UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.20549

 

Form 10-K/A

 

Amendment No. 1

 

[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended: May 31, 2016

 

[  ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ________ to ________

 

Commission file number: 0-17284

 

Mercari Communications Group, Ltd.

(Exact name of registrant in its charter)

 

Colorado   84-1085935
(State or other jurisdiction of   (I.R.S. employer
incorporation or organization)   identification number)

 

135 Fifth Ave., 10th Floor, New York, NY   10010
(Address of principal executive offices)   (Zip code)

 

Registrant’s telephone number, including area code: (212) 739-7689

 

Securities registered pursuant to section 12(b) of the Act: None

 

Securities registered pursuant to section 12(g) of the Act:

Common stock, $0.00001 Par Value
(Title of Class)

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [  ] No [X]

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [  ] No [X]

 

Indicate by check mark whether the registrant (1) 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 at least the past 90 days.

Yes   [X]   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   [  ]

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10- K.

[  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer [  ]     Accelerated filer [  ]
Non-accelerated filer [  ] (Do not check if a smaller reporting company)   Smaller reporting company [X]

 

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

Yes [X] No [  ]

 

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter.

 

The aggregate market value of voting and nonvoting common equity held by non-affiliates computed with reference to the last price at which the common equity was sold, or the average bid and asked price of such common equity: As of May 31, 2016 cannot be accurately calculated because there is a very limited trading market with little to no volume.

 

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date:

 

As of August 29, 2016, there were 45,411,400 shares of the registrant’s common stock outstanding. No other class of equity securities is issued or outstanding.

 

Documents incorporated by reference: None

 

 

 

     
 

 

Explanatory Note

 

This Amendment No. 1 to Form 10-K (the “Amended Filing”) amends the Annual Report on Form 10-K for the fiscal year ended May 31, 2016 originally filed on August 29, 2016 (the “Original Filing”) by Mercari Communications Group, Ltd. (the “Company”). On September 1, 2016, the Company’s former independent registered public accounting firm, Liggett, & Webb P.A. (“Liggett”) advised the Company that it had not consented to the Company’s filing of its Report of Independent Registered Public Accounting Firm with respect to the financial statements dated May 31, 2015 and for the period then ended (the “2015 Auditors’ Report”). Therefore, the Company deemed the Original Filing to be non-compliant pursuant to SEC Rules and Regulations. As a result, the financial statements and the Auditors’ Report included therein should not be relied upon.

 

On September 9, 2016, Liggett authorized the issuance of their 2015 Auditors’ Report. The Company’s current independent registered public accountants (Katz Bloom & Schon CPAs, LLC) authorized their report with respect to the Company’s financial statements dated May 31, 2016 and for the period then ended on September 13, 2016. The Company has paid the reissuance fee to Liggett in the amount of $5,000 to compensate Liggett for the work it performed in completing the 2015 Auditors’ Report.

 

The differences between the Original Filing and the Amended Filing are the following: 1) change from “Liggett, Vogt & Webb P.A.” to “Liggett & Webb P.A.” in Item 9 and in the 2015 Auditors’ Report; 2) change of date from August 29, 2016 to August 27, 2015 in the 2015 Auditors’ Report; 3) change of date from August 29, 2016 to September 13, 2016 in Katz Bloom & Schon CPAs, LLC’s audit report; 4) change of date from August 29, 2016 to September 13, 2016 on the signature page to Amended Filing; and 5) the addition of the letter from Liggett dated September 1, 2016 in the list of exhibits in Item 15.

 

Other than stated herein, there are no differences between the Original Filing and the Amended Filing.

 

     
 

 

Mercari Communications Group, Ltd.

Form 10-K Annual Report

 

TABLE OF CONTENTS

 

    Page
  PART I  
Item 1. Business 5
     
Item 1A. Risk Factors 7
     
Item 1B. Unresolved Staff Comments 7
     
Item 2. Properties 7
     
Item 3. Legal Proceedings 7
     
Item 4. Mine Safety Disclosures 7
     
  PART II  
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities 7
     
Item 6. Selected Financial Data 8
     
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 8
     
Item 7A. Quantitative and Qualitative Disclosure About Market Risk 9
     
Item 8. Financial Statements and Supplementary Data 10
     
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 23
     
Item 9A. Controls and Procedures 24
     
Item 9B. Other Information 25
     
  PART III  
Item 10. Directors, Executive Officers and Corporate Governance 26
     
Item 11. Executive Compensation 29
     
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 29
     
Item 13. Certain Relationships, Related Transactions and Director Independence 30
     
Item 14. Principal Accountant Fees and Services 31
     
  PART IV  
Item 15. Exhibits and Financial Statements Schedules 32
     
  SIGNATURES 33

 

3  
 

 

INTRODUCTORY NOTE

 

This Annual Report on Form 10-K contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 about Mercari Communications Group, Ltd. (the “Company,” “Mercari,” “we,” “us,” and “our”) that are subject to risks and uncertainties. Forward-looking statements include information concerning future financial performance, business strategy, projected plans and objectives. Statements preceded by, followed by or that otherwise include the words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “may increase,” “may fluctuate” and similar expressions of future or conditional verbs such as “will,” “should,” “would,” and “could” are generally forward-looking in nature and not historical facts. Actual results may differ materially from those projected, implied, anticipated or expected in the forward-looking statements. Readers of this quarterly report should not rely solely on the forward-looking statements and should consider all uncertainties and risks throughout this report. The statements are representative only as of the date they are made. The Company undertakes no obligation to update any forward-looking statement.

 

These forward-looking statements, implicitly and explicitly, include the assumptions underlying the statements and other information with respect to the Company’s beliefs, plans, objectives, goals, expectations, anticipations, estimates, financial condition, results of operations, future performance and business, including management’s expectations and estimates with respect to revenues, expenses, return on equity, return on assets, asset quality and other financial data.

 

Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, these statements involve risks and uncertainties that are subject to change based on various important factors, some of which are beyond the control of the Company. The following factors, among others, could cause the Company’s results or financial performance to differ materially from its goals, plans, objectives, intentions, expectations and other forward-looking statements:

 

  ● general economic and industry conditions;
     
  ● limited resources and need for additional financing;
     
  ● competition for suitable private companies with which to merge;
     
  ● no definitive agreements or business opportunities identified;
     
  ● substantial dilution to current shareholders if a merger occurs; and
     
  ● our stock is thinly traded with limited liquidity.

 

For a discussion of these and other risks and uncertainties that could cause actual results to differ from those contained in the forward-looking statements, see “Risk Factors” in Item 1A of this Annual Report on Form 10-K. All forward-looking statements are qualified in their entirety by this cautionary statement, and the Company undertakes no obligation to revise or update this Annual Report on Form 10-K to reflect events or circumstances after the date hereof. New factors emerge from time to time, and it is not possible for us to predict which factors, if any, will arise. In addition, the Company cannot assess the impact of each factor on the Company’s business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

 

4  
 

 

PART I

 

ITEM 1. BUSINESS

 

In this annual report on Form 10-K we use the terms “Company,” “we,” “us,” and “our” to refer to Mercari Communications Group, Ltd. We refer to our $.00001 par value common stock as our common stock.

 

Except for historical information, the following description of our business may contain forward-looking statements, which involve risks and uncertainties. Our actual results could differ materially from those set forth in these forward-looking statements as a result of a number of factors, including those set forth under Item 1A. Risk Factors in this report.

 

Company History

 

The registrant was incorporated under the laws of the State of Colorado on December 30, 1987. From 1987 until early in 1990, the registrant was engaged in the business of providing educational products, counseling, seminar programs, and publications such as newsletters to adults aged 30 to 50. The registrant 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 registrant registered its common stock with the SEC under the Securities Exchange Act of 1934 (“Exchange Act”) during 1988. The registrant’s business failed in early 1990. The registrant ceased all operating activities during the period from June 1, 1990 to August 31, 2001 and was considered dormant. During this period that the registrant was dormant, the registrant did not file required reports with the SEC under the Exchange Act.

 

During 2001, the registrant was reactivated with a business plan of filing all delinquent documents with the Colorado Secretary of State, the SEC, and federal and state tax authorities; and sought to merge with another company which had assets and an active business. The registrant has filed all of such delinquent documents with the Colorado Secretary of State and the federal and state tax authorities, and all reports required under the Exchange Act since 2002 and is now current in reporting obligations under the Exchange Act.

 

During August of 2004, the registrant’s shareholders approved a plan of quasi-reorganization pursuant to which accounts were restated to eliminate the accumulated deficit and related capital accounts on the registrant’s balance sheet. This quasi-reorganization was effective on March 1, 2004. On August 3, 2004, the registrant effected a 900-for-1 reverse stock split; and on June 2, 2009, the registrant effected a 3.5-for-1 reverse stock split. All references to the registrant’s common stock in this Form have been restated to reflect these reverse stock splits.

 

On November 9, 2009, we entered into a Stock Purchase Agreement (the “Stock Purchase Agreement”) with Algodon Wines & Luxury Development Group, Inc. or “AWLD” (formerly Diversified Private Equity Corporation or “DPEC”), a privately-held Delaware corporation, and Kanouff, LLC (“KLLC”) and Underwood Family Partners, Ltd. (the “Partnership”), of which KLLC and the Partnership were the majority shareholders of the Company (the “Stock Purchase”). 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 had previously been paid in connection with a letter of intent and related amendments.

 

As of August 29, 2016, there were 45,411,400 shares of the registrant’s common stock outstanding.

 

Business

 

During each of the years since the registrant was reactivated, the registrant has had no revenue and has had losses approximately equal to the expenditures required to reactivate and comply with filing and reporting obligations. The registrant does not expect any revenue unless and until a business acquisition transaction is completed. Expenditures have been paid by the registrant from capital contributions and loans made to the registrant by entities controlled by the registrant’s directors.

 

5  
 

 

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”).

 

AWLD’s Board of Directors determined that a Reorganization Transaction was no longer commercially reasonable, taking into account all relevant material factors, including without limitation, current economic, financial and market conditions.

 

On April 2, 2014, Tim F. Holderbaum submitted his resignation as Secretary and Treasurer of the Company to be effective on May 19, 2014. On April 2, 2014, the Company accepted Mr. Holderbaum’s resignation as Secretary and Treasurer. On April 16, 2014, the Board of Directors of the Company appointed Mark G. Downey as Secretary and Treasurer of the Company, to be effective May 19, 2014.

 

On April 11, 2015, Mark G. Downey was terminated as Chief Financial Officer, Secretary and Treasurer of Company effective immediately. Mr. Downey’s termination was primarily based on the Company’s effort to reduce expenses and reconfigure staff, and not as the result of any disagreement with the Company practices or policies. On April 13, 2015, the Board of Directors of the Company appointed Maria Echevarria as Chief Financial Officer, Secretary and Treasurer of the Company, effective immediately.

 

Business

 

During each of the years since the registrant was reactivated, the registrant has had no revenue and has had losses approximately equal to the expenditures required to reactivate and comply with filing and reporting obligations. The registrant does not expect any revenue unless and until a business acquisition transaction is completed. Expenditures have been paid by the registrant from capital contributions and loans made to the registrant by entities controlled by the registrant’s directors.

 

Employees

 

We currently have no employees.

 

How to obtain our SEC Filings

 

The registrant files annual, quarterly, and special reports, and other information with the Securities and Exchange Commission (“SEC”). These reports and other information can be inspected and copied at the public reference facilities of the SEC at 100 F Street N.E., Washington, D.C.20549. Such materials may also be accessed electronically by means of the SEC’s website at www.sec.gov.

 

6  
 

 

ITEM 1A. RISK FACTORS

 

As a smaller reporting company, the registrant is not required to provide information for this item.

 

ITEM 1B. UNRESOLVED STAFF COMMENTS

 

None.

 

ITEM 2. PROPERTIES

 

The principal executive offices of the registrant are currently located at 135 Fifth Avenue, 10 th Floor, New York, NY, 10010.The registrant is receiving the use of this shared office space from AWLD without cost. Registrant currently has no policy with respect to investments or interests in real estate, real estate mortgages or securities of, or interests in, persons primarily engaged in real estate matters.

 

ITEM 3. LEGAL PROCEEDINGS

 

We know of no material, existing or pending legal proceedings against us, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial shareholder of more than 5% of our issued and outstanding common stock, or associates of such persons, is an adverse party or has a material interest adverse to us.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

N/A

 

PART II

 

ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED

STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES

 

Market Information

 

No public market for the common stock of the registrant existed until February 29, 2008 when the registrant’s common stock was cleared for trading on the OTC Bulletin Board and the Pink Sheets. The current trading symbol for the registrant’s common stock is “MCAR”. There exists only a very limited trading market for the registrant’s common stock on the Pink Sheets tier of the OTC Markets (www.otcmarkets.com) with limited or no volume. The quotations are inter-dealer prices without retail markups, markdowns or commissions, and may not necessarily represent actual transactions.

 

Year ended May 31, 2016   Low     High  
First Quarter   $ 0.10     $ 0.10  
Second Quarter     0.06       0.15  
Third Quarter     0.07       0.15  
Fourth Quarter     0.07       0.25  

 

Year ended May 31, 2015   Low     High  
First Quarter   $ 0.15     $ 0.18  
Second Quarter     0.18       0.18  
Third Quarter     0.18       0.18  
Fourth Quarter     0.10       0.18  

 

7  
 

 

Holders

 

As of August 29, 2016, there were 45,411,400 shares of common stock issued and outstanding held by approximately 63 shareholders of record on that date. There are no shares of preferred stock outstanding.

 

Dividends

 

The registrant has not declared or paid any dividends on the common stock from inception to the date of this report. There are no restrictions on the payment of dividends. No dividends are contemplated at any time in the foreseeable future.

 

Securities Authorized for Issuance Under Equity Compensation Plans

 

There are no securities of the registrant authorized or committed for issuance under any equity or other compensation plan.

 

Recent Sales of Unregistered Securities

 

During the year ended May 31, 2016, we did not have any sales of securities in transactions that were not registered under the Securities Act of 1933, as amended, that have not been previously reported in a Form 8-K or Form 10-Q.

 

Issuer Purchases of Equity Securities

 

None.

 

ITEM 6. SELECTED FINANCIAL DATA

 

As a smaller reporting company, the registrant is not required to provide information for this item.

 

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

 

The following should be reviewed in connection with the financial statements and management’s comments thereon set forth under this Item and Item 8 of this Report.

 

Plan of Operations

 

The registrant has had no operations since 1990. The registrant intends to acquire a privately-owned business with the intent that the Company becomes a publicly owned business. The registrant is current in its state and federal corporate and tax filing obligations, and is current in its reporting obligations under the Exchange Act. The registrant is now actively seeking acquisition candidates. On November 9, 2009, the registrant entered into a Stock Purchase Agreement with AWLD, Kanouff, LLC, and Underwood Family Partners, Ltd. as more fully described in Item 1 of this report.

 

During each of the years since the registrant was reactivated in 2001, the registrant has had no revenue and has had losses approximately equal to the expenditures made to reactivate and meet required filing and reporting obligations. We do not expect any revenue unless and until a business acquisition transaction is completed. Our expenses have been paid from capital contributions and past loans from affiliates or from the directors of the registrant. Total shareholder advances from our parent company, AWLD, totaled $125,987 and $74,000 for the year ended May 31, 2016 and 2015, respectively.

 

8  
 

 

Liquidity and Capital Resources

 

The registrant requires working capital principally to fund its current operations which consist of filing required documents with federal and state regulatory authorities to maintain registrant’s status as in compliance with applicable requirements, and seeking a merger or acquisition candidate. There are no commitments from banks or other lending sources, including from officers and directors, for lines of credit or similar short-term borrowing; but the registrant has in the past been able to obtain additional capital required from affiliates of the directors of the registrant.

 

In order to complete any acquisition, the registrant may be required to supplement its available cash and other liquid assets with proceeds from borrowings, the sale of additional securities, including the private placement of restricted stock and/or a public offering, or other sources. There can be no assurance that any such required additional funding will be available or favorable to the registrant.

 

The registrant’s business plan may require substantial funding from a public or private offering of its common stock in connection with a business acquisition, for which the registrant has no commitments. The registrant may actively pursue other financing or funding opportunities at such time as a business acquisition opportunity becomes available.

 

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

 

As a smaller reporting company, the registrant is not required to provide information for this item.

 

9  
 

 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

MERCARI COMMUNICATIONS GROUP, LTD.

 

-:-

 

MAY 31, 2016 AND 2015

 

CONTENTS
     
    Page
     
Independent Registered Public Accountants Reports   11, 12
     
Balance Sheets May 31, 2016 and 2015   13
     
Statements of Operations For the Years Ended May 31, 2016 and 2015   14
     
Statement of Stockholders’ Deficit for the Years ended May 31, 2016 and 2015   15
     
Statements of Cash Flows For the Years Ended May 31, 2016 and 2015   16
     
Notes to Financial Statements   17-22

 

10  
 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Shareholders

Mercari Communications Group, Ltd.

 

We have audited the accompanying balance sheet of Mercari Communications Group, Ltd. as of May 31, 2016 and the related statements of operations, shareholders’ deficit, and cash flows for the year ended May 31, 2016. Our responsibility is to express an opinion on these financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Mercari Communications Group, Ltd. as May 31, 2016, and the results of its operations and its cash flows for the year ended May 31, 2016, in conformity with accounting principles generally accepted in the United States of America.

 

The accompanying financial statements have been prepared assuming that Mercari Communications Group, Ltd. will continue as a going concern. As more fully described in Note 1, the Company has a working capital deficit as of May 31, 2016. This condition raises substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to this matter are also described in Note 1. The financial statements do not include any adjustments that may result from the outcome of this uncertainty.

 

Katz Bloom & Schon CPAs, LLC

Jericho, New York

September 13, 2016

 

11  
 

 

 

Report of Independent Registered Public Accounting Firm

 

Board of Directors and Stockholders

Mercari Communications Group, Ltd.

 

We have audited the accompanying balance sheet of Mercari Communications Group, Ltd. as of May 31, 2015 and the related statements of operations, stockholders’ deficit, and cash flows for the year ended May 31, 2015. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

 

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of May 31, 2015, and the results of its operations and cash flows for the year ended May 31, 2015 in conformity with generally accepted accounting principles in the United States.

 

The accompanying financial statements have been prepared assuming the Mercari Communications Group, Ltd. will continue as a going concern. As more fully described in Note 1, the Company has a working capital deficit as of May 31, 2015. This condition raises substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to this matter are also described in Note 1. The financial statements do not include any adjustments to reflect the possible effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainity.

 

 
   
  Certified Public Accountants

 

New York, New York

August 27, 2015

 

12  
 

 

MERCARI COMMUNICATIONS GROUP, LTD.

BALANCE SHEETS

 

    May 31, 2016     May 31, 2015  
Current Assets                
Cash   $ 1,765     $ 1,099  
Total Assets   $ 1,765     $ 1,099  
                 
Current Liabilities                
Accounts Payable & Accrued Liabilities   $ 2,373     $ 1,917  
Shareholder Advances     125,987       74,000  
Total Liabilities     128,360       75,917  
                 
Shareholders’ Deficit                
Common Stock, Par value $.00001;
Authorized 950,000,000 shares, Issued 45,411,400 shares at May 31, 2016 and 2015 		    454       454  
Paid-In Capital     158,722       158,722  
Accumulated Shareholder Deficit     (285,771 )     (233,994 )
Total Shareholders’ Deficit     (126,595 )     (74,818 )
                 
Total Liabilities and Shareholders’ Deficit   $ 1,765     $ 1,099  

 

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

 

13  
 

 

MERCARI COMMUNICATIONS GROUP, LTD.

STATEMENTS OF OPERATIONS

 

    For the years ended May 31,  
    2016     2015  
Revenues:   $ -     $ -  
Expenses:                
General and administrative     51,777       27,045  
      -       -  
Net (Loss)   $ (51,777 )   $ (27,045 )
Basic & Diluted Loss Per Share     (0.0011 )     (0.0006 )
Weighted Average Shares     45,411,400       45,411,400  

 

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

 

14  
 

 

MERCARI COMMUNICATIONS GROUP, LTD.

STATEMENT OF STOCKHOLDERS’ DEFICIT

 

FOR THE YEARS ENDED MAY 31, 2016 AND MAY 31, 2015

 

                      Deficit Accumulated Since Inception of Development Stage        
                      Since
March 1, 2004 		    Total  
    Common Stock     Paid -In     (Since quasi     Stockholders’  
    Shares     Par Value     Capital     reorganization)     Deficit  
       Common Stock        Paid -In        Acummulated      

Total Stockholders’

 
       Shares        Par Value        Capital        Deficit        Deficit  
Balance at May 31, 2014     45,411,400     $ 454     $ 158,722     $ (206,949 )   $ (47,773 )
Net loss     -       -       -       (27,045 )     (27,045 )
Balance at May 31, 2015     45,411,400       454       158,722       (233,994 )     (74,818 )
Net loss     -       -       -       (51,777 )     (51,777 )
Balance at May 31, 2016     45,411,400     $ 454     $ 158,722     $ (285,771 )   $ (126,595 )

 

The accompanying notes are an integral part of these financial statements

 

15  
 

 

MERCARI COMMUNICATIONS GROUP, LTD.

STATEMENTS OF CASH FLOWS

 

    For the years ended May 31,  
    2016     2015  
 CASH FLOWS FROM OPERATING ACTIVITIES:                
Net Loss   $ (51,777 )   $ (27,045 )
Increase (Decrease) in Accounts Payable     456       (2,207 )
Decrease in Prepaid Expense     -       1,348  
                 
Net Cash Used in operating activities     (51,321 )     (27,904 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES:                
Net cash provided by investing activities     -       -  
                 
CASH FLOWS FROM FINANCING ACTIVITIES:                
Proceeds from shareholder advance     51,987       27,500  
Net Cash Provided by financing activities     51,987       27,500  
                 
Net Increase ( Decrease) in Cash     666       (404 )
Cash, Beginning of Period     1,099       1,503  
Cash, End of Period   $ 1,765     $ 1,099  
                 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:                
Cash paid during the year for:                
Interest   $ -     $ -  
Franchise and income taxes   $ -     $ -  

 

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

 

16  
 

 

MERCARI COMMUNICATIONS GROUP, LTD.

NOTES TO 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.

 

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 $285,771 from inception to May 31, 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.

 

17  
 

 

MERCARI COMMUNICATIONS GROUP, LTD.

NOTES TO FINANCIAL STATEMENTS

(continued)

 

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 stockholders 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 has been in the development stage and has not commenced planned principal operations.

 

Nature of Business

 

The Company has no products or services as of May 31, 2016. The Company was organized as a vehicle to seek 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 year applicable to the common shareholders by the weighted average number of common shares during the years. There are no outstanding common stock equivalents for May 31, 2016 and 2015 and are thus not considered.

 

18  
 

 

MERCARI COMMUNICATIONS GROUP, LTD.

NOTES TO FINANCIAL STATEMENTS

(continued)

 

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 the 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.

 

19  
 

 

MERCARI COMMUNICATIONS GROUP, LTD.

NOTES TO FINANCIAL STATEMENTS

(continued)

 

NOTE 2 - INCOME TAXES

 

As of May 31, 2016, the Company had a net operating loss carry-forward for income tax reporting purposes of approximately $284,000 that may be offset against future taxable income through 2035. Current tax laws limit the amount of loss available to be offset against future taxable income when a substantial change in ownership occurs. Therefore, the amount available to offset future taxable income may be limited. No tax benefit has been reported in the financial statements, because the Company believes there is a 50% or greater chance the carry-forwards will expire unused. Accordingly, the potential tax benefits of the loss carry-forwards are offset by a valuation allowance of the same amount.

 

    For the years ended  
    2016     2015  
Net Operating Losses   $ 95,000     $ 40,015  
Change in Prior Year Estimates             39,049  
Valuation Allowance     (95,000 )     (79,064 )
    $ -     $ -  

 

The provision for income taxes differ from the amount computed using the federal US statutory income tax rate as follows:

 

    2016     2015  
Provision (Benefit) at US Statutory Rate   $ (15,936 )   $ (3,000 )
Increase (Decrease) in Valuation Allowance     15,936       3,000  
    $ -     $ -  

 

The Company evaluates its valuation allowance requirements based on projected future operations. When circumstances change and cause a change in management’s judgment about the recoverability of deferred tax assets, the impact of the change on the valuation is reflected in current income.

 

Years 2015, 2014 and 2013 remain open for tax examinations, although the company has not been notified of any such examinations.

 

20  
 

 

MERCARI COMMUNICATIONS GROUP, LTD.

NOTES TO FINANCIAL STATEMENTS

(continued)

 

NOTE 3 – COMMITMENTS AND CONTINGENCIES

 

During the year the company recorded $12,000 for the value of services, shared office space and management oversight incurred by the majority shareholder, Algodon Wines & Luxury Development Group, Inc. or “AWLD” (formerly Diversified Private Equity Corporation (“or “DPEC”)”; see Note 4 and 5).

 

NOTE 4 - RELATED PARTY TRANSACTIONS

 

There are no current related party transactions other than discussed in the Company’s other previous filings as filed with the SEC.

 

From December 14, 2011 to May 31, 2016, the Company received multiple shareholder advances for a total of $125,987 and $74,000 at May 31, 2016 and 2015 respectively from AWLD, the Company’s parent. This total advance carries no interest and is intended to be converted to equity in the future.

 

Included in the $125,987 shareholder advances during the year is $12,000 for the value of the services, shared office and space and management oversight incurred by the majority shareholder.

 

NOTE 5 – STOCK PURCHASE AGREEMENT

 

On November 9, 2009, we entered into and closed a Stock Purchase Agreement with Algodon Wines & Luxury Development Group, Inc. (formerly Diversified Private Equity Corporation), a privately-held Delaware corporation, and Kanouff, LLC and Underwood Family Partners, Ltd., the two entities which, immediately prior to closing, were the majority shareholders of the Company and which are controlled by the officers and directors of the Company, which resulted in a change in control of the Company (the “Stock Purchase”). 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.

 

21  
 

 

MERCARI COMMUNICATIONS GROUP, LTD.

NOTES TO FINANCIAL STATEMENTS

(continued)

 

NOTE 5 – STOCK PURCHASE AGREEMENT (Continued)

 

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”).

 

AWLD’s Board of Directors determined that a Reorganization Transaction was no longer commercially reasonable, taking into account all relevant material factors, including without limitation, current economic, financial and market conditions.

 

NOTE 6 – SUBSEQUENT EVENTS

 

The Company adopted ASC 855, and has evaluated all events occurring after May 31, 2016, the date of the most recent balance sheet, for possible adjustment to the financial statements or disclosures through August 29, 2016, which is the date on which the financial statements were issued. The Company has concluded that there are no significant or material transactions to be reported for the period from June 1, 2016 to August 29, 2016.

 

22  
 

 

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND

FINANCIAL DISCLOSURE

 

On or about March 13, 2015, the Company dismissed Robison Hill & Co., Certified Public Accountants (“Robison”) as its independent registered principal accounting firm. The reports of Robison on the Company’s financial statements for each of the last two fiscal years did not contain an adverse opinion or a disclaimer of opinion, nor were they qualified or modified as to audit scope or accounting principles. Such reports of Robison were prepared assuming that the Company had the ability to continue as a going concern. The decision to change auditors was approved by entire Board of Directors of the Company.

 

During the fiscal years ended May 31, 2014 and May 31, 2013 and the subsequent interim periods through March 15, 2015, the Company had not had any disagreements with Robison on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to Robison’ satisfaction, would have caused them to make reference thereto in their reports on the Company’s financial statements for such periods.

 

During the fiscal years ended May 31, 2014 and May 31, 2013 and the subsequent interim periods through March 13, 2015 there were no reportable events, as defined in Item 304(a)(1)(v) of Regulation S-K.

 

The Company engaged Liggett & Webb P.A. Certified Public Accountants (“Liggett”) as its new independent accountant as of March 13, 2015. During the fiscal years ended May 31, 2014 and May 31, 2013 and the subsequent interim periods through March 13, 2015, neither the Company nor anyone on its behalf had consulted with Liggett regarding (i) the application of accounting principles to a specific transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company’s financial statements, and neither a written report nor oral advice was provided to the Company that Liggett concluded was an important factor considered by the Company in reaching a decision as to any accounting, auditing, or financial reporting issue, (ii) any matter that was the subject of a disagreement within the meaning of Item 304(a)(1)(iv) of Regulation S-K, or (iii) any reportable event within the meaning of Item 304(a)(1)(v) of Regulation S-K. The Board approved this engagement of Liggett as the Company’s new independent auditors. The Company filed a Current Report on Form 8-K on March 17, 2015 announcing this change.

 

On or about September 29, 2015, the Company dismissed Liggett as its independent registered principal accounting firm. The reports of Liggett on the Company’s financial statements for the last fiscal year did not contain an adverse opinion or a disclaimer of opinion, nor were they qualified or modified as to audit scope or accounting principles. Such reports of Liggett were prepared assuming that the Company had the ability to continue as a going concern. The decision to change auditors was approved by entire Board.

 

During the fiscal year ended May 31, 2015 and the subsequent interim periods through the date of this filing, the Company has not had any disagreements with Liggett on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to Liggett’ satisfaction, would have caused them to make reference thereto in their reports on the Company’s financial statements for such periods.

 

During the fiscal year ended May 31, 2015 and the subsequent interim periods through the date of this filing, there were no reportable events, as defined in Item 304(a)(1)(v) of Regulation S-K.

 

23  
 

 

The Company engaged Katz, Bloom & Schon CPAs LLC (“Katz”) as its new independent accountant as of September 29, 2015. During the fiscal year ended May 31, 2015 and the subsequent interim periods through the date of this filing, neither the Company nor anyone on its behalf has consulted with Katz regarding (i) the application of accounting principles to a specific transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company’s financial statements, and neither a written report nor oral advice was provided to the Company that Katz concluded was an important factor considered by the Company in reaching a decision as to any accounting, auditing, or financial reporting issue, (ii) any matter that was the subject of a disagreement within the meaning of Item 304(a)(1)(iv) of Regulation S-K, or (iii) any reportable event within the meaning of Item 304(a)(1)(v) of Regulation S-K.

 

The Board has approved this engagement of Katz as the Company’s new independent auditors. The Company filed a Current Report on Form 8-K with the SEC on October 5, 2015 announcing this change.

 

ITEM 9A. CONTROLS AND PROCEDURES

 

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Management necessarily applies its judgment in assessing the costs and benefits of such controls and procedures, which, by their nature, can provide only reasonable assurance regarding management’s control objectives.

 

With the participation of management, our Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of the design and operation of our disclosure controls and procedures at the conclusion of the period ended May 31, 2016. Based upon this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective in ensuring that material information required to be disclosed is included in the reports that we file with the Securities and Exchange Commission.

 

Management’s Annual Report on Internal Control over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of our financial reporting for external purposes in accordance with accounting principles generally accepted in the United States of America. Internal control over financial reporting includes maintaining records that in reasonable detail accurately and fairly reflect our transactions; providing reasonable assurance that transactions are recorded as necessary for preparation of our financial statements; providing reasonable assurance that receipts and expenditures of Company assets are made in accordance with management authorization; and providing reasonable assurance that unauthorized acquisition, use or disposition of Company assets that could have a material effect on our financial statements would be prevented or detected on a timely basis. Because of the inherent limitations of internal control over financial reporting, misstatements may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

Management, with the participation of the Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting as of May 31, 2016. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework. Based on this assessment, management, with the participation of the Chief Executive Officer and Chief Financial Officer, believes that, as of May 31, 2016, our internal control over financial reporting is effective based on those criteria.

 

This Annual Report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. As a smaller reporting company, management’s report is not subject to attestation by the Company’s registered public accounting firm.

 

24  
 

 

Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting during the quarter ended May 31, 2016 that materially affected or are reasonably likely to materially affect, our internal control over financial reporting.

 

ITEM 9B. OTHER INFORMATION

 

None.

 

25  
 

 

PART III

 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE

 

The following table sets forth the names and ages of all directors and executive officers of the registrant as of the end of the last fiscal year and on the date of this report:

 

Name   Age   Position   Date First Elected/Appointed
             
Scott Mathis   54   Director, Chief Executive Officer and President   November 9, 2009
             
Maria Echevarria   36   Executive Vice President, Chief Financial Officer, Treasurer and Secretary   April 13, 2015
             
Julian Beale   81   Director   November 9, 2009
             
Peter Lawrence   82   Director   November 9, 2009

 

No current director has any arrangement or understanding whereby they are or will be selected as a director or nominee past the current term of office.

 

Officers will hold office until the next annual meeting of shareholders and until their successors have been duly elected and qualified. The officers are elected by the Board of Directors at its annual meeting immediately following the shareholders’ annual meeting and hold office until their death or until they earlier resign or are removed from office. There are no written or other contracts providing for the election of directors or term of employment of executive officers, all of whom serve on an “at will” basis.

 

Executive and Director Profiles

 

Scott Mathis. Mr. Mathis is currently the Chief Executive Officer, President and a director of the Company. He also serves as the Chief Executive Officer, President, Treasurer, Secretary and Chairman of the Board of AWLD. Immediately before launching AWLD in 1999, Mr. Mathis worked as a registered representative for National Securities Corporation from July 1998 to June 2000, and before that The Boston Group, L.P. from August 1995 to July 1998. Mr. Mathis’ prior experience in investments and management is extensive. He has been a partner at Oppenheimer and Company and a Senior Vice President and member of the Directors Council at Lehman Brothers. Mr. Mathis also worked with Alex. Brown & Sons and was responsible for the management of the Palm Beach, Florida office of Gruntal and Company, Inc. He began his career as a financial consultant and broker with Merrill Lynch. Mr. Mathis received a Bachelor of Science degree in Business Management from Mississippi State University. Mr. Mathis’ extensive business experience and understanding of investments, management and education qualifies him to serve as a member of our Board of Directors and our Chief Executive Officer.

 

26  
 

 

Maria I. Echevarria , was appointed Chief Financial Officer, Chief Operating Officer, Secretary and Compliance Officer for the Company effective April 10, 2015. She joined the Company as Corporate Controller in June of 2014 and had primary responsibility for the Company’s corporate consolidation, policies and procedures as well as financial reporting for SEC compliance, coordinating budgets and projections, preparing financial presentations and analyzing financial data. Ms. Echevarria has over 15 years of experience in Accounting, Compliance, Finance, Information Systems and Operations. Her experience includes SEC reporting and financial analysis, and her career accomplishments include developing and implementing major initiatives such as SOX, BSA and AML reporting and valuation of financial instruments. Prior to her employment with the Company, Ms. Echevarria served as Director of Finance and Accounting for The Hope Center, a nonprofit, from 2008 to June 2014 overseeing Finance, Information Systems and Operations. From 2001 through 2008 she served as a Quality Control and Compliance Analyst, Financial Analyst, and Accounting Manager for Banco Popular, in San Juan, Puerto Rico. She specialized in Mortgage Quality Control, Compliance, Financial Analysis and Mortgage Accounting, and corresponding with the FHA, VA and other mortgage guarantors. Ms. Echevarria also coordinated audits and compliance programs related to reporting, remittances, escrow accounting and default management for Fannie Mae, Freddie Mac and other private investors. She has developed and taught accounting courses for Herzing University, and currently serves as an adjunct faculty member at Southern New Hampshire University. She is a CPA, licensed in New Jersey and Puerto Rico, and holds a B.B.A. in Accounting from the University of Puerto Rico and a MBA in Business from University of Phoenix. Mrs. Echevarria was born and raised in Puerto Rico, and is fluent in Spanish and English.

 

Julian Beale. Mr. Beale is currently a director of the Company. Since 1996, Mr. Beale has managed his own investments, which include listed “blue chip” shares, numerous speculative stocks, and real estate. After 14 years in engineering and after forming a plastics processing company that he built to employ more than 200 people, Mr. Beale has since the early 1970’s been involved in consulting and investing. In 1977, he was part of a consortium that purchased what became the Moonie Oil Company, a resources corporation that had interests in petroleum production. In 1984, he entered Federal Parliament (Australia). During 11 years in politics, he held many Shadow Minister portfolios (i.e., cabinet level position with minority party). He has a B.E. degree from Sydney University, Australia and an MBA from Harvard University. Mr. Beale’s extensive business experience qualifies him to serve as a member of our Board of Directors.

 

Peter Lawrence. Mr. Lawrence is currently a director of the Company and served as the Chairman of Associated British Industries plc, a company that manufactured car engine and aviation jointing and sealants for both, original equipment manufacturers and after-markets, specialty waxes and anti-corrosion coatings for the automotive tire and plastics industries. The company was acquired for £40 million by AlliedSignal Corp in 1995. Mr. Lawrence has also serves as a director of the Close Beacon Fund OEIC since its founding in 1994. Beacon invests in small and recently floated companies on the Alternative Investment Market of the London Stock Exchange. Over the last several years, Mr. Lawrence has participated in numerous start-up and entrepreneurial ventures, both as an investor and as a member of the companies’ Board of Directors or Board of Advisors. Mr. Lawrence received a B.A. in Modern History from Oxford University where he graduated with honors. Mr. Lawrence’s extensive business experience qualifies him to serve as a member of our Board of Directors.

 

Involvement in Certain Legal Proceedings

 

There have been no events under any bankruptcy act, no criminal proceedings and no judgments, injunctions, orders or decrees material to the evaluation of the ability of any director, executive officer, promoter or control person of the Company during the past five years, except as set forth below:

 

In December 2007, the FINRA Office of Hearing Officers (“OHO”) held that Mr. Mathis negligently failed to make certain disclosures on his Form U4 to reflect the filing of certain personal federal tax liens. (All of the underlying tax liabilities were paid in full by Mr. Mathis in 2003 and the liens were released in 2003.) After several appeals regarding the willfulness finding, Mr. Mathis served a suspension, which was completed on September 4, 2012, and all fines have been paid.

 

Under applicable FINRA rules, the finding that Mr. Mathis acted willfully subjected him to a “statutory disqualification” would have prevented him from working in the securities industry. In accordance with FINRA rules, Mr. Mathis filed Form MC-400 with FINRA in September 2012, requesting that he be permitted to continue to work in the securities industry and in October 2014, FINRA’s Member Regulation Department recommended approval of the MC-400 application. On April 30, 2015, FINRA’s National Adjudicatory Council (NAC) agreed with the recommendation of Member Regulation and further approved the application so that Mr. Mathis can continue to work in the securities industry.

 

27  
 

 

On August 20, 2015, the Securities and Exchange Commission issued an acknowledgement letter to FINRA and as a result, DPEC’s application is now effective.

 

The Company and its management are not aware of any other legal proceedings or investigations involving the Company, any of its subsidiaries, or any of their respective officers, directors or employees.

 

Corporate Governance

 

Audit, Nominating and Compensation Committees

 

Our Board of Directors does not have standing audit, nominating or compensation committees, committees performing similar functions, or charters for such committees. Instead, the functions that might be delegated to such committees are carried out by our Board of Directors, to the extent required. Our Board of Directors believes that the cost of establishing such committees, including the costs necessary to recruit and retain qualified independent directors to serve on our Board of Directors and such committees and the legal costs to properly form and document the authority, policies and procedures of such committees are not justified under our current circumstances.

 

Given our lack of operations to date, our Board of Directors believes that its current members have sufficient knowledge and experience to fulfill the duties and obligations of the audit committee for the Company. None of the current Board members is an “audit committee financial expert” within the meaning of the rules and regulations of the SEC. The Board has determined that each of its members is able to read and understand fundamental financial statements and has substantial business experience that results in that member’s financial sophistication.

 

Our Board of Directors does not currently have a policy for the qualification, identification, evaluation, or consideration of board candidates and does not think that such a policy is necessary at this time, because it believes that, given the limited scope of the Company’s operations, a specific nominating policy would be premature and of little assistance until the Company’s business operations are at a more advanced level. Currently the entire Board decides on nominees.

 

The Board does not have any defined policy or procedural requirements for shareholders to submit recommendations or nominations for directors. The Company does not have any restrictions on shareholder nominations under its articles of incorporation or bylaws. The only restrictions are those applicable generally under Colorado law and the federal proxy rules. The Board will consider suggestions from individual shareholders, subject to an evaluation of the person’s merits. Shareholders may communicate nominee suggestions directly to the Board, accompanied by biographical details and a statement of support for the nominees. The suggested nominee must also provide a statement of consent to being considered for nomination. There are no formal criteria for nominees.

 

Shareholders

 

Shareholders may communicate with the Board of Directors, non-management directors as a group, and individual directors by submitting their communications in writing to the Company’s Corporate Secretary at 135 Fifth Avenue, 10 th Floor, New York, NY 10010. Any communications received that are directed to the Board will be processed by the Corporate Secretary and distributed promptly to the Board or individual directors, as appropriate. If it is unclear from the communication received whether it was intended or appropriate for the Board, the Corporate Secretary will (subject to any applicable regulatory requirements) use his or her business judgment to determine whether such communications should be conveyed to the Board.

 

28  
 

 

Code of Ethics

 

Due to the limited scope of our current operations, the Company has not yet adopted a code of ethics that applies to our principal executive officer, principal financial officer, and principal accounting officer or controller, or persons performing similar functions.

 

Compliance with Section 16(a) of the Exchange Act

 

Section 16(a) of the Exchange Act requires our executive officers and directors, and persons who own more than 10% of our common stock, to file reports regarding ownership of our transactions in our securities with the SEC and to provide us with copies of those filings. Based solely on our review of the copies received by, or a written representation from, certain reporting persons, we believe that all eligible persons were in compliance with the requirements of Section 16(a) during the fiscal year ended May 31, 2016.

 

ITEM 11. EXECUTIVE COMPENSATION

 

Summary Compensation Table

 

The summary compensation table has been omitted as no compensation was paid to or earned by our executive officers for any purpose during the last three completed fiscal years.

 

Outstanding Equity Awards at Fiscal Year-End

 

None of our executive officers held any options or other equity awards in the last fiscal year ended May 31, 2016.

 

Employment Agreements

 

We are not a party to any employment or compensation agreements. There are no unexercised options, stock that has not vested, or equity incentive plan awards for our current officers. We have no retirement or similar plans or arrangements for our current officers. We have not entered into any contracts or arrangements with our officers or directors that would provide them with forms of compensation resulting from their resignation, retirement, or any other termination of their employment with the Company or from a change-in-control of the Company or a change of their responsibilities following a change-in-control.

 

Director Compensation

 

None of our directors received any compensation for service as a director of the Company during our fiscal year ended May 31, 2016.

 

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

AND RELATED STOCKHOLDER MATTERS

 

The following table sets forth information as of August 29, 2016 on the beneficial ownership of our common stock by (i) each person who is a beneficial owner of more than 5% of our common stock, (ii) each of our directors and executive officers, and (iii) all of our directors and executive officers as a group. Applicable percentage ownership in the following table is based on 45,411,400 shares of common stock.

 

Beneficial ownership is determined in accordance with the rules of the SEC and includes voting and investment power with respect to the securities. Subject to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them. In addition, shares of common stock issuable upon exercise of options, warrants and other convertible securities anticipated to be exercisable or convertible at or within sixty days of the closing, if any, of the Stock Purchase, are deemed outstanding for the purpose of computing the percentage ownership of the person holding those securities, and the group as a whole, but are not deemed outstanding for computing the percentage ownership of any other person. The indication herein that shares are anticipated to be beneficially owned is not an admission on the part of the listed shareholder that he, she or it is or will be a direct or indirect beneficial owner of those shares.

 

29  
 

 

Unless otherwise specified, the address of each of the persons set forth below is in care of Algodon Wines & Luxury Development Group, Inc., 135 Fifth Avenue, 10 th Floor, New York, NY 10010.

 

Name & Address of Beneficial Owner  

Shares

Beneficially

Owned

    Percentage of Class  
More than 5% Shareholders            
Algodon Wines & Luxury Development Group, Inc.     43,822,401       96.5 %
                 
Directors & Officers (1)                
Scott Mathis     43,822,401       96.5 %
Julian Beale     43,822,401       96.5 %
Peter Lawrence     43,822,401       96.5 %
Maria Echevarria     43,822,401       96.5 %
All directors and officers as a group     43,822,401       96.5 %

 

(1) Scott Mathis is the Chief Executive Officer, President, Chairman of the Board and a significant shareholder of AWLD; Julian Beale is a member of the Board of Directors of AWLD; Peter Lawrence is a member of the Board of Directors of AWLD; and Maria Echevarria is AWLD’s Chief Financial Officer. All have shared voting and dispositive power and may be deemed to be the indirect beneficial owner of all Mercari shares held by AWLD. However, all disclaim beneficial ownership except as to each person’s pecuniary interest in AWLD.

 

The Company has no equity compensation plan in place.

 

ITEM 13. CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS, DIRECTOR INDEPENDENCE

 

Related Party Transactions

 

The office space, telephone and office supplies consumed by the registrant during the fiscal year ending May 31, 2016, were provided by AWLD for an annual cost of $12,000 for the year ended May 31, 2016. See Item 12 regarding the beneficial ownership of the Company by AWLD, the Company’s parent.

 

As of the date of this report, we do not have in place any policies with respect to whether we will enter into agreements with related persons in the future.

 

Director Independence

 

Our Board of Directors has determined that none of our current directors are independent.

 

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ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

 

For the fiscal year ended May 31, 2016 Katz Bloom & Schon CPAs LLC has been retained. The Independent Auditors’ Report on the financial statements of the registrant for each of the last three fiscal years each raised substantial doubt about the registrant’s ability to be a going concern and each report indicated that the financial statements do not include any adjustments that might result from the outcome of this uncertainty. The registrant has had no disagreements with its auditors on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which, if not resolved to the accountant’s satisfaction, would have caused it to make reference to the subject matter of the disagreement in connection with its reports.

 

The aggregate fees billed for each of the last two fiscal years for professional services rendered by our auditors for the audit of the registrant’s annual financial statements and review of financial statements included in the registrant’s quarterly financial statements, including services normally provided by accountants in connection with statutory and regulatory filings or engagements is as follows:

 

    For the years ended  
    2016     2015  
Audit Fees   $ 10,000     $ 11,000  
Audit - Related Fees     -       -  
Tax Fees     500       1,000  

 

Audit Fees . Consist of fees billed for professional services rendered for the audits of our consolidated financial statements, reviews of our interim consolidated financial statements included in quarterly reports, services performed in connection with filings with the SEC and other services that are normally provided by our independent auditors in connection with statutory and regulatory filings or engagements.

 

Audit – Related Fees. Consists of fees billed for professional services for assurance and related services that are reasonably related to the performance of the audit or review of our consolidated financial statements.

 

Tax Fees . Consist of fees billed for professional services for tax compliance, tax advice and tax planning. These services include assistance regarding federal, state and local tax compliance and consultation in connection with various transactions and acquisitions.

 

Other Fees. Except as set forth above, none of the amounts the registrant paid to its independent auditors represented charges for tax advice or tax planning services. Likewise, none of the fees paid to the auditors presented charges for financial information assistance design, implementation or similar services, or for any other services.

 

Pre-Approval Policies and Procedures

 

The Company’s Board of Directors, which serves as the audit committee, reviews the scope and extent of all audit and non-audit services to be provided by the independent auditors and reviews and pre-approves all fees to be charged for such services. The Board of Directors may establish additional or other procedures for the approval of audit and non-audit services that the Company’s independent auditors perform. In pre-approving services to be provided by the independent auditors, the Board of Directors considers whether such services are consistent with applicable rules regarding auditor independence. All fees set forth in the table above were approved by the Board of Directors.

 

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PART IV

 

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

 

The following exhibits are included as part of this report:

 

Exhibit Number   Description
     
3.1   Articles of Incorporation. (1)
     
3.1A   Articles of Amendment to Articles of Incorporation (2)
     
3.2   Bylaws of the Registrant. (2)
     
3.3   Plan of Recapitalization adopted August 4, 2004. (1)
     
7.1   Letter from former auditor, dated September 1, 2016. (4)
     
16.1   Letter from former auditor, dated September 30, 2015. (3)
     
31.1   Certification of the Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *
     
31.2   Certification of the Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *
     
32   Certification of the Principal Executive Officer and Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. **

 

101.INS XBRL Instance Document

101.SCH XBRL Schema Document

101.CAL XBRL Calculation Linkbase Document

101.DEF XBRL Definition Linkbase Document

101.LAB XBRL Label Linkbase Document

101.PRE XBRL Presentation Linkbase Document

 

 

*

 

  (1) Incorporated by reference to the Company’s Annual Report on Form 10-KSB for the fiscal year ended May 31, 2006 as filed with the SEC on March 7, 2007.
     
  (2) Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on June 3, 2008.
     
  (3) Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on October 5, 2015.
     
  (4) Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on September 2, 2016.

 

* Filed herewith.

 

** Filed, not furnished herewith.

 

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SIGNATURES

 

Pursuant to the requirements of section 13 or 15(d) 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.

 

  MERCARI COMMUNICATIONS GROUP, LTD.
     
Dated: September 14, 2016 By: /s/ Scott L. Mathis
    Scott L. Mathis, President, Chief Executive Officer
    and Director (Principal Executive Officer)

 

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on this 14th day of September 2016.

 

Signatures   Title
     
/s/ Scott L. Mathis   President, Chief Executive Officer and Director
Scott L. Mathis   (Principal Executive Officer)
     
/s/ Maria I. Echevarria   Executive Vice President, Chief Financial Officer, Treasurer and Secretary
Maria I. Echevarria   (Principal Financial Officer)
     
/s/ Peter Lawrence   Director
Peter Lawrence    

 

33  
 

 

 

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