NOTES
TO FINANCIAL STATEMENTS
AUGUST
31, 2017 AND MAY 31, 2017
NOTE
1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Mercari
Communications Group, Ltd. (the “Company”) was incorporated under the laws of the State of Colorado on December 30,
1987. From 1988 until 1990, the Company was engaged in the business of providing educational products, counseling, seminar programs,
and publications such as newsletters to adults aged 30 to 50. The Company financed its business with private offerings of securities,
shareholder loans, and with an underwritten initial public offering of securities registered with the Securities and Exchange
Commission (“SEC”). The Company’s business failed in 1990. The Company ceased all operations from 1990 to 2001
and was dormant. During this period the Company was dormant, it did not file required reports with the SEC under the Securities
Exchange Act of 1934, as amended (“Exchange Act”). From 2001 to 2004, the Company was in the development stage. On
August 3, 2004, the shareholders of the Company approved a plan of quasi-reorganization which called for a restatement of accounts
to eliminate the accumulated deficit and related capital accounts on the Company’s balance sheet. The quasi-reorganization
was effective March 1, 2004. Since March 1, 2004, the Company is in the development stage, and has not commenced planned principal
operations. The Company has no products or services as of August 31, 2017.
Going
Concern
The
accompanying financial statements were prepared on the basis of accounting principles applicable to a “going concern”,
which assume that the Company will continue in operation for at least one year and will be able to realize its assets and discharge
its liabilities in the normal course of operations.
Several
conditions and events cast doubt about the Company’s ability to continue as a “going concern.” The Company has
incurred net losses of $33,887 for the quarter ended August 31, 2017, has no revenues and requires additional financing in order
to finance its business activities on an ongoing basis. The Company’s future capital requirements will depend on numerous
factors including, but not limited to, continued progress in finding a merger candidate and the pursuit of business opportunities.
In the interim, shareholders of the Company have been contributing capital to the Company to meet its ordinary and normal operating
expenses. Management believes that actions presently being taken to revise the Company’s operating and financial requirements
provide it with the opportunity to continue as a “going concern”.
These
financial statements do not reflect adjustments that would be necessary if the Company were unable to continue as a “going
concern”. While management believes the actions already taken or planned, will mitigate the conditions and events which
raise doubt about the validity of the “going concern” assumption used in preparing these financial statements, there
can be no assurance these actions will be successful. If the Company were unable to continue as a “going concern,”
then substantial adjustments would be necessary to the carrying values of assets, the reported amounts of its liabilities, the
reported revenues and expenses, and the balance sheet classifications used.
Basis
of Presentation
The
financial statements were prepared in conformity with accounting principles generally accepted in the United States of America
(“US GAAP”) and pursuant to the rules and regulations of the SEC for annual financial statements.
Cash
and Cash Equivalents
For
purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of
three months or less to be cash equivalents to the extent the funds are not being held for investment purposes.
Use
of Estimates
The
preparation of financial statements in conformity with US GAAP required management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those
estimates.
Development
Stage Company
The
Company is a development stage company as defined by section 915-10-20 of the FASB Accounting Standards Codification (“ASC”).
Although the Company has recognized nominal amounts of revenue, it is still devoting substantially all of its efforts on establishing
the business. All losses accumulated since its inception on March 1, 2004 were considered part of the Company’s development
stage activities.
In
June 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-10, Development Stage Entities (Topic 915):
Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic
810, Consolidation.
The
amendments in this ASU remove the definition of a development stage entity from the Master Glossary of the Accounting Standards
Codification, thereby removing the financial reporting distinction between development stage entities and other reporting entities
from U.S. GAAP. In addition, the amendments eliminate the requirements for development stage entities to (1) present inception-to-date
information in the statements of income, cash flows, and shareholder equity, (2) label the financial statements as those of a
development stage entity, (3) disclose a description of the development stage activities in which the entity is engaged, and (4)
disclose in the first year in which the entity is no longer a development stage entity that in prior years it had been in the
development stage.
For
public business entities, those amendments are effective for annual reporting periods beginning after December 15, 2014, and interim
periods therein. The Company adopted ASU No. 2014-10, Development Stage Entities (Topic 915): Elimination of Certain Financial
Reporting Requirements. The adoption of this ASU allows the Company to remove the inception to date information and all references
to the development stage.
Income
Taxes
The
Company accounts for income taxes under Section 740-10-30 of the FASB ASC, which requires recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns.
Under
this method, deferred tax assets and liabilities are based on the differences between the financial statement and tax bases of
assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred
tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets
will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income
in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in the statements of operations in the period that includes the enactment date.
The
estimated future tax effects of temporary differences between the tax basis of assets and liabilities are reported in the accompanying
balance sheets, as well as tax credit carry-backs and carry-forwards. The Company periodically reviews the recoverability of deferred
tax assets recorded on its balance sheets and provides valuation allowances as management deems necessary.
Management
makes judgments as to the interpretation of the tax laws that might be challenged upon an audit and cause changes to previous
estimates of tax liability. In addition, the Company operates within multiple taxing jurisdictions and is subject to audit in
these jurisdictions. In management’s opinion, adequate provisions for income taxes have been made for all years. If actual
taxable income by tax jurisdiction varies from estimates, additional allowances or reversals of reserves may be necessary.
Uncertain
Tax Positions
The
Company follows paragraph 740-10-25 of the FASB ASC. Paragraph 740-10-25-13 addresses the determination of whether tax benefits
claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under paragraph 740-10-25-13,
the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position
will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized
in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50% likelihood
of being realized upon ultimate settlement. The portion of the benefits associated with tax positions taken that exceeds the amount
measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheets along
with any associated interest and penalties that would be payable to the taxing authorities upon examination. Interest associated
with unrecognized tax benefits are classified as interest expense and penalties are classified in selling, general and administrative
expenses in the statements of income.
The
Company did not take any uncertain tax positions and had no unrecognized tax liabilities or benefits in accordance with the provisions
of Section 740-10-25 at August 31 or May 31, 2017. The tax years 2014-2016 remain open to examination for federal income tax purposes
and by the other major taxing jurisdictions to which the Company is subject.
Loss
per Share
Basic
loss per share has been computed by dividing the loss for the period applicable to the common shareholders by the weighted average
number of common shares during the years. There are no outstanding common stock equivalents for the three months ended August
31 or May 31, 2017 and they are thus not considered.
Concentration
of Credit Risk
The
Company has no significant off-balance-sheet concentrations of credit risk such as foreign exchange contracts, options contracts
or other foreign hedging arrangements.
Fair
Value of Financial Instruments
The
carrying value of cash and accrued expenses, if applicable, approximate their fair values based on the short-term maturity of
these instruments. The carrying amounts of debt were also estimated to approximate fair value.
The
Company utilizes the methods of fair value (“FV”) measurement as described in ASC 820 to value its financial assets
and liabilities. As defined in ASC 820, FV is based on the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date. In order to increase consistency and
comparability in FV measurements, ASC 820 establishes a FV hierarchy that prioritizes observable and unobservable inputs used
to measure FV into three broad levels, which are described below:
Level
1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The FV
hierarchy gives the highest priority to Level 1 inputs.
Level
2: Observable prices that are based on inputs not quoted on active markets, but corroborated by market data.
Level
3: Unobservable inputs are used when little or no market data is available. The FV hierarchy gives the lowest priority to Level
3 inputs.
Related
Parties
The
Company follows subtopic 850-10 of the FASB ASC for the identification of related parties and disclosure of related party transactions.
Pursuant to Section 850-10-20 related parties include: a. affiliates of the Company; b. entities for which investments in their
equity securities would be required, absent the election of the FV option under the FV Option Subsection of Section 825–10–15,
to be accounted for by the equity method by the investing entity; c. trusts for the benefit of employees, such as pension and
profit-sharing trusts that are managed by or under the trusteeship of management; d. principal owners of the Company; e. management
of the Company; f. other parties with which the Company may deal if one party controls or can significantly influence the management
or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its
own separate interests; and g. other parties that can significantly influence the management or operating policies of the transacting
parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent
that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.
The
financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense
allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated
in the preparation of financial statements is not required in those statements.
The
disclosures shall include: a. the nature of the relationship(s) involved; b. a description of the transactions, including transactions
to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such
other information deemed necessary to an understanding of the effects of the transactions on the financial statements; c. the
dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change
in the method of establishing the terms from that used in the preceding period; and d. amounts due from or to related parties
as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.
Commitments
and Contingencies
The
Company follows subtopic 450-20 of the FASB ASC to report accounting for contingencies. Certain conditions may exist as of the
date the financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or
more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves
an exercise of judgment.
In
assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result
in such proceedings, the Company evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived
merits of the amount of relief sought or expected to be sought therein.
If
the assessment of a contingency indicates it is probable a material loss was incurred and the amount of the liability can be estimated,
then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a
potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the
nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed.
Loss
contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would
be disclosed. Management does not believe, based upon information available at this time that these matters will have a material
adverse effect on the Company’s financial position, results of operations or cash flows. However, there is no assurance
that such matters will not materially and adversely affect the Company’s business, financial position, and results of operations
or cash flows.
New
Accounting Pronouncements
In
August 2016, the FASB issued ASU No. 2016-15, Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 clarifies
the presentation and classification of certain cash receipts and cash payments in the statement of cash flows. This ASU is effective
for public business entities for fiscal years, and interim periods within those years, beginning after December 15, 2017. Early
adoption is permitted. The Company is currently assessing the potential impact of ASU 2016-15 on its financial statements.
In
November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. The guidance requires that
a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described
as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash
equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total
amounts shown on the statement of cash flows. The standard is effective for fiscal years beginning after December 15, 2017, and
interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The standard
should be applied using a retrospective transition method to each period presented. The Company does not anticipate the adoption
of this ASU will have a significant impact on its financial statements.
In
January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, which
clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions
should be accounted for as acquisitions or disposals of assets or businesses. The standard is effective for fiscal years beginning
after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. The standard should
be applied prospectively on or after the effective date. The Company will evaluate the impact of adopting this standard prospectively
upon any transactions of acquisitions or disposals of assets or businesses.
The
Company has reviewed all other recently issued but not yet effective accounting pronouncements and have determined that these
new accounting pronouncements are either not applicable or would not have a material impact on the results of operations or changes
in the financial position.
NOTE
2 - RELATED PARTY TRANSACTIONS
As
of August 31, 2017, the Company had due to related parties $181,546, of which, 1) $164,877 was due to China Concentric as a result
of an assignment of rights to advances previously made by Algodon, the Company’s former parent. The assignment of rights
was made concurrent with the sale by Algodon of its shares in the Company to China Concentric on January 20, 2017. This advance
carries no interest. 2) $1,800 advanced to the Company for paying certain company’s expenses by Mr. Zhu, a shareholder of
the Company. 3) $14,869 advanced to the Company for paying G&A expenses by an officer of the Company.
As
of May 31, 2017, the Company had 1) advances due China Concentric of $164,877. This total advance, which was assigned to China
Concentric by Algodon, carries no interest. 2) $1,800 advanced to the Company for paying certain Company expenses by Mr. Zhu,
a shareholder of the Company.
NOTE
3 - INCOME TAXES
As
of August 31, 2017, the Company had a net operating loss (“NOL”) carry-forward for income tax reporting purposes of
approximately $396,000 that may be offset against future taxable income through 2036. Current tax laws limit the amount of loss
available to be offset against future taxable income when a substantial change in ownership occurs. Therefore, the amount available
to offset future taxable income may be limited. No tax benefit has been reported in the financial statements, because the Company
believes there is a 50% or greater chance that the realization of the Company’s net deferred tax assets resulting from NOL
carry-forwards will expire unused. Accordingly, the potential tax benefits of the loss carry-forwards are offset by a valuation
allowance of the same amount.
Components
of deferred tax assets are as follows:
|
|
|
August 31, 2017
|
|
|
May 31, 2017
|
|
|
Expected income tax benefit from NOL carry-forwards
|
|
$
|
136,604
|
|
|
$
|
123,180
|
|
|
Less: valuation Allowance
|
|
|
(136,604
|
)
|
|
|
(123,180
|
)
|
|
Net deferred tax assets – Non-current:
|
|
$
|
-
|
|
|
$
|
-
|
|
The
provision for income taxes differs from the amount computed using the federal US statutory income tax rate for the three months
ended August 31, 2017 and 2016 is as follows:
|
|
|
2017
|
|
|
2016
|
|
|
Provision (Benefit) at US Statutory Rate
|
|
$
|
(11,521
|
)
|
|
$
|
(3,033
|
)
|
|
Increase (Decrease) in Valuation Allowance
|
|
|
11,521
|
|
|
|
3,033
|
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
The
Company evaluates its valuation allowance requirements based on projected future operations. When circumstances change and cause
a change in management’s judgment about the recoverability of deferred tax assets, the impact of the change on the valuation
is reflected in current income.
NOTE
4 – CHANGE IN CONTROL
On
January 20, 2017, Algodon Wines & Luxury Development Group, Inc. (“Algodon”), the owner of at least 43,822,001
shares (the “Algodon Shares”), or 96.5% of the outstanding common stock of the Company, sold the Algodon Shares to
China Concentric Capital Group Ltd., a British Virgin Islands company (“China Concentric”), for $260,000 pursuant
to a Stock Purchase Agreement dated December 20, 2016, as amended. Algodon also assigned to China Concentric all its right, title
and interest to amounts payable to Algodon for non-interest bearing advances to the Company, which advances, as of January 20,
2017 were $164,877.
On
February 2, 2017, China Concentric sold to Mr. Quanzhong Lin, an entrepreneur resident in the People’s Republic of China,
29,521,410 of the shares it purchased from Algodon, representing approximately 65% of the outstanding shares of the Company’s
common stock, for $300,000, pursuant to a Stock Purchase Agreement dated December 21, 2016.
Mr.
Lin indicated he is purchasing a controlling interest in the Company with the intention of acquiring an operating business in
a reverse acquisition transaction through a share exchange. There can be no assurance that an acquisition of any particular business
will be consummated.
On
July 21, 2017, the Company entered into an Agreement and Plan of Merger pursuant to which the Company would be merged with and
into a newly-formed wholly-owned subsidiary, AiXin Life International, Inc., a Nevada corporation, as a result of which the Company’s
state of incorporation would be changed from Colorado to Nevada. The Merger was subject to approval by the Financial Regulatory
Authority. On August 25, 2017, the Company terminated the Agreement and Plan of Merger with its newly-formed wholly-owned subsidiary,
AiXin Life International, Inc., as a result of which it would have become a Nevada corporation.
