AIXN 10-K Annual Report May 31, 2011 | Alphaminr
AiXin Life International, Inc.
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AIXN 10-K Fiscal year ended May 31, 2011

Balance Sheet
Cash Flow
Income Statement
AIXIN LIFE INTERNATIONAL, INC.
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10-K 1 k_0511.htm FORM 10-K DATED MAY 31, 2011 k_0511.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
x
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended: May 31, 2011

¨
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 nonaffiliates 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: there is a very limited trading market with little to no volume thus the registrant cannot accurately calculate the aggregate market value of its common stock held by non-affiliates as of May 31, 2011.

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 22, 2011, 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


Mercari Communications Group, Ltd.
Form 10-K Annual Report

TABLE OF CONTENTS

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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.
3


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 Diversified Private Equity Corporation, a privately-held Delaware corporation (“DPEC”), 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, DPEC 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, DPEC 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 22, 2011, 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.
4

On November 9, 2009, we entered into and closed the Stock Purchase Agreement with DPEC, 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.  DPEC is headquartered in New York, NY, and is a virtually integrated company that creates, develops, markets, sells and manages private equity investment opportunities, principally in the biotechnology industry and in non-leveraged global real estate assets.  In connection with the Stock Purchase, DPEC 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, DPEC 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, DPEC 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 DPEC 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 DPEC, its subsidiaries and affiliated companies to be transferred to Mercari and, in connection with such transactions, cause Mercari’s stock to be distributed by DPEC to DPEC’s stockholders and the holders of equity interests in the affiliated companies (“Reorganization Transaction”).  In connection with and contemporaneously with the Reorganization Transaction, it is anticipated that Mercari and/or DPEC will seek to obtain at least $10 million in gross proceeds from a financing (the “Financing”).  If the gross proceeds from the Financing exceed $15 million at the time of the last closing of such financing, Mercari will issue additional shares of common stock to DPEC at a purchase price of $.001 per share as follows:  (i) 18,164,560 additional shares if the amount of the Financing is at least $15 million and less than $20 million; or (ii) 34,058,550 additional shares if the amount of the Financing is $20 million or more.  After consummation of the Financing, Mercari will seek to register for resale all of the shares issued in the Financing and shares of common stock issued by Mercari from and after December 1, 2001 and prior to the date of the Stock Purchase Agreement.  Mercari will use its commercially reasonable efforts to file the registration statement within 60 days after consummation of the Reorganization Transaction (“Filing Date”) and to have the registration statement become effective within 180 days after the Filing Date.  If the SEC requires Mercari to reduce the number of shares included under such registration statement, any such reduction will first be made from the shares issued in the Financing.  The post-closing obligations of DPEC and Mercari discussed herein are contingent upon DPEC’s good faith determination that, after taking commercially reasonable efforts, the transactions are feasible.  Such determination shall take into account all relevant material factors, including without limitation, then-current economic, financial and market conditions.

Upon closing of the Stock Purchase, Mercari experienced a change in control and a change in all the members of the Board of Directors and executive officers.

Pursuant to the Stock Purchase Agreement, we made the following changes to our Board of Directors and executive officers:

•
Immediately prior to the consummation of the Stock Purchase, we increased the size of our Board of Directors from two to five, and L. Michael Underwood and John P. Kanouff, our current directors, appointed Scott Mathis, Julian Beale and Peter Lawrence, as directors of the Company, effective at the closing.  After such new directors were appointed, Messrs. Underwood and Kanouff resigned as members of our Board of Directors.
•
Mr. Underwood resigned as President and Mr. Kanouff resigned as Secretary and Treasurer.  Our Board of Directors appointed Scott Mathis as Chief Executive Officer and President, Ronald S. Robbins as Executive Vice President and Chief Operating Officer (Mr. Robbins subsequently retired on April 6, 2010 and the Company has currently no plans to replace him), and Tim Holderbaum as Executive Vice President, Chief Financial Officer, Treasurer and Secretary.
5
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.


ITEM 1A.  RISK FACTORS

AN INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS IN EVALUATING OUR BUSINESS, OPERATIONS AND FINANCIAL CONDITION. ADDITIONAL RISKS AND UNCERTAINTIES NOT PRESENTLY KNOWN TO US, THAT WE CURRENTLY DEEM IMMATERIAL, OR THAT ARE SIMILAR TO THOSE FACED BY OTHER COMPANIES IN OUR BUSINESS IN GENERAL, SUCH AS COMPETITIVE CONDITIONS, MAY ALSO IMPAIR OUR BUSINESS OPERATIONS.

We have no recent operating history or basis for evaluating prospects.

We have no operating business or plans to develop one. We are currently seeking to enter into a merger or business combination with another operating company. To date, our efforts have been limited to meeting our regulatory filing requirements and searching for a merger target.

We have limited resources and no revenues from operations, and will need additional financing in order to execute any business plan.

We have limited resources, no revenues from operations to date and our cash on hand may not be sufficient to satisfy our cash requirements during the next 12 months. In addition, we will not achieve any revenue until, at the earliest, the consummation of a merger or other transaction, and we cannot ascertain our capital requirements until such time. There can be no assurance that determinations ultimately made by us will permit us to achieve our business objectives.

We depend substantially upon our three officers to make all management decisions.

We have not entered into any employment agreements or other understandings with any officer concerning compensation or obtained any “key man” life insurance. The loss of the services of these officers would have a material adverse effect on achieving our business objectives and success. We do not anticipate that we will hire additional personnel.

Control by Diversified Private Equity Corporation.

DPEC owns 96.5% of the outstanding shares of our common stock. As a result, DPEC is able to exercise control over matters requiring shareholder approval, including the election of directors, and the approval of mergers, consolidations and sales of all or substantially all of our assets.

Our common stock is a “penny stock” which may restrict the ability of shareholders to sell our common stock in the secondary market.

The SEC has adopted regulations which generally define “penny stock” to be an equity security that has a market price, as defined, of less than $5.00 per share, or an exercise price of less than $5.00 per share, subject to certain exceptions, including the exception of an equity security that is quoted on a national securities exchange. Our common stock is not now quoted on a national exchange but is traded on the OTC Bulletin Board (“OTCBB”).
6
Thus, the shares are subject to rules that impose additional sales practice requirements on broker-dealers who sell these securities. For example, the broker-dealer must make a special suitability determination for the purchaser of such securities and have received the purchaser’s written consent to the transactions prior to the purchase. Additionally, the rules require prior to the transaction, the delivery of a disclosure schedule prepared by the SEC relating to the penny stock market. The broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered underwriter, and current quotations for the securities, and, if the broker-dealer is the sole market maker, the broker-dealer must disclose this fact and the broker-dealer’s presumed control over the market. Finally, among other requirements, monthly statements must be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks. The “penny stock” rules may restrict the ability of our shareholders to sell our common stock in the secondary market.

Our common stock has been thinly traded, liquidity is limited, and we may be unable to obtain listing of our common stock on a more liquid market.

Our common stock is quoted on the OTCBB, which provides significantly less liquidity than a securities exchange or an automated quotation system. There is uncertainty that we will ever be accepted for a listing on an automated quotation system or national securities exchange. There is currently limited or no volume of trading in our common stock. The purchasers of shares of our common stock may find it difficult to resell their shares at prices quoted in the market or at all.


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 DPEC 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.  [RESERVED]



ITEM 5.   MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

During the past five years, 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 with limited or no volume and thus the registrant cannot accurately obtain an accurate bid or ask price for a share of its common stock.

7
Holders

As of August 22, 2011, there were 45,411,400 shares of common stock issued and outstanding held by approximately 131 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, 2011, 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 is a development stage business, and 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 Diversified Private Equity Corporation, 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.

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.

(A Development Stage Company)

-:-

INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS REPORT

MAY 31, 2011 AND 2010

CONTENTS
Page
Independent Registered Public Accountants Report
11
Balance Sheets
May 31, 2011 and 2010
12
Statements of Operations
For the Years Ended May 31, 2011 and 2010
And for the Cumulative Period from March 1, 2004 to May 31, 2011
13
Statement of Stockholders’ Equity for the
Period from December 30, 1987 (Inception) to May 31, 2011
14
Statements of Cash Flows
For the Years Ended May 31, 2011 and 2010
And for the Cumulative Period from March 1, 2004 to May 31, 2011
18
Notes to Financial Statements
19


10

INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS REPORT
Mercari Communications Group, Ltd.
(A Development Stage Company)
We have audited the accompanying balance sheets of Mercari Communications Group, Ltd. (a development stage company) as of May 31, 2011 and 2010, and the related statements of operations and cash flows for the two years ended May 31, 2011 and 2010, and the cumulative period from March 1, 2004 (inception of development stage) to May 31, 2011, and the statement of stockholders’ equity for the period from December 30, 1987 (inception) to May 31, 2011. 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 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. (a development stage company) as of May 31, 2011 and 2010, and the results of its operations and its cash flows for the two years ended May 31, 2011 and 2010, and the cumulative period from March 1, 2004 (inception of development stage) to May 31, 2011 in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertaint.
/s/ Robison Hill & Co.
Certified Public Accountants
Salt Lake City, Utah
August 22, 2011


11

MERCARI COMMUNICATIONS GROUP, LTD.
(A Development Stage Company)
BALANCE SHEETS

May 31
2011
2010
Current Assets
Cash $ 16,053 $ 34,791
Total Assets
$ 16,053 $ 34,791
Current Liabilities:
Accounts Payable & Accrued Liabilities 1,065 425
Total Liabilities
$ 1,065 $ 425
Stockholders' Equity:
Common Stock, Par value $.00001
Authorized 950,000,000 shares, Issued 45,411,400 shares at May 31, 2011 and May 31, 2010
454 454
Paid-In Capital 158,722 158,722
Deficit accumulated during the development stage since March 1, 2004 in connection with quasi reorganization (144,188 ) (124,810 )
Total Stockholders' Equity
14,988 34,366
Total Liabilities and Stockholders' Equity
$ 16,053 $ 34,791


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

12

MERCARI COMMUNICATIONS GROUP, LTD.
(A Development Stage Company)
STATEMENTS OF OPERATIONS


Cumulative
since
March 1,
2004
For the years ended
Inception of
May 31
development
2011
2010
stage
Revenues:
$ - $ - $ -
Expenses:
General and administrative
19,378 19,140 142,718
Other Income (Expense):
Interest expense
- (621 ) (1,470 )
Net Income (Loss)
$ (19,378 ) $ (19,761 ) $ (144,188 )
Basic & Diluted Loss Per Share
(0.0004 ) (0.0008 )
Weighted Average Shares
45,411,400 25,961,635

The accompanying notes are an integral part of these financial statements.
13

MERCARI COMMUNICATIONS GROUP, LTD.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS’ EQUITY

FOR THE PERIOD FROM DECEMBER 30, 1987 (INCEPTION) TO MAY 31, 2011

Deficit Accumulated Since Inception of Development Stage
Common
Since
Aug. 31, 2001
Since
March 1, 2004
Common Stock
Stock
Paid -In
Retained
(Prior to quasi
(Since quasi
Shares
Par Value
to be Issued
Capital
Deficit
reorganization)
reorganization)
Balance at
December 30, 1987
(inception)
- $ - $ - $ - $ - $ - $ -
Stock issued for cash
- $.00001/sh
271,000,000 2,710 - - - - -
Stock issued for cash
- $.0001/sh
8,000,000 80 - 720 - - -
Stock issued for cash
- $.0025/sh
8,000,000 80 - 19,920 - - -
Offering costs
- - - (500 ) - - -
Net loss
- - - - (62,639 ) - -
Balance at May 31, 1988
287,000,000 2,870 - 20,140 (62,639 ) - -
August 2004 - 900:1
reverse stock split
(286,673,769 ) (2,867 ) - 2,867 - - -
May 2008 - 3.5:1
reverse stock split
(233,022 ) (2 ) - 2 - - -
Restated Balance at
May 31, 1988
93,209 1 - 23,009 (62,639 ) - -
Stock issued for cash
- $.0001/sh
476 - - 150 - - -
Stock issued for cash
- $.01/sh
24,647 - - 776,371 - - -
Offering costs
- - - (126,353 ) - - -
Stock issued for cash
- $.01/sh
900 - - 28,354 - - -
Net loss
- - - - (501,740 ) - -
Balance at May 31, 1989
119,232 1 - 701,531 (564,379 ) - -

14

MERCARI COMMUNICATIONS GROUP, LTD.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS’ EQUITY

FOR THE PERIOD FROM DECEMBER 30, 1987 (INCEPTION) TO MAY 31, 2011
(continued)

Deficit Accumulated Since Inception of Development Stage
Common
Since
Aug. 31, 2001
Since
March 1, 2004
Common Stock
Stock
Paid -In
Retained
(Prior to quasi
(Since quasi
Shares
Par Value
to be Issued
Capital
Deficit
reorganization)
reorganization)
Balance at May 31, 1989
119,232 1 - 701,531 (564,379 ) - -
Stock issued for cash
- $.0125/share
96 - - 3,778 - - -
Stock issued for debt
- $.004/share
7,936 - - 103,355 - - -
Net loss
- - - - (3,355 ) - -
Write-off of assets
- - - - (351,366 ) - -
Balance at May 31, 1990
127,264 1 - 808,664 (919,100 ) - -
Balance at May 31, 2001
127,264 1 - 808,664 (919,100 ) - -
December 17, 2001
shares to be cancelled
(64,524 ) - - - - - -
December 17, 2001
shares to be issued
240,945 - 2 7,588 - - -
Capital contributed by
shareholders
- - - 7,677 - - -
Net loss
- - - - - (18,675 ) -
Balance at May 31, 2002
303,685 1 2 823,929 (919,100 ) (18,675 ) -
Issuance of shares
previously authorized
- 2 (2 ) - - - -
Net loss
- - - - - (6,478 ) -
Balance at May 31, 2003
303,685 3 - 823,929 (919,100 ) (25,153 ) -

15

MERCARI COMMUNICATIONS GROUP, LTD.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS’ EQUITY

FOR THE PERIOD FROM DECEMBER 30, 1987 (INCEPTION) TO MAY 31, 2011
(continued)

Deficit Accumulated Since Inception of Development Stage
Common
Since
Aug. 31, 2001
Since
March 1, 2004
Common Stock
Stock
Paid -In
Retained
(Prior to quasi
(Since quasi
Shares
Par Value
to be Issued
Capital
Deficit
reorganization)
reorganization)
Balance at May 31, 2003
303,685 3 - 823,929 (919,100 ) (25,153 ) -
Expired accounts payable
reclassified to paid-in
capital
- - - 110,435 - - -
Capital contributed
by shareholder
- - - 50,000 - - -
Net loss (prior to
quasi reorganization)
- - - - - (8,970 ) -
Quasi-reorganization
effective March 1, 2004
- - - (953,223 ) 919,100 34,123 -
Net loss (since quasi
organization)
- - - - - - (12,431 )
Balance at May 31, 2004
303,685 3 - 31,141 - - (12,431 )
Capital contributed by
shareholder
- - - 5,000 - - -
Net loss
- - - - - - (19,302 )
Balance at May 31, 2005
303,685 3 - 36,141 - - (31,733 )
Net loss
- - - - - - (7,728 )
Balance at May 31, 2006
303,685 3 - 36,141 - - (39,461 )
Capital Contributed
by shareholder
- - - 1,740 - - -
Issuance of shares for
notes payable
571,428 6 - 19,994 - - -
Net loss
- - - - - - (21,248 )
Balance at May 31, 2007
875,113 9 - 57,875 - - (60,709 )

16

MERCARI COMMUNICATIONS GROUP, LTD.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS’ EQUITY

FOR THE PERIOD FROM DECEMBER 30, 1987 (INCEPTION) TO MAY 31, 2011
(continued)

Deficit Accumulated Since Inception of Development Stage
Common
Since
Aug. 31, 2001
Since
March 1, 2004
Common Stock
Stock
Paid -In
Retained
(Prior to quasi
(Since quasi
Shares
Par Value
to be Issued
Capital
Deficit
reorganization)
reorganization)
Balance at May 31, 2007
875,113 9 - 57,875 - - (60,709 )
Stock issued for cash
- $.01/share
714,286 7 - 24,993 - - -
Net loss
- - - - - - (23,630 )
Balance at May 31, 2008
1,589,399 16 - 82,868 - - (84,339 )
Net loss
- - - - - - (20,710 )
Balance at May 31, 2009
1,589,399 16 - 82,868 - - (105,049 )
Stock issued for cash
- $.001/share
43,822,001 438 - 43,384 - - -
Forgiven loans
reclassified to paid-in
capital
- - - 32,470 - - -
Net loss
- - - - - - (19,761 )
Balance at May 31, 2010
45,411,400 454 - 158,722 - - (124,810 )
Net loss
- - - - - - (19,378 )
Balance at May 31, 2011
45,411,400 $ 454 $ - $ 158,722 $ - $ - $ (144,188 )


The accompanying notes are an integral part of these financial statements
17

MERCARI COMMUNICATIONS GROUP, LTD.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS

For the years ended
May 31,
Cumulative Since
March 31, 2004
Inception of
Development
2011
2010
Stage
CASH FLOWS FROM OPERATIN G ACTIVITIES:
Net Loss
$ (19,378 ) $ (19,761 ) $ (144,188 )
Increase (Decrease) in Accounts Payable
640 (141 ) (17,901 )
Increase (Decrease) in Accrued Interest
- 621 1,470
Net Cash Used in operating activities
(18,738 ) (19,281 ) (160,619 )
CASH FLOWS FROM INVESTIN G ACTIVITIES:
Net cash provided by investing activities
- - -
CASH FLOWS FROM FINANCIN G ACTIVITIES:
Payments on shareholder loans
- - (610 )
Proceeds from shareholder loans
4,000 33,350
Proceeds from notes payable
- - 20,000
Proceeds from sale of stock
43,822 68,822
Cash contributed by shareholders
- - 55,000
Net Cash Provided by financing activities
- 47,822 176,562
Net (Decrease) Increase in Cash and Cash Equivalents
(18,738 ) 28,541 15,943
Cash and Cash Equivalents at Beginning of Period
34,791 6,250 110
Cash and Cash Equivalents at End of Period
$ 16,053 $ 34,791 $ 16,053
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest
$ - $ - $ -
Franchise and income taxes
$ - $ - $ -
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
On November 9, 2009, two former directors of the Company forgave a total of $32,470 of loans
previously made to the Company. This amount included principal of $31,000 and accrued interest
of $1,470. The forgiveness of these loans was classified as paid-in capital in the financial statements.

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

18

MERCARI COMMUNICATIONS GROUP, LTD.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

This summary of accounting policies for Mercari Communications Group, Ltd. (a development stage company) (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 $144,000 for the period from March 1, 2004 (inception of development stage) to May 31, 2011, 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.


19

MERCARI COMMUNICATIONS GROUP, LTD.
(A Development Stage Company)
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 is 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, 2011. 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, 2011 and 2010 and are thus not considered.

20

MERCARI COMMUNICATIONS GROUP, LTD.
(A Development Stage Company)
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 the Company’s financial instruments, including cash, accounts payable and accrued liabilities at May 31, 2011 and May 31, 2010 approximates their fair values due to the short-term nature of these financial instruments.

NOTE 2 - INCOME TAXES

As of May 31, 2011, the Company had a net operating loss carry-forward for income tax reporting purposes of approximately $143,000 that may be offset against future taxable income through 2031. 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.

2011
2010
Net Operating Losses
$ 21,450 $ 18,750
Valuation Allowance
(21,450 ) (18,750 )
$ - $ -

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

2011
2010
Provision (Benefit) at US Statutory Rate
$ (3,000 ) $ (3,000 )
Increase (Decrease) in Valuation Allowance
3,000 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.


21

MERCARI COMMUNICATIONS GROUP, LTD.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(continued)

NOTE 3 - DEVELOPMENT STAGE COMPANY

The Company has not begun principal operations and as is common with a development stage company, the Company has had recurring losses during its development stage. The Company’s financial statements are prepared using generally accepted accounting principles applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. However, the Company does not have significant cash or other material assets, nor does it have an established source of revenues sufficient to cover its operating costs and to allow it to continue as a going concern. In the interim, shareholders of the Company have been contributing capital to the Company to meet its ordinary and normal operating expenses.

NOTE 4 - COMMITMENTS

As of May 31, 2011 all activities of the Company are conducted on a rent free basis at the corporate offices of Diversified Private Equity Corporation (“DPEC”), the major shareholder of the Company.  Currently, there are no outstanding debts owed by the Company for the use of these facilities.

NOTE 5 - COMMON STOCK TRANSACTIONS

On August 3, 2004, the Company authorized a 900 to 1 reverse stock split of the Company’s common stock. On May 29, 2008, the Company authorized a 3.5 to 1 reverse stock split of the Company’s common stock. All references to the Company’s common stock in the financial statements have been restated to reflect the reverse stock splits.

On December 17, 2001, the Board of Directors approved the cancellation of 64,524 shares of common stock. During the year ended May 31, 2003, these shares were cancelled.

On December 17, 2001, the Board of Directors authorized the sale of 240,945 restricted common shares at par value by the three current Directors. The Directors paid $7,590 in cash consideration for those shares. During the year ended May 31, 2003, these shares were issued.

On January 19, 2007, the Company issued two promissory notes for $10,000 each to two nonaffiliated lenders. The notes are payable by the Company only at the time, and in the event, the Company becomes current in reporting obligations under the Securities Exchange Act of 1934, as amended. At the time when the notes become payable, the Company agreed to issue and deliver to each of the two lenders 285,714 shares of the Company’s unregistered common stock. On March 9, 2007, the Company issued 571,428 shares of stock as payment for the notes payable.

On June 18, 2007, the Company sold 142,857 shares of its common stock to Kanouff, LLC (“KLLC”), a Colorado limited liability company, for $5,000 in cash and 142,857 shares of its common stock to Underwood Family Partners, Ltd. (the “Partnership”), a Colorado limited partnership, for $5,000 in cash. John P. Kanouff, an officer and director of the Company, is the sole owner and member of KLLC; and L. Michael Underwood, an officer and director of the Company, is the general partner of the Partnership. The Company sold such shares to KLLC and the Partnership in order to obtain working capital. The Registrant relied upon Section 4(2) of the Securities Act of 1933 as providing the exemption from registration under such Act for such transactions.


22

MERCARI COMMUNICATIONS GROUP, LTD.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(continued)

NOTE 5 - COMMON STOCK TRANSACTIONS (continued)

On November 27, 2007, the Company sold 214,286 shares of its common stock to Kanouff, LLC (“KLLC”), a Colorado limited liability company, for $7,500 in cash and 214,286 shares of its common stock to Underwood Family Partners, Ltd. (the “Partnership”), a Colorado limited partnership, for $7,500 in cash. John P. Kanouff, an officer and director of the Company, is the sole owner and member of KLLC; and L. Michael Underwood, an officer and director of the Company, is the general partner of the Partnership. The Company sold such shares to KLLC and the Partnership in order to obtain working capital. The Registrant relied upon Section 4(2) of the Securities Act of 1933 as providing the exemption from registration under such Act for such transactions.

In connection with the 3.5 to 1 reverse stock split approved on May 29, 2008, an additional 5,729 shares of common stock were issued due to rounding provisions included in the terms of the reverse stock split. On June 4, 2008, the Company cancelled 5,729 of its outstanding shares of common stock. These shares were surrendered for cancellation by the majority shareholders of the Company in order to offset shares issued by the Company in rounding up transactions in connection with the 3.5 to 1 reverse stock split approved on May 29, 2008.

On November 9, 2009, pursuant to the Stock Purchase Agreement described under Note 9, Mercari offered and sold 43,822,001 shares of its common stock to DPEC. The offer and sale by the Company of the common stock to DPEC was exempt from registration under the Securities Act of 1933, as amended (the "Securities Act"), pursuant to Section 4(2) thereof. The Company made this determination based on the representations of DPEC which included, in pertinent part, that DPEC was an "accredited investor" within the meaning of Rule 501 of Regulation D promulgated under the Securities Act, that DPEC was acquiring the common stock for investment purposes for its own account and not as nominee or agent, and not with a view to the resale or distribution thereof, and that DPEC understood that the common stock may not be sold or otherwise disposed of without registration under the Securities Act or an applicable exemption therefrom.

NOTE 6 - RELATED PARTY TRANSACTIONS

On May 19, 2008, the Company received a loan for $5,500 from Kanouff, LLC and a loan for $5,500 from Underwood Family Partners, Ltd. On November 18, 2008, the Company received a loan for $5,000 from KLLC and a loan for $5,000 from the Partnership. On May 29, 2009, the Company received a loan for $3,000 from KLLC and a loan for $3,000 from the Partnership. On October 13, 2009, the Company received a loan for $2,000 from KLLC and a loan for $2,000 from the Partnership. These loans were due on demand and carried an interest rate of 5% per annum. On November 9, 2009, in connection with the Stock Purchase Agreement described in Note 9, the Company, KLLC and the Partnership entered into Debt Forgiveness Agreements, whereby all loans mentioned above, including accrued interest, was forgiven and reclassified as paid-in capital. KLLC and the Partnership did not receive any shares of stock or other interest in the Company in connection with the foregoing contribution. As of November 30, 2009, no loans are outstanding.

On November 9, 2009, we entered into and closed a Stock Purchase Agreement with DPEC, Kanouff, LLC and Underwood Family Partners, Ltd., the two entities which, immediately prior to closing, where the majority shareholders of the Company and which are controlled by the then officers and directors of the Company.  Please refer to Note 9 for additional details regarding the Stock Purchase Agreement and related transactions.
23

MERCARI COMMUNICATIONS GROUP, LTD.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(continued)

NOTE 7 – QUASI-REORGANIZATION

On August 3, 2004, the Company approved and authorized a plan of quasi-reorganization and restatement of accounts to eliminate the accumulated deficit and related capital accounts on the Company’s balance sheet. The quasi-reorganization became effective March 1, 2004. The quasi-reorganization resulted in the elimination of $919,100 of retained deficit at the effective date of the reorganization, the elimination of $34,123 of deficit accumulated since the August 31, 2001 inception of development stage, and a decrease in additional paid-in capital of $953,223.

NOTE 8 - UNCERTAIN TAX POSITIONS

Effective June 1, 2007, the company adopted the provisions of ASC 740-10 (formerly FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109” (“FIN 48”)). ASC 740-10 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The adoption of the provisions of ASC 740-10 did not have a material impact on the company’s condensed consolidated financial position and results of operations. At June 1, 2007, the company had no liability for unrecognized tax benefits and no accrual for the payment of related interest.

Interest costs related to unrecognized tax benefits are classified as “Interest expense, net” in the accompanying consolidated statements of operations. Penalties, if any, would be recognized as a component of “Selling, general and administrative expenses”. The Company recognized $0 of interest expense related to unrecognized tax benefits for the year ended May 31, 2011. In many cases the company’s uncertain tax positions are related to tax years that remain subject to examination by relevant tax authorities. With few exceptions, the company is generally no longer subject to U.S. federal, state, local or non-U.S. income tax examinations by tax authorities for years before 2006. The following describes the open tax years, by major tax jurisdiction, as of May 31, 2011:

United States (a)
2006 – Present
(a) Includes federal as well as state or similar local jurisdictions, as applicable.
NOTE 9 – STOCK PURCHASE AGREEMENT

On November 9, 2009, we entered into and closed a Stock Purchase Agreement with 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, DPEC 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, DPEC 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, DPEC 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.
24

MERCARI COMMUNICATIONS GROUP, LTD.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(continued)

NOTE 9 – STOCK PURCHASE AGREEMENT (Continued)
The Stock Purchase Agreement contains post-closing covenants whereby Mercari and DPEC agree 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 DPEC, its subsidiaries and affiliated companies to be transferred to Mercari and, in connection with such transactions, cause Mercari’s stock to be distributed by DPEC to DPEC’s stockholders and the holders of equity interests in the affiliated companies (“Reorganization Transaction”).  In connection with and contemporaneously with the Reorganization Transaction, it is anticipated that Mercari and/or DPEC will seek to obtain at least $10 million in gross proceeds from a financing (the “Financing”).  If the gross proceeds from the Financing exceed $15 million at the time of the last closing of such financing, Mercari will issue additional shares of common stock to DPEC at a purchase price of $.001 per share as follows:  (i) 18,164,560 additional shares if the amount of the Financing is at least $15 million and less than $20 million; or (ii) 34,058,550 additional shares if the amount of the Financing is $20 million or more.  After consummation of the Financing, Mercari will seek to register for resale all of the shares issued in the Financing and shares of common stock issued by Mercari from and after December 1, 2001 and prior to the date of the Stock Purchase Agreement.  Mercari will use its commercially reasonable efforts to file the registration statement within 60 days after consummation of the Reorganization Transaction (“Filing Date”) and to have the registration statement become effective within 180 days after the Filing Date.  If the SEC requires Mercari to reduce the number of shares included under such registration statement, any such reduction will first be made from the shares issued in the Financing.  The post-closing obligations of DPEC and Mercari discussed herein are contingent upon DPEC’s good faith determination that, after taking commercially reasonable efforts, the transactions are feasible.  Such determination shall take into account all relevant material factors, including without limitation, then-current economic, financial and market conditions.

Upon closing of the Stock Purchase, Mercari experienced a change in control and a change in all the members of the Board of Directors and executive officers.

Pursuant to the Stock Purchase Agreement, we made the following changes to our Board of Directors and executive officers:

·
Immediately prior to the consummation of the Stock Purchase, we increased the size of our Board of Directors from two to five, and L. Michael Underwood and John P. Kanouff, our current directors, appointed Scott Mathis, Julian Beale and Peter Lawrence, as directors of the Company, effective at the closing.  After such new directors were appointed, Messrs. Underwood and Kanouff resigned as members of our Board of Directors.

·
Mr. Underwood resigned as President and Mr. Kanouff resigned as Secretary and Treasurer, and our Board of Directors appointed Scott Mathis as Chief Executive Officer and President, Ronald S. Robbins as Executive Vice President and Chief Operating Officer (Mr. Robbins subsequently retired on April 6, 2010 and the Company has currently no plans to replace him), and Tim Holderbaum as Executive Vice President, Chief Financial Officer, Treasurer and Secretary.

NOTE 10 – SUBSEQUENT EVENTS

The Company adopted ASC 855, and has evaluated all events occurring after May 31, 2011, the date of the most recent balance sheet, for possible adjustment to the financial statements or disclosures through August 22, 2011, 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, 2011 to August 22, 2011.

25

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

The registrant has had no disagreement with its accountants on any matter of accounting principal or practice, financial statement disclosure or auditing scope or procedure which would have caused the accountant to make reference in its report upon the subject matter of the disagreement.
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, 2011. 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, 2011. 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, 2011, 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.  Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of Securities and Exchange Commission that permit the Company to provide only the management’s report in this annual report.

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Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended May 31, 2011 that materially affected or are reasonably likely to materially affect, our internal control over financial reporting.


ITEM 9B.  OTHER INFORMATION

None.

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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
49
Director, Chief Executive Officer and President
November 9, 2009
Tim Holderbaum
38
Executive Vice President, Chief Financial Officer, Treasurer and Secretary
November 9, 2009
Julian Beale
76
Director
November 9, 2009
Peter Lawrence
77
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 DPEC.  Immediately before launching DPEC 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.

Tim Holderbaum. Mr. Holderbaum currently serves as Executive Vice President, Chief Financial Officer, Treasurer and Secretary of the Company. He also serves as the Executive Vice President and Chief Financial Officer of DPEC and has been with DPEC since July 2001. He is responsible for the operational and financial aspects of DPEC and InvestBio, including day-to-day operations, filings, accounting and auditing, and the operational management and structuring of InvestBio’s investment partnerships. He also presently serves as the Financial and Operations Principal of DPEC Capital, Inc. and Managing Director and Co-founder of InvestProperty Group, LLC. Prior to Joining DPEC, Mr. Holderbaum was the Director of International Affairs for Impact Media, Ltd. where he coordinated and managed several focused special-advertising sections for various international markets. His career began at Burmah Oil in Hamburg, Germany where his responsibilities involved the forecasting and budgeting for 13 Central and Eastern European countries. Mr. Holderbaum attended Northwood University where he received a Bachelor of Business Administration degree.

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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 with respect to our anticipated directors and executive officers following the consummation of the Stock Purchase:

In May 2007, DPEC, Scott Mathis and Ronald S. Robbins, a former officer of the Company, entered into a settlement of a disciplinary action filed in May 2004 by the NASD (now known as FINRA), the regulatory body that has primary jurisdiction over DPEC Capital, Inc. (“DPEC Capital”), a wholly-owned subsidiary of DPEC. The NASD originally alleged that DPEC securities were sold through DPEC Capital to investors based on false and misleading representations, that private placements of such securities were conducted in violation of the Securities Act of 1933, as amended, that there were several failures to comply with the NASD’s reporting requirements related to disciplinary and other matters, that DPEC Capital operated in violation of its net capital requirement on three separate days in 2001, and other matters. As part of the settlement, the NASD expressly withdrew numerous allegations and charges, including all which asserted that there had been any fraudulent, intentional, knowing or willful violations of the federal securities laws. The settlement also resolved a substantial majority of the charges in the case, and in connection therewith, Mr. Mathis received a 30-day suspension from acting in a principal capacity for DPEC Capital, Mr. Robbins received a 10-day suspension and DPEC Capital was suspended for 60 days from accepting new engagements to offer private placements, which also has been completed. The settling parties also agreed to pay fines totaling $215,000, all of which has been paid, and DPEC Capital was also required to engage an independent consultant to evaluate its practices and procedures relating to private placement offerings, and to make necessary changes in response to the consultant’s recommendations.

While the settlement with the NASD resolved most of the issues in the case, a few remaining charges were not resolved, namely, whether Mr. Mathis inadvertently or willfully failed to properly make certain disclosures on his personal NASD Form U-4. These charges were addressed at a hearing before FINRA’s Office of Hearing Officers in July 2007, and were resolved by a decision dated December 19, 2007. In that decision, Mr. Mathis was found to have negligently failed to make, or timely make, certain disclosures on his Form U-4 (concerning certain personal tax liens which relate to tax years as far back as 1993 and which have been paid off, and two customer complaints), and to have willfully failed to disclose certain tax liens for part of the period in question. In connection only with his duties at DPEC Capital, Mr. Mathis received a three-month suspension (plus a second ten-day suspension which would run concurrently), and was fined $12,500. (These sanctions will not take effect at least until the pending appeal with the Second Circuit is decided.) By finding that he acted “willfully” in part, Mr. Mathis may in the future become subject to a “statutory disqualification” if this finding is not ultimately reversed on appeal. In
29
that event, he may be required to cease working for DPEC Capital, which could have a material adverse effect on DPEC Capital’s prospects and performance.

Mr. Mathis never disputed that he failed to timely make these disclosures on his Form U-4. However, he does and continues to dispute the willfulness finding, and is appealing this finding. Mr. Mathis appealed the Office of Hearing Officers’ decision to the FINRA National Adjudicatory Council (NAC). On December 16, 2008, NAC affirmed the decision of the Office of Hearing Officers pertaining to the “willfulness” issue, and even slightly broadened it. Mr. Mathis is currently appealing to the Second Circuit on the issue of “willfully” in making material misstatement on his Form U-4 in connection with disclosure relating to certain tax liens.  The suspensions and fine against Mr. Mathis have been stayed pending appeal.

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, except with respect to the following:

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.

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.

Board of Directors Meetings

Our Board of Directors did not hold any meetings during the year ended May 31, 2011.

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Communications with the Board of Directors

Stockholders 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.

Board Committees

Because the Board of Directors consists of only three members and the Company’s operations remain amendable to oversight by a limited number of directors, the Board has not delegated any of its functions to committees and does not have an audit committee, a compensation committee or a nominating committee.  The functions customarily attributable to these committees currently are performed by the Board of Directors as a whole.

Director Independence

At this time, the Company is not subject to the requirements of a national securities exchange or an inter-dealer quotation system with respect to the need to have any independent directors or to have any audit committee comprised of independent directors. Our Board of Directors believes that the director independence requirements of the SEC provide the appropriate standard for assessing director independence, and our Board of Directors uses these requirements in assessing the independence of each of its members. Our Board of Directors has determined that none of our current directors are “independent,” because each of them otherwise is affiliated with the Company as an officer and shareholder.

Director Nominations

The entire Board of Directors acts as the Company’s nominating committee and the Board has not adopted a nominating committee charter. The Board believes that, considering the size of the Company and the Board of Directors, decisions relating to nominations for election to the Board can be made on a case-by-case basis and without the formality of a nominating committee by all members of the Board. The Board of Directors does not have an express policy with regard to the consideration of any director candidates recommended by stockholders since the Board believes that it can adequately evaluate any such nominees on a case-by-case basis. The Board will consider stockholder recommendations for director nominees that are properly received in accordance with the Company’s bylaws and the applicable rules and regulations of the Securities and Exchange Commission. The Board will evaluate stockholder-recommended candidates under the same criteria as internally generated candidates. Although the Board does not currently have formal minimum criteria for nominees, the Company believes that its directors should have the highest professional and personal ethics and values. They should be committed to enhancing stockholder value and should have sufficient time to carry out their duties and to provide insight and practical wisdom based on experience. Their service on other boards of public companies should be limited to a number that permits them, given their individual circumstances, to perform responsibly all director duties. Each director must represent the interest of all stockholders.  Although the Company does not have a formal written diversity policy for the Board, the Board determines the most appropriate mix of characteristics, skills and experiences for the Board as a whole to possess at any given time, with the objective of having a Board with adequately diverse backgrounds and experiences in light of the circumstances existing at that time.  When considering potential director candidates, the Board considers the candidate’s character, judgment, diversity, age, skills, including financial literacy and experience in the context of the Company’s needs and the needs of the Board of Directors. Substantial relevant business and industry experience would generally be considered important qualifying criteria, as would the ability to attend and prepare for director and stockholder

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Audit Committee Functions

The entire Board of Directors acts as the Company’s audit committee and the Board has not adopted an audit committee charter. The Board views its duties as an audit committee as follows: (i) review recommendations of independent registered accountants concerning the Company’s accounting principles, internal controls and accounting procedures and practices; (ii) review the scope of the annual audit; (iii) approve or disapprove each professional service or type of service other than standard auditing services to be provided by the registered public accountants; and (iv) review and discuss with the independent registered public accountants the audited financial statements. The Board has determined that it does not currently have a director that qualifies as an audit committee financial expert as defined within Section 229.407(d)(5) of the Exchange Act.

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, 2011.


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, 2011.

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, 2011.

ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS

The following table sets forth information on the beneficial ownership of our common stock by (i) each person who we anticipate being a beneficial owner of more than 5% of our common stock, (ii) each of our anticipated directors and executive officers, and (iii) all of our anticipated 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
32
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.

Unless otherwise specified, the address of each of the persons set forth below is in care of Diversified Private Equity Corporation, 135 Fifth Avenue, 10 th Floor, New York, NY 10010.

Name of Beneficial Owner
Shares
Beneficially
Owned
Percentage
of Class
5% Shareholder s
Diversified Private Equity Corporation (1)
43,822,401
96.5%
135 Fifth Avenue
10 th Floor
New York, NY 10010
Directors and Executive Officer s
Scott Mathis (2)
9,323,291
20.5%
Julian Beale
-
0.0%
Peter Lawrence
-
0.0%
Tim Holderbaum  (3)
2,797,677
6.2%
All directors and executive officers as a grou p (4 persons) (2 )
12,120,967
26.7%

(1)
Scott Mathis is the Chief Executive Officer, President, Chairman of the Board and a significant shareholder of DPEC and has shared voting and dispositive power with respect to the shares owned by DPEC.

(2)
Consists of 9,323,291 shares of common stock held by DPEC, which represents Mr. Mathis’s pro rata indirect interest in the Company. Mr. Mathis is the Chief Executive Officer, President, Chairman of the Board and a significant beneficial shareholder of DPEC. Mr. Mathis has shared voting and dispositive power, and may be deemed to be the indirect beneficial owner, of such shares. Mr. Mathis disclaims beneficial ownership of such shares except to the extent of his pecuniary interest in DPEC.
(3)
Consists of 2,797,677 shares of common stock held by DPEC, which represents Mr. Holderbaum’s pro rata indirect interest in the Company. Mr. Holderbaum is the Executive Vice President and Chief Financial Officer of DPEC. Mr. Holderbaum has shared voting and dispositive power, and may be deemed to be the indirect beneficial owner, of such shares. Mr. Holderbaum disclaims beneficial ownership of such shares except to the extent of his pecuniary interest in DPEC.


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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, 2011, were provided without cost by Diversified Private Equity Corporation.

On September 30, 2010, The Wow Group, LLC, the managing member of InvestProperty Group, LLC, a Delaware limited liability company (hereinafter “IPG”), and the Board of Directors of DPEC, entered into a strategic combination under the Exchange Agreement, dated September 30, 2010 (the “Exchange Agreement”).
Under the terms of the Exchange Agreement, the members of IPG exchanged all of the issued and outstanding managing and non-managing membership interest units in IPG for shares of DPEC. IPG became a wholly-owned subsidiary of DPEC. As a result of the Exchange Agreement, former IPG members own 88.99% and existing DPEC shareholders own 11.01% of DPEC, on a non-diluted basis.

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.

ITEM 14.   PRINCIPAL ACCOUNTANT FEES AND SERVICES

The firm of Robison Hill & Company has acted as independent auditor for the registrant for the fiscal years ended May 31, 2001 through 2011. The Independent Auditors’ Report on the financial statements of the registrant for each of the last five 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:

Year Ended
May 31, 2011
Year Ended
May 31, 2010
Audit Fees
$ 6,661 $ 7,350
Audit - Related Fees
Tax Fees
231 231
All Other Fees
- -
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 Robison, Hill & Company 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.

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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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ITEM 15.   EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)  The following documents are filed as part of this report.

1.
Financial Statements
2.
Financial Statement Schedules. None.
3.
Exhibits
The following exhibits are included as part of this report:

Exhibit
Number
Description
3.1
Articles of Incorporation.*
3.1A
Articles of Amendment to Articles of Incorporation (incorporated by reference to Exhibit 3.1 to registrant’s Current Report on Form 8-K filed May 30, 2009).
3.2
Bylaws of the Registrant (incorporated by reference to Exhibit 3.2 to registrant’s Current Report on Form 8- K filed May 30, 2009).
3.3
Plan of Recapitalization adopted August 4, 2004.*
10.1
Stock Purchase Agreement by and between Diversified Private Equity Corporation, Mercari Communications Group, Ltd., Kanouff, LLC and Underwood Family Partners, LTD., dated as of November 9, 2009 (incorporated by reference to Exhibit 10.1 to our Form 8-K filed on November 11, 2009).
________________________
*  Incorporated by reference to such exhibits filed with Form 10-KSB for the fiscal year ended May 31, 2006.

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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:  August 22, 2011
By /s/ Scott Mathis
Scott 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 22 nd day of August 2011.

Signatures
Title
/s/ Scott Mathis
President, Chief Executive Officer and Director
Scott Mathis
(Principal Executive Officer)
/s/ Tim F. Holderbaum
Executive Vice President, Chief Financial Officer, Treasurer and Secretary
Tim F. Holderbaum
(Principal Financial Officer and Principal Accounting Officer)
/s/ Julian Beale
Director
Julian Beale
/s/ Peter Lawrence
Director
Peter Lawrence

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TABLE OF CONTENTS
Part IItem 1. BusinessItem 1A. Risk FactorsItem 1B. Unresolved Staff CommentsItem 2. PropertiesItem 3. Legal ProceedingsItem 4. [reserved]Part IIItem 5. Market For The Registrant S Common Equity, Related StockholderItem 6. Selected Financial DataItem 7. Management S Discussion and Analysis Of Financial Condition andItem 7A. Quantitative and Qualitative Disclosure About Market RiskItem 8. Financial Statements and Supplementary DataNote 1 - Organization and Summary Of Significant Accounting PoliciesNote 1 - Organization and Summary Of Significant Accounting Policies (continued)Note 2 - Income TaxesNote 3 - Development Stage CompanyNote 4 - CommitmentsNote 5 - Common Stock TransactionsNote 5 - Common Stock Transactions (continued)Note 6 - Related Party TransactionsNote 7 Quasi-reorganizationNote 8 - Uncertain Tax PositionsNote 9 Stock Purchase AgreementNote 9 Stock Purchase Agreement (continued)Note 10 Subsequent EventsItem 9. Changes in and Disagreements with Accountants on Accounting andItem 9A. Controls and ProceduresItem 9B. Other InformationPart IIIItem 10. Directors, Executive Officers, and Corporate GovernanceItem 11. Executive CompensationItem 12. Security Ownership Of Certain Beneficial Owners and ManagementItem 13. Certain Relationships, Related Transactions, Director IndependenceItem 14. Principal Accountant Fees and ServicesPart IVItem 15. Exhibits and Financial Statement Schedules

Exhibits

31.1 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.