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 August 31, 2016 and for the three 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 three 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 $294,691 from inception to August 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.
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 August 31, 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 August 31, 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 August 31, 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.
NOTE
3 - 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, 2016 and other previous filings as filed with the SEC.
For
the three months ended August 31, 2016, the Company received additional shareholder advances totaling $5,500 from AWLD, the Company’s
parent, bringing the total advance balance to $131,487. 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
4 – 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.
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
5 – SUBSEQUENT EVENTS
The
Company adopted ASC 855, and has evaluated all events occurring after August 31, 2016, the date of the most recent balance sheet,
for possible adjustment to the financial statements or disclosures through October 17, 2016, which is the date on which the financial
statements were issued.
MERCARI
COMMUNICATIONS GROUP, LTD.
NOTES
TO CONDENSED UNAUDITED FINANCIAL STATEMENTS
