Rainbow Coral Corp. - FORM 10-Q

Attached files

file	filename
EX-31 - RULE 13(A)-14(A)/15(D)-14(A) CERTIFICATION - Rainbow Coral Corp.	ex_31-1.htm
EX-32 - SECTION 1350 CERTIFICATION - Rainbow Coral Corp.	ex_32-1.htm
EX-31 - RULE 13(A)-14(A)/15(D)-14(A) CERTIFICATION - Rainbow Coral Corp.	ex_31-2.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(MARK ONE)

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2013

o TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to _________

Commission File Number: 333-169554

RAINBOW CORAL CORP.

(Exact name of registrant as specified in its charter)


Florida		27-3247562
(State or other jurisdiction of		(I.R.S. Employer
Incorporation or organization)		Identification Number)

495 Grand Blvd., Suite 206
Miramar Beach, Florida		32550
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (850) 269-7230

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 o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes o No þ

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.


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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. 20,251,900 shares of common stock are issued and outstanding as of February 19, 2014

TABLE OF CONTENTS


Part I	4

Item 1. Financial Statements	4

Consolidated Balance Sheets (Unaudited)	4

Consolidated Statements of Operations (Unaudited)	5

Consolidated Statement of Stockholders’ Deficit (Unaudited)	6

Consolidated Statements of Cash Flows (Unaudited)	7

Notes to Unaudited Consolidated Financial Statements	8

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	14

Item 3. Quantitative and Qualitative Disclosures about Mark Risk	16

Item 4. Controls and Procedures	16

Part II – Other Information	17

Item 1. Legal Proceedings.	17

Item 1A. Risk Factors.	17

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.	17

Item 3. Defaults upon Senior Securities.	17

Item 4. Mine Safety Disclosures.	17

Item 5. Other Information	18

Item 6. Exhibits.	18

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

Certain statements in this report contain or may contain forward-looking statements. These statements, identified by words such as “plan”, “anticipate”, “believe”, “estimate”, “should”, “expect” and similar expressions include our expectations and objectives regarding our future financial position, operating results and business strategy. These statements are subject to known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward - looking statements. These forward-looking statements were based on various factors and were derived utilizing numerous assumptions and other factors that could cause our actual results to differ materially from those in the forward-looking statements. These factors include, but are not limited to, our ability to secure suitable financing to continue with our existing business or change our business and conclude a merger, acquisition or combination with a business prospect, economic, political and market conditions and fluctuations, government and industry regulation, interest rate risk, U.S. and global competition, and other factors. Most of these factors are difficult to predict accurately and are generally beyond our control. You should consider the areas of risk described in connection with any forward-looking statements that may be made herein. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. Readers should carefully review this report in its entirety, including but not limited to our financial statements and the notes thereto and the risks described in our Annual Report on Form 10-K for the fiscal year ended March 31, 2013. We advise you to carefully review the reports and documents we file from time to time with the Securities and Exchange Commission (the “SEC”), particularly our quarterly reports on Form 10-Q and our current reports on Form 8-K. Except for our ongoing obligations to disclose material information under the Federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events.

OTHER PERTINENT INFORMATION

When used in this report, the terms, “we,” the “Company,” “our,” and “us” refers to Rainbow Coral Corp. a Florida corporation.

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PART I

ITEM 1. FINANCIAL STATEMENTS

RAINBOW CORAL CORP.

CONSOLIDATED BALANCE SHEETS

(Unaudited)


	December 31, 2013			March 31, 2013
ASSETS

CURRENT ASSETS
Cash and cash equivalents	$	107,848		$	84,592
Prepaid expenses		350			350
Inventory		29,020			29,020
Total current assets		137,218			113,962

Fixed assets, net of accumulated depreciation of $4,627 and $1,760, respectively		2,561			5,428
Goodwill		27,868			27,868
TOTAL ASSETS	$	167,647		$	147,258

LIABILITIES AND STOCKHOLDERS’ DEFICIT

CURRENT LIABILITIES
Accounts payable and accrued liabilities	$	163,363		$	117,351
Current portion of convertible notes payable, net of discount of $0 and $3,491, respectively		—			1,024
Related party advances payable		129,951			94,881
Advances payable		47,050			133,455
Total current liabilities		340,364			346,711

Long-term note payable		50,000			—
Convertible notes payable, net of discount of $398,661 and $193,607, respectively		18,024			24,576
Accrued interest payable		15,358			10,929
TOTAL LIABILITIES		423,746			382,216

Commitments and contingencies

STOCKHOLDERS’ DEFICIT
Preferred Stock, $0.0001 par value; 10,000,000 shares authorized; no shares issued and outstanding at December 31, 2013 and March 31, 2013, respectively		—			—
Common Stock, $0.0001 par value; 250,000,000 shares authorized; 17,851,900 shares and 12,519,828 shares issued and outstanding at December 31, 2013 and March 31, 2013, respectively		1,785			1,252
Additional paid-in capital		2,261,465			1,599,204
Accumulated deficit		(2,519,349	)		(1,835,414	)
Total stockholders’ deficit		(256,099	)		(234,958	)

TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT	$	167,647		$	147,258

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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RAINBOW CORAL CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	Nine months ended December 31,						Three months ended December 31,
	2013			2012			2013			2012

REVENUE	$	84,044		$	76,808		$	25,491		$	24,852
COST OF GOODS SOLD		57,506			52,569			22,630			24,912

GROSS PROFIT		26,538			24,239			2,861			(60	)

OPERATING EXPENSES
General and administrative expenses		476,084			813,391			165,140			63,689

LOSS FROM OPERATIONS		(449,546	)		(789,152	)		(162,279	)		(63,749	)


INTEREST EXPENSE		(234,389	)		(205,928	)		(53,710	)		(118,601	)

NET LOSS	$	(683,935	)	$	(995,080	)	$	(215,989	)	$	(182,350	)


NET LOSS PER COMMON SHARE – Basic and diluted	$	(0.04	)	$	(0.18	)	$	(0.01	)	$	(0.02	)

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING		16,238,095			5,392,082			17,656,269			9,442,595

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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RAINBOW CORAL CORP.

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIT

(Unaudited)


	Common Stock			Additional Paid-In		Accumulated
	Shares	Amount		Capital		Deficit			Total

BALANCE, March 31, 2013	12,519,828	$	1,252	$	1,599,204	$	(1,835,414	)	$	(234,958	)

Shares issued for conversion of notes payable	5,332,072		533		245,576		—			246,109
Discount on issuance of convertible note payable	—		—		416,685		—			416,685
Net loss	—		—		—		(683,935	)		(683,935	)

BALANCE, December 31, 2013	17,851,900	$	1,785	$	2,261,465	$	(2,519,349	)	$	(256,099	)

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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RAINBOW CORAL CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Nine months ended December 31,
	2013			2012

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(683,935	)	$	(995,080	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation		—			542,000
Amortization of discount on convertible notes payable		215,122			191,747
Depreciation		2,867			1,438
Changes in operating assets and liabilities:
Inventory		—			(767	)
Accounts payable and accrued liabilities		52,929			1,622
Accrued interest payable		20,923			13,970
NET CASH USED IN OPERATING ACTIVITIES		(392,094	)		(245,070	)

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets		—			(728	)
NET CASH USED IN INVESTING ACTIVITIES		—			(728	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable		50,000			—
Proceeds from advances		330,280			219,108
Proceeds from related party advances		36,756			43,336
Repayments of related party advances		(1,686	)		(19,790	)
NET CASH PROVIDED BY FINANCING ACTIVITIES		415,350			242,654

NET INCREASE (DECREASE) IN CASH		23,256			(3,144	)
CASH, at the beginning of the period		84,592			20,219

CASH, at the end of the period	$	107,848		$	17,075

Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest	$	—		$	—
Taxes	$	—		$	—

Noncash investing and financing transactions:
Conversion of advances into convertible note payable	$	416,685		$	300,526
Beneficial conversion on convertible note payable	$	416,685		$	300,526
Issuance of common stock for convertible notes payable and interest	$	246,109		$	175,136

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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RAINBOW CORAL CORP.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2013

NOTE 1. GENERAL ORGANIZATION AND BUSINESS

RAINBOW CORAL CORP. (the “Company”), a Florida corporation, was formed to build a coral farm facility to develop and propagate (or grow) live coral, independent of the oceans, as a future farm reserve against the decline of natural wild reefs. We intend to grow, harvest and distribute a variety of sizes of hard and soft captive-bred corals. The coral is attractive to many consumers who can maintain them in a healthy ecosystem aquarium. We believe that coral and other marine aquarium livestock should be supplied by farms or captive breeders, rather than removed from the natural reefs. The additional uses for coral as a source of potential leading edge medical discoveries are an additional opportunity for the Company’s coral farming activity. We believe that the world of bio-research is a natural continuation of our core coral propagation business. Accordingly on October 23, 2011, the Company formed a subsidiary, Rainbow Biosciences, LLC to look into the opportunities within the bioscience market. Rainbow Biosciences, LLC will continue to research opportunities into the bioscience markets.

The Company was incorporated on August 13, 2010 with its corporate headquarters located in Nokomis, Florida. The Company’s fiscal year end is March 31.

NOTE 2. GOING CONCERN

The Company incurred a net loss of $683,935 during the nine months ended December 31, 2013 and had negative cash flow from operating activities of $392,094 for the same period. The Company does not expect to generate positive net income or generate positive cash flow from operating activities in the next twelve months. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. These matters, among others, raise substantial doubt about the ability of the Company to continue as a going concern. These financial statements do not include any adjustments to the amounts and classification of assets and liabilities that may be necessary should the Company be unable to continue as a going concern.

We will need to obtain loans or other financing in order to fund operating shortfalls and do not foresee a change in this situation in the immediate future. There can be no assurance that we will be able to obtain these loans or that they will be available to us on terms that are acceptable to the Company. We will not be able to continue operations without them. We are pursuing alternate sources of financing, but there is no assurance that additional capital will be available to the Company when needed or on acceptable terms.

NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Interim Financial Statements

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America for interim financial information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, these condensed financial statements do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and such adjustments are of a normal recurring nature. These financial statements should be read in conjunction with the financial statements for the year ended March 31, 2013 and notes thereto and other pertinent information contained in our Form 10-K the Company has filed with the Securities and Exchange Commission (the “SEC”).

The results of operations for the nine months period ended December 31, 2013 are not necessarily indicative of the results for the full fiscal year ending March 31, 2014.

Basis of Presentation

The financial statements and related disclosures have been prepared pursuant to the rules and regulations of the SEC. The financial statements have been prepared using the accrual basis of accounting in accordance with Generally Accepted Accounting Principles (“GAAP”) of the United States (See Note 2 regarding the assumption that the Company is a “going concern”).

Principles of Consolidation

The consolidated financial statements include the accounts of Rainbow Coral Corp. and its wholly-owned subsidiaries, Rainbow Biosciences, LLC and Father Fish Aquarium, Inc. All material intercompany accounts and transactions are eliminated in consolidation. The year end for the Company and its subsidiaries is March 31.

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Use of Estimates

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

Cash and Cash Equivalents

For the purpose of the financial statements, cash equivalents include all highly liquid investments with maturity of three months or less. Cash and cash equivalents were $107,848 and $84,592 at December 31, 2013 and March 31, 2013, respectively.

Inventory

The Company follows ASC 330, Inventory. Inventory represents live coral and other items valued at the lower of cost or net realizable value determined using the weighted average cost method, and with market defined as the lower of replacement cost or realizable value. The cost of inventory includes all costs to purchase, costs of conversion and other costs incurred in bringing the inventory to its present location and condition. The cost of conversion of living coral inventory includes the cost of maintenance through the balance sheet date. Inventory is reduced for the estimated losses due to obsolescence.

Goodwill

Goodwill represents the excess of purchase price and related costs over the value assigned to the net tangible and intangible assets of businesses acquired. We evaluate goodwill for impairment utilizing undiscounted projected cash flows in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 350, “Intangibles — Goodwill and Other” (“ASC Topic 350”). The Company has determined that there was no impairment of goodwill during the nine months ended December 31, 2013.

Deferred Income Taxes and Valuation Allowance

The Company accounts for income taxes under ASC 740 Income Taxes. Under the asset and liability method of ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period the enactment occurs. A valuation allowance is provided for certain deferred tax assets if it is more likely than not that the Company will not realize tax assets through future operations. No deferred tax assets or liabilities were recognized as of December 31, 2013 or March 31, 2013.

Revenue and Cost Recognition

In accordance with ASC 605, Revenue Recognition, the Company recognizes revenue when persuasive evidence of an arrangement exists, product delivery has occurred or the services have been rendered, the price is fixed or determinable and collectability is reasonably assured. Revenue is generated from the sales of live coral and other related products in a retail setting. Revenue is recognized net of sales returns and allowances.

Share-based Expense

The Company accounts for stock-based compensation issued to non-employees and consultants in accordance with the provisions of ASC 505-50, Equity – Based Payments to Non-Employees. Measurement of share-based payment transactions with non-employees is based on the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued. The fair value of the share-based payment transaction is determined at the earlier of performance commitment date or performance completion date.

Share-based expense for the nine months ended December 31, 2013 and 2012 was $0 and $542,000, respectively.

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Earnings (Loss) per Common Share

The Company computes basic and diluted earnings per common share amounts in accordance with ASC Topic 260, Earnings per Share. Basic earnings per share is computed by dividing net income (loss) available to common shareholders by the weighted average number of common shares outstanding during the reporting period. Diluted earnings per share reflects the potential dilution that could occur if stock options and other commitments to issue common stock were exercised or equity awards vest resulting in the issuance of common stock that could share in the earnings of the Company. For the nine months ended December 31, 2013 and 2012, the effect of common stock equivalents has been excluded from the calculation of diluted earnings per share as their effect would be anti-dilutive.

Financial Instruments

The Company’s balance sheet includes certain financial instruments. The carrying amounts of current assets and current liabilities approximate their fair value because of the relatively short period of time between the origination of these instruments and their expected realization.

ASC 820, Fair Value Measurements and Disclosures, defines fair value as the exchange price that would be received for 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. ASC 820 also establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:


·	Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities

·	Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means.

·	Level 3 - Inputs that are both significant to the fair value measurement and unobservable.

Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of December 31, 2013. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values due to the short-term nature of these instruments.

Commitments and Contingencies

The Company follows ASC 450-20, Loss Contingencies, to report accounting for contingencies. Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated. There were no known commitments or contingencies as of December 31, 2013 and March 31, 2013.

Recently Issued Accounting Pronouncements

Recently issued or adopted accounting pronouncements are not expected to, or did not have, a material impact on our financial position, results of operations or cash flows.

Reclassifications

Certain reclassifications have been made to the prior period financial statements to conform to the current period presentation.

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NOTE 4. RELATED PARTY

During the nine months ending December 31, 2013, the Company received advances of $36,756 from the President of our Father Fish subsidiary for purposes of funding operations, of which $1,686 of the advances were repaid during the nine months ended December 31, 2013.

NOTE 5. CONVERTIBLE NOTES PAYABLE AND ADVANCES

Convertible notes payable consist of the following as of December 31, 2013:


	Amount
Convertible note payable effective June 30, 2013, due June 30, 2015, bearing interest at 10% per year, convertible into common stock at a rate of $0.04 per share		192,600
Convertible note payable effective September 30, 2013, due September 30, 2015, bearing interest at 10% per year, convertible into common stock at a rate of $0.04 per share		224,085

Total convertible notes payable		416,685
Less: discounts on convertible notes payable		(398,661	)
Convertible notes payable	$	18,024

All principal along with accrued interest is payable on the maturity date. The notes are convertible into common stock at the option of the holder. The holder of the notes cannot convert the notes into shares of common stock if that conversion would result in the holder owning more than 4.9% of the outstanding stock of the Company.

During the nine months ended December 31, 2013, the Company entered into convertible promissory notes with Vista View Ventures, Inc. which refinanced non-interest bearing advances. The convertible notes have the following terms:


Note Date	Maturity Date	Interest Rate	Conversion Rate	Loan Amount
June 30, 2013	June 30, 2015	10%	$0.04 per share	$ 192,600
September 30, 2013	September 30, 2015	10%	$0.04 per share	$ 224,085

All principal along with accrued interest is payable on the maturity date.

The Company evaluated the terms of the notes in accordance with ASC Topic No. 815 – 40, Derivatives and Hedging - Contracts in Entity’s Own Stock and determined that the underlying common stock is indexed to the Company’s common stock. The Company determined that the conversion features did not meet the definition of a liability and therefore did not bifurcate the conversion feature and account for it as a separate derivative liability. The Company evaluated the conversion features for a beneficial conversion feature. The effective conversion price was compared to the market price on the date of the notes and was deemed to be less than the market value of underlying common stock at the inception of the note. Therefore, the Company recognized a discount for the beneficial conversion feature in the amount of $416,685, in aggregate, on the date the notes were signed. The beneficial conversion feature was recorded as an increase in additional paid-in capital and a discount to the convertible notes payable. The discount to the convertible notes payable will be amortized to interest expense over the life of the note.

During the nine months ended December 31, 2013, the holders of the convertible note payable dated March 31, 2012 elected to convert principal and accrued interest in the amounts shown below into shares of common stock at a rate of $0.05 per share. On the conversion date, the unamortized discount related to the principal amount converted was immediately amortized to interest expense. No gain or loss was recognized on the conversions as they occurred within the terms of the agreement which provided for conversion at $0.05 per share.


Date	Amount Converted		Number of Shares Issued	Unamortized Discount
May 8, 2013	$	11,449	228,983	$	3,338

During the nine months ended December 31, 2013, the holders of the convertible note payable dated June 30, 2012 elected to convert principal and accrued interest in the amounts shown below into shares of common stock at a rate of $0.04 per share. On the conversion date, the unamortized discount related to the principal amount converted was immediately amortized to interest expense. No gain or loss was recognized on the conversions as they occurred within the terms of the agreement which provided for conversion at $0.04 per share.

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Date	Amount Converted		Number of Shares Issued	Unamortized Discount
April 10, 2013	$	25,000	625,000	$	20,000
April 11, 2013		50,000	1,250,000		40,000
May 10, 2013		6,977	174,428		611
Total	$	81,977	2,049,428	$	60,611

During the nine months ended December 31, 2013, the holders of the convertible note payable dated January 1, 2013 elected to convert principal and accrued interest in the amounts shown below into shares of common stock at a rate of $0.05 per share. On the conversion date, the unamortized discount related to the principal amount converted was immediately amortized to interest expense. No gain or loss was recognized on the conversions as they occurred within the terms of the agreement which provided for conversion at $0.05 per share.


Date	Amount Converted		Number of Shares Issued	Unamortized Discount
July 9, 2013	$	36,687	733,738	$	27,820
July 15, 2013		70,000	1,400,000		46,673
Total	$	106,687	2,133,738	$	74,493

During the nine months ended December 31, 2013, the holders of the convertible note payable dated March 31, 2013 elected to convert principal and accrued interest in the amounts shown below into shares of common stock at a rate of $0.05 per share. On the conversion date, the unamortized discount related to the principal amount converted was immediately amortized to interest expense. No gain or loss was recognized on the conversions as they occurred within the terms of the agreement which provided for conversion at $0.05 per share.


Date	Amount Converted		Number of Shares Issued	Unamortized Discount
October 15, 2013	$	25,000	500,000	$	17,785
October 25, 2013		20,996	419,923		13,971
Total	$	45,996	919,923	$	31,756

During the nine months ended December 31, 2013 and 2012, the Company received non-interest bearing advances of $330,280 and $219,108, respectively, from Vista View Ventures Inc. The funds were advanced to the Company through an intermediary agent which also provides certain legal, accounting and support services to the Company.

NOTE 6. LONG-TERM NOTE PAYABLE

On December 30, 2013 the Company entered into a promissory note of $50,000 with a third party bearing interest at 5%. Under the terms of the note payable, the Company will begin making monthly payments on the note payable on January 1, 2015 based on a 4 year payout.

NOTE 7. STOCKHOLDERS’ EQUITY

During the nine months ended December 31, 2013, the Company issued stock to third parties for the conversion of notes payable. No gain or loss was recognized on the conversions as they occurred within the terms of the respective notes. The stock issued is as follows:


Date	Number of Shares Issued	Value of Shares
April 10, 2013	625,000	$	25,000
April 11, 2013	1,250,000		50,000
May 8, 2013	228,983		11,449
May 10, 2013	174,428		6,977
July 9, 2013	733,738		36,687
July 15, 2013	1,400,000		70,000
October 15, 2013	500,000		25,000
October 25, 2013	419,923		20,996
Total	5,332,072	$	246,109

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NOTE 8. SUBSEQUENT EVENTS

Management has evaluated subsequent events through the date these consolidated financial statements were issued. Based on our evaluation, only the events described below require disclosure.

On January 1, 2014, the holder of the convertible promissory note in the original amount of $192,600 elected to convert principal and interest in the amount of $32,000 into 800,000 shares of common stock. As a result of this conversion, unamortized discount related to the converted principal in the amount of $20,975 was immediately amortized to interest expense.

On January 27, 2014, the holder of the convertible promissory note in the original amount of $192,600 elected to convert principal and interest in the amount of $32,000 into 800,000 shares of common stock. As a result of this conversion, unamortized discount related to the converted principal in the amount of $29,346 was immediately amortized to interest expense.

On February 7, 2014, the holder of the convertible promissory note in the original amount of $192,600 elected to convert principal and interest in the amount of $32,000 into 800,000 shares of common stock. As a result of this conversion, unamortized discount related to the converted principal in the amount of $29,313 was immediately amortized to interest expense.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

Rainbow Coral Corp. (“we”, “us”, “our”, “RBCC”, or the “Company”) was incorporated in the State of Florida on August 13, 2010. On June 13, 2011 we acquired all of the assets and the business of Father Fish Aquarium, Inc., (“Father Fish”) for $50,000. We plan to continue the business of Father Fish under the name of Rainbow Coral Corp. The Company was formed to build a coral farm facility to develop and propagate (or grow) live coral, independent of oceans, as a future farm reserve against the decline of natural wild reefs. We intend to grow, harvest and distribute as many varieties of hard and soft sizes as possible for use by consumers and as a source for advances in bio-research. The uses for coral as a source of potential leading edge medical discoveries are an attractive opportunity for the Company’s coral farming activity. We believe that the world of bio-research is a natural continuation of our core coral propagation business. Accordingly on October 23, 2011, the Company formed a subsidiary, Rainbow Biosciences, LLC to look into the opportunities within the bioscience market.

Our subsidiary, Father Fish, is a retail tropical fish store with a license from the Florida Department of Agriculture to raise a number of ornamental animals. Among these are various types of coral and the live food they require for nutrition. In addition, Father Fish raises a number of fresh water and salt water fish and invertebrates. Sales are made out of a retail location in Florida and online to hobbyists and serious collectors and by contracts with local departments of education for classroom and science lab use. Father Fish has a varied customer base and no individual customer is significant to the total sales of the Company.

The Company was incorporated on August 13, 2010 with its corporate headquarters located in Nokomis, Florida. The Company’s fiscal year end is March 31.

We were a development stage entity until June 13, 2011 when we acquired Father Fish Aquarium, Inc.

Results of Operations

The following discussion should be read in conjunction with the consolidated financial statements for the year ended March 31, 2013 included in the Company’s Form 10-K filed with the Securities and Exchange Commission (“SEC”). Results of interim periods may not be indicative of results for the full year.

Nine months ended December 31, 2013 compared to the nine months ended December 31, 2012.

Revenue

Revenue increased to $84,044 for the nine months ended December 31, 2013 compared to $76,808 for the nine months ended December 31, 2012. The sales increase was driven by increased advertising.

Cost of Goods Sold

Cost of goods sold increased to $57,506 for the nine months ended December 31, 2013 compared to $52,569 for the comparable period of 2012. The increase in cost of goods is consistent with the increase in revenue.

Gross Profit

Gross profit increased from $24,239 for the nine months ended December 31, 2012 to $26,538 for the nine months ended December 31, 2013. The increase in gross profit was a result of increased sales, offset by increased cost of goods sold.

General and administrative expenses

We recognized general and administrative expenses in the amount of $476,084 and $813,391 for the nine months ended December 31, 2013 and 2012, respectively. During the nine months ended December 31, 2012, we issued stock for services resulting in general and administrative expense of $542,000. Excluding this expense, general and administrative expense for the nine months ended December 31, 2012 would have been $271,391. General and administrative expense, excluding the stock issued for services, increased from the nine months ended December 31, 2012 compared to 2013 as a result of higher costs related to professional services.

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Interest Expense

Interest expense increased from $205,928 for the nine months ended December 31, 2012 to $234,389 for the nine months ended December 31, 2013. Interest expense for the nine months ended December 31, 2013 included amortization of discount on convertible notes payable in the amount of $215,122 compared to $191,747 for the comparable period of 2012. The remaining increase is the result of the Company entering into interest-bearing convertible notes payable.

Net Loss

We incurred a net loss of $683,935 for the nine months ended December 31, 2013 as compared to $995,080 for the comparable period of 2012. The decrease in the net loss was primarily the result of the decrease in the general and administrative expense as discussed above.

Three months ended December 31, 2013 compared to the three months ended December 31, 2012.

Revenue

Revenue increased slightly to $25,491 for the three months ended December 31, 2013 compared to $24,852 for the three months ended December 31, 2012.

Cost of Goods Sold

Cost of goods sold decreased to $22,630 for the three months ended December 31, 2013 compared to $24,912 for the comparable period of 2012. The decrease in cost of goods is due to the mix of products sold.

Gross Profit

Gross profit increased to $2,861 for the three months ended December 31, 2013 from a loss of $60 for the three months ended December 31, 2012. The increase in gross profit was a result of higher margins on sales.

General and administrative expenses

We recognized general and administrative expenses in the amount of $165,140 and $63,689 for the three months ended December 31, 2013 and 2012, respectively. The increase in general and administrative expense was the result of increased costs related to professional services.

Interest Expense

Interest expense decreased from $118,601 for the three months ended December 31, 2012 to $53,710 for the three months ended December 31, 2013. The decrease is due to less amortization of discount on convertible notes payable.

Net Loss

We incurred a net loss of $215,989 for the three months ended December 31, 2013 as compared to $182,350 for the comparable period of 2012. The increase in the net loss was primarily due to the increase in general and administrative expenses, as discussed above.

Going Concern

We incurred a net loss of $683,935 for the nine months ended December 31, 2013. Net cash used by operations for the nine months ended December 31, 2013 was $392,094. We do not anticipate having positive net income in the immediate future. These conditions create an uncertainty as to our ability to continue as a going concern.

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Liquidity and Capital Resources

At December 31, 2013, we had cash on hand of $107,848.

Net cash used in operating activities for the nine months ended December 31, 2013 was $392,094. We do not expect to achieve positive cash flow from operating activities in the near future. We will require additional cash in order to fully implement our business plan. There is no guarantee that we will be able funds when we need them or that funds will be available on terms that are acceptable to the Company.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARK RISK

As smaller reporting company, this information is not applicable.

ITEM 4. CONTROLS AND PROCEDURES

Management’s Report On Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the company’s principal executive and principal financial officers and effected by the company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America and includes those policies and procedures that:


·	Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company;

·	Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and

·	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 the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. 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. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of the inherent limitations of internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.

As of December 31, 2013, management assessed the effectiveness of our internal control over financial reporting based on the criteria for effective internal control over financial reporting established in Internal Control--Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and SEC guidance on conducting such assessments. Based on that evaluation, they concluded that, during the period covered by this report, such internal controls and procedures were not effective to detect the inappropriate application of US GAAP rules as more fully described below. This was due to deficiencies that existed in the design or operation of our internal controls over financial reporting that adversely affected our internal controls and that may be considered to be material weaknesses.

The matters involving internal controls and procedures that our management considered to be material weaknesses under the standards of the Public Company Accounting Oversight Board were: (1) 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 monitoring of required internal controls and procedures; (2) inadequate segregation of duties consistent with control objectives; and (3) ineffective controls over period end financial disclosure and reporting processes. The aforementioned material weaknesses were identified by our Chief Executive Officer in connection with the review of our financial statements as of December 31, 2013.

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Management believes that the material weaknesses set forth in items (2) and (3) above did not have an effect on our financial results. However, management believes that the lack of a functioning audit committee and the lack of a majority of independent directors on our board of directors results in ineffective oversight in the establishment and monitoring of required internal controls and procedures, which could result in a material misstatement in our financial statements in future periods.

Management’s Remediation Initiatives

In an effort to remediate the identified material weaknesses and other deficiencies and enhance our internal controls, we have initiated, or plan to initiate, the following series of measures:

We will create a position to segregate duties consistent with control objectives and will increase our personnel resources and technical accounting expertise within the accounting function when funds are available to us. And, we plan to appoint one or more independent directors to our board of directors who shall be appointed to an audit committee resulting in a fully functioning audit committee who will undertake the oversight in the establishment and monitoring of required internal controls and procedures such as reviewing and approving estimates and assumptions made by management when funds are available to us.

Management believes that the appointment of one or more independent directors, who shall be appointed to a fully functioning audit committee, will remedy the lack of a functioning audit committee and a lack of a majority of independent directors on our Board.

We will work as quickly as possible to implement these initiatives; however, the lack of adequate working capital and positive cash flow from operations will likely slow this implementation.

Changes in internal controls over financial reporting

There was no change in our internal controls over financial reporting that occurred during the period covered by this report, which has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

None.

ITEM 1A. RISK FACTORS.

Not applicable to a smaller reporting company.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

On October 15, 2013, we issued 500,000 shares of common stock as a result of the conversion of principal interest on a Convertible Note Payable in the amount of $25,000.

On October 25, 2013, we issued 419,923 shares of common stock as a result of the conversion of principal interest on a Convertible Note Payable in the amount of $20,996.

An exemption under Section 4(1) of the Securities Act is claimed for the common stock issued in the above conversions since the criteria of Rule 144 were satisfied.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

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ITEM 5. OTHER INFORMATION.

On December 1, 2013, our Board of Directors appointed Kimberly Palmer to serve as CEO, President and a member of the Board of Directors. A registered nurse with extensive healthcare experience, Ms. Palmer will be tasked with implementing the Company’s business strategy in the field of regenerative medicine. From 1997 until the present, she has served as a registered nurse at Vancouver General Hospital in the post anesthetic recovery room and the solid organ transplant/cardiac surgery telemetry unit. In addition, from 2008 to the present, Ms. Palmer has served as a business consultant to private surgeons, providing administrative and clinical support for a variety of medical practices. Ms. Palmer holds a Bachelor of Science, Nursing degree from the University of British Columbia. She is a registered nurse in British Columbia.

Ms. Palmer will be compensated $5,000 per month for her services. She is not covered under an employment agreement and does not own any shares of our stock.

Additionally, on December 1, 2013, Mr. Patrick Brown resigned as our CEO, President and Director. Mr. Foxwell’s resignation was not the result of a disagreement with the Company.

ITEM 6. EXHIBITS.


2.1	Stock Purchase Agreement, dated as of June 13, 2011, by and among Rainbow Coral Corporation and Father Fish Aquarium, Inc. (1)

2.2	Membership Interest Purchase Agreement, dated as of June 13, 2011 by and among Father Fish Aquarium, Inc. and Father Fish Aquarium, LLC. (1)

3.1	Articles of Incorporation of Rainbow Coral Corp. (2)

3.2	Articles of Amendment of Rainbow Coral Corp. (1)

3.3	Articles of Amendment of Rainbow Coral Corp. (3)

3.4	Bylaws of Rainbow Coral Corp. (2)

3.5	Articles of Incorporation of Father Fish Aquarium, Inc. (1)

3.6	Articles of Amendment of Father Fish Aquarium, Inc. (1)

3.7	Bylaws of Father Fish Aquarium, Inc. (1)

3.8	Articles of Organization of Father Fish Aquarium, LLC (1)

3.9	Articles of Amendment of Father Fish Aquarium, LLC (1)

3.10	Bylaws of Father Fish Aquarium, LLC (1)

10.1	Note from Rainbow Coral Corp. to Louis Foxwell (1)

31.1 *	Rule 13(a)-14(a)/15(d)-14(a) Certification of principal executive officer

31.2 *	Rule 13(a)-14(a)/15(d)-14(a) Certification of principal financial and accounting officer

32.1 *	Section 1350 Certification of principal executive officer and principal financial and accounting officer

101 **	XBRL Interactive Data

* Filed or furnished herewith

** To be submitted by amendment.

(1) Incorporated by reference to the comparable exhibit filed with our Form 8-K filed on June 13, 2011

(2) Incorporated by reference to the comparable exhibit filed with our Registration Statement on Form S-1

(3) Incorporated by reference to the Registrant’s Form 10-K for the year ended March 31, 2013.

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SIGNATURES

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


	RAINBOW CORAL CORP.

	By:	/s/ Kimberly Palmer
		Kimberly Palmer
		President, Secretary, Treasurer,
		Principal Executive Officer,
		Principal Financial and Accounting
		Officer and Sole Director

	Dated: February 19, 2014

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