The basic earnings (loss) per share are calculated by dividing the Company’s net income available to common shareholders by the weighted average number of common shares outstanding during the year. The diluted earnings (loss) per share are calculated by dividing the Company’s net income (loss) available to common Shareholders by the diluted weighted average number of shares outstanding during the year. The diluted weighted average number of shares outstanding is the basic weighted number of shares adjusted as of the first of the year for any potentially dilutive debt or equity. There are no diluted shares outstanding for any periods reported.
The preparation of financial statements in conformity with accounting principles generally accepted 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.
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 three months ended December 31, 2011.
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.
The Company has adopted all recently issued accounting pronouncements. The adoption of the accounting pronouncements, including those not yet effective, is not anticipated to have a material effect on the financial position or results of operations of the Company.
On June 13, 2011, Rainbow Coral Corp. entered into an agreement to purchase all of the assets and the business of Father Fish Aquarium, Inc. (“Father Fish”) for $50,000. Father Fish was owned and operated by Lou Foxwell, the Company’s CEO and sole director. Rainbow Coral, as the surviving entity, will continue the business operations as a publicly-traded business under the same name of Rainbow Coral Corp. In the Agreement, the parties agreed that Rainbow Coral Corp would convey to Lou Foxwell at closing $10,000 cash and a note payable in the amount of $40,000. The note bears interest at 6% per year and is payable in 16 monthly installments of $2,500 with a final balloon payment due in the 17th month.
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
Overview
We are a Florida corporation which 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 as many varieties of Hard and Soft sizes as possible for use by consumers and as a source for advanced bio-research. The uses for coral as a source of potential leading edge medical discoveries is 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 propogation business.
The Company was incorporated on August 13, 2010 with its corporate headquarters located in Nokomis, Florida. Through Board resolution, the Company’s fiscal year has been changed from August 31 to 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 condensed financial statements for the period ended June 30, 2011 and in conjunction with the Company’s Form 8-K filed with the Securities and Exchange Commission (“SEC”) on June 13, 2011. Results of interim periods may not be indicative of results for the full year.
The Company was not formed until August 13, 2010 and was a development stage entity until the acquisition of Father Fish on June 13, 2011. The Company did not earn revenue or have significant operations until that date. As a result, there is no basis for comparison to the results for the three and nine month periods ended December 31, 2010.
Nine months ended December 31, 2011
The Company recognized revenue of $57,180 and cost of sales of $37,213 for the nine months ended December 31, 2011 as a result of the acquisition of Father Fish. General and administrative expenses were $120,221 for the nine months ended December 31, 2011. This resulted in a loss from operations of $100,254 for that period.
Three months ended December 31, 2011
The Company recognized revenue of $22,490 and cost of sales of $11,245 for the three months ended December 31, 2011 as a result of the acquisition of Father Fish. General and administrative expenses were $69,820 for the three months ended December 31, 2011. This resulted in a loss from operations of $58,575 for that period.
Liquidity and Capital Resources
At December 31, 2011 we had cash on hand of $14,520 and negative working capital of $74,621.
Net cash used in operating activities for the nine months ended December 31, 2011 was $97,634. 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 MARKET RISK.
As smaller reporting company, this information is not applicable.
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ITEM 4T. 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:
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| · | Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company; |
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| · | 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 |
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| · | 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, 2011 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, 2011.
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 outside 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:
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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 outside 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 outside 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 outside 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.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS.
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31.1 | Rule 13(a)-14(a)/15(d)-14(a) Certification of principal executive officer |
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31.2 | Rule 13(a)-14(a)/15(d)-14(a) Certification of principal financial and accounting officer |
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32.1 | Section 1350 Certification of principal executive officer and principal financial and accounting officer |
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101 * | XBRL Interactive Data |
* In accordance with Regulation S-T, the Interactive Data Files in Exhibit 101 to the Quarterly Report on Form 10-Q shall be deemed “furnished” and not “filed”.
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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.
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| RAINBOW CORAL CORP. |
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| BY: | /s/ Patrick Brown |
| | Patrick Brown |
| | President, Secretary, Treasurer, |
| | Principal Executive Officer, |
| | Principal Financial and Accounting |
| | Officer and Sole Director |
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| Dated: February 14, 2012 |
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