**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

**FORM 10-Q**

**(Mark One)**

**x****QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

For the quarterly period ended ** June 30, 2014**

**OR**

 

**o****TRANSITIONAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

For the transition period from ___________ to _____________

Commission file number 000-54566

**Development Capital Group, Inc.**

(Name of Registrant as specified in its charter)

| **Florida**(State or Other Jurisdiction of Incorporation or Organization)

         

**27-3746561**

(IRS Employer Identification Number)

 

**(888) 415-7758**

(Registrant's telephone number)

**9190 West Olympic Blvd., Suite 200,**

**Beverly Hills, CA 90212**

(Address of principal executives offices) (Zip Code)

 

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. [X] Yes [ ] No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [ ] No [X]

 

Indicate by check mark whether the registrant is a large accelerated filed, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

 

Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [ ] Smaller reporting company****[X](Do not check if a 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 [ ] No [X]

State the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 105,542,735 common shares as of August 14, 2014.

 

 

 

**TABLE OF CONTENTS**

 

**PART I – FINANCIAL INFORMATION**

**Page**

 

 

ITEM 1

Financial Statements (Unaudited)

3

 

ITEM 2

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

4

 

ITEM 3

Quantitative and Qualitative Disclosures About Market Risk

6

 

ITEM 4

Controls and Procedures

6

 

**PART II – OTHER INFORMATION**

 

 

 

ITEM 1

Legal Proceedings

7

 

ITEM 1A

Risk Factors

7

 

ITEM 2

Unregistered Sales of Equity Securities and Use of Proceeds

7

 

ITEM 3

Defaults Upon Senior Securities

7

 

ITEM 4

Mine Safety Disclosures

7

 

ITEM 5

Other Information

7

 

ITEM 6

Exhibits

8

 

2

 

**PART I - FINANCIAL INFORMATION**

**Item 1. Financial Statements**

Our financial statements included in this Form 10-Q are as follows:

F-1 

Condensed Consolidated Balance Sheets as of June 30, 2014 and March 31, 2014 (unaudited);

F-2

Condensed Consolidated Statements of Operations for the three months ended June 30, 2014 and April 22, 2013 (Inception) to June 30, 2013 (unaudited);

F-3

Condensed Consolidated Statements of Cash Flow for the three months ended June 30, 2014 and April 22, 2013 (Inception) to June 30, 2013 (unaudited);

F-4

Notes to Condensed Consolidated Financial Statements (unaudited).

These condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the SEC instructions to Form 10-Q.  In the opinion of management, all adjustments considered necessary for a fair presentation have been included.  Operating results for the interim period ended June 30, 2014 are not necessarily indicative of the results that can be expected for the full year.

 

3

 

**DEVELOPMENT CAPITAL GROUP, INC. AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED BALANCE SHEETS**

**(unaudited)**

June 30,

 

March 31,

 

 

2014

 

2014
ASSETSCurrent assets:Cash and cash equivalents 
 $        70,428 

 

 $       297,146 
Marketable securities
             3,724 

 

             3,724 
Prepaid expenses 
           24,600 

 

         163,400 
Inventory
         120,444 

 

         131,854 
Note receivable 
             4,315 

 

           76,420 
Note receivable - related party
         159,473 

 

         230,365 
Merchant reserve account 
         152,454 

 

         196,325 
Total current assets
         535,438 

 

       1,099,234 
     Fixed assets:Office equipment, net of accumulated depreciation of $1,280 and $818 
             4,371 

 

             4,538 
Other assets:    Other assets
           51,538 

 

             7,650 
Deposits held 
             4,935 

 

             4,935 
Total other assets
           56,473 

 

           12,585 
     Total assets
 $       596,282 

 $    1,116,357 
     LIABILITIES AND STOCKHOLDERS' (DEFICIT)    Current liabilities:    Accounts payable and accrued expenses
 $    1,816,541 

 

 $    1,929,642 
Accrued interest 
           68,005 

 

           33,821 
Reserve for returns and allowances
           10,000 

 

           15,000 
Total current liabilities 
       1,894,546 

 

       1,978,463 
Long-term liabilities:    Convertible notes payable
         803,000 

 

         799,988 
Total long-term liabilities 
         803,000 

 

         799,988 
Total liabilities 
       2,697,546 

 

       2,778,451 
Stockholders' (deficit):    Common stock, $0.001 par value, 490,000,000 sharesauthorized, 105,542,735 and 105,542,735 shares issued and outstanding    as of June 30, 2014 and March 31, 2014, respectively
         105,543 

 

         105,543 
Additional paid in capital 
         344,580 

 

         344,580 
Accumulated (deficit)
     (2,551,387)

 

     (2,112,217)
Total stockholders' (deficit) 
     (2,101,264)

 

     (1,662,094)
Total liabilities and stockholders' (deficit) 
 $       596,282 

 

 $    1,116,357 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

F-1

 

**DEVELOPMENT CAPITAL GROUP, INC. AND SUBSIDIARIES**

 

 

**CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS**

 

 

**(unaudited)**

For the

 

April 22, 2013

 

 

 

 

three months

 

(Inception)

 

 

 

 

ended

 

to

 

 

 

 

June 30,

 

June 30,

 

 

 

 

2014

 

2013
RevenueSales, net of allowances 
 $              339,463 

 

 $                47,442 

 

 $  292,021 
Cost of goods sold
                 199,545 

 

                   32,370 

 

616%
Gross profit 
                 139,918 

 

                   15,072 

 

     124,846 
828%Operating expenses:      Selling expenses
                   89,179 

 

                     9,258 
Promotional and marketing expenses 
                     7,975 

 

                 335,689 
  General and administrative expenses
                 296,715 

 

                     4,180 
Salaries and wages 
                 158,891 

 

                       700 
  Total operating expenses
                 552,760 

 

                 349,827 
163%       Net (loss) from operating activites
                (412,842)

 

                (334,755)
       Other (expense):Interest expense, net 
                 (26,328)

 

                         -   
  Total other (expense)
                 (26,328)

 

                         -   
       Provision for income tax
                         -   

 

                         -   
       Net (loss)
 $             (439,170)

 

 $             (334,755)

 

 

 
      Net loss per share - basic and diluted 
 $                  (0.00)

 

 $                  (0.00)
  Weighted average number of common      shares outstanding - basic and diluted
     105,542,735 

 

       77,527,735 

 

 

 

 

 

 

 

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

 

F-2

 

**DEVELOPMENT CAPITAL GROUP, INC. AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(unaudited)**

For the

 

April 22, 2013

 

 

three months

 

(Inception)

 

 

ended

 

to

 

 

June 30,

 

June 30,

 

 

2014

 

2013
**CASH FLOWS FROM OPERATING ACTIVITIES**Net (loss) 
 $             (439,170)

 

 $             (334,755)
Adjustments to reconcile net (loss)to net cash used in operating activities:    Stock issued for services
                         -   

 

                         -   
Depreciation 
                       462 
  Changes in operating assets and liabilities:Decrease in prepaid expenses 
                 138,800 

 

                         -   
Decrease in inventory
                   11,410 

 

                 (37,710)
Decrease in merchant reserve 
                   43,871 

 

                         -   
(Increase) in other assets
                 (43,888)

 

                      (997)
(Decrease) in accounts payable 
                 (18,854)

 

                 348,200 
Increase in accrued interest
                   34,184 

 

                         -   
(Decrease) in allowance for returns 
                   (5,000)

 

                         -   
Net cash used in operating activities 
                (278,185)

 

                 (25,262)
**CASH FLOWS FROM INVESTING ACTIVITIES**    Proceeds for notes receivable
                         -   

 

                         -   
Repayments for notes receivable 
                   51,762 

 

                         -   
Purchase of fixed assets
                      (295)

 

                         -   
Purchase of capitalized software development cost 
                         -   

 

                         -   
Net cash used in investing activities 
                   51,467 

 

                         -   
**CASH FLOWS FROM FINANCING ACTIVITIES**    Proceeds from convertible notes payable
                         -   

 

                   64,960 
Donated capital 
                         -   

 

                         -   
Proceeds from the sale of common stock
                         -   

 

                   (7,198)
     Net cash provided by financing activities
                         -   

 

                   57,762 
** **    NET CHANGE IN CASH
                (226,718)

 

                   32,500 
     CASH AT BEGINNING OF PERIOD
                 297,146 

 

                 (20,356)
     CASH AT END OF PERIOD
 $                70,428 

 

 $                12,144 
     SUPPLEMENTAL DISCLOSURES:Interest paid 
 $                      -   

 

 $                      -   
Income taxes paid
 $                      -   

 

 $                      -   

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

 

F-3

 

**DEVELOPMENT CAPITAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(UNAUDITED)**

 

 

Basis of presentation

The accompanying unaudited condensed interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the United States Securities and Exchange Commission for interim financial information.

 

The unaudited interim financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K, which contains the audited financial statements and notes thereto, together with the Plan of Operations for the year ended March 31, 2014.

 

Certain information or footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted, pursuant to the rules and regulations of the Securities and Exchange Commission for interim financial reporting.  Accordingly, they do not include all the information and footnotes necessary for a comprehensive presentation of financial position, results of operations, or cash flows.  It is management's opinion, however, that all material adjustments (consisting of normal recurring adjustments) have been made which are necessary for a fair financial statement presentation.  The interim results for the three months ended June 30, 2014 are not necessarily indicative of results for the full fiscal year.

Nature of businessThe Company was incorporated on September 27, 2010 under the laws of the State of Florida, as Development Capital Group, Inc. The Company has two wholly-owned subsidiaries, Clearance.Co, and Development Tech, Inc. The Company seeks to identify and invest in early-stage technology companies that have the potential to revolutionize traditional industries and transform markets. Clearance.Co, a California corporation, was incorporated on April 22, 2013 (Date of Inception) and is an online retailer offering discount brand name, non-brand name and closeout merchandise for sale on its website to primarily consumers. Development Tech, Inc., a Nevada corporation, operates the website RealtyValuator.com., an application that supports real estate investors by identifying available properties and providing tools to easily evaluate prospective investment properties.On March 31, 2014, the Company completed a reverse merger with privately-held Clearance.Co. In exchange for all of Clearance.Co’s outstanding shares, the Company issued 77,527,735 shares common shares for approximately 73.5% interest in the Company. Clearance.Co’s convertible note obligations totaling $799,988 were also assumed by the Company as part of the transaction. 

The financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America, and are expressed in U.S. dollars. 

Year endThe Company’s year-end is March 31.

Use of estimatesThe preparation of financial statements in conformity with generally accepted accounting principles 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 significantly from those estimates.

Cash and cash equivalentsFor the purpose of the statements of cash flows, all highly liquid investments with an original maturity of three months or less are considered to be cash equivalents. The carrying value of these investments approximates fair value.

F-4

 

**DEVELOPMENT CAPITAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(UNAUDITED)**

 

**NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)**

Concentration of credit riskThe Company primarily transacts its business with one financial institution. The amount on deposit in that one institution may from time to time exceed the federally-insured limit.

Stock-based compensationThe Company records stock based compensation in accordance with the guidance in ASC Topic 505 and 718 which requires the Company to recognize expenses related to the fair value of its employee stock option awards. This eliminates accounting for share-based compensation transactions using the intrinsic value and requires instead that such transactions be accounted for using a fair-value-based method. The Company recognizes the cost of all share-based awards on a graded vesting basis over the vesting period of the award. 

The Company accounts for equity instruments issued in exchange for the receipt of goods or services from other than employees in accordance with FASB ASC 718-10 and the conclusions reached by the FASB ASC 505-50. Costs are measured at the estimated fair market value of the consideration received or the estimated fair value of the equity instruments issued, whichever is more reliably measurable. The value of equity instruments issued for consideration other than employee services is determined on the earliest of a performance commitment or completion of performance by the provider of goods or services as defined by FASB ASC 505-50.

Fair value of financial instrumentsFair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of June 30, 2014. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values. These financial instruments include cash, prepaid expenses, bank overdraft and accounts payable. Fair values were assumed to approximate carrying values for cash and payables because they are short term in nature and their carrying amounts approximate fair values or they are payable on demand.

*Level 1:*****The preferred inputs to valuation efforts are “quoted prices in active markets for identical assets or liabilities,” with the caveat that the reporting entity must have access to that market.  Information at this level is based on direct observations of transactions involving the same assets and liabilities, not assumptions, and thus offers superior reliability. However, relatively few items, especially physical assets, actually trade in active markets.

*Level 2*: FASB acknowledged that active markets for identical assets and liabilities are relatively uncommon and, even when they do exist, they may be too thin to provide reliable information. To deal with this shortage of direct data, the board provided a second level of inputs that can be applied in three situations.

*Level 3:*If inputs from levels 1 and 2 are not available, FASB acknowledges that fair value measures of many assets and liabilities are less precise. The board describes Level 3 inputs as “unobservable,” and limits their use by saying they “shall be used to measure fair value to the extent that observable inputs are not available.” This category allows “for situations in which there is little, if any, market activity for the asset or liability at the measurement date”. Earlier in the standard, FASB explains that “observable inputs” are gathered from sources other than the reporting company and that they are expected to reflect assumptions made by market participants.

F-5

 

**DEVELOPMENT CAPITAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(UNAUDITED)**

 

**NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)**

Fair value of financial instruments (continued)

 

*As of June 30, 2014:*

 

 

 

*Fair Value Measurements*

 

 

*Level 1*

*Level 2*

*Level 3*

*Total Fair Value*

*Assets*

 

 

 

 

 

*Notes Receivable*

 

*$                -*

*$     163,788*

*$                -*

*$     163,788*

*Liabilities*

 

 

 

 

 

*Convertible Notes Payable*

 

*$                -*

*$     803,000*

*$                -*

*$     803,000*

 

InventoryInventories consist of merchandise held for sale in the ordinary course of business, including cost of freight  and  other  miscellaneous  acquisition  costs,  and  are  stated  at  the  lower  of  cost,  or  market determined on the first-in-first-out basis. The Company records a write-down for inventories, which have become obsolete or are in excess of anticipated demand or net realizable value. The Company performs a detailed review of inventory each period that considers multiple factors including demand forecasts, market conditions, product life cycle status, product development plans and current sales levels. If future demand or market conditions for the Company’s products are less favorable than forecasted or if unforeseen changes negatively affect the utility of the Company’s inventory, it may be required to record additional write-downs, which would negatively affect gross margins in the period when the write-downs are recorded. If actual market conditions are more favorable, the Company may have higher gross margins when products incorporating inventory that were previously written down are sold.

Property and equipmentThe Company records all property and equipment at cost less accumulated depreciation.  Improvements are capitalized while repairs and maintenance costs are expensed as incurred.  Depreciation is calculated using the straight-line method over the estimated useful life of the assets or the lease term, whichever is shorter. Leasehold improvements include the cost of the Company’s internal development and construction department. Depreciation periods are as follows:

Computer equipment   3 years

                         Furniture and fixtures  7 years

Revenue recognitionRevenue is recognized in accordance with Staff Accounting Bulletin (“SAB”) No. 101, “Revenue Recognition in Financial Statements,”as revised by SAB No. 104. As such, the Company recognizes revenue when persuasive evidence of an arrangement exists, title transfer has occurred, the price is fixed or readily determinable, and collectability is probable. Sales are recorded net of sales discounts.

The Company allows refunds for only incorrect items or a damaged or defective item within 15 days of receiving the product.  The Company does not honor warranties for damaged or defective items beyond 15 days of receiving the product.

Advertising and marketing costsThe Company expenses all costs of advertising and marketing costs as incurred.  Advertising and marketing costs totaled $7,975 and $335,689 for the three months ended June 30, 2014 and for the period of inception (April 22, 2013) to June 30, 2013, respectively.

F-6

 

**DEVELOPMENT CAPITAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(UNAUDITED)**

 

**NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)**

Loss per common shareNet loss per share is provided in accordance with ASC Subtopic 260-10. We present basic loss per share (“EPS”) and diluted EPS on the face of the statements of operations.  Basic EPS is computed by dividing reported losses by the weighted average shares outstanding.  Loss per common share has been computed using the weighted average number of common shares outstanding during the year.

New recent pronouncementsThe Company continually assesses any new accounting pronouncements to determine their applicability to the Company. Where it is determined that a new accounting pronouncement affects the Company’s financial reporting, the Company undertakes a study to determine the consequence of the change to its financial statements and assures that there are proper controls in place to ascertain that the Company’s financials properly reflect the change. There are no new accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the AICPA, and the SEC did not or are not believed by management to have a material impact on the Company's present or future financial statements.

**NOTE 2 – GOING CONCERN**

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the recoverability of assets and the satisfaction of liabilities in the normal course of business. Since its inception, the Company has been engaged substantially in financing activities and developing its business plan and marketing. As a result, the Company incurred accumulated net losses for the period of inception (April 22, 2013) to June 30, 2014 of $2,551,387. In addition, the Company’s development activities for the period of inception (April 22, 2013) to June 30, 2014 have been financially sustained through convertible debt financing and sales of common stock.

The ability of the Company to continue as a going concern is dependent upon its ability to raise additional capital from the sale of common stock or through debt financing and, ultimately, the achievement of significant operating revenues and cost control measures. These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classification of liabilities that might result from this uncertainty.

**NOTE 3 – NOTES RECEIVABLE**

On October 30, 2013, the Company loaned $20,000 to an entity as part of a convertible promissory note with a related party.  The entity is a limited liability company owned and controlled by the President of the Company.  The note bears interest at 5% per annum and is due the earlier of October 3, 2014 or on the next equity financing raise of at least $200,000.  The principal and accrued interest shall be converted at the Company’s option at 30% discount on the price per share of the next equity financing raise.

On December 19, 2013, the Company loaned $54,500 to an entity as part of a convertible promissory note.  The note bears interest at 10% per annum and is due the earlier of June 18, 2014 or upon merger or share exchange with a public entity.  The principal and accrued interest shall be converted into 250,000 shares of post-merger shares with a public entity.  During the three months ended June 30, 2014, the Company received repayment of $51,762 from the entity.

On December 30, 2013, the Company loaned $349,097 to an entity controlled by the CEO as part of a non-interest bearing promissory note.  The note balance at June 30, 2014 was $138,813.

During the three months ended June 30, 2014, the accrued interest income was $622.60.  As of June 30, 2014, the balance in accrued interest receivable was $2,562.

**NOTE 4 – INVENTORY**

 

The following is a summary of inventories:

 

 

 

June 30, 2014

Finished goods

 

$    120,444

 

**NOTE 5 – FIXED ASSETS**

 

The following is a summary of fixed assets:

 

 

 

June 30, 2014

Computer equipment

 

$        5,651

Less: accumulated depreciation

 

(1,280)

Fixed assets, net

 

$        4,371

 

Depreciation expense for the three months ended June 30, 2014 was $462.

**NOTE 6****–****CONVERTIBLE NOTES PAYABLE****–****LONG TERM**

On September 1, 2013, the Company executed an unsecured promissory note with a third party for $303,000.   The loan bears 12% interest and is due on September 1, 2015 with a balloon payment of principal and accrued interest.  The note is convertible into shares of the Company’s common stock at $0.1389 per share.  During the three months ended June 30, 2014, accrued interest expense was $8,965.

On December 12, 2013, the Company executed an unsecured promissory note with a third party for $200,000. The loan bears 12% interest and is due on December 12, 2015 with a balloon payment of principal and accrued interest.  The note is convertible into shares of the Company’s common stock at $0.1389 per share.  During the three months ended June 30, 2014, accrued interest expense was $5,918.

On February 1, 2014, the Company executed an unsecured promissory note with a third party for $300,000. The loan bears 12% interest and is due on February 1, 2016 with a balloon payment of principal and accrued interest. The note is convertible into shares of the Company’s common stock at $0.1389 per share.  During the three months ended June 30, 2014, accrued interest expense was $8,877.

**NOTE 7****–****LEASE OBLIGATIONS**

The Company leases its office space under an operating lease agreement that expires August 12, 2014. Future minimum lease payments for the upcoming year through lease expiration are approximately $20,200. 

**NOTE 8****–****RELATED PARTY TRANSACTIONS**

On August 1, 2013, the Company entered into a consulting agreement with an entity that is owned and controlled by the President of the Company which is effective until Mr. Ricard is removed as an officer of the Company. The monthly fee was $5,000. The payments were ceased in May 2014. 

On August 1, 2013, the Company entered into a consulting agreement with an entity that is a shareholder of the Company which is effective until either party provides 30 days’notice of termination.  The monthly fee was $4,500. The payments were ceased in May 2014.

As of June 30, 2014, the Company had notes receivable due a related party limited liability company controlled by the CEO and shareholder totaling $138,813.  The note receivable is due upon demand and bears no interest.

F-7

 

**DEVELOPMENT CAPITAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(UNAUDITED)**

 

**NOTE 8****–****RELATED PARTY TRANSACTIONS (CONTINUED)**

As of June 30, 2014, the Company had a notes receivable of $20,000 and accrued interest receivable of $660 due from a related party.  The related party is a limited liability company owned and controlled by the President of the Company.

**NOTE 9 – SUBSEQUENT EVENTS**

On July 17, 2014, the Company approved and adopted an incentive and non qualified Stock Option Plan of 2014 and reserved 20,000,000 shares for issuance under the plan. 

 

On July 29, 2014, the registrant Development Capital Group, Inc. (the “Company”) entered into a separation agreement with its president and director Joseph Ricard, along with his affiliated entities Plum Investors, LLC and Tunebash, Inc., whereby (i) Mr. Ricard resigned as a director and president of the Company, (ii) the consulting agreement with Plum Investors, LLC, dated August 1, 2013, for payment to Mr. Ricard as our president was terminated without liability to the Company, and any amounts owing to Mr. Ricard under the consulting agreement were waived, (iii) the convertible note held by the Company from Tunebash, Inc, was terminated without liability to Tunebash, Inc. and any amounts owed to the Company under such convertible note were waived, and (iv) the Compapy transferred all assets and intellectual property rights in connection with “Realty Valuator” to Mr. Ricard.

 

On July 29, 2014, the Company and Plum Investors, LLC terminated the consulting agreement between the parties dated August 1, 2013.

 

On July 25, 2014, Andrew Fleischer resigned as the Company’s Chief Financial Officer and member of the Company’s Board of Directors.

 

On July 29, 2014, Joseph Ricard, pursuant to the terms of the Settlement Agreement discussed above in Item 1, resigned as the Company’s President and member of the Company’s Board of Directors.

 

F-8
 

**Item 2.  Management****’s Discussion and Analysis of Financial Condition and Results of Operations**
**Forward-Looking Statements**

 

Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.   These forward-looking statements generally are identified by the words “believes,”“project,”“expects,”“anticipates,”“estimates,”“intends,”“strategy,”“plan,”“may,”“will,”“would,”“will be,”“will continue,”“will likely result,” and similar expressions.  We intend such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and are including this statement for purposes of complying with those safe-harbor provisions.  However, the safe harbors of forward-looking statements provided by Section 21E of the Securities Exchange Act of 1934 are unavailable to issuers of penny stock. Our shares may be considered penny stock and such safe harbors set forth under the Private Securities Litigation Reform Act of 1995 may not be available to us.  

Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. 

Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain.  Factors which could have a material adverse effect on our operations and future prospects on a consolidated basis include, but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.  We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.  Further information concerning our business, including additional factors that could materially affect our financial results, is included herein and in our other filings with the SEC.

**Overview**

We incorporated on September 27, 2010 under the laws of the state of Florida as Development Capital Group, Inc. (“Company”). For the years ended March 31, 2012 and 2011, we provided transportation and logistics services for a wide range of manufacturing, industrial and retail customers.  In February 2013, there was a change of control of the Company and we discontinued old operations and commenced business focusing on the development of RealtyValuator.com, a multi-platform application that supports real estate investors by sourcing available properties in the market and providing tools to easily evaluate and capitalize on prospective property investments. On March 31, 2014, we acquired Clearance.co to diversify our portfolio of operations. Clearance.co offers customers an opportunity to shop for bargains conveniently while creating an atmosphere that encourages customers to visit and purchase frequently by continually adding new, sometimes limited inventory to its Website.  

We identify and invest in early-stage technology companies that have the potential to disrupt traditional industries and transform markets.  With experience building successful businesses, we expect our team to help companies who either have undervalued assets or whose existing businesses require capital investment in order to achieve scale..

 

**Clearance.co**

Our wholly owned subsidiary, Clearance.co, a California corporation (“Clearance”), owns and operates the website Clearance.co. The website is an e-commerce website, which deals exclusively in discount, clearance and closeout merchandise offered exclusively to registered members.  Working directly with suppliers, or “fulfillment partners”, Clearance provides its registered users with a destination for closeout and clearance products, while giving our fulfillment partners a one-stop liquidation channel. Once users register on our website, they are then able to access our offered merchandise 24 hours a day, with the convenience of the use of a computer or internet-enabled devices.  Clearance.co is an online shopping experience that offers registered members not only savings on products, but also access to our responsive customer service team.  Nearly all of our sales are to customers located in the United States.  During the period ended March 31st 2014 no single customer accounted for more than 1% of our total net revenue. 

*Fulfillment Partners*

With our “Fulfillment partners”, we sell such merchandise and products through our website.  We are considered to be the primary obligor for the majority of these sales transactions and we record revenue from the majority of these sales transactions on a gross basis. Our use of the term “supplier”, "partner" or "fulfillment partner" does not mean that we have formed any legal partnerships with any of our fulfillment partners. We currently have relationships with approximately 15 third parties who supply approximately 500 products, as well as most of the nine groups of products, on our website. These third-party fulfillment partners, suppliers, perform such tasks as order picking and shipping; however, we handle returns and customer service related to substantially all orders placed through our website. 

Revenue generated from sales on our website from fulfillment partner businesses is recorded net of returns, coupons and other discounts.

*Products*

Our website shopping and product section is organized into 10 main tabs: For Super Clearance!, Women, Men, Home, Electronics, Kids, Outdoors, “Seasonal”, Jewelry and Pets.  We offer discount brand name and non brand name merchandise and sell these products through our internet website located at www.clearance.co.  We currently offer hundreds of products ranging from home décor, bedding, jewelry, watches, apparel, electronics, and sporting goods, among other products.  From time to time, as the number of products and product categories change, we may reorganize our departments and/or categories to better reflect our current product offerings. 

*Payment*

Generally, we require verification of receipt of payment, or authorization from credit card or other payment vendors whose services we offer to our users (such as PayPal), before we ship products to consumers or business purchasers. For sales in our fulfillment partner business, we generally receive payments from our customers before our payments to our suppliers are due. However, certain merchant account providers routinely hold back a percentage of our credit sales for periods ranging from 4-6 months to offset any potential returns or refunds initiated by customers. 

*E-Commerce and Technology*

Through e-commerce, we sell products at a significant discount than to those offered by traditional outlets.  More specifically, discount deals sites and flash sales sites have experience growth, due to a combination of factors, in particular, these e-commerce businesses have taken advantage of lower disposable incomes in conjunction with businesses trying to draw in customers.  Furthermore, the growing number of mobile internet connections has promoted a demand for discount deal websites.   

We use our internally developed e-commerce website and a combination of proprietary technologies and commercially available licensed technologies and solutions to support our operations. We use the services of multiple telecommunications companies to obtain connectivity to the Internet. Currently, our primary computer infrastructure is located in a dedicated facility in Dallas, Texas.  Also, at our hosting infrastructure we have computer infrastructure, which we use primarily for backups, development, and testing.

*Advantages to E-Commerce*

Our users take advantage of our e-commerce platform by making their purchases directly from their computer or device with internet access, and then have their products delivered directly to their specified address. Clearance’s keys to success via e-commerce include:

·

Driving traffic to an inviting and user-friendly homepage.

·

Building excellent vendor relationships to offer great products at attractive prices with responsive customer service.

·

Building excellent merchant account relationships.

·

Sourcing quality and unique products that offer great value to our registered users yielding high margins of profits.

·

Clearly listing products on the website with concise descriptions and pricing.

·

Configuring placement of products according to our planned strategy including loss leader, highest margin, and brand recognition concepts.

·

Highly encouraging membership registration in order to market back to our registered users via email to entice repeat customer business.

·

Creating an effective social media strategy to offer testimonials, coupons and contests across all relevant social media platforms.

·

Creating an effective marketing and search engine optimization strategy.

·

Consistently analyzing the competitive landscape.

·

Efficiently managing all logistics of the website to ensure prompt deliver, inventory control and return of merchandise.

·

Hiring a team of bright and motivated employees, and creating a successful company culture.

*Sales and Marketing*

We use a variety of methods for our sales and marketing to target our consumer audience, including online campaigns, such as advertising through portals, keywords, search engines, affiliate marketing programs, social coupon websites, banners, e-mail, direct mail and viral and social media campaigns. We generally hire third parties to develop our campaigns and advertising.  

*Seasonality*

Based upon our historical experience, revenue typically increases during our fiscal fourth quarter because of the holiday retail season and gross margin decreases due to increased sales of certain lower margin products, such as electronics. The actual quarterly results for each quarter could differ materially depending upon consumer preferences, availability of product and competition, among other risks and uncertainties. Accordingly, there can be no assurances that seasonal variations will not materially affect our results of operations in the future.

*Customers and Customer Service*

Customers are the lifeblood of every business, whether a company is selling B2C, B2B or B2B2C.   Market analysis is necessary to understand our customer segmentation and how relevant and closely the offered products on our website are aligned with market customers.  Our goal is to secure and price quality products so that our customers span across all market segments.

We are committed to providing superior customer service. Our customer service team with dedicated in-house and outsourced professionals respond to e-mail inquiries on products, ordering, shipping status, returns and other areas of customer inquiry through the website.

**RealtyValuator.com**

We operated our real estate website RealtyValuator.com through July 29, 2014, at which time we sold it to our prior officer and director Joseph Ricard.

 

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**Results of Operations for the Three Months Ended June 30, 2014**

Our primary focus is to continue the development and growth of Clearance.co. For the period ended June 30, 2014, we earned revenue from e-commerce retail sales under our new business model. Revenues in Q1 2014 increased 616% compared to Q1 2013.   The growth in revenue was primarily due the growth of Clearan.co’s order volume.  We have generated $339,463 in connection with our business operations for the three months ended June 30, 2014. 

Gross profit in Q1 2014 increased 828% compared to Q1 2013 primarily as a result of that revenue growth. 

Operating Expenses as a percentage of revenue decreased from 737% in Q1 2013 to 151% in Q1 2014, primarily due to increased revenue in proportion to marketing channel spending. 

We had operating expenses of $552,760 for the three months ended June 30, 2014. Our operating expenses for the period ended June 30, 2014 consisted primarily of advertising and marketing expenses, general and administrative expenses, staff salaries and wages, and selling expenses.  

We recorded a net loss of $439,170 from operations for the three months ended June 30, 2014 compared to a net loss of $334,755 from operations for the three months ended June 30, 2013. 

We anticipate our operating expenses will increase as we implement our business plan and continue to drive growth. The increase will be attributable to expenses to implement our business plan, and the professional fees to be incurred in connection with our ongoing filing requirements as a reporting company under the Securities Exchange Act of 1934.

**Liquidity and Capital Resources**

As of June 30, 2014, we had total current assets of $535,438 and current liabilities of $1,894,546.  Thus, we have a working capital deficit of $1,359,108 as of June 30, 2014.

 

Operating activities used $278,185 in cash for the three months ended June 30, 2014. Our net loss was the main reason for our negative operating cash flow offset mainly by a decrease in prepaid expenses, decrease in merchant reserve, increase in other assets and decrease in accounts payable.

As of June 30, 2014, we have insufficient cash to operate our business at the current level for the next twelve months and insufficient cash to achieve our business goals.  The success of our business plan beyond the next 12 months is contingent upon us obtaining additional financing. We intend to fund operations through debt and/or equity financing arrangements, which may be insufficient to fund our capital expenditures, working capital, or other cash requirements. We do not have any formal commitments or arrangements for the sales of stock or the advancement or loan of funds at this time. There can be no assurance that such additional financing will be available to us on acceptable terms, or at all.

 

5

 

**Off Balance Sheet Arrangements**

As of June 30, 2014, there were no off balance sheet arrangements. 

**Critical Accounting Policies**

In December 2001, the SEC requested that all registrants list their most “critical accounting polices” in the Management Discussion and Analysis. The SEC indicated that a “critical accounting policy” is one which is both important to the portrayal of a company’s financial condition and results, and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

Our critical accounting policies are set forth in Note 2 to the financial statements. 

**Recently Issued Accounting Pronouncements**

The Company does not expect the adoption of recently issued accounting pronouncements to have a significant impact on the Company’s results of operation, financial position or cash flow.

**Item 3. Quantitative and Qualitative Disclosures About Market Risk**

A smaller reporting company is not required to provide the information required by this Item.

 

**Item 4. Controls and Procedures**

**Disclosure Controls and Procedures**

As required by Rule 13a-15 under the Securities Exchange Act of 1934, we have carried out an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this annual report, being March 31, 2014. This evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer.

 

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in our company’s reports filed under the Securities Exchange Act of 1934 is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

 

Based upon that evaluation, including our Chief Executive Officer and Chief Financial Officer, we have concluded that our disclosure controls and procedures were ineffective as of the end of the period covered by this annual report

**Remediation Plan to Address the Material Weaknesses in Internal Control over Financial Reporting**

Our company plans to take steps to enhance and improve the design of our internal controls over financial reporting.  During the period covered by this quarterly report on Form 10-Q, we have not been able to remediate the material weaknesses identified above. To remediate such weaknesses, we plan to implement the following changes during our fiscal year ending March 31, 2015: (i) appoint additional qualified personnel to address inadequate segregation of duties and ineffective risk management; and (ii) adopt sufficient written policies and procedures for accounting and financial reporting. The remediation efforts set out are largely dependent upon our securing additional financing to cover the costs of implementing the changes required. If we are unsuccessful in securing such funds, remediation efforts may be adversely affected in a material manner. 

**Changes in Internal Control over Financial Reporting**

There were no changes in our internal control over financial reporting during the three months ended June 30, 2014 that have materially affected, or are reasonable likely to materially affect, our internal control over financial reporting.

 

6

 

**PART II****– OTHER INFORMATION**
**Item 1. Legal Proceedings**

We are not a party to any pending legal proceeding. We are not aware of any pending legal proceeding to which any of our officers, directors, or any beneficial holders of 5% or more of our voting securities are adverse to us or have a material interest adverse to us.

**Item 1A: Risk Factors**

A smaller reporting company is not required to provide the information required by this Item.

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

None.

**Item 3. Defaults upon Senior Securities**

None.

**Item 4. Mine Safety Disclosure**

This Item is not applicable.

**Item 5. Other Information**On August 13, 2014, the Company reduced the number of shares of common stock reserved for issuance pursuant to the DLPM Stock Option Plan of 2014 to 5,000,000.

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**Item 6. Exhibits**

**Exhibit Number**

**Description of Exhibit**

 
10.1Ammendment No.1 to DLPM Stock Option Plan of 2014
31.1

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1

Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101**

The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2013 formatted in Extensible Business Reporting Language (XBRL).

 

**Provided herewith, however, pursuant to Rule 406T of Regulation S-T, the interactive data files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

**SIGNATURES**

Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

**Development Capital Group, Inc.**
 

 

Date: August 18, 2014                                                                                                                         
By:  /s/ *Shahbod Rastegar*

Shahbod Rastegar

Title:****Chief Executive Officer

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