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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:
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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.
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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 hadassets 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 24, 2012, there were 45,411,400 shares of the registrant’s common stock outstanding.
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.
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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.