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RAINBOW CORAL CORP. - 10-K/A - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

August 6, 2014

THIS FILING CONTAINS FORWARD-LOOKING STATEMENTS. THE WORDS "ANTICIPATED," "BELIEVE," "EXPECT," "PLAN," "INTEND," "SEEK," "ESTIMATE," "PROJECT," "WILL," "COULD," "MAY," AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. THESE STATEMENTS INCLUDE, AMONG OTHERS, INFORMATION REGARDING FUTURE OPERATIONS, FUTURE CAPITAL EXPENDITURES, AND FUTURE NET CASH FLOW. SUCH STATEMENTS REFLECT THE COMPANY'S CURRENT VIEWS WITH RESPECT TO FUTURE EVENTS AND FINANCIAL PERFORMANCE AND INVOLVE RISKS AND UNCERTAINTIES, INCLUDING, WITHOUT LIMITATION, GENERAL ECONOMIC AND BUSINESS CONDITIONS, CHANGES IN FOREIGN, POLITICAL, SOCIAL, AND ECONOMIC CONDITIONS, REGULATORY INITIATIVES AND COMPLIANCE WITH GOVERNMENTAL REGULATIONS, THE ABILITY TO ACHIEVE FURTHER MARKET PENETRATION AND ADDITIONAL CUSTOMERS, AND VARIOUS OTHER MATTERS, MANY OF WHICH ARE BEYOND THE COMPANY'S CONTROL. SHOULD ONE OR MORE OF THESE RISKS OR UNCERTAINTIES OCCUR, OR SHOULD UNDERLYING ASSUMPTIONS PROVE TO BE INCORRECT, ACTUAL RESULTS MAY VARY MATERIALLY AND ADVERSELY FROM THOSE ANTICIPATED, BELIEVED, ESTIMATED, OR OTHERWISE INDICATED. CONSEQUENTLY, ALL OF THE FORWARD-LOOKING STATEMENTS MADE IN THIS FILING ARE QUALIFIED BY THESE CAUTIONARY STATEMENTS AND THERE CAN BE NO ASSURANCE OF THE ACTUAL RESULTS OR DEVELOPMENTS.

The following discussion and analysis of our financial condition and plan of operations should be read in conjunction with our financial statements and related notes appearing elsewhere herein. This discussion and analysis contains forward-looking statements including information about possible or assumed results of our financial conditions, operations, plans, objectives, and performance that involve risk, uncertainties, and assumptions. The actual results may differ materially from those anticipated in such forward-looking statements. For example, when we indicate that we expect to increase our product sales and potentially establish additional license relationships, these are forward-looking statements. The words expect, anticipate, estimate or similar expressions are also used to indicate forward-looking statements.

Background of our Company

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.

Rainbow Coral Corp. was incorporated in Florida on August 13, 2010, with its corporate headquarters located in Nokomis, Florida. The company's fiscal year end is March 31.

Going Concern



We incurred a net loss of $1,097,141 for the year ended March 31, 2014. Net cash used by operations for the year ended March 31, 2014 was $531,818. As of March 31, 2014, we had cash on hand of $65,373 and a working capital deficit of $404,118. 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.

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.

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Plan of Operations

We believe we do not have adequate funds to fully execute our business plan for the next twelve months unless we obtain additional funding. However, should we not raise this capital, we will allocate our funding to first assure that all State, Federal and SEC requirements are met.

We intend to pursue capital through public or private financing, as well as borrowing and other sources in order to finance our business activities. We cannot guarantee that additional funding will be available on favorable terms, if at all. If adequate funds are not available, then our ability to continue our operations may be significantly hindered.

Results of Operations

We incurred a net loss of $1,097,141 for the year ended March 31, 2014. We had a working capital deficit of $404,118 as of March 31, 2014. We do not anticipate having positive net income in the immediate future. Net cash used by operations for the year ended March 31, 2014 was $531,818.

We continue to rely on advances 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 continue to have such advances available. 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.

Fiscal year ended March 31, 2014 compared to the fiscal year ended March 31, 2013.

Revenue



Revenue increased to $113,009 for the year ended March 31, 2014, compared to $100,186 for the year ended March, 31, 2013 due to higher sales at our Father Fish store.

Cost of Goods Sold



Cost of goods sold increased to $113,228 for the year ended March 31, 2014, compared to $69,385 for the comparable period in 2013. The increase is largely due to write-offs of inventory during the year ended March 31, 2014.

Gross Profit (Loss)

Gross loss was $219 for the year ended March 31, 2014, compared to a gross profit of $30,801 for the year ended March, 31, 2013. The decrease is largely due to the inventory write-offs during the year ended March 31, 2014

General and Administrative Expenses

We recognized general and administrative expenses in the amount of $557,031 and $1,026,342 for the year ended March 31, 2014 and 2013, respectively. General and administrative expense was comprised of the following:

2014 2013 Stock-based compensation $ - $ 542,000 General and administrative expense related to operating retail fish store and coral farm facility 112,902 88,549 Officer compensation 110,250 88,500 Corporate general and administrative expense 333,879 307,293 Total general and administrative expense $ 557,031$ 1,026,342



During the year ended March 31, 2013, we issued stock to a consultant for services resulting in stock based compensation of $542,000. No such costs were incurred in 2014.

Our retail fish store and coral farm facility incurred general and administrative expense of $112,902 for the years ended March 31, 2014 and $88,549 during the period ended March 31, 2013. These expenses were related to maintaining and operating the retail store in Venice, Florida. The main reasons for the increase in general and administrative expense for the retail store were increased rent, increased repairs and maintenance and the installation of new fish tanks.

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During the years ended March 31, 2014 and 2013, we incurred officer compensation of $110,250 and $88,500, respectively, related to cash compensation paid to Kimberly Palmer, Patrick Brown and Lou Foxwell.

The remaining general and administrative expense of $333,879 and $307,293 for the years ended March 31, 2014 and 2013, respectively, relates to operating the Company and maintaining its reporting status. The increase is the result of increased professional fees.

Expenses related to joint ventures and other business development agreements

The Company incurred $85,000 of expense related to an investment in TheraKine during the year ended March 31, 2014. The Company has elected to expense its investments as incurred pending further development of the business plan.

Impairment of goodwill

The Company recorded goodwill impairment expense of $27,868 during the year ended March 31, 2014.

Interest Expense



Interest expense increased from $267,649 for the year ended March 31, 2013 to $427,023 for the year ended March 31, 2014. Interest expense for the year ended March 31, 2014 included amortization of discount on convertible notes payable of $398,067, compared to $248,336 for the comparable period of 2013. The remaining increase is due to interest expense related to additional convertible notes payable.

Net Loss



We incurred a net loss of $1,097,141 for the year ended March 31, 2014 as compared to $1,263,190 for the comparable period of 2013. The decrease in the net loss was primarily the result of the absence no stock-based compensation in 2014, offset by increased interest expense related to additional convertible notes payable.

Liquidity and Capital Resources

Net cash used by operating activities was $531,818 and $373,465 for the years ended March 31, 2014 and 2013, respectively. The primary reason for the increase in net cash used in operating activities was increased expenditures for general and administrative expenses.

We anticipate needing approximately of $500,000 to fund our operations and to effectively execute our business plan over the next twelve months. The Company intends to seek these funds through equity and debt financing; however, there is no guarantee that funds will be raised and the Company has no agreements in place as of the date of this filing for any financing.

Capital Resources

We had no material commitments for capital expenditures as of March 31, 2014 and 2013. However, should we execute our business plan as anticipated, we would incur substantial capital expenditures and require financing in addition to what is required to fund our present operation.

Additional Financing

Additional financing is required to continue operations. Although actively searching for available capital, the Company does not have any current arrangements for additional outside sources of financing and cannot provide any assurance that such financing will be available.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

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Critical Accounting Policies and Estimates

We have identified the policies below as critical to our business operations and the understanding of our consolidated financial statements. A complete discussion of our accounting policies is included in the Notes to the Consolidated Financial Statements.

REVENUE AND COST 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 recognized net of sales returns and allowances.

New Accounting Pronouncements

For a description of recent accounting standards, including the expected dates of adoption and estimated effects, if any, on our financial statements, see "Note 3: Significant Accounting Polices: Recent Issued Accounting Pronouncements" in Part II, Item 8 of this Form 10-K.


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Source: Edgar Glimpses


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