in our retail business:

(1) We started our wholesale business after acquiring Jiuxin Medicine in August 2011, through which we have been distributing third-party pharmaceutical and healthcare products to pharmaceutical trading companies and other group customers. Our wholesale business increased rapidly during fiscal 2012 because we introduced very competitive pricing to customers to stimulate sales. Sales from the wholesale business accounted for $21,368,783 or approximately 65.0% of our total revenue for the three months ended June 30, 2012.

(2) In the fourth quarter of fiscal 2012, we also began distributing TCM herbs such as Peucedanum that we have been cultivating, to third-party pharmaceutical trading companies. Although we hired several specialists to oversee our farming business, we mainly relied on the local village government to manage the cultivation process. For example, the local government organized local farmers to sow seeds, fertilize and harvest. In turn, we paid for the expenses incurred by the local farmers based on agreements. Sales from the farming business accounted for $2,524,091 or approximately 7.7% of our total revenue for the three months ended June 30, 2012.

(3) Our retail sales decreased by $12,473,403 or 58.2% to $8,954,456 for the three months ended June 30, 2012 from $21,427,859 for the three months ended June 30, 2011. Although our retail store count increased to 65 as of June 30, 2012, from 57 stores a year ago, our retail store sales decreased as a result of stricter government policies, a competitive retail market, and a shift of our group sales from our retail stores to our wholesale business. Retail sales accounted for approximately 27.3% of our total revenue for the three months ended June 30, 2012. Same-store sales decreased by approximately $13,421,318 or 62.0%, while our new stores contributed approximately $462,365. We expect same-store sales will continue to decline as the frequency of government-mandated price controls and the number of drugs subject to price controls continue to rise and, to a lesser extent, with the shift of our group sales to our wholesale business.

Quarterly Revenue by Segment. The following table breaks down the revenue for our three business segments for the three months ended June 30, 2012 and 2011:

                                            Three months ended June 30,
                                      2012                              2011
                                            % of total                        % of total       Variance by
                             Amount          revenue           Amount          revenue            amount           % of change
Revenue from retail
business
   Revenue from
drugstores                $  8,393,098             25.6 %   $ 21,350,669             99.6 %   $  (12,957,571 )           (60.7) %
   Revenue from online
sales                          561,358              1.7 %         77,190              0.4 %          484,168              627.2 %
     Sub-total of
retail revenue               8,954,456             27.3 %     21,427,859              100 %      (12,473,403 )           (58.2) %

Revenue from wholesale
business                    21,368,783             65.0 %              -                0 %       21,368,783              100.0 %
Revenue from farming
business                     2,524,091              7.7 %              -                0 %        2,524,091              100.0 %
Total revenue             $ 32,847,330              100 %   $ 21,427,859              100 %   $   11,419,471               53.3 %

The revenue fluctuation period over period reflected the following combined factors:

(1) Revenue from "Jiuzhou Grand Pharmacy" stores decreased by approximately $13.0 million or 60.7% quarter over quarter, mainly due to two reasons. During the three month ended June 30, 2011, we implemented a variety of promotional activities such as giving out gifts and discounts to our customers. Since the second quarter of fiscal 2012, the Hangzhou government has been gradually restricting retail drugstores within the city from organizing large-scale marketing promotions on the streets in which further rebates or discounts are given to customers making purchases with government-sponsored medical insurance cards. Our promotional activities were curtailed accordingly, which, in turn, impacted our retail sales revenue, especially from sales of certain prescription drugs covered by the medical insurance cards. In addition, the government subjected more drugs to price controls in October 2011, which caused us to reduce prices for some of the affected drugs and stop carrying others at our pharmacies.

(2) Another factor for the decreased retail revenue is the shift of group sales from Jiuzhou Pharmacy's retail business to Jiuxin Medicine's wholesales business. We originally recorded group sales under Jiuzhou Pharmacy's retail system in the prior year. But starting in August 2011, such sales have been recorded under Jiuxin Medicine's wholesale system because we believe group sales are essentially wholesale in nature. Accordingly, $7.4 million in group sales that would have otherwise been recorded under Jiuzhou Pharmacy have now been recorded under Jiuxin Medicine. Such internal re-allocation of sales revenue between our retail and wholesale businesses affected the comparison of our retail sales for the three months ended June 30, 2012 versus the three months ended June 30, 2011, but has no impact on our unaudited condensed consolidated financial statements

(3) Our online pharmacy sales increased by $484,168 or 627.2% quarter over quarter. As we started business cooperation with local business-to-consumer online vendors during the second half of 2011, our online pharmacy has become more and more widely exposed to potential customers. As a result, we have seen a steady growth in online sales.

Gross Profit. Our gross profit decreased by $1,724,546 or 25.1% period over period primarily as a result of decreased retail sales. Our gross margin decreased period over period from 32.1% to 15.7% as a result of a decline in our retail sale profit margin as well as a lower profit margin from our wholesale business. The average gross margin of our retail, wholesale businesses and farming business for the three months ended June 30, 2012 were as follows:

                                                 Three months ended
                                                      March 31,
                                                 2012           2011
Average gross margin for retail business            26.0 %        32.1 %
Average gross margin for wholesale business          2.5 %         N/A
Average gross margin for farming business           90.9 %         N/A

Our retail gross margin decreased to 26.0% in the three months ended June 30, 2012 from 32.1% in the three months ended June 30, 2011. Beginning in August 2011, the Chinese government included more and more prescription and OTC drugs on the price control list. Some of our products' prices were higher than the prices set by the Chinese government. Hence, we had to adjust these products' prices. As a result, the profit margin for these products declined. In addition, due to the economic slowdown, stringent government policies relating to insurance reimbursements and the expansion of Essential Drug List (EDL), the retail drugstore business became much more challenging. For example, drugs listed in the EDL were being sold at a price equal to its cost at local community hospitals that, in turn, receive government subsidies. In order to stay competitive, we lowered certain drug prices resulting in an overall decrease in our retail gross profit margin.

Our wholesale gross margin for the three months ended June 30, 2012 was 2.5%, which is slightly lower than the profit margin of a traditional wholesale drug distributor. Because we introduced competitive prices to stimulate sales, our traditional wholesale business, where we purchase from third-party manufacturers or suppliers and resell, had a low profit margin. Although the margins for our group sales are usually higher than our traditional wholesale business, they vary depending on specific products we carried and sold.

Our profit margin from our farming business was approximately 90.9% for the three months ended June 30, 2012. As we monitored our cultivated herbs through our specialists, we were able to maintain good quality that, in turn, enabled us markup our herbs to market prices. The cultivation costs for TCM's are traditionally low, therefore increasing the gross margin.

Selling and Marketing Expenses. Our sales and marketing expenses increased by $479,925 or 34.8% period over period due to increased rent, labor, and depreciation & amortization expense. Such expenses as a percentage of our revenue decreased to 5.7%, from 6.4% for the same period a year ago as wholesale business contributed significant sales revenue. We expect that our sales and marketing expenses will increase as we continue to expand our infrastructure, online pharmacy and wholesale business.

General and Administrative Expenses. Our general and administrative expenses increased by $1,771,795 or 164.9% period over period. Such expenses as a percentage of our revenue increased to 8.7% from 5.0% for the same period a year ago. The increase in absolute dollars as well as a percentage of revenue related to professional fees incurred as a U.S. publicly traded company, more reserves for accounts receivables and advances to suppliers, increased salaries, and administration costs related to our new businesses such as Jiuxin Medicine. For example, due to the expansion of our wholesale business, we had significant amount of accounts receivable and advance to suppliers as of June 30, 2012. As a result, we recorded an additional $1.1 million of bad debt expense, that is included in general and administration expenses. As we continue to open drugstores, further develop our infrastructure, and incur expenses related to being a U.S. public company, we anticipate that our general and administrative expenses will increase in absolute dollars.

Income from Operations. As a result of lower profit margins, increases in selling and marketing expenses, and increases in general and administration expenses, our income from operations decreased by $3,976,266 or 90.0% period over period. Our operating margin for the three months ended June 30, 2012 and 2011 was 1.3% and 20.6%, respectively.

Income Taxes. Our income tax expense decreased by $1,251,681 period over period, as a result of lower taxable income and an income tax waiver granted to Qianhong Agriculture, our entity that cultivates TCM.

Net Income. As a result of the foregoing, our net income decreased by $2,707,842 period over period.

Liquidity

In summary, our cash flows for the periods indicated are as follows:

                                                           Three months ended
                                                                 June 30
                                                          2012             2011
Net cash (used in) provided by operating activities   $ (2,823,330 )   $  9,912,293
Net cash (used in) investing activities               $   (306,767 )   $ (8,273,420 )
Net cash provided by (used in) financing activities   $  2,907,409     $ (1,758,015 )

For the three months ended June 30, 2012, cash used in operating activities amounted to $2,823,330, as opposed to $9,912,293 provided by operating activities in the same period a year ago. The change in cash provided by operating activities period over period is primarily attributable to an increase in cash used in accounts receivable of $7,273,930, advances to suppliers of $4,807,242, other current assets of $3,861,694, and inventory of $1,526,619, offset by an increase in cash provided by accounts payable of $3,108,857 and customer deposits of $2,185,306, and an increase in bad debt expense of $1,114,673. The negative operation cash flow reflects the quick expansion of our wholesale business, which demands significant customer deposits and large credit sales to our new customers.

For the three months ended June 30, 2012, net cash used in investing activities amounted to $306,767, as compared to net cash of $8,273,420 used in investing activities in the same period a year ago. The change in cash used in investing activities period over period is the result of decreases in payments on leasehold improvements and construction-in-progress of $3,399,379 and a decrease in deposit made to secure business acquisition of $4,745,968.

For the three months ended June 30, 2012, net cash provided by financing activities amounted to $2,907,409, as opposed to $1,758,015 provided by financing activities a year ago. The change in cash provided by financing activities period over period is the result of decrease in cash used in payments on notes payable of $2,006,702 and increase in notes payable of $1,396,914.

As of June 30, 2012, we had cash of approximately $3,621,132. Our total current assets as of June 30, 2012, were $57,409,298 and our total current liabilities were $30,719,434, which resulted in a net working capital of $26,689,864.

Capital Resources

In April 2010, we completed a public offering of 3.5 million shares of our common stock at a price of $5.00 per share resulting in gross proceeds of $17.5 million and net proceeds of $15.7 million after deducting commissions and all other expenses. We had an obligation to contribute $9 million to complete a registered capital requirement for Shouantang Technology by July 2012. However, we applied to reduce that amount and have been granted permission from local SAIC to reduce Shouantang's registered capital to $11 million. As a result, we no longer need to pay $9 million. As of June 30, 2012, we had approximately $24 million of receivables and $17 million in advances and $19 million in accounts payable. In the event that we do not receive timely payment on our receivables, are unable to timely liquidate our advances against inventory purchase and/or are required to pay our accounts payable we may need additional capital resources, which we may or may not be able to obtain. Even if we do find a source of additional capital, we may not be able to obtain such additional financing as needed on acceptable terms, or at all, which may require us to reduce our operating costs and other expenditures, including reductions of personnel and capital expenditures. Such reductions could materially adversely affect our business and our ability to compete. Otherwise, we believe that with our projected working capital for the next twelve months, we will be able to meet our obligations for the next twelve months. However, if we are to acquire additional businesses or further expand our operations, we may need additional capital, which may not be available on terms favorable to us or at all.

Contractual Obligations and Off-Balance Sheet Arrangements

Contractual Obligations

When we open store locations, we typically enter into lease agreements that are
generally between three to ten years. Our commitments for minimum rental
payments under our leases for the next five years and thereafter are as follows:

                                     Retail           Drug          Chinese herb          Total
Periods ending June 30,            Drugstores       Wholesale          Farming           Amount
2013                               $ 4,402,021     $   194,586     $             -     $ 4,596,607
2014                                 4,163,310         204,704                   -       4,368,014
2015                                 3,603,182         214,045                   -       3,817,227
2016                                 2,898,564         225,175                   -       3,123,739
2017                                 1,452,371         259,936                   -       1,712,307
Thereafter                           4,239,314       1,231,870                   -       5,471,184

Logistics Services Commitments

We terminated our agreement with Zhejiang Yingte Logistics Co., Ltd. ("Yingte Logistics") in April 2011, and now use Jiuxin Medicine's facility as our distribution center. Jiuxin Medicine previously outsourced its delivery functions to Yingte Logistics, but such arrangement expired on March 31, 2012. Since then, Jiuxin Medicine has been using its own vehicles and staff to deliver our products.

Off-balance Sheet Arrangements

We do not have any outstanding financial guarantees or commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as . . .