NOTES TO CONDENSED UNAUDITED FINANCIAL
STATEMENTS
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
This summary of accounting policies for
Mercari Communications Group, Ltd. (the “Company”) is presented to assist in understanding the Company’s financial
statements. The accounting policies conform to generally accepted accounting principles and have been consistently applied in the
preparation of the financial statements.
Interim Reporting
The unaudited financial statements as of
February 29, 2016 and for the nine months then ended reflect, in the opinion of management, all adjustments (which include only
normal recurring adjustments) necessary to fairly state the financial position and results of operations for the nine months. Operating
results for interim periods are not necessarily indicative of the results which can be expected for full years.
Nature of Operations and Going Concern
The accompanying financial statements have
been prepared on the basis of accounting principles applicable to a “going concern”, which assume that the Company
will continue in operation for at least one year and will be able to realize its assets and discharge its liabilities in the normal
course of operations.
Several conditions and events cast doubt
about the Company’s ability to continue as a “going concern.” The Company has incurred net losses of approximately
$274,481
from inception to February 29, 2016, has no revenues and requires additional financing
in order to finance its business activities on an ongoing basis. The Company’s future capital requirements will depend on
numerous factors including, but not limited to, continued progress in finding a merger candidate and the pursuit of business opportunities.
The Company is actively pursuing alternative financing and has had discussions with various third parties, although no firm commitments
have been obtained. In the interim, shareholders of the Company have been contributing capital to the Company to meet its ordinary
and normal operating expenses. Management believes that actions presently being taken to revise the Company’s operating and
financial requirements provide them with the opportunity to continue as a “going concern”.
These financial statements do not reflect
adjustments that would be necessary if the Company were unable to continue as a “going concern”. While management believes
that the actions already taken or planned, will mitigate the adverse conditions and events which raise doubt about the validity
of the “going concern” assumption used in preparing these financial statements, there can be no assurance that these
actions will be successful. If the Company were unable to continue as a “going concern,” then substantial adjustments
would be necessary to the carrying values of assets, the reported amounts of its liabilities, the reported revenues and expenses,
and the balance sheet classifications used.
MERCARI COMMUNICATIONS GROUP, LTD.
NOTES TO CONDENSED UNAUDITED FINANCIAL
STATEMENTS
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
Organization and Basis of Presentation
The Company was incorporated under the laws
of the State of Colorado on December 30, 1987. From 1988 until early in 1990, the Company was engaged in the business of providing
educational products, counseling, seminar programs, and publications such as newsletters to adults aged 30 to 50. The Company financed
its business with private offerings of securities, obtaining shareholder loans, and with an underwritten initial public offering
of securities registered with the Securities and Exchange Commission (“SEC”). The Company’s business failed in
early 1990. The Company ceased all operating activities during the period from June 1, 1990 to November 30, 2001 and was considered
dormant. During this period that the Company was dormant, it did not file required reports with the SEC under the Securities Exchange
Act of 1934, as amended (“Exchange Act”). From November 30, 2001 to March 1, 2004, the Company was in the
development stage. On August 3, 2004, the shareholders of the Company approved a plan of quasi-reorganization which called for
a restatement of accounts to eliminate the accumulated deficit and related capital accounts on the Company’s balance sheet.
The quasi-reorganization was effective March 1, 2004. Since March 1, 2004, the Company is in the development stage, and
has not commenced planned principal operations.
Nature of Business
The Company has no products or services
as of February 29, 2016. The Company is seeking merger or acquisition candidates. The Company intends to acquire interests in various
business opportunities, which in the opinion of management will provide a profit to the Company.
Cash and Cash Equivalents
For purposes of the statement of cash flows,
the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents
to the extent the funds are not being held for investment purposes.
Pervasiveness of Estimates
The preparation of financial statements
in conformity with generally accepted accounting principles required 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 revenues and expenses during the reporting period. Actual results could differ from those estimates.
Income Taxes
The Company accounts
for income taxes under the provisions of ASC 740-10 & 740-30 (formerly SFAS No.109, “Accounting for Income Taxes”).
ASC 740 requires recognition of deferred income tax assets and liabilities for the expected future income tax consequences, based
on enacted tax laws, of temporary differences between the financial reporting and tax bases of assets and liabilities.
Loss per Share
Basic loss per share has been computed by
dividing the loss for the period applicable to the common shareholders by the weighted average number of common shares during the
years. There are no outstanding common stock equivalents for February 29, 2016 and 2015 and are thus not considered.
MERCARI COMMUNICATIONS GROUP, LTD.
NOTES TO CONDENSED UNAUDITED FINANCIAL
STATEMENTS
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
Concentration of Credit Risk
The Company has no significant off-balance-sheet
concentrations of credit risk such as foreign exchange contracts, options contracts or other foreign hedging arrangements.
Fair Value of Financial Instruments
The carrying value
of cash and accrued expenses, if applicable, approximate their fair values based on the short-term maturity of these instruments.
The carrying amounts of debt were also estimated to approximate fair value.
The Company utilizes the methods of fair
value measurement as described in ASC 820 to value its financial assets and liabilities. As defined in ASC 820, fair value is based
on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants
at the measurement date. In order to increase consistency and comparability in fair value measurements, ASC 820 establishes a fair
value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels, which are
described below:
Level 1: Quoted prices (unadjusted) in
active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest
priority to Level 1 inputs.
Level 2: Observable prices that are based
on inputs not quoted on active markets, but corroborated by market data.
Level 3: Unobservable inputs are used when
little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.
New Accounting Pronouncements
In August 2014, the FASB issued Accounting
Standards Update “ASU” 2014-15 on “Presentation of Financial Statements Going Concern (Subtopic 205-40) –
Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern” (the “Update”). Currently,
there is no guidance in U.S. GAAP about management’s responsibility to evaluate whether there is substantial doubt about
an entity’s ability to continue as a going concern or to provide related footnote disclosures. The amendments in the Update
provide that guidance. In doing so, the amendments are intended to reduce diversity in the timing and content of footnote disclosures.
The amendments require management to assess an entity’s ability to continue as a going concern by incorporating and expanding
upon certain principles that are currently in U.S. auditing standards. Specifically, the amendments (1) provide a definition of
the term substantial doubt, (2) require an evaluation every reporting period including interim periods, (3) provide principles
for considering the mitigating effect of management’s plans, (4) require certain disclosures when substantial doubt is alleviated
as a result of consideration of management’s plans, (5) require an express statement and other disclosures when substantial
doubt is not alleviated, and (6) require an assessment for a period of one year after the date that the financial statements are
issued (or available to be issued).
The amendments in this Update are effective
for public and nonpublic entities for annual periods ending after December 15, 2016. Early adoption is permitted.
The Company has reviewed all other recently issued but not yet
effective accounting pronouncements and have determined that these new accounting pronouncements are either not applicable or would
not have a material impact on the results of operations or changes in the financial position.
MERCARI COMMUNICATIONS GROUP, LTD.
NOTES TO CONDENSED UNAUDITED FINANCIAL
STATEMENTS
NOTE 2 - COMMITMENTS
As of February 29, 2016 the office space, telephone and office
supplies consumed by the Company are provided by Algodon Wines & Luxury Development Group, Inc. or “AWLD”, the
majority shareholder of the Company at an annual cost of $12,000. Currently, $21,000 is owed by the Company for the
use of these facilities.
NOTE 3 - COMMON STOCK TRANSACTIONS
On August 3, 2004, the Company authorized
a 900 to 1 reverse stock split of the Company’s common stock. On May 29, 2008, the Company authorized a 3.5 to 1 reverse
stock split of the Company’s common stock. All references to the Company’s common stock in the financial statements
have been restated to reflect the reverse stock splits.
On December 17, 2001, the Board of
Directors approved the cancellation of 64,524 shares of common stock. During the year ended May 31, 2003, these shares were
cancelled.
On December 17, 2001, the Board of
Directors authorized the sale of 240,945 restricted common shares at par value to three directors of the Company. The directors
paid $7,590 in cash consideration for those shares. During the year ended May 31, 2003, these shares were issued.
On January 19, 2007, the Company issued
two promissory notes for $10,000 each to two nonaffiliated lenders. The notes were payable by the Company only at the time, and
in the event, the Company became current in reporting obligations under the Exchange Act, as amended. At the time when the notes
became payable, the Company agreed to issue and deliver to each of the two lenders 285,714 shares of the Company’s unregistered
common stock. On March 9, 2007, the Company issued 571,428 shares of stock as payment for the notes payable.
On June 18, 2007, the Company sold 142,857
shares of its common stock to Kanouff, LLC (“KLLC”), a Colorado limited liability company, for $5,000 in cash, and
sold 142,857 shares of its common stock to Underwood Family Partners, Ltd. (the “Partnership”), a Colorado limited
partnership, for $5,000 in cash. John P. Kanouff, a former officer and director of the Company, is the sole owner and member of
KLLC; and L. Michael Underwood, a former officer and director of the Company, is the general partner of the Partnership. The Company
sold such shares to KLLC and the Partnership in order to obtain working capital. The Registrant relied upon Section 4(2) of the
Securities Act of 1933 as providing the exemption from registration under such Act for such transactions.
MERCARI COMMUNICATIONS GROUP, LTD.
NOTES TO CONDENSED UNAUDITED FINANCIAL
STATEMENTS
NOTE 3 - COMMON STOCK TRANSACTIONS (continued)
On November 27, 2007, the Company sold
214,286 shares of its common stock to Kanouff, LLC for $7,500 in cash and sold 214,286 shares of its common stock to Underwood
Family Partners, Ltd. for $7,500 in cash. The Company sold such shares to KLLC and the Partnership in order to obtain working capital.
The Registrant relied upon Section 4(2) of the Securities Act of 1933 as providing the exemption from registration under such Act
for such transactions.
In connection with the 3.5 to 1 reverse
stock split approved on May 29, 2008, an additional 5,729 shares of common stock were issued due to rounding provisions included
in the terms of the reverse stock split. On June 4, 2008, the Company cancelled 5,729 of its outstanding shares of common stock.
These shares were surrendered for cancellation by the then majority shareholders of the Company in order to offset shares issued
by the Company in rounding up transactions in connection with the 3.5 to 1 reverse stock split approved on May 29, 2008.
On November 9, 2009, pursuant to the Stock
Purchase Agreement described under Note 5, Mercari offered and sold 43,822,001 shares of its common stock to AWLD. The offer and
sale by the Company of the common stock to AWLD was exempt from registration under the Securities Act of 1933, as amended (the
"Securities Act"), pursuant to Section 4(2) thereof. The Company made this determination based on the representations
of AWLD which included, in pertinent part, that AWLD was an "accredited investor" within the meaning of Rule 501 of Regulation
D promulgated under the Securities Act, that AWLD was acquiring the common stock for investment purposes for its own account and
not as nominee or agent, and not with a view to the resale or distribution thereof, and that AWLD understood that the common stock
may not be sold or otherwise disposed of without registration under the Securities Act or an applicable exemption therefrom.
NOTE 4 - RELATED PARTY TRANSACTIONS
There are no current related party transactions
other than discussed in the Company’s annual report on Form 10-K for the year ended May 31, 2015 and other previous filings
as filed with the SEC.
For the nine months ended February 29,
2016, the Company received additional shareholder advances totaling $39,987 from AWLD, the Company’s parent, bringing the
total advance balance to $113,987. This total advance carries no interest and is intended to be converted to equity in the future.
MERCARI COMMUNICATIONS GROUP, LTD.
NOTES TO CONDENSED UNAUDITED FINANCIAL
STATEMENTS
NOTE 5 - STOCK PURCHASE AGREEMENT
On November 9, 2009, we entered into and
closed the Stock Purchase Agreement with AWLD, KLLC, and the Partnership. Immediately prior to closing, KLLC and the Partnership
were the majority shareholders of the Company, and the Stock Purchase resulted in a change in control of the Company. AWLD is headquartered
in New York, NY, and is a virtually integrated company that creates, develops, markets, sells and manages private equity investment
opportunities, formerly in the biotechnology industry and currently in non-leveraged global real estate assets located in Argentina.
In connection with the Stock Purchase, AWLD purchased, and the Company sold, an aggregate of 43,822,001 shares of common stock
for a purchase price of $43,822, or $0.001 per share. In addition, AWLD purchased 200 shares of common stock from KLLC and 200
shares of common stock from the Partnership for a purchase price of $180,000 payable to each selling shareholder, of which $105,000
was paid at closing and $75,000 was previously paid in connection with a letter of intent and related amendments. Immediately following
the closing of the Stock Purchase Agreement, there were 45,411,400 shares of common stock issued and outstanding. Immediately following
the closing of the Stock Purchase Agreement, AWLD owned an aggregate of 43,822,401 shares of the Company’s common stock out
of the total of 45,411,400 shares of common stock issued and outstanding at the closing, or approximately 96.5% of the Company’s
issued and outstanding shares.
The Stock Purchase Agreement contained post-closing
covenants whereby Mercari and AWLD agreed to utilize their commercially reasonable efforts to cause Mercari to (i) remain a Section
12(g) reporting company in compliance with and current in its reporting requirements under the Exchange Act; and (ii) cause all
of the assets and business or equity interest of AWLD, its subsidiaries and affiliated companies to be transferred to Mercari and,
in connection with such transactions, cause Mercari’s stock to be distributed by AWLD to AWLD’s stockholders and the
holders of equity interests in the affiliated companies (“Reorganization Transaction”). In connection with and contemporaneously
with the Reorganization Transaction, it is anticipated that Mercari and/or AWLD will seek to obtain at least $10 million in gross
proceeds from a financing (the “Financing”). If the gross proceeds from the Financing exceed $15 million at the time
of the last closing of such financing, Mercari will issue additional shares of common stock to AWLD at a purchase price of $.001
per share as follows: (i) 18,164,560 additional shares if the amount of the Financing is at least $15 million and less than $20
million; or (ii) 34,058,550 additional shares if the amount of the Financing is $20 million or more. After consummation of the
Financing, Mercari will seek to register for resale all of the shares issued in the Financing and shares of common stock issued
by Mercari from and after December 1, 2001 and prior to the date of the Stock Purchase Agreement. Mercari will use its commercially
reasonable efforts to file the registration statement within 60 days after consummation of the Reorganization Transaction (“Filing
Date”) and to have the registration statement become effective within 180 days after the Filing Date. If the SEC requires
Mercari to reduce the number of shares included under such registration statement, any such reduction will first be made from the
shares issued in the Financing. The post-closing obligations of AWLD and Mercari discussed herein are contingent upon AWLD’s
good faith determination that, after taking commercially reasonable efforts, the transactions are feasible. Such determination
shall take into account all relevant material factors, including without limitation, then-current economic, financial and market
conditions.
Upon closing of the Stock Purchase Agreement,
Mercari experienced a change in control and a change in all the members of the Board of Directors and executive officers.
NOTE 6 - SUBSEQUENT EVENTS
The
Company adopted ASC 855, and has evaluated all events occurring after February 29, 2016, the date of the most recent balance sheet,
for possible adjustment to the financial statements or disclosures through April 14, 2016, which is the date on which the financial
statements were issued.
MERCARI COMMUNICATIONS GROUP, LTD.
NOTES TO CONDENSED UNAUDITED FINANCIAL
STATEMENTS
