UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.20549

 

FORM 10-Q

 

(Mark one)

[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended August 31, 2017

 

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

 

Commission file number 0-17284

 

MERCARI COMMUNICATIONS GROUP, LTD.

(Exact name of registrant as specified in its charter)

 

Colorado		84-1085935
(State or other jurisdiction		(IRS Employer
of incorporation or organization)		Identification No.)

 

1120 Avenue of the Americas, 4^th floor, New York, NY 10036

(Address of principal executive offices)

 

714-858-1147

(Issuer’s telephone number)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes [  ] No [X]

 

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

 

Large accelerated filer	[  ]	Accelerated filer	[  ]
Non-accelerated filer	[  ]	Smaller reporting company	[X]
		Emerging growth company	[X]

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) [  ]

 

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

Yes [X] No [  ]

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practical date: As of September 30, 2017, there were outstanding 45,411,400 shares of the registrant’s common stock.

 

 

 

MERCARI COMMUNICATIONS GROUP, LTD.

FORM 10-Q

August 31, 2017

INDEX

 

			Page
Cautionary Statement Regarding Forward-looking Information			3
Part I – Financial Information			4
Item 1.	Condensed Financial Statements		4
	Condensed Balance Sheets		4
	Condensed Statements of Operations		5
	Condensed Statements of Cash Flows		6
	Notes to Condensed Financial Statements		7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		13
Item 3.	Quantitative And Qualitative Disclosures About Market Risk		15
Item 4.	Controls and Procedures		16
Part II – Other Information			16
Item 1.	Legal Proceedings		16
Item 1A.	Risk Factors		16
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		16
Item 3.	Defaults Upon Senior Securities		16
Item 4.	Mine Safety Disclosures		17
Item 5.	Other Information		17
Item 6.	Exhibits		17
	Signatures		18

 

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING

INFORMATION

 

This Quarterly Report on Form 10-Q 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.

 

All forward-looking statements are qualified in their entirety by this cautionary statement, and the Company undertakes no obligation to revise or update this Quarterly Report on Form 10-Q 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.

 

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

MERCARI COMMUNICATIONS GROUP, LTD

BALANCE SHEETS

 

		August 31, 2017 (Unaudited)				May 31, 2017 (Audited)
ASSETS
CURRENT ASSETS
Cash		$	-			$	-
Total assets						$	-
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued liabilities		$	57,246			$	38,228
Due to related parties			181,546				166,677
Total liabilities			238,792				204,905
STOCKHOLDERS' DEFICIT
Common stock, par value $0.0001 per share, 950,000,000 shares authorized; 45,411,400 shares issued and outstanding			454				454
Additional paid in capital			158,722				158,722
Accumulated deficit			(397,968	)			(364,081	)
Total stockholders' deficit			(238,792	)			(204,905	)
TOTAL LIABILITIES AND DEFICIT		$	-			$	-

 

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

 

 

 

MERCARI COMMUNICATIONS GROUP, LTD

STATEMENTS OF OPERATIONS

(UNAUDITED)

 

		For The Three Months Ended August 31,
		2017				2016
Revenue		$	-			$	-
Expenses
General and administrative			33,887				8,920
Net loss		$	(33,887	)		$	(8,920	)
Basic and diluted loss per share		$	(0.001	)		$	(0.0002	)
Weighted average shares			45,411,400				45,411,400

 

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

 

 

MERCARI COMMUNICATIONS GROUP, LTD

STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

		FOR THE THREE MONTHS ENDED AUGUST 31,
		2017				2016
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss		$	(33,887	)		$	(8,920	)
Change in operating assets and liabilities
Accounts payable and accrued liabilities			19,018				4,316
Net cash used in operating activities			(14,869	)			(4,604	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from related parties advance			14,869				5,500
Net cash provided by financing activities			14,869				5,500
NET INCREASE IN CASH AND CASH EQUIVALENTS			-				896
CASH AT THE BEGINNING OF PERIOD			-				1,765
CASH AT THE END OF PERIOD		$	-			$	2,661

 

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

 

MERCARI COMMUNICATIONS GROUP, LTD.

NOTES TO FINANCIAL STATEMENTS

AUGUST 31, 2017 AND MAY 31, 2017

 

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Organization

 

Mercari Communications Group, Ltd. (the “Company”) was incorporated under the laws of the State of Colorado on December 30, 1987. From 1988 until 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, 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 1990. The Company ceased all operations from 1990 to 2001 and was dormant. During this period 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 2001 to 2004, the Company was in the development stage. On August 3, 2004, the shareholders of the Company approved a plan of quasi-reorganization which called for a restatement of accounts to eliminate the accumulated deficit and related capital accounts on the Company’s balance sheet. The quasi-reorganization was effective March 1, 2004. Since March 1, 2004, the Company is in the development stage, and has not commenced planned principal operations. The Company has no products or services as of August 31, 2017.

 

Going Concern

 

The accompanying financial statements were 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 $33,887 for the quarter ended August 31, 2017, 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. 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 it 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 the actions already taken or planned, will mitigate the 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 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.

 

Basis of Presentation

 

The financial statements were prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) and pursuant to the rules and regulations of the SEC for annual financial statements.

 

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.

 

 

Use of Estimates

 

The preparation of financial statements in conformity with US GAAP 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.

 

Development Stage Company

 

The Company is a development stage company as defined by section 915-10-20 of the FASB Accounting Standards Codification (“ASC”). Although the Company has recognized nominal amounts of revenue, it is still devoting substantially all of its efforts on establishing the business. All losses accumulated since its inception on March 1, 2004 were considered part of the Company’s development stage activities.

 

In June 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-10, Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation.

 

The amendments in this ASU remove the definition of a development stage entity from the Master Glossary of the Accounting Standards Codification, thereby removing the financial reporting distinction between development stage entities and other reporting entities from U.S. GAAP. In addition, the amendments eliminate the requirements for development stage entities to (1) present inception-to-date information in the statements of income, cash flows, and shareholder equity, (2) label the financial statements as those of a development stage entity, (3) disclose a description of the development stage activities in which the entity is engaged, and (4) disclose in the first year in which the entity is no longer a development stage entity that in prior years it had been in the development stage.

 

For public business entities, those amendments are effective for annual reporting periods beginning after December 15, 2014, and interim periods therein. The Company adopted ASU No. 2014-10, Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements. The adoption of this ASU allows the Company to remove the inception to date information and all references to the development stage.

 

Income Taxes

 

The Company accounts for income taxes under Section 740-10-30 of the FASB ASC, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns.

 

Under this method, deferred tax assets and liabilities are based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the statements of operations in the period that includes the enactment date.

 

The estimated future tax effects of temporary differences between the tax basis of assets and liabilities are reported in the accompanying balance sheets, as well as tax credit carry-backs and carry-forwards. The Company periodically reviews the recoverability of deferred tax assets recorded on its balance sheets and provides valuation allowances as management deems necessary.

 

Management makes judgments as to the interpretation of the tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liability. In addition, the Company operates within multiple taxing jurisdictions and is subject to audit in these jurisdictions. In management’s opinion, adequate provisions for income taxes have been made for all years. If actual taxable income by tax jurisdiction varies from estimates, additional allowances or reversals of reserves may be necessary.

 

 

Uncertain Tax Positions

 

The Company follows paragraph 740-10-25 of the FASB ASC. Paragraph 740-10-25-13 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under paragraph 740-10-25-13, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination. Interest associated with unrecognized tax benefits are classified as interest expense and penalties are classified in selling, general and administrative expenses in the statements of income.

 

The Company did not take any uncertain tax positions and had no unrecognized tax liabilities or benefits in accordance with the provisions of Section 740-10-25 at August 31 or May 31, 2017. The tax years 2014-2016 remain open to examination for federal income tax purposes and by the other major taxing jurisdictions to which the Company is subject.

 

Loss per Share

 

Basic loss per share has been computed by dividing the loss for the period applicable to the common shareholders by the weighted average number of common shares during the years. There are no outstanding common stock equivalents for the three months ended August 31 or May 31, 2017 and they are thus not considered.

 

Concentration of Credit Risk

 

The Company has no significant off-balance-sheet concentrations of credit risk such as foreign exchange contracts, options contracts or other foreign hedging arrangements.

 

Fair Value of Financial Instruments

 

The carrying value of cash and accrued expenses, if applicable, approximate their fair values based on the short-term maturity of these instruments. The carrying amounts of debt were also estimated to approximate fair value.

 

The Company utilizes the methods of fair value (“FV”) measurement as described in ASC 820 to value its financial assets and liabilities. As defined in ASC 820, FV is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In order to increase consistency and comparability in FV measurements, ASC 820 establishes a FV hierarchy that prioritizes observable and unobservable inputs used to measure FV into three broad levels, which are described below:

 

Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The FV hierarchy gives the highest priority to Level 1 inputs.

 

Level 2: Observable prices that are based on inputs not quoted on active markets, but corroborated by market data.

 

Level 3: Unobservable inputs are used when little or no market data is available. The FV hierarchy gives the lowest priority to Level 3 inputs.

 

 

Related Parties

 

The Company follows subtopic 850-10 of the FASB ASC for the identification of related parties and disclosure of related party transactions. Pursuant to Section 850-10-20 related parties include: a. affiliates of the Company; b. entities for which investments in their equity securities would be required, absent the election of the FV option under the FV Option Subsection of Section 825–10–15, to be accounted for by the equity method by the investing entity; c. trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; d. principal owners of the Company; e. management of the Company; f. other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and g. other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.

 

The financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of financial statements is not required in those statements.

 

The disclosures shall include: a. the nature of the relationship(s) involved; b. a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; c. the dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and d. amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.

 

Commitments and Contingencies

 

The Company follows subtopic 450-20 of the FASB ASC to report accounting for contingencies. Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment.

 

In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.

 

If the assessment of a contingency indicates it is probable a material loss was incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed.

 

Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed. Management does not believe, based upon information available at this time that these matters will have a material adverse effect on the Company’s financial position, results of operations or cash flows. However, there is no assurance that such matters will not materially and adversely affect the Company’s business, financial position, and results of operations or cash flows.

 

New Accounting Pronouncements

 

In August 2016, the FASB issued ASU No. 2016-15, Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 clarifies the presentation and classification of certain cash receipts and cash payments in the statement of cash flows. This ASU is effective for public business entities for fiscal years, and interim periods within those years, beginning after December 15, 2017. Early adoption is permitted. The Company is currently assessing the potential impact of ASU 2016-15 on its financial statements.

 

 

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. The guidance requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The standard is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The standard should be applied using a retrospective transition method to each period presented. The Company does not anticipate the adoption of this ASU will have a significant impact on its financial statements.

 

In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, which clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The standard is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. The standard should be applied prospectively on or after the effective date. The Company will evaluate the impact of adopting this standard prospectively upon any transactions of acquisitions or disposals of assets or businesses.

 

The Company has reviewed all other recently issued but not yet effective accounting pronouncements and have determined that these new accounting pronouncements are either not applicable or would not have a material impact on the results of operations or changes in the financial position.

 

NOTE 2 - RELATED PARTY TRANSACTIONS

 

As of August 31, 2017, the Company had due to related parties $181,546, of which, 1) $164,877 was due to China Concentric as a result of an assignment of rights to advances previously made by Algodon, the Company’s former parent. The assignment of rights was made concurrent with the sale by Algodon of its shares in the Company to China Concentric on January 20, 2017. This advance carries no interest. 2) $1,800 advanced to the Company for paying certain company’s expenses by Mr. Zhu, a shareholder of the Company. 3) $14,869 advanced to the Company for paying G&A expenses by an officer of the Company.

 

As of May 31, 2017, the Company had 1) advances due China Concentric of $164,877. This total advance, which was assigned to China Concentric by Algodon, carries no interest. 2) $1,800 advanced to the Company for paying certain Company expenses by Mr. Zhu, a shareholder of the Company.

 

NOTE 3 - INCOME TAXES

 

As of August 31, 2017, the Company had a net operating loss (“NOL”) carry-forward for income tax reporting purposes of approximately $396,000 that may be offset against future taxable income through 2036. 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 that the realization of the Company’s net deferred tax assets resulting from NOL 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.

 

Components of deferred tax assets are as follows:

 

		August 31, 2017				May 31, 2017
Expected income tax benefit from NOL carry-forwards		$	136,604			$	123,180
Less: valuation Allowance			(136,604	)			(123,180	)
Net deferred tax assets – Non-current:		$	-			$	-

 

 

The provision for income taxes differs from the amount computed using the federal US statutory income tax rate for the three months ended August 31, 2017 and 2016 is as follows:

 

		2017				2016
Provision (Benefit) at US Statutory Rate		$	(11,521	)		$	(3,033	)
Increase (Decrease) in Valuation Allowance			11,521				3,033
		$	-			$	-

 

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.

 

NOTE 4 – CHANGE IN CONTROL

 

On January 20, 2017, Algodon Wines & Luxury Development Group, Inc. (“Algodon”), the owner of at least 43,822,001 shares (the “Algodon Shares”), or 96.5% of the outstanding common stock of the Company, sold the Algodon Shares to China Concentric Capital Group Ltd., a British Virgin Islands company (“China Concentric”), for $260,000 pursuant to a Stock Purchase Agreement dated December 20, 2016, as amended. Algodon also assigned to China Concentric all its right, title and interest to amounts payable to Algodon for non-interest bearing advances to the Company, which advances, as of January 20, 2017 were $164,877.

 

On February 2, 2017, China Concentric sold to Mr. Quanzhong Lin, an entrepreneur resident in the People’s Republic of China, 29,521,410 of the shares it purchased from Algodon, representing approximately 65% of the outstanding shares of the Company’s common stock, for $300,000, pursuant to a Stock Purchase Agreement dated December 21, 2016.

 

Mr. Lin indicated he is purchasing a controlling interest in the Company with the intention of acquiring an operating business in a reverse acquisition transaction through a share exchange. There can be no assurance that an acquisition of any particular business will be consummated.

 

On July 21, 2017, the Company entered into an Agreement and Plan of Merger pursuant to which the Company would be merged with and into a newly-formed wholly-owned subsidiary, AiXin Life International, Inc., a Nevada corporation, as a result of which the Company’s state of incorporation would be changed from Colorado to Nevada. The Merger was subject to approval by the Financial Regulatory Authority. On August 25, 2017, the Company terminated the Agreement and Plan of Merger with its newly-formed wholly-owned subsidiary, AiXin Life International, Inc., as a result of which it would have become a Nevada corporation.

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

General

 

The following discussion of our financial condition and results of operations should be read in conjunction with the unaudited financial statements and the notes to those statements included elsewhere in this Form 10-Q and with the audited financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended May 31, 2017 (the “2017 Form 10-K”) and with the Management’s Discussion and Analysis of Financial Condition and Results of Operations in the 2017 Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties. You should specifically consider the various risk factors identified in our 2017 Form 10-K, that could cause actual results to differ materially from those anticipated in these forward-looking statements.

 

Plan of Operations

 

We are a “shell company” (as that term is defined in Rule 12b-2 under the Exchange Act) because we have no or nominal assets (other than cash) and no or nominal operations.

 

We are a development stage business, which intends to acquire a United States or foreign based business which is privately owned and wishes to become a publicly owned business. We were inactive and did not file reports required under the Exchange Act from 1990 through 2000, and have not conducted any material business operations since 1990. We were reactivated in 2001.

 

During each of the years since we were reactivated, we had no revenue and had losses approximately equal to the expenditures made to reactivate and meet 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 advances from our affiliates.

 

We will seek, investigate, and if such investigation warrants, acquire an interest in business opportunities presented to us by persons or firms who or which desire to seek the perceived advantages of an Exchange Act registered corporation. We will not restrict our search to any specific business, industry, or geographical location and the Company may participate in a business venture of virtually any kind or nature. This discussion of the proposed business is purposefully general and is not meant to be restrictive of our virtually unlimited discretion to search for and enter into potential business opportunities.

 

We may seek a business opportunity with entities which have recently commenced operations, or which wish to utilize the public marketplace in order to raise additional capital in order to expand into new products or markets, to develop a new product or service, or for other corporate purposes. We may acquire assets and establish wholly-owned subsidiaries in various businesses or acquire existing businesses as subsidiaries.

 

We will attempt to acquire other assets or business operations that will maximize stockholder value. There is no certainty that any such transactions will be consummated. We will seek to establish or acquire businesses or assets via the issuance of shares or debt. In pursuing the foregoing goals, we may seek to expand or change the composition of the Board or make changes to our current capital structure, including issuing additional shares or debt and adopting a stock option plan. We have not yet entered into any definitive agreement, nor do we have any binding commitment or understanding to enter into or become engaged in a transaction.

 

During the next 12 months we anticipate incurring costs to file Exchange Act reports, and costs to consummate an acquisition. Since we have no cash we will seek to borrow such funds as are necessary to pay our expenses. We believe we will be able to meet these costs through use of funds in our treasury and additional amounts, as necessary, to be loaned by or invested in us by our stockholders, management or other investors. We have no specific plans, understandings or agreements with respect to the raising of such funds, and we may seek to raise the required capital by the issuance of equity or debt securities or by other means. Since we have no such arrangements or plans currently in effect, our inability to raise funds for the consummation of an acquisition may have a severe negative impact on our ability to become a viable company.

 

Results of Operations

 

The Company is a development stage business, which intends to acquire a United States or foreign based business which is privately owned and wishes to become a publicly owned business. The Company was inactive and did not file reports required under the Securities Exchange Act of 1934 (“Exchange Act”) from 1990 through 2000, and has not conducted any material business operations since 1990. The Company was reactivated in 2001 and is now current in its state and United States internal revenue filing obligations and the Company has filed all reports required to be filed by it with the SEC under the Exchange Act, during the past seven years. The Company is now actively seeking one or more acquisition candidates.

 

 

During each of the years since the Company was reactivated, the Company had no revenue and had losses approximately equal to the expenditures made to reactivate and meet filing and reporting obligations. We did not have any revenues during the three months ended August 31, 2017. We do not expect any revenue unless and until a business acquisition transaction is completed.

 

We incurred operating expenses of $33,887 and $8,920 for the three months ended August 31, 2017 and 2016, respectively. Our expenses are primarily to maintain our corporate existence, file reports with the Securities and Exchange Commission, including the preparation and audit of our financial statements, and expenses associated with finding an appropriate acquisition candidate. Our expenses have been paid from capital contributions and advances from affiliates of the Company.

 

For the three months ended August 31, 2017 and 2016, we had net loss of $33,887 and $8,920, respectively, due to the items reflected above.

 

Liquidity and Capital Resources

 

We require working capital principally to fund our operations which consist of filing required documents with federal and state regulatory authorities to remain 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, we may be required to supplement our 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 to us or, if available, be on terms favorable to us.

 

Our business plan may require substantial funding from a public or private offering of its common stock in connection with a business acquisition, for which we have no commitments. We may actively pursue other financing or funding opportunities at such time as a business acquisition opportunity becomes available.

 

As of August 31, 2017, we had $0 in cash. We have financed our operations primarily from advances from related parties. At August 31, 2017, the balance due to our shareholders and officer was $181,546, which was payable on demand without interest. Since we have no cash, we cannot satisfy our cash requirements and need to obtain financing. We cannot assure investors that adequate financing will be available. In the absence of such financing, we may be unable to proceed with our plan of operations.

 

At August 31, 2017 and May 31, 2017, the amounts due to related parties was $181,546 and $166,677, respectively.

 

Contractual Obligations

 

At August 31, 2017, our sole obligations were our accounts payable and the loan due to our stockholders and officer in the aggregate amount of $238,792.

 

Off-Balance Sheet Arrangements

 

We do not maintain any off-balance sheet arrangements, transactions, obligations or other relationships with unconsolidated entities that would be expected to have a material current or future effect upon our financial condition or results of operations.

 

 

Critical Accounting Policies and Estimates

 

Going Concern

 

As shown in the accompanying financial statements, at August 31, 2017, we had no cash, a deficit working capital of $238,792 and an accumulated stockholders’ deficit of $397,968, and a net loss of $33,887 for the three months ended August 31, 2017, which raise substantial doubt about our ability to continue as a going concern.

 

The report of our independent registered public accountants on our financial statements for the year ended May 31, 2017 states that these conditions, among others, raise substantial doubt about our ability to continue as a going concern. Our financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amount and classification of liabilities that might be necessary in the event we cannot continue as a going concern.

 

Our future success is dependent upon, among other things, our ability to raise additional capital or to secure a future business combination. There is no guarantee that we will be able to raise enough capital or generate revenues to sustain our operations. Our management believes it can raise the appropriate funds needed to support its business plan and acquire an operating company with positive cash flow.

 

Recent Accounting Pronouncements

 

In August 2016, the FASB issued ASU No. 2016-15, Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 clarifies the presentation and classification of certain cash receipts and cash payments in the statement of cash flows. This ASU is effective for public business entities for fiscal years, and interim periods within those years, beginning after December 15, 2017. Early adoption is permitted. The Company is currently assessing the potential impact of ASU 2016-15 on its financial statements.

 

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. The guidance requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The standard is effective for fiscal years beginning after December 15, 2017, and interim period within those fiscal years. Early adoption is permitted, including adoption in an interim period. The standard should be applied using a retrospective transition method to each period presented. The Company does not anticipate the adoption of this ASU will have a significant impact on its financial statements.

 

In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, which clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The standard is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. The standard should be applied prospectively on or after the effective date. The Company will evaluate the impact of adopting this standard prospectively upon any transactions of acquisitions or disposals of assets or businesses.

 

The Company has reviewed all other recently issued but not yet effective accounting pronouncements and have determined that these new accounting pronouncements are either not applicable or would not have a material impact on its results of operations or financial position.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

As a smaller reporting company, the Company is not required to provide the information required by this Item.

 

 

Item 4. Controls and Procedures.

 

Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) 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.

 

During the quarter ended February 28, 2017, there was a change in control of our Company as a result of the sale of more than 95% of our outstanding shares. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that the design and operation of our disclosure controls and procedures were not effective as of such date to provide assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and that such information is accumulated and communicated to management as appropriate to allow timely decisions regarding disclosure. The principal deficiency in our controls and procedures derives from the lack of familiarity of current management with U. S. Securities Laws and Regulations and applicable accounting standards.

 

Changes in Internal Control over Financial Reporting

 

There have not been any changes in our internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during our most recently completed fiscal quarter which is the subject of this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

PART II – OTHER INFORMATION

 

Item 1. Legal Proceedings

 

There is no pending litigation to which the Company is presently a party or to which the Company’s property is subject and management is not aware of any litigation which may arise in the future.

 

Item 1A. Risk Factors

 

Reference is made to the risks and uncertainties disclosed in Item 1A (“Risk Factors”) of our 2017 Form 10-K, which are incorporated by reference into this report. Prospective investors are encouraged to consider the risks described in our 2017 Form 10-K, our Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in this report and other information publicly disclosed or contained in documents we file with the Securities and Exchange Commission before purchasing our securities.

 

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

 

During the quarter ended August 31, 2017, we did not have any sales of equity 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.

 

Item 3. Defaults Upon Senior Securities

 

None.

 

 

Item 4. Mine Safety Disclosures

 

N/A.

 

Item 5. Other Information

 

On August 25, 2017, we terminated the Agreement and Plan of Merger with our newly-formed wholly-owned subsidiary, AiXin Life International, Inc., as a result of which we would have become a Nevada corporation.

 

Item 6. Exhibits

 

Exhibit
Number		Description of Exhibit
3.1		Articles of Incorporation (incorporated by reference to the Company’s Annual Report on Form 10-KSB for the fiscal year ended May 31, 2006 as filed with the SEC on March 7, 2007).
3.2		Articles of Amendment to Articles of Incorporation (incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on June 3, 2008).
3.3		Bylaws of the Registrant (incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on June 3, 2008).
10.1		Stock Purchase Agreement dated December 20, 2016, between Algodon and China Concentric, as amended (incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended May 31, 2017 filed with the SEC on September 6, 2017).
10.2		Stock Purchase Agreement dated December 21, 2016, between China Concentric and Quanzhong Lin (incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended May 31, 2017 filed with the SEC on September 6, 2017).
31.1		Certification of the Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of the Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of the Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification of the Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

101.INS XBRL Instance Document

101.SCH XBRL Schema Document

101.CAL XBRL Calculation Linkbase Document

101.DEF XBRL Definition Linkbase Document

101.LAB XBRL Label Linkbase Document

101.PRE XBRL Presentation Linkbase Document

 

 

SIGNATURES

 

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

 

	MERCARI COMMUNICATIONS GROUP, LTD.
Dated: October 16, 2017	By:	/s/ Quanzhong Lin
		Quanzhong Lin
		President and Chief Executive Officer
		(Principal Executive Officer)