Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-KSB

[X]  

ANNUAL REPORTUNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the fiscal year ended: May 31, 2006

OR

[   ]  

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 small business issuer in its charter)

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

1005 East Cobblestone Drive, Highlands Ranch, CO                      80126
(Address of principal executive offices)                                           (Zip code)

Registrant’s telephone number, including area code:   (303) 791-3888

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)

Check whether the issuer is not required to file reports pursuant to Section 13 on 15(d) of the Exchange Act. [   ]

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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      [   ]           NO  [X]      

Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will 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-KSB or any amendment to this Form 10-KSB.    [X]

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes      [X]           NO  [   ]      

State issuer’s revenues for its most recent fiscal year. The Issuer had no revenue during its most recent fiscal year.

State the aggregate market value of voting and non-voting common equity held by non-affiliates computed with reference to the price at which the common equity was sold, or the average bid and asked price of such common equity, as of a specified date within the past 60 days: the aggregate market value of the voting and non-voting common stock held by non-affiliates as of May 31, 2006 is not possible to determine, as there is no reported public or other market for the common stock or other common equity of the Issuer.

State the number of shares outstanding for each of registrant’s classes of common equity, as of the latest practicable date: As of May 31, 2006 and February 28, 2007, there were 1,062,897 shares of Issuer’s common stock outstanding. No other class of equity securities is issued or outstanding.

Transition Small Business Disclosure Format:     Yes      [   ]            NO  [X]      

DOCUMENTS INCORPORATED BY REFERENCE

List hereunder the documents incorporated by reference and the Part of this Form 10-KSB into which the document is incorporated:   None

      Transitional Small Business Disclosure Format     Yes    [   ]     No  [X]


Table of Contents

TABLE OF CONTENTS

 

PAGE NO.

PART I
   
  3  
 
      Item 1   Description of Business   3  
 
      Item 2   Description of Property   5  
 
      Item 3   Legal Proceedings   6  
 
      Item 4   Submission of Matters to a Vote of Security Holders   6  
 
PART II       6  
 
      Item 5   Market for Common Equity and Related Stockholder Matters   6  
 
      Item 6   Management’s Discussion and Analysis of Financial Condition and Results of Operation   6  
 
      Item 7   Financial Statements   7  
 
      Item 8   Changes In and Disagreements with Accountants on Accounting and Financial Disclosure   8  
 
      Item 8A   Control and Procedures   8  
 
PART III       9  
 
      Item 9   Directors Executive Officeres of the Company   9  
 
      Item 10   Executive Compensation   10  
 
      Item 11   Security Ownership of Beneficial Owners and Management   10  
 
      Item 12   Certain Relationships and Related Transactions   10  
 
      Item 13   Exhibits, and Reports on Form 8-K   11  
 
      Item 14   Principal Accountant Fees & Services   11  
 

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Part I

ITEM 1 DESCRIPTION OF BUSINESS

      Mercari Communications Group, Ltd. (the Company) was incorporated in December 1987 to be a multi-faceted producer and distributor of relevant life management products and services designed to enhance personal development and professional effectiveness.

      The Company completed an Initial Public Offering (IPO) of its securities in September 1988 having sold 77,637,000 units at $0.01 per unit, generating $776,370 in gross proceeds. Each unit consisted of one common share and one Series A Warrant to purchase one common share. Following the offering and after paying debt incurred and offering expenses, net proceeds to the Company were $539,213.

      On April 20, 1989 the Company called all outstanding Series A Warrants for redemption on June 16, 1989. There were 3,137,720 Series A Warrants exercised for total gross proceeds of $32,101. All remaining Series A Warrants expired following the “warrant call”.

      The Company ceased all operations in early 1990 and was dormant until 2001.

      On December 10, 2000 one person who had been a director in 1990 (the other directors had resigned) and two unaffiliated businessmen created a new business plan for the Company and appointed new officers and two new directors for the purpose of implementing the new plan. The new business plan primarily provided for the “clean up” of the Company and for filing of all delinquent reports with the Colorado Secretary of State, the United States Securities and Exchange Commission and the Internal Revenue Service and restructuring the balance sheet and the capital structure. The purpose of these actions is to allow the Company to then acquire an operating privately owned business, through a reverse merger or other transaction, with assets, revenues and earnings that intends to become a publicly owned corporation.

      In December, 2001 the Board of Directors approved the cancellation of 203,250,000 shares previously issued to twenty-one people who had each entered into an agreement with the Company, and with the underwriter for the Company, which required them to each cancel seventy-five percent (75%) of the stock they held if the Company did not meet certain revenue levels within three years from the date of the IPO. The Company did not meet those revenue levels before the Company ceased operations and the shares were thus subject to cancellation. The Board of Directors also authorized the purchase of 758,975,280 restricted common shares at par value by the three Directors for $7,590 in cash and services. Following the cancellation and the purchase there were 950,000,000 common shares issued and outstanding.

      The directors then proceeded to cause the Company to become current in its reporting obligations under the Securities Exchange Act of 1934, and to complete other delinquent filings.

      At a special meeting of shareholders of the Company held August 3, 2004, the shareholders of the Company approved a Plan of Recapitalization pursuant to which a 900-into-1 reverse stock split of all the Company’s outstanding common stock was effected. As a result of the reverse stock split, the number of outstanding common shares was reduced from 950,000,000 to 1,062,897. All references to the Company’s common stock in the balance of this Report have been restated to reflect the reverse stock split. At the shareholders meeting, the shareholders also authorized the Board of Directors to change the name of the corporation by amending the Articles of Incorporation at such time as the Company completes an acquisition transaction with another business entity. Finally, shareholders also approved a “quasi-reorganization” pursuant to which the balance sheet of the Company was adjusted, effective March 1, 2004, the first day of the fourth fiscal quarter, to eliminate accumulated deficit incurred through 1990 and to reduce additional paid-in capital and adjust shareholder equity to more accurately reflect that the financial condition of the Company following its reactivation in 2001.

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      In March 2004 the Company entered into a consulting agreement with an unrelated consulting firm under which the Company engaged the consultant to serve as the Company’s exclusive placement agent and investment banker (i) to assist the Company to seek and evaluate potential acquisition or merger target businesses; and (ii) to advise the Company in evaluating and revising its capital structure in connection with any acquisition transaction. In the agreement the Company agreed to compensate the consultant by paying a cash financing fee equal to seven percent (7%) of the gross proceeds from each transaction completed or commenced during the term of the agreement. A “transaction” for purposes of the agreement included a merger, business combination or reorganization, acquisition and/or purchase of all or substantially all of the securities or stock or assets of another company or any similar transaction or combination thereof. The financing fee and the consultant’s out-of-pocket expenses were to be payable only upon completion of such a transaction. In the Consulting Agreement, the Company agreed to make all filings necessary to remain current under the Securities Exchange Act of 1934, as amended, and to effect the reverse stock split.

      In 2004 the Company’s President, Robert W. Marsik, borrowed $50,000 from an unrelated third party introduced by the consultant. Mr. Marsik contributed the funds to the Company as additional capital. The Company has used a portion of the proceeds of capital to pay amounts owed by the Company to its auditors and legal counsel and to pay costs of the Company incurred in connection with preparing and filing required reports under the Securities Exchange Act of 1934, as amended, and to maintain the Company as current in its filing obligations under that Act, and expenses incurred in connection with holding a special meeting of shareholders to approve the reverse share split and other matters.

      Mr. Marsik’s loan was due March 9, 2006. As security for payment of the note, Mr. Marsik and the other two directors of the Company had pledged a total of 533,083 shares of Company common stock owned by them to an affiliate of the lender as an accommodation pledge. Effective as of May 31, 2006 the Consulting Agreement was terminated and the loan to Mr. Marsik and the pledges of shares were cancelled by the parties.

      Beginning in 2002, the Company, acting through its president, began to seek one or more privately-owned business which would be interested in an acquisition by or of the Company.

      Potentially available business opportunities may occur in many different industries and at various stages of development, all of which will make the task of comparative investigation and analysis of such business opportunities difficult and complex. Due to our limited capital available for investigation and management's limited experience in business analysis, we may not discover or adequately evaluate adverse facts about the opportunity to be acquired.

      Mercari is unable to predict when it may participate in a business opportunity. It expects, however, that the analysis of specific proposals and the selection of a business opportunity may take several months or more. Mercari does not plan to raise additional capital at the present time.

      The manner in which Mercari participates in an acquisition opportunity will depend upon the nature of the opportunity, the respective needs and desires of Mercari and the merger or acquisition candidate, and the relative negotiating strength of Mercari and such merger or acquisition candidate. The exact form or structure of Mercari's participation in a business opportunity or venture will be dependent upon the needs of the particular situation. Mercari’s participation may be structured as an asset purchase, a lease, a license, a joint venture, a partnership, a merger, an acquisition of securities, or another arrangement. Through May 31, 2006, the end of its most recent fiscal year, the Company had not found any acceptable acquisition candidate.

RISK FACTORS

      In addition to the other information contained in this Report, Mercari is subject to a number of risks, including those set forth below.

      No Recent Operating History. Since 2000, Mercari has engaged in minimal operations and has conducted only organizational business, except to become current in reporting with the SEC and other regulatory offices with the intention to acquire, or to be acquired by, an operating privately-owned business. There can be no assurance that our activities will be profitable. As of the date of this Report, Mercari has not entered into any arrangement to participate in any business ventures or purchase any products.

      No Assets. Mercari has no material assets as of the date hereof. Any business activity that we may undertake may require substantial capital.


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      Speculative Nature of Company’s Proposed Operations. The success of Mercari's proposed plan of operation will depend to a great extent on the operations, financial condition and management of the companies with which we may merge or which it acquires. While management intends to seek an acquisition of privately held entities with established operating histories, there can be no assurance that Mercari will be successful in locating an acquisition candidate meeting such criteria. In the event Mercari completes a merger or acquisition transaction, of which there can be no assurance, the success of Mercari's operations will be dependent upon management of the successor firm and numerous other factors beyond Mercari's control. Mercari anticipates that it will seek to merge with or acquire an existing business. After a business combination has been completed, the surviving entity would be Mercari, however, management from the acquired entity will operate Mercari.

      Securities are Not Publicly Traded. Mercari’s shares are not publicly traded and there is no assurance that a public market for Mercari shares will develop.

      Dilution in Acquisition Transaction. Mercari’s plan of operation is based upon a merger with or acquisition of a private concern, which in all likelihood would result in Mercari issuing securities to shareholders of any such target concern. The issuance of previously authorized and unissued common stock of Mercari will result in substantial dilution to present and prospective shareholders of Mercari, which will result in a change in control or management of Mercari.

      Dependence on Management; Limited Participation of Management. The success of Mercari will largely be dependent upon the active participation of Robert W. Marsik, Mercari’s President, Chief Financial Officer and a Director. Mr. Marsik has limited experience in the business in which Mercari proposes to engage and, accordingly, Mercari may obtain outside professionals to assist Mercari to evaluate potential opportunities or business acquisitions. Mr. Marsik has other full time employment and will be available to participate in management decisions only on a part time or as needed basis. Mr. Marsik devotes less than 1% of his time to the business affairs of Mercari, and may be inadequate to properly attend to its business. Mr. Marsik will not be compensated.

      Impact of Limited Time Devoted to Mercari. Opportunities available to Mercari for mergers or acquisitions may be lost or delayed as a result of the limited amount of time devoted to Mercari by management. As a result, an acquisition or merger may never take place.

      No Business Plan. Mercari has not identified the business opportunities in which it will attempt to obtain an interest. Mercari therefore cannot describe the specific risks presented by such business.

      Rights of Dissenting Shareholders. A shareholder of Mercari would have the right to dissent under Colorado law to any statutory plan of merger or consolidation to which Mercari is a party or types of other corporate reorganizations which require shareholder approval.

      No Agreement for Business Combination or Other Acquisition Transaction. Mercari has no arrangement, agreement or understanding with respect to engaging in a merger with, or acquisition of, any entity private or public. There can be no assurance Mercari will be successful in identifying and evaluating suitable merger or acquisition candidates or in concluding a merger or acquisition transaction. Management has not identified any specific business within an industry for evaluation by Mercari. There is no assurance Mercari will be able to negotiate a merger or acquisition on favorable terms.

      Issuance of Additional Shares. Only 1,062,897 shares of common stock of the 950,000,000 authorized shares of common stock of Mercari have been issued. The Board of Directors has the power to issue all unissued shares without shareholder approval. Mercari may issue additional shares of common stock pursuant to a merger with a private corporation or in another type of acquisition transaction. Mercari could in the future issue shares to acquire products, properties or businesses, or for other corporate purposes.

      Lack of Public Market for Securities. Although our common stock is not traded on any public market, and no market exists for our shares and there is no assurance that a regular trading market will develop or if developed, that it will be sustained.

ITEM 2 DESCRIPTION OF PROPERTY

      The principal executive offices of the Company are currently located at the home of the Company’s Chairman, Thomas A. Higgins, 1005 East Cobblestone Drive, Highlands Ranch, Colorado 80126. The telephone number at this address is 303- 791-3888. The Company is receiving the use of this space free of charge from Mr. Higgins.

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ITEM 3 LEGAL PROCEEDINGS

      No material legal proceedings to which the Company is a party or to which the Companies property is subject is pending and no such material proceeding is known by management to be contemplated.

ITEM 4 SUBMISSION OF MATTERS TO A
VOTE OF SECURITY HOLDERS

      No meeting of shareholders of the Company was held during the fiscal year ended May 31, 2006.

PART II

ITEM 5 MARKET FOR COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS

(a)   Market Information.

      No public market for the common stock of the Company existed as of the date of this report, nor for more than the last five years. Any public market which previously existed for the common stock ceased when the business operations were discontinued in August 1990.

Outstanding shares and shareholders

(b)    Holders.

      As of the end of each of the last two fiscal years, the Company had outstanding, or committed for issuance, 1,062,897 shares, held of record by approximately 135 holders.

(c)    Dividends.

      The Company has not declared or paid any dividends on the common stock from inception to the date of this report, although there are no restrictions on the payment of dividends. Further, no dividends are contemplated at any time in the foreseeable future.

(d)    Securities Authorized for Issuance Under Equity Compensation Plans.

      There are not securities of the Company authorized or committed for issuance under any equity or other compensation plan.

ITEM 6 MANAGEMENT’S DISCUSSION AND ANALYSISOF
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 section and Item 7 below.

Plan of Operations

      The Company had no operations from 1990 through 2006. The Company is a development stage business, which intends to acquire or be acquired by a United States or foreign based business which is privately owned and wishes to become a publicly owned business. The Company intends to remain current in its state and federal filing obligations, and is current in its reporting obligations under the Securities Exchange Act of 1934, as amended. The Company is now actively seeking one or more acquisition candidates.

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      During each of the years since the Company was reactivated, the Company has had no revenue and has 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 the three directors.

Liquidity and Capital Resources

      The Company requires working capital principally to fund its current operations. There are no commitments from banks or other lending sources for lines of credit or similar short-term borrowing, but the Company has been able to obtain additional capital required from its directors. From time to time in the past, required short-term borrowing have been obtained from a principal shareholder or other related entities.

      In order to complete any acquisition, the Company 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 Company.

      The Company’s business plan requires substantial funding from a public or private offering of its common stock in connection with a business acquisition, for which the Company has no commitments. The Company intends to actively pursue other financing or funding opportunities.

ITEM 7 FINANCIAL STATEMENTS

      The following financial statements of the Company are included in Item 7:

Page
Report of Robison, Hill & Co., Independent Certified Public Accountants   F-1  
Balance Sheets as of May 31, 2006 and 2005   F-2  
Statements of Operations for the years ended May 31, 2006 and 2005   F-3  
Statement of Stockholders’ Equity for the  
  Period from December 30, 1987 (Inception) to May 31, 2006   F-4  
Statements of Cash Flows for the years ended May 31, 2006 and 2005   F-8  
Notes to Financial Statements   F-9  

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INDEPENDENT AUDITOR’S 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, 2006 and 2005, and the related statements of operations and cash flows for the two years ended May 31, 2006, and the cumulative period from March 1, 2004 (inception of development stage) to May 31, 2006, and the statement of stockholders’ equity for the period from December 30, 1987 (inception) to May 31, 2006. 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. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating 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, 2006 and 2005, and the results of its operations and its cash flows for the two years ended May 31, 2006, and the cumulative period from March 1, 2004 (inception of development stage) to May 31, 2006 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 uncertainty.

 

/s/ Robison Hill & Co.          
Certified Public Accountants


Salt Lake City, Utah
February 10, 2007

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

May 31,
2006
2005
Current Assets      
   Cash   $   1,071   $   3,767  
   Cash in Escrow   62   3,186  
   
 
          Total Current Assets   1,133   6,953  
   
 
          Total Assets   $   1,133   $   6,953  
   
 
Current Liabilities:  
   Accounts Payable & Accrued Liabilities   $   2,100   $      192  
   Shareholder Loans   2,350   2,350  
   
 
          Total Current Liabilities   4,450   2,542  
   
 
          Total Liabilities   4,450   2,542  
   
 
Stockholders’ Equity:  
  Common Stock, Par value $.00001  
    Authorized 950,000,000 shares,  
    Issued 1,062,897 shares at May 31, 2006 and 2005   10   10  
  Paid-In Capital   36,134   36,134  
  Retained deficit (prior to quasi reorganization)   —       —      
  Deficit accumulated during the  
     development stage (prior to quasi reorganization)   —       —      
  Deficit accumulated during the  
     development stage since March 1, 2004  
     in connection with quasi reorganization   (39,461 ) (31,733 )
   
 
     Total Stockholders’ Equity   (3,317 ) 4,411  
   
 
     Total Liabilities and  
       Stockholders’ Equity   $   1,133   $   6,953  
   
 

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

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

For the year ended
May 31,
Cumulative
since
March 1,
2004
Inception of
development
2006
2005
stage
Revenues:       $                —   $                —   $                —  
 
Expenses:  
General and administrative       7,728   19,302   39,461  
     
 
 
     Net Income     $          (7,728 ) $        (19,302 ) $        (39,461 )
     
 
Basic & Diluted Earnings Per Share       $               (0.01)     $           (0.02)
   
 
Weighted Average Shares       1,062,897 1,062,897
   
 















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

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MERCARI COMMUNICATIONS GROUP, LTD.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS’ EQUITY
FOR THE PERIOD FROM DECEMBER 30, 1987 (INCEPTION) TO MAY 31, 2006

Common Stock Common
Stock
Paid-In Retained Deficit
Accumulated
Since
August 31, 2001
Inception of
Development
Stage
(Prior to quasi
Deficit
Accumulated
Since
March 1, 2004
Inception of
Development
Stage
(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   —          
             
 
Restated Balance at May 31, 1988   326,231   3     23,007   (62,639 )    
 
Stock issued for cash - $.0001/sh   1,667   —         150   —          
Stock issued for cash - $.01/sh   86,263   1     776,370   —          
Offering costs   —       —         (126,353 ) —          
Stock issued for cash - $.01/sh   3,150   —         28,354   —          
Net loss   —       —         —       (501,740 )    
             
 
Balance at May 31, 1989   417,311   4     701,528   (564,379 )    
 








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MERCARI COMMUNICATIONS GROUP, LTD.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS’ EQUITY
FOR THE PERIOD FROM DECEMBER 30, 1987 (INCEPTION) TO MAY 31, 2006

Common Stock Common
Stock
Paid-In Retained Deficit
Accumulated
Since
August 31, 2001
Inception of
Development
Stage
(Prior to quasi
Deficit
Accumulated
Since
March 1, 2004
Inception of
Development
Stage
(Since quasi
Shares
Par Value
to be Issued
Capital
Deficit
reorganization)
reorganization)
Balance at May 31, 1989   417,311   $        4   $     —   $  701,528   $  (564,379 )  $     —     $     —  
 
Stock issued for cash -  
   $.0125/share   336   —       —       3,778   —       —        
Stock issued for debt -  
   $.004/share   27,778   —       —       103,355   —       —        
Net loss   —       —       —       —       (3,355 ) —        
Write-off of assets   —       —       —       —       (351,366 ) —        
             
 
Balance at May 31, 1990   445,425   4   —       808,661   (919,100 ) —        
             
 
Balance at May 31, 2001   445,425   4   —       808,661   (919,100 ) —        
 
December 17, 2001 shares  
   to be cancelled   (225,833 ) —       (2 ) 2   —       —        
December 17, 2001 shares  
   to be issued   843,305   —       8   7,582   —       —        
Capital contributed by  
   shareholders   —       —       —       7,677   —       —        
Net loss   —       —       —       —       —       (18,675 )  
             
 
Balance at May 31, 2002   1,062,897   4   6   823,922   (919,100 ) (18,675 )  
 








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MERCARI COMMUNICATIONS GROUP, LTD.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS’ EQUITY
FOR THE PERIOD FROM DECEMBER 30, 1987 (INCEPTION) TO MAY 31, 2006

Common Stock Common
Stock
Paid-In Retained Deficit
Accumulated
Since
August 31, 2001
Inception of
Development
Stage
(Prior to quasi
Deficit
Accumulated
Since
March 1, 2004
Inception of
Development
Stage
(Since quasi
Shares
Par Value
to be Issued
Capital
Deficit
reorganization)
reorganization)
Balance at May 31, 2002   1,062,897   $         4   $         6   $   823,922   $   (919,100 ) $   (18,675 )     $        —  
 
Cancellation of shares previously  
   authorized   —       (2 ) 2   —       —       —       —      
Issuance of shares previously  
   authorized   —       8   (8 ) —       —       —       —      
Net loss   —       —       —       —       —       (6,478 ) —      
             
 
Balance at May 31, 2003   1,062,897   10   —       823,922   (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   1,062,897   10   —       31,134   —       —       (12,431 )
 








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MERCARI COMMUNICATIONS GROUP, LTD.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS’ EQUITY FOR THE PERIOD FROM DECEMBER 30, 1987 (INCEPTION) TO MAY 31, 2006

Common Stock Common
Stock
Paid-In Retained Deficit
Accumulated
Since
August 31, 2001
Inception of
Development
Stage
(Prior to quasi
Deficit
Accumulated
Since
March 1, 2004
Inception of
Development
Stage
(Since quasi
Shares
Par Value
to be Issued
Capital
Deficit
reorganization)
reorganization)
Balance at May 31, 2004   1,062,897   $      10      $     —   $31,134   $  —   $  —   $(12,431 )
Capital contributed by shareholder   —       —         5,000       —      
Net loss   —       —         —           (19,302 )
             
 
Balance at May 31, 2005   1,062,897   10     36,134       (31,733 )
 
Net loss   —       —         —           (7,728 )
             
 
Balance at May 31, 2006   1,062,897   $      10   $ —   $36,134   $ —   $ —   $(39,461 )
             
 




















The accompanying notes are an integral part of these financial statements

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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
2006
2005
Stage
CASH FLOWS FROM OPERATING        
ACTIVITIES :  
Net Loss   $(7,728 ) $(19,302 ) $(39,461 )
(Increase) Decrease in Prepaid Expenses   —       3,500   —      
Increase (Decrease) in Accounts Payable   1,908   (1,436 ) (16,866 )
     
 
  Net Cash Used in operating activities   (5,820 ) (17,238 ) (56,327 )
     
 
CASH FLOWS FROM INVESTING  
ACTIVITIES :  
  Net cash provided by investing activities   —       —       —      
     
 
CASH FLOWS FROM FINANCING  
ACTIVITIES :  
Proceeds from shareholder loans   —       1,800   2,350  
Cash contributed by shareholders   —       5,000   55,000  
     
 
  Net Cash Provided by financing activities   —       6,800   57,350  
     
 
Net (Decrease) Increase in  
  Cash and Cash Equivalents   (5,820 ) (10,438 ) 1,023  
Cash and Cash Equivalents  
  at Beginning of Period   6,953   17,391   110  
     
Cash and Cash Equivalents  
  at End of Period   $ 1,133   $   6,953   $   1,133  
     
 
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:
None

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

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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) 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 Mercari Communications Group, Ltd. (hereto referred to as 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 $39,461 for the period from March 1, 2004 (inception of development stage) to May 31, 2006, 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 committed to meeting its minimal 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.

Organization and Basis of Presentation

      The Company was incorporated under the laws of the State of Colorado on December 30, 1987. The Company ceased all operating activities during the period from June 1, 1990 to August 31, 2001 and was considered dormant. From August 31, 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.

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

NOTE 1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)

Nature of Business

      The Company has no products or services as of May 31, 2006. 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 SFAS No.109, “Accounting for Income Taxes.” SFAS No.109 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, 2006 and 2005 and 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.

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

NOTE 2 — INCOME TAXES

      As of May 31, 2006, the Company had a net operating loss carry forward for income tax reporting purposes of approximately $39,461 that may be offset against future taxable income through 2025. 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.

2006
2005
Net Operating Losses   $ 5,919   $ 4,760  
Valuation Allowance   (5,919 ) (4,760 )
   
  $     — $     —
   
 

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

2006
2005
Provision (Benefit) at US Statutory Rate   $ 1,159   $ 2,895  
Increase (Decrease) in Valuation Allowance   (1,159 ) (2,895 )
   
  $     — $     —
   
 

      The Company evaluates its valuation allowance requirements based on projected future operations. When circumstances change and causes 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 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 committed to meeting its minimal operating expenses.

NOTE 4 — COMMITMENTS

      As of May 31, 2006 all activities of the Company have been conducted by corporate officers from either their homes or business offices. Currently, there are no outstanding debts owed by the company for the use of these facilities and there are no commitments for future use of the facilities.

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

NOTE 5 — COMMON STOCK TRANSACTIONS

      On December 17, 2001, the Board of Directors approved the cancellation of 225,833 shares of common stock. As of May 31, 2002, these shares had not been cancelled. During the year ended May 31, 2003, these shares were cancelled.

      On December 17, 2001, the Board of Directors authorized the sale of 843,305 restricted common shares at par value by the three current Directors. The Directors paid $7,590 in cash consideration for those shares. As of May 31, 2002, these shares had not been issued. During the year ended May 31, 2003, these shares were issued.

      On August 3, 2004, the Company authorized a 900 to 1 reverse stock split of the Company’s common stock. The reverse stock split reduced the number of outstanding common shares from 950,000,000 to 1,062,897. All references to the Company’s common stock in the financial statements have been restated to reflect the reverse stock split.

NOTE 6 — CONTINGENT LIABILITIES

      At May 31, 2003, the Company had $120,471 in current liabilities. The Company believes that $110,435 of these liabilities were unpaid obligations of the Company when operations ceased in August of 1990. The Company believes none of such claims would be collectible by creditors, as the statute of limitations applicable to collection of such commercial debt has expired under the Colorado Revised Statute 13-80-101, which limits the collection of commercial debt to six years from the date the last payment was made. During the year ended May 31, 2004, and as part of a quasi reorganization, the Company reclassified the $110,435 of expired liabilities to paid-in capital.

NOTE 7 — RELATED PARTY TRANSACTIONS

      During the year ended May 31, 2004, an officer loaned the Company $550 to pay general and administrative expenses. Amounts due to the officer are non-interest bearing, unsecured and payable at anytime the shareholder desires.

      During the year ended May 31, 2005, an officer loaned the Company $1,800 to pay general and administrative expenses. Amounts due to the officer are non-bearing, unsecured and payable at anytime the shareholder desires.

NOTE 8 — 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.

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ITEM 8 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE

      The Company has had no disagreement with its accountant 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 8a CONTROLS AND PROCEDURES

      The Company’s Chief Executive Officer and Chief Financial Officer are responsible for establishing and maintaining disclosure controls and procedures for the Company.

      (a)     Evaluation of Disclosure Controls and Procedures

      As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s President, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based upon the evaluation, the Company’s President concluded that, as of the end of the period, the Company’s disclosure controls and procedures were effective in timely alerting him to material information relating to the Company required to be included in the reports that the Company files and submits pursuant to the Exchange Act.

      (b)     Changes in Internal Controls

      Based on his evaluation as of May 31, 2006, there were no significant changes in the Company’s internal controls over financial reporting or in any other areas that could significantly affect the Company’s internal controls subsequent to the date of his most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.





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PART III

ITEM 9 DIRECTORS EXECUTIVE OFFICERS OF THE COMPANY

      The following table sets forth the names and ages of all directors and executive officers of the Company as of the date of this report:

Director’s Name

Age
Position
Thomas A. Higgins     57   Chairman  
Robert W. Marsik     60   President and Secretary  
Allan Bergenfield     64   Director  
 

      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 hold office until the next annual meeting of shareholders or 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.

      The Company does not have any standing audit, nominating or compensation committees, or any committees performing similar functions. The Company has no such committees because of its relative inactivity and limited financial resources. The Board will meet periodically throughout the year as necessity dictates. During each fiscal year from 2001 through May 31, 2006 there was one meeting of the Board of Directors, by telephone.

Executive Profiles

      Robert W. Marsik; Chief Executive Officer, President and Secretary — Mr. Marsik has been a director since 2000. Since October 2004, Mr. Marsik has been Finance Manager at Burt Kuni Honda, Englewood, Colorado. From June 2002 until September 2004 he was employed as a car salesman for Cush Honda in Escondido California. For five years prior, he was an independent business broker with a small merger and acquisition firm in Irvine California and was Chief Executive Officer, President, Vice President and Director for numerous public companies over the last twenty years. Presently, he is a director and officer of the Company only. He successfully assisted with several IPO, secondary and warrant exercise offerings for the companies he was involved in and has merger and acquisition experience with several public companies.

      Allan Bergenfield — Mr. Bergenfield has been a director since 2000. He is the President and principal owner of Bergenfield and Associates, which is a regional sales and marketing company servicing primarily the Eastern Seaboard portion of the United States and provides sales, broker and marketing services for numerous personal care manufacturing companies. He established this business in 1985 after resigning a position as Senior Vice President of Marketing for Minnetonka Inc. a manufacturer of health and beauty aids.

      Thomas A. Higgins; Chairman — Mr. Higgins has been a director since inception. For the past five years Mr. Higgins has been self employed in the home improvement industry and in 2002 started Superior Products Company, which sells home improvement products in the Denver, Colorado market area. Mr. Higgins received a Bachelor of Arts degree from Drake University in 1971 and a Masters of Public Administration degree from the University of Colorado in 1974.

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ITEM 10 EXECUTIVE COMPENSATION

      No compensation was paid to the Board of Directors or to Executive Officers of the Company in their capacities as such, or for any other purpose between December 2000, and the date of this report, and no cash compensation is anticipated to be paid at any time in the immediate future to any member of the Board, or to any executive officer, or other employee.

Employment Agreements or Other Compensation Arrangements:     None.

ITEM 11 SECURITY OWNERSHIP OF BENEFICIAL OWNERS
AND MANAGEMENT

      Based upon information provided to the Company by its transfer agent, the following table sets forth, as of May 31, 2006 and February 28, 2007, the shares of common stock owned by each director, by directors and executive officers as a group and by each person known by the Company to own more than 5 % of the outstanding common stock.

Name and Address
of Beneficial Owners
Directors

# of
Shares
Owned(1)

Percent
Thomas A. Higgins   263,889   25.0  
1005 East Cobblestone Dr.  
Highland Ranch, CO 80126  
 
Robert W. Marsik   561,917   52.2  
6353 Vacquero Drive  
Castle Rock, CO 80108  
 
Allan Bergenfield   44,445    4.2  
548 Longhorn Crescent  
Rockville, MD 20850  
 
All Executive Officers and  
Directors as a Group  
(3 persons)   860,251   81.4  
 

(1)  

Based upon 1,062,897 shares of common stock issued and outstanding and reflects a 900-into-one reverse stock split adopted by shareholders August 3, 2004.


ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      The use of office space, telephone services and office supplies consumed by the Company are provided without cost by Thomas Higgins, Chairman, and Robert W. Marsik, President.

      In 2004 and 2005 Mr. Marsik loaned a total of $2,350 to the Company, which was used to satisfy Company obligations for which other resources were not available. The loans have not been repaid, are noninterest bearing and are not represented by notes or other written documentation.

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ITEM 13. EXHIBITS, AND REPORTS ON FORM 8-K

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

1.      Financial Statements

Page
          Report of Robison, Hill & Co., Independent Certified Public Accountants   F-1  
          Balance Sheets as of May 31, 2006 and 2005   F-2  
          Statement of Operations for the years ended May 31, 2006 and 2005   F-3  
          Statement of Stockholders’ Equity for the  
             Period from December 30, 1987 (inception) to May 31, 2006   F-4  
          Statement of Cash Flows for the years ended May 31, 2006 and 2005   F-8  
          Notes to Financial Statements   F-9  
 

2.      Financial Statement Schedules

      None.

3.      Exhibits

      The following exhibits are included as part of this report:

Exhibit
Number

Title of Document
 3.1   Articles of Incorporation.  
 3.2   Bylaws of the Registrant  
 3.3   Plan of Recapitalization adopted August 4, 2005.  
  31   Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.  
  32   Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.  

           There were no reports filed on Form 8-K during the year ended May 31, 2006

ITEM 14. PRINCIPAL ACCOUNTANT FEES & SERVICES

           The firm of Robison Hill & Company has acted as independent auditor for the Company for each of the fiscal years ended May 31, 2001 through 2006. The Independent Auditors’ Report on the financial statements of the Company for each of the last four fiscal years each raised substantial doubt about the Company’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 Company 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 three fiscal years for professional services rendered by our auditors for the audit of the Company’s annual financial statements and review of financial statements included in the Company’s quarterly financial statements, including services normally provided by accountants in connection with statutory and regulatory filings or engagements is as follows:

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Year Ended
May 31, 2006

Year Ended
May 31, 2005

Audit Fees   $2,805   $8,726  
Tax Fees   75   74  
All Other Fees   -0-   -0-  
 

            Audit Fees . Consists 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 Securities and Exchange Commission and other services that are normally provided by Robison, Hill & Company in connection with statutory and regulatory filings or engagements.

            Tax Fees . Consists 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 Company 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.

Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors

           Because the Company has no audit committee of its Board of Directors, directors pre-approve all audit and non-audit services provided by the independent auditors. These services may include audit services, audit-related services, tax services and other services as allowed by law or regulation. Pre-approval is generally provided for up to one year and any pre-approval is detailed as to the particular service or category of services and is generally subject to a specifically approved amount. The independent auditors and management are required to periodically report to the Board of Directors regarding the extent of services provided by the independent auditors in accordance with this pre-approval and the fees incurred to date. The Board of Directors may also pre-approve particular services on a case-by-case basis.

           The Board of Directors, acting as the Audit Committee, pre-approved 100% of the Company’s 2006 audit fees, audit-related fees, tax fees, and all other fees to the extent the services occurred after May 6, 2003, the effective date of the Securities and Exchange Commission’s final pre-approval rules.

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SIGNATURES

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

 

MERCARI COMMUNICATIONS GROUP, LTD.

By  /s/ Robert W. Marsik                                       
        Robert W. Marsik, President
        (Principal Executive and Financial Officer)


Dated: March 7, 2007

           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 7th day of March 2007.

Signatures
Title
 
 
/s/ Thomas A. Higgins   Chairman  
Thomas A. Higgins  
 
 
 
/s/ Robert W. Marsik   President  
Robert W. Marsik  
 
 
 
/s/ Allan Bergenfield   Director  
Allan Bergenfield  
 




13

ARTICLES OF INCORPORATION

MERCARI COMMUNICATIONS GROUP, LTD.

      The undersigned incorporator, a natural person eighteen (18) years of age or older, hereby establishes a corporation pursuant to the Colorado Business Corporation Act and adopts the following Articles of Incorporation:

ARTICLE I

      The name of the corporation is Mercari Communications Group, Ltd.

ARTICLE II

      The period of its duration is perpetual.

ARTICLE III

      The purposes for which this corporation is organized are to engage in and do any lawful act concerning any and all lawful business for which corporations may be organized under the laws of Colorado, now or hereafter in effect.

ARTICLE IV

CAPITAL STOCK

      A.      Authorized Stock . The aggregate number of shares of stock the corporation is authorized to issue is nine hundred fifty million (950,000,000) shares of common stock, par value $0.00001 per share and twenty million (20,000,000) shares of preferred stock, par value $0.001 per share, and the relative rights of the shares of each class are as follows:

 

1.      Preferred Stock .


 

      The corporation may divide and issue the preferred stock in series. Preferred stock of each series when issued shall be designated to distinguish them from the shares of all other series. The Board of Directors hereby is expressly vested with authority to divide the class of preferred stock into series and to fix and determine the relative rights and preferences of the shares of any such series so established to the full extent permitted by these Articles of Incorporation and the laws of the state of Colorado in respect of the following:


(a)  

The number of shares to constitute such series, and the distinctive designations thereof;



(b)  

The rate and preference of any dividends and the time of payment of any dividends, whether dividends are cumulative and the date from which any dividend shall accrue;


(c)  

Whether shares may be redeemed and, if so, the redemption price and the terms and conditions of redemption;


(d)  

The amount payable upon shares in event of involuntary liquidation;


(e)  

The amount payable upon shares in event of voluntary liquidation;


(f)  

Sinking fund or other provisions, if any, for the redemption or purchase of shares;


(g)  

The terms and conditions on which shares may be converted, if the shares of any series are issued with the privilege of conversion;


(h)  

Voting rights, if any; and


(i)  

Any other relative rights and preferences of shares of such series, including without limitation any restriction on an increase in the number of shares of any series theretofore authorized and any limitation or restriction of rights or powers to which shares of any future series shall be subject.


 

2.      Common Stock .


(a)  

The rights of holders of common stock to receive dividends or to share in the distribution of assets in the event of liquidation, dissolution or winding up of the affairs of the corporation shall be subject to the preferences, limitations and relative rights of the preferred stock fixed in the resolution or resolutions which may be adopted from time to time by the Board of Directors of the corporation providing for the issuance of one or more series of the preferred stock.


(b)  

The holders of the common stock shall be entitled to one vote for each common share held by them of record at the time set for determining the holders thereof entitled to vote.


ARTICLE V

      Cumulative voting of shares of stock is not permitted.

      Shareholders shall not have preemptive rights to acquire additional shares whether common or preferred of the corporation. The corporation may issue and sell shares of its stock to its officers,

2


directors or employees without first offering such shares to its shareholders for such consideration and upon such terms and conditions as shall be approved by, the Board of Directors and without approval by the shareholders of the corporation.

ARTICLE VI

      The Board of Directors may cause any shares issued by the corporation to be issued subject to such lawful restrictions, qualifications, limitations or special rights as they deem fit, which restrictions, qualifications, limitation or special rights shall be created by provisions in the Bylaws of the corporation or in the duly adopted resolutions of the Board of Directors; provided that notice of such special restrictions, qualifications, limitations or special rights must appear on the Certificate evidencing ownership of such shares.

ARTICLE VII

      Meetings of shareholders may be held at such time and place as the Bylaws shall provide. A majority of the shares entitled to vote represented in person or by proxy shall constitute a quorum at any meeting of the shareholders.

ARTICLE VIII

      The number of directors to be elected at the annual meeting of shareholders or at a special meeting called for the election of directors shall not be less than three, nor more than nine, the exact number to be fixed by the Bylaws. The following person is elected to serve as the corporation’s initial director until the first annual meeting of shareholders or until their successors are duly elected and qualified:

Name Address

Thomas A. Higgins
  1005 East Cobblestone Dr.  
  Highlands Ranch, Colorado 80126  
 
 

ARTICLE IX

      A director of this corporation shall not be personally liable to the corporation or its shareholders for monetary damages for breach of fiduciary duty as a director except that this provision shall not limit the liability of a director to the corporation or to its shareholders for monetary damages for: (i) any breach of the director’s duty of loyalty to the corporation or to its shareholders; (ii) acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; (iii) acts specified in Section 7-108-403 of the Colorado Business Corporation Act, as it may be amended from time to time; or (iv) any transaction from which the

3


director derived an improper personal benefit. If the Colorado Business Corporation Act is amended to authorize corporate actions further limiting to eliminating the personal liability of directors, then the liability of a director of the corporation shall be limited or eliminated to the fullest extent permitted by the Colorado Business Corporation Act, as so amended.

      Any repeal or modification of this Article IX by the shareholders of the corporation shall not adversely affect any right or protection of a director of the corporation existing at the time of such repeal or modification.

ARTICLE X

      The officers, directors and other members of management of this corporation shall be subject to the doctrine of corporate opportunities only insofar as it applies to business opportunities in which this corporation has expressed an interest as determined from time to time by the corporation’s Board of Directors as evidenced by resolutions appearing in the corporation’s Minutes. When such areas of interest are delineated, all such business opportunities within such areas of interest which come to the attention of the officers, directors and other members of management of this corporation shall be disclosed promptly to this corporation and made available to it. The Board of Directors may reject any business opportunity presented to it and thereafter any officer, director or other member of management may avail himself of such opportunity. Until such time as this corporation, through its Board of Directors, has designated an area of interest, the officers, directors and other members of management of this corporation shall be free to engage in such areas of interest on their own and this doctrine shall not limit the rights of any officer, director or other member of management of this corporation to continue a business existing prior to the time that such area of interest is designated by this corporation. This provision shall not be construed to release any employee of the corporation (other than an officer, director or member of management) from any duties which he may have to the corporation.

ARTICLE XI

      The Board of Directors of the corporation may, from time to time, distribute to the corporation’s shareholders in partial liquidation, out of stated capital or capital surplus of the corporation, a portion of its assets, in cash or properties, and, if at the time the laws of Colorado so permit, purchase outstanding shares with stated capital or capital surplus of the corporation if (a) at the time the corporation is solvent; (b) such distribution or purchase would not render the corporation insolvent; (c) all cumulative dividends on all preferred or special classes of shares entitled to preferential dividends shall have been paid fully; (d) the distribution or purchase would not reduce the remaining net assets of the corporation below the aggregate preferential amount payable in the event of voluntary liquidation to the holders of shares having preferential rights to the assets of the corporation in the event of liquidation (e) the distribution or purchase is not made out of capital surplus arising from unrealized appreciation of assets or reevaluation of surplus; and (f) as regards a distribution, the distribution is identified as a distribution in partial liquidation, out of stated capital or capital surplus, and the source and amount per share paid from each source is disclosed to all of the shareholders of the corporation concurrently with the distribution thereof.

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ARTICLE XII

      Any of the directors or officers of this corporation shall not, in the absence of fraud, be disqualified by his office from dealing or contracting with this corporation whether as vendor, purchaser or otherwise, nor shall any firm, association, or corporation of which he shall be a member, or in which he may be pecuniarily interested in any manner be disqualified. No director or officer, nor any firm, association or corporation with which he is connected as aforesaid shall be liable to account to this corporation or its shareholders for any profit realized by him from or through any such transaction or contract; it being the express purpose and intent of this Article to permit this corporation to buy from, sell to, or otherwise deal with partnerships, firms or corporations of which the directors and officers of this corporation, or any one or more of them, may be members, directors, or officers, or in which they or any of them have pecuniary interests; and the contracts of this corporation, in the absence of fraud, shall not be void or voidable or affected in any manner by reason of any such membership. The interested director or directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or a committee thereof authorizing, approving or ratifying any such contract or transaction. Further, the vote of any such interested director at a meeting of the Board of Directors or committee thereof authorizing, approving or ratifying any such contract or transaction may be counted if his relationship or interest with respect to any such contract or transaction (i) is disclosed and such transaction or contract is authorized, approved or ratified by a majority of the directors without counting the vote or consent of such interested director, or (ii) is disclosed to the shareholders of the Company and authorized, approved or ratified by the shareholders by vote or written consent, or (iii) such contract or transaction is fair and reasonable to the corporation.

ARTICLE XIII

      When with respect to any action to be taken by shareholders of this corporation, the Colorado Business Corporation Act requires the vote or concurrence of the holders of two-thirds of the outstanding shares entitled to vote thereon, or of any class or series, such action may be taken by the vote or concurrence of a majority of such shares or class or series thereof.

ARTICLE XIV

      Subject to repeal by action of the shareholders, the Board of Directors of this corporation is authorized to adopt, confirm, ratify, alter, amend, rescind and repeal Bylaws or any portion thereof from time to time.

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ARTICLE XV

      The street address of the initial registered office of the corporation is 1005 East Cobblestone Drive, Highlands Ranch, Colorado 80126, and the name of the initial registered agent at that address is Thomas A. Higgins. The written consent of the initial registered agent to the appointment as such is stated below.

      The address of the corporation’s initial principal office is 1005 East Cobblestone Drive, Highlands Ranch, Colorado 80126.

ARTICLE XVI

INCORPORATOR

      The name and address of the incorporator is Thomas A. Higgins, 1005 East Cobblestone Drive, Highlands Ranch, Colorado 80126.

      Dated: August 31, 2001.

 

Incorporator:

/s/ Thomas A. Higgins
   Thomas A. Higgins


      Thomas A. Higgins hereby consents to the appointment as the initial registered agent for Mercari Communications Group, Ltd.

 

/s/ Thomas A. Higgins
   Thomas A. Higgins
    Initial Registered Agent


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BYLAWS

OF

MERCARI COMMUNICATIONS GROUP, LTD.

OFFICES

      Section 1. Principal Office. The principal office of the corporation in the state of Colorado shall be located at Denver, Colorado. The corporation may have such other offices, either within or without the state of Colorado, as the Board of Directors may designate or as the business of the corporation may require from time to time.

SHAREHOLDERS

      Section 2. Annual Meetings. The annual meeting of the shareholders shall be held during the three months of the second fiscal quarter of each fiscal year of the corporation at such time and place as the President or Secretary shall designate, for the purpose of electing directors and for the transaction of such other business as may come before the meeting.

      Section 3. Special Meetings. Special meetings of the shareholders, for any purpose or purposes, unless otherwise prescribed by statute, may be called by the President or by the Board of Directors, and shall be called by the President at the request of the holders of not less than one-tenth of all of the outstanding shares of the corporation entitled to vote at the meeting.

      Section 4. Place of Meeting. The Board of Directors may designate any place, either within or without the state of Colorado, as the place of meeting for any annual meeting or for any special meeting called by the Board of Directors. A waiver of notice signed by all shareholders entitled to vote at a meeting may designate any place, either within or without the state of Colorado, as the place for the holding of such meeting. if no designation is made, or if a special meeting be otherwise called, the place of meeting shall be the registered office of the corporation in the state of Colorado.

      Section 5. Notice of Meeting. Written notice stating the place, day and hour of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than ten days nor more than fifty days before the date of the meeting, either personally or by mail, by or at the direction of the President or the Secretary, or the officer or person calling the meeting, to each shareholder of record entitled to vote at such meeting, except that; if the authorized shares are to be increased, at least thirty (30) days notice shall be given. If mailed, such notice shall be deemed delivered as to any shareholder of record when deposited in the United States mail, addressed to the shareholder, at his address as it appears on the stock transfer books of the corporation, with postage thereon Prepaid, but if three successive letters mailed to the last-known address of any shareholder of record are returned as undeliverable, no further notices to such shareholder shall be necessary until another address for such shareholder is made known to the corporation. A waiver of notice to a shareholder in writing signed by the person entitled to such notice, whether before, at, or after the time stated therein, shall be equivalent to the giving of such notice. By attending a meeting, a shareholder (a) waives objection to lack of notice or effective notice of such meeting unless the shareholder, at the beginning of the meeting, objects to the holding of the meeting or the transacting of business at the meeting; and (b) waives objection to consideration at such meeting of a particular matter not within the purpose or purposes described in the meeting notice unless the shareholder objects to considering the matter when it is presented.


      When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting a corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given for each shareholder of record entitled to vote at the meeting.

      Section 6. Closing of Transfer Books or Fixing of Record Date. For the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or shareholders entitled to receive payment of any dividend or in order to make a determination of shareholders for any other proper purpose, the Board of Directors of the corporation may provide that the stock transfer books shall be closed for a stated period but not to exceed, in any case, fifty days. If the stock transfer books shall be closed for the purpose of determining shareholders entitled to notice of or to vote at a meeting of shareholders, such books shall be closed for at least ten days immediately preceding such meeting, In lieu of closing the stock transfer books, the Board of Directors may fix in advance a date as the record date for any such determination of shareholders, such date in any case to be not more than fifty days and, in case of a meeting of shareholders, not less than ten days prior to the date on which the particular action, requiring such determination of shareholders, is to be taken. If the stock transfer books are not closed and no record date is fixed for the determination of shareholders entitled to notice of or to vote at a meeting of shareholders, or shareholders entitled to receive payment of a dividend, the date on which notice of the meeting is mailed or the resolution of the Board of Directors declaring such dividend is adopted, as the case may be, shall be the record date for such determination of shareholders. When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in this section, such determination shall apply to any adjournment thereof.

      Section 7. Quorum. A majority of the outstanding shares of the corporation entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of shareholders. If a quorum is present, the affirmative vote of the majority of the shares represented at the meeting and entitled to vote on the subject matter (including, but not limited to, the adoption of an incentive stock option plan) shall be the act of the shareholders, unless the vote of a greater proportion or number or voting by classes is required by the Colorado Corporation Code or the Articles of Incorporation. if a quorum is not represented at any meeting of the shareholders, such meeting may be adjourned for a period not to exceed sixty (60) days at any one adjournment.

      Section 8. Proxies. At all meetings of shareholders, a shareholder may vote by proxy executed in writing by the shareholder or by his duly authorized attorney in fact. Such proxy shall be filed with the Secretary of the corporation before or at the time of the meeting. No proxy shall be valid after eleven months from the date of its execution, unless otherwise provided in the proxy.

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      Section 9. Voting of Shares by Certain Holders. Shares standing in the name of another corporation may be voted by such officer, agent or proxy as the Bylaws of such corporation may prescribe, or in the absence of such provision, as the Board of Directors of such corporation may determine. If shares or other securities having voting power stand of record in the name or two or more persons, whether fiduciaries, members of a partnership, joint tenants, tenants-in-common, tenants by the entirety, or otherwise, or if two or more persons have the same fiduciary relationship respecting the same shares, voting with respect to the shares shall have the following effect: (a) if only one person votes, his act binds all; (b) if two or more persons vote, the act of the majority so voting binds all; and (c) if two or more persons vote, but the vote is evenly split on any particular matter, each faction may vote the securities in question proportionally, or any person voting the shares of a beneficiary, if any, may apply to any court of competent jurisdiction in the state of Colorado to appoint an additional person to act with the person so voting the shares. The shares shall then be voted as determined by a majority of such persons and the person appointed by the Court. If a tenancy is held in equal interests, a majority or even split for the purpose of this subsection (c) shall be a majority or even split in interest. The effects of voting stated above in this paragraph shall not be applicable if the Secretary of the corporation is given written notice of alternative voting provisions and is furnished with a copy of the instrument or order wherein the alternative voting provisions are stated.

      Shares held by an administrator, executor, guardian or conservator may be voted by him, either in person or by proxy, without a transfer of such shares into his name. Shares standing in the name of a trustee may be voted by him, either in person or by proxy, but no trustee shall be entitled to vote shares held by him without a transfer of such shares into his name.

      Shares standing in the name of a receiver may be voted by such receiver, and shares held by or under the control of a receiver may be voted by such receiver without the transfer thereof into his name if authority so to do be contained in an appropriate order of the court by which such receiver was appointed.

      A shareholder whose shares are pledged shall be entitled to vote such shares until the shares have been transferred into the name of the pledgee, and thereafter the pledgee shall be entitled to vote the shares so transferred.

      Shares of its own stock belonging to the corporation shall not be voted, directly or indirectly, at any meeting, and shall not be counted in determining the total number of outstanding shares at any given time.

      Section 10. Cumulative Voting. Cumulative voting of shares shall not be permitted in the election of directors.

      Section 11. Informal Action by Shareholders. Any action required or permitted by the Colorado Corporation Code to be taken at a shareholders’ meeting may be taken without a meeting if the action is evidenced by one or more written consents describing the action taken, signed by each shareholder entitled to vote and delivered to the Secretary of the corporation for inclusion in the minutes or for tiling with the corporate records. Action thus taken is effective when all shareholders entitled to vote have signed the Consent, unless the consent specifies a different effective date. Written consent of the shareholders entitled to vote has the same force and effect as a unanimous vote of such shareholders and may be stated as such in any document. The record date for determining shareholders entitled to take action without a meeting is the date the first shareholder signs the consent.

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BOARD OF DIRECTORS

      Section 12. General Powers. The business and affairs of the corporation shall be managed by its Board of Directors, except as otherwise may be provided in the Articles of Incorporation. One member of the Board of Directors may be appointed by the directors to the position of Chairman of the Board. If the position is filled, the Chairman of the Board, when present, shall preside at all meetings of the stockholders and of the Board of Directors and shall perform all duties incident to the office of Chairman of the Board and such other duties as may be prescribed by the Board of Directors from time to time.

      Section 13. Number, Tenure and Qualification. The number of directors of the corporation shall be three. Each director shall hold office until the next annual or special meeting of shareholders at which a new Board of Directors is elected and until his successor shall have been elected and qualified. Directors need not be residents of Colorado or shareholders of the corporation.

      Section 14. Regular Meetings. A regular meeting of the Board of Directors shall be held without notice other than this Bylaw immediately after, and at the same place as, the annual meeting of shareholders. The Board of Directors may provide, by resolution, the time and place, either within or without Colorado, for the holding of additional regular meetings without other notice than such resolution.

      Section 15. Special Meetings. Special meetings of the Board of Directors may be called by or at the request of the President or any director. The person or persons authorized to call special meetings of the Board of Directors may fix any place, either within or without the state of Colorado, as the place for holding any special meeting of the Board of Directors called by them.

      Section 16. Notice. Notice of any special meeting shall be given at least two days previous thereto by written notice delivered personally or mailed to each director at his business address, or by telegram. If mailed, such notice shall be deemed to be delivered when deposited in the United States Mail so addressed, with postage thereon prepaid. If notice be given by telegram, such notice shall be deemed to be delivered when the telegram is delivered to the telegraph company. Any director may waive notice of any meeting whether before, at or after the meeting. The attendance of a director at a meeting constitutes a waiver of notice of such meeting, except in cases in which a director attends a meeting for the express purposes of objecting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting.

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      Section 17. Quorum. A majority of the number of directors fixed by Section 13 shall constitute a quorum for the transaction of business at any meeting of the Board of Directors, but if less than such majority is present at a meeting, a majority of the directors present may adjourn the meeting from time to time without further notice.

      Section 18. Manner of Acting. The act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors.

      Section 19. Vacancies. Any vacancy occurring in the Board of Directors may be filled by the affirmative vote of a majority of the remaining directors though less than a quorum of the Board of Directors. A director elected to fill a vacancy shall be elected for the unexpired term of his predecessor in office. Any directorship to be filled by reason of an increase in the number of directors shall be filled by the affirmative vote of a majority of the directors then in office or by an election at an annual meeting or at a special meeting of shareholders called for that purpose.

      Section 20. Compensation. By resolution of the Board of Directors, the directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors, and may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary as director. No such payment shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor.

      Section 21. Presumption of Assent. A director of the corporation who is present at a meeting of the Board of Directors at which action on any corporate matter is taken is deemed to have assented to the action taken unless: (a) he objects at the beginning of such meeting to the holding of the meeting or the transacting of business at the meeting; (b) he contemporaneously requests that his dissent from the action be entered in the minutes of such meeting; or (c) he gives written notice of his dissent to the presiding officer of such meeting before its adjournment or to the Secretary of the corporation immediately after adjournment of such meeting. The right of dissent as to a specific action taken in a meeting of a board or a committee is not available to a director who votes in favor of such action.

      Section 22. Informal Action by Directors. Any action required or permitted to be taken at a meeting of the Board of Directors or any Committee designated by said Board, or any other action which may be taken at a meeting of the Board of Directors or designated Committee, may be taken without a meeting if the action is evidenced by one or more written consents describing the action taken, signed by each director or committee member, and delivered to the Secretary for inclusion in the minutes or for filing with the corporate records. Action thus taken is effective when all directors or committee members have signed the consent, unless the consent specifies a different effective date. Such consent has the same force and effect as a unanimous vote of the directors or committee members and may be stated as such in any document.

      Section 23. Telephone Board Meetings. One or more members of the Board of Directors or any committee designated by such Board may participate in a meeting of the Board or committee by means of conference telephone or similar communications equipment by which all persons participating in the meeting can hear each other at the same time. Such participation shall constitute presence in person at the meeting.

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      Section 24. Committees. The Board of Directors, by resolution adopted by a majority of the full Board of Directors, may designate from among its members an executive committee and one or more other committees each of which, to the extent provided in the resolution, shall have and may exercise such powers as shall be conferred or authorized by the resolution appointing it so long as such powers are consistent with Section 7-5-107 of the Colorado Corporation Code. A majority of any such committee may determine its action and may fix the time and place of its meetings, unless provided otherwise by the Board of Directors. The Board of Directors shall have the power at any time to fill vacancies and, to change the size or membership of, and to discharge any such committee.

      Each such committee shall keep a written record of its acts and proceedings and shall submit such record to the Board of Directors at each regular meeting thereof and at such other times as requested by the Board of Directors. Failure to submit such record, or failure of the Board to approve any action indicated therein will not, however, invalidate such action to the extent it has been carried out by the corporation prior to the time the record of such action was, or should have been, submitted to the Board of Directors as herein provided.

OFFICERS

      Section 25. Number and Age Requirement. The officers of the corporation shall be a President, a Secretary, and a Treasurer, each of whom shall be elected by the Board of Directors. A Chairman of the Board, one or more Vice Presidents and such other officers and assistant officers as may be deemed necessary may be elected or appointed by the Board of Directors. Any two or more offices may be held by the same person, except the offices of President and Secretary. The officers of a Corporation shall be natural persons of the age of eighteen years or older.

      Section 26. Election and Term of Office. The officers of the corporation to be elected by the Board of Directors shall be elected annually by the Board of Directors at the first meeting of the Board of Directors held after each annual meeting of the shareholders. If the election of officers shall not be held at such meeting, such election shall be held as soon thereafter as conveniently may be. Each officer shall hold office until his successor shall have been duly elected and shall have qualified or until his death or until he shall resign or shall have been removed in the manner hereinafter provided.

      Section 27. Removal. Any officer or agent elected or appointed by the Board of Directors may be removed by the Board of Directors whenever in its judgment the best interests of the corporation would be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed.

      Section 28. Vacancies. A vacancy in any office because of death, resignation, removal, disqualification or otherwise, may be filled by the Board of Directors for the unexpired portion of the term.

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      Section 29. Chairman of the Board. The Chairman of the Board of Directors, if elected, or failing his election, the President, shall preside at all meetings of the stockholders and the Board of Directors and shall perform such other duties as may be prescribed from time to time by the Board of Directors or by the Bylaws. If a Chairman of the Board is elected, the Chairman shall possess the same power as the President to act on behalf of the corporation, to sign all certificates, contracts and other instruments of the corporation which may be authorized by the Board of Directors or required by laws or otherwise necessary.

      Section 30. President. The President shall be the chief operating officer of the corporation and, subject to the control of the Board of Directors, shall in general supervise and control all of the business and affairs of the corporation. He shall, when present, preside at all meetings of the shareholders and of the Board of Directors unless a Chairman of the Board has been appointed in which case the President shall preside at such meetings only in the absence of the Chairman of the Board. He may sign, with the Treasurer, Assistant Treasurer, Secretary, Assistant Secretary, or any other proper officer of the corporation thereunto authorized by the Board of Directors, certificates for shares of the Corporation, any deeds, mortgages, bonds, contracts or other instruments which the Board of Directors has authorized to be executed, except in cases in which the signing and execution thereof shall be expressly delegated by the Board of Directors or by these bylaws to some other officer or agent of the corporation, or shall be required by law to be otherwise signed or executed; and in general shall perform all duties as may be prescribed by the Board of Directors from time to time.

      Section 31. The Vice Presidents. In the absence of the President or in the event of his death, inability or refusal to act, the Vice President (or in the event there be more than one Vice President, the Vice Presidents in the order designated at the time of their election, or in the absence of any designation, then in the order of their election) , it there be a Vice President, shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President. Any Vice President may sign, with the Secretary or an Assistant Secretary, certificates for shares of the corporation, and shall perform such other duties as from time to time may be assigned to him by the President or by the Board of Directors.

      Section 32. The Secretary. The Secretary shall: (A) keep the minutes of the shareholders and of the Board of Directors meetings in one or more books provided for that purpose; (B) see that all notices are duly given in accordance with the provisions of these Bylaws or as required by law; (C) be custodian of the corporate records and of the seal of the corporation and see that the seal of the corporation is affixed to all documents the execution of which on behalf of the corporation under its seal is duly authorized; (D) keep a register of the post office address of each shareholder which shall be furnished to the Secretary by such shareholder; (E) sign with the President, or a Vice President, certificates for shares of the corporation, the issuance of which shall have been authorized by resolution of the Board of Directors; (F) have general charge of the stock transfer books of the corporation; and (G) in general perform all duties incident to the office of Secretary and such other duties as from time to time may be assigned to him by the President or by the Board of Directors.

      Section 33. The Treasurer. The Treasurer shall: (A) have charge and custody of and be responsible for all funds and securities of the corporation; receive and give receipts for moneys due and payable to the corporation from any source whatsoever, and deposit all such moneys in the name of the corporation in such banks, trust companies or other depositories as shall be selected; and (B) in general perform all of the duties incident to the office of Treasurer and such other duties as from time to time may be assigned to him by the President or by the Board of Directors.

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      Section 34. Assistant Secretaries and Assistant Treasurers. The Assistant Secretaries, when authorized by the Board of Directors, may sign with the President or a Vice President certificates for shares of the corporation the issuance of which shall have been authorized by a resolution of the Board of Directors. The Assistant Secretaries and Assistant Treasurers, in general, shall perform such duties as shall be assigned to them by the Secretary or the Treasurer, respectively or by the President or the Board of Directors.

      Section 35. Salaries. The salaries of the officers shall be fixed from time to time by the Board of Directors and no officer shall be prevented from receiving such salary by reason of the fact that he is also a director of the corporation.

CONTRACTS, LOANS, CHECKS AND DEPOSITS

      Section 36. Contracts. The Board of Directors may authorize any officer or officers, agent or agents, to enter into any contract or execute and deliver any instrument in the name of and on behalf of the corporation, and such authority may be general or confined to specific instances.

      Section 37. Loans. No loans shall be contracted on behalf of the corporation and no evidences of indebtedness shall be issued in its name unless authorized by a resolution of the Board of Directors. Such authority may be general or confined to specific instances.

      Section 38. Checks, Drafts, Etc. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the corporation, shall be signed by such officer or officers, agent or agents of the corporation and in such manner as shall from time to time be determined by resolution of the Board of Directors.

      Section 39. Deposits. All funds of the corporation not otherwise employed shall be deposited from time to time to the credit of the corporation in such banks, trust companies or other depositories as the Board of Directors may select.

      Section 40. Indemnification. The corporation may provide indemnification of officers, directors and employees as permitted under Section Colorado Revised Statutes, 1973, as such statute may be in effect from time to time.

MISCELLANEOUS

      Section 41. Rules of Order. At any meeting of shareholders or directors of the corporation at which a question of procedure arises, the person presiding at the meeting may rely upon the Roberts Rules of Order as then in effect to resolve any such question.

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      Section 42. Certificates for Shares. Certificates representing shares of the corporation shall be in such form as shall be determined by the Board of Directors. Such certificates shall be signed by the Chairman of the Board or by the President or a Vice President and by the Treasurer or an Assistant Treasurer or by the Secretary or an Assistant Secretary. All certificates for shares shall be consecutively numbered or otherwise identified. The name and address of the person to whom the shares represented thereby are issued, with the number of shares and date of issue, shall be entered on the stock transfer books of the corporation. All certificates surrendered to the corporation for transfer shall be cancelled and no new certificate shall be issued until the former certificate for a like number of shares shall have been surrendered and cancelled, except that in case of a lost, destroyed or mutilated certificate a new one may be issued therefor upon such terms and indemnity to the corporation as the Board of Directors may prescribe.

      Section 43. Transfer of Shares. Transfer of shares of the corporation shall be made only on he stock transfer books of the corporation by the holder of record thereof or by his legal representative, who shall furnish proper evidence of authority to transfer, or by his attorney thereunto authorized by power of attorney duly executed and filed with the Secretary of the corporation, and on surrender for cancellation of the certificate for such shares. The person in whose name shares stand on the books of the corporation shall be deemed by the corporation to be the owner thereof for all purposes.

      Section 44. Dividends. The Board of Directors may from time to time declare, and the corporation may pay, dividends in the manner and upon the terms and conditions provided by law and its Articles of Incorporation.

      Section 45. Seal. The Board of Directors shall provide a corporate seal which shall be circular in form and shall have inscribed thereon the name of the corporation and the state of incorporation and the words, “Corporate Seal.”

      Section 46. Emergency Bylaws. Subject to repeal or change by action of the shareholders, and in accordance with the Colorado Corporation Code, the Board of Directors of the corporation may adopt emergency bylaws which shall, notwithstanding any different provision elsewhere in the bylaws or in the articles of incorporation, be operative during any national emergency as described in the Colorado Corporation Code.

      Section 47. Inspection. The books, accounts, and records of the corporation shall be open to inspection by any member of the Board of Directors at all times; and open to inspection by the stockholders at such time, and subject to such regulations as the Board of Directors may prescribe, except as otherwise provided by statute of Colorado or of the United States of America.

      Section 48. Amendments. These Bylaws may be altered, amended or repealed and new Bylaws may be adopted by the Board of Directors at any regular or special meeting of the Board of Directors.

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PLAN OF RECAPITALIZATION

     Plan for Reverse Stock Split. Upon approval by shareholders in the manner specified in the Colorado Business Corporation Act, the Board of Directors (“Board”) of Mercari Communications Group, Ltd. (the “Company”) shall be authorized to effect a reverse stock split of all outstanding shares of the Company’s $0.00001 par value common stock at the time of approval. To effect the Plan of Recapitalization (“Plan”) hereby approved, the Board shall be and hereby is authorized to cause the following steps to be taken.

     1.     Reverse Split Ratio. A reverse split of 1 for 900 (i.e., each 900 shares of common stock outstanding before the reverse split would, after the Effective Date as defined below, represent one common share), subject to the provisions set forth in paragraph 2 below (the “Reverse Share Split”).

      2.     Reverse Share Split. All shares of $0.00001 par value common stock of the Company outstanding prior to the Record Date shall, from and after the date of approval of this Plan by shareholders (hereafter the “Effective Date”) be combined into a lesser number of shares determined by multiplying the outstanding shares times a fraction, of which the numerator is one and the denominator is 900 (for example, the fraction would be: 1/900 and 900 shares outstanding before the Effective Date would be reduced to 1 share after the Effective Date), provided, however, that the number of shares of common stock to be outstanding shall be increased as follows: if, as a result of the Reverse Share Split, any shareholder who was a shareholder of the Company immediately prior to the Effective Date would otherwise beneficially own fewer than one hundred (100) shares of common stock of the Company as a result of the Reverse Share Split after the Effective Date, the number of shares to be issued to such shareholder shall automatically be rounded up and increased so that such shareholders shall hold one hundred (100) shares of Company common stock following the reverse share split and, provided, further, that any fractional share which would otherwise be issued in accordance with the Reverse Share Split, shall automatically be rounded up to the next highest whole number of shares (subject to the further rounding-up provisions set forth in the preceding proviso). Upon surrender of certificates representing shares of common stock of the Company outstanding prior to the Effective Date and upon receipt of information confirming the identification of holders of any uncertificated stock of the Company, the Company shall issue, or cause to be issued, certificates representing the appropriate number of shares of the Company’s common stock to the holders of common stock of the Company.

      3.     Exchange of Share Certificates. On or after the Effective Date, each holder of a certificate or certificates, which prior thereto represented outstanding shares of the Company’s common stock, will be given instructions to surrender the same to the Company’s transfer agent which shall act as the exchange agent to effect the exchange of certificates and each such shareholder shall be entitled upon surrender to receive (on payment of exchange, handling and delivery charges) in exchange therefore, a certificate representing one share of the Company’s common stock for each nine hundred (900) shares of common stock previously owned and any additional shares issuable as a result of the upward roundings described in paragraph 2.

      4.     Old Certificates to Represent Post-Split Stock Until Exchanged. Until so surrendered, each outstanding certificate, which, prior to the Effective Date represented shares of common stock, shall continue to represent the appropriate number of post-reverse split shares until such time as an exchange of share certificates shall have been effected.

      5.     Abandonment. The Board of Directors may abandon the Plan of Recapitalization in its discretion at any time prior to the Effective Date.


Exhibit 31

Section 302 Certification

      I, Robert W. Marsik, certify that:

1.  

I have reviewed this annual report on Form 10-KSB of Mercari Communications Group, Ltd.;


2.  

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.  

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report;


4.  

I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have:


a.  

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b.  

Designed such disclosure control over financial reporting, or caused such internal control over financial reporting got be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


c.  

Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d.  

Disclosed in this report any change in the small business issuer’s internal control over financial reporting that occurred during the this fiscal quarter that has materially affected, or is reasonably likely to materially affect, the small business issuer’s internal control over financial reporting; and


5.  

I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the small business issuer’s auditors and the audit committee of the small issuer’s board of directors (or persons performing the equivalent functions):


a.  

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer’s ability to record, process summarize and report financial information; and


b.  

Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer’s internal controls over financial reporting.


Date: March 7, 2007

/s/ Robert W. Marsik              
      Robert W. Marsik, President
      (Principal Executive and Financial Officer)



Exhibit 32

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

                In connection with the Annual Report of Mercari Communications Group, Ltd.. (the “Company”) on Form 10-KSB for the year ended May 31, 2006, as filed with the Securities and Exchange Commissionon the date hereof (the “Report”), I, Robert W. Marsik, Chief Executive/Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:

(1)  

the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and


(2)  

the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


Date: March 7, 2007

/s/ Robert W. Marsik             
      Robert W. Marsik, Chief Executive Officer
      Chief Financial Officer


A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.