|UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549
|---------------------------------------------------------------------



|Form 10-KSB
|-----------

[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
For the fiscal year ended:  May 31, 2007 
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. employerincorporation or organization)
     
     
     
     identification number)2525 East Cedar Avenue, Denver, CO
     
     
     
     80209(Address of principal executive offices)
     
     
     
     (Zip code)


Registrants telephone number, including area code: (303) 623-0203Securities 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 (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]

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 value of the voting and non-voting common stock held by non-affiliates as of May 31, 2007 is not possible to determine, as there is no reported public 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 August 10, there were 4,062,897 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]

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



|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



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|TABLE OF CONTENTS
|-----------------

|
|



|
|



|PART I
|------

Item 1. Description of Business

Item 2. Description of Property

Item 3. Legal Proceedings

Item 4. Submission of Matters to a Vote of Security Holders



|PART II
|-------

Item 5. Market for Common Equity, Related Stockholder Matters and Small Business Issuer Purchases of Equity Securities

Item 6. Managements Discussion and Analysis or Plan of Operation

Item 7. Financial Statements Item 8. Change In and Disagreements With Accountants on Accounting and Financial Disclosure Item 8A.Controls and Procedures

Item 8B.Other Information



|PART III
|--------

Item 9. Directors and Executive Officers, Promoters, Control Persons and Corporate Governance; Compliance with Section 16(a) of the Exchange Act

Item 10. Executive Compensation

Item 11. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Item 12. Certain Relationships and Related Transactions, and Director Independence

Item 13. Exhibits

Item 14. Principal Accountant Fees and Services

2

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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 and sold 86,263 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 outstanding debt and offering expenses, net proceeds to the Company were $539,213. The Company registered its common stock under the Securities Exchange Act of 1934, as amended, in 1988.

On April 20, 1989 the Company called all 96,819 outstanding Series A Warrants for redemption on June 16, 1989. There were 3,150 Series A Warrants exercised at an exercise price of $0.01 per share for gross proceeds of $28,354 and 336 Series A Warrants exercised @ $0.0125 for gross proceeds of $3,778, or total gross proceeds of $32,101. All remaining Series A Warrants expired following the warrant call.

The Company ceased all operations in mid-year 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 was to allow the Company to then acquire an operating privately owned business, through a reverse merger or other transaction, with assets, revenues and earnings and that intends to become a publicly owned corporation.

On December 17, 2001 the three directors approved the cancellation of 225,833 shares previously issued to twenty-one people who in 1988 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 initial public offering. The Company did not meet those revenue levels before the Company ceased operations and the shares were therefore subject to cancellation. The Board of Directors also authorized the issuance of 843,305 restricted common shares at par value ($0.0001 per share) to the three directors for $7,589.75 in cash and services. Following the cancellation of the 225,833 and the purchase of 843,305, there were 1,062,897 common shares issued or committed and deemed to be 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.

Beginning in 2002, the Company, acting through its president, began to seek a privately-owned business which would be interested in an acquisition by or of the Company. Through May 31, 2007, the end of its most recent fiscal year, the Company had not found any acceptable acquisition candidate.

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 Consulting Agreement, the Company agreed to promptly make all filings necessary to become current under the Securities Exchange Act of 1934, as amended, and to call a meeting of the Companys shareholders for the purpose of approving a reverse stock split. The Consulting Agreement was terminated effective May 31, 2006.

3

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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 used the proceeds of the capital contribution to pay amounts owed by the Company to its auditors and legal counsel and others and to pay costs of the Company incurred in connection with preparing and filing all required reports under the Securities Exchange Act of 1934, as amended, and to bring the Company current in its filing obligations under that Act, and expenses incurred in connection with holding a special meeting of shareholders to approve a reverse share split and other matters. Mr. Marsik and the other two directors of the Company pledged 533,083 shares of Company common stock owned by them to an affiliate of the lender as security for repayment of the loan to Mr. Marsik. In 2006 the lender released the pledged securities.

As a result of a reverse stock split approved by shareholders in 2004, the number of outstanding common shares was reduced from 950,000,000 to 1,062,897. All references to the Companys outstanding common stock in this Form 10-KSB 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.

On April 23 and 24, 2007, the directors resigned and were replaced by two persons designated by the controlling shareholders.



|ITEM 2 DESCRIPTION OF PROPERTY
|------------------------------

The principal executive offices of the Company are currently located at the home of the Companys secretary, John P. Kanouff, 2525 East Cedar Avenue, Denver, Colorado 80209. The telephone number address is 303- 623-0302. The Company is receiving the use of this space without cost from Mr. Kanouff.



|ITEM 3 LEGAL PROCEEDINGS
|------------------------

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



|ITEM 4 SUBMISSION OF MATTERS TO AVOTE OF SECURITY HOLDERS
|---------------------------------------------------------

There has been no meeting of shareholders of the Company during the last two fiscal years.



|PART II
|-------



|ITEM 5 MARKET FOR COMMON EQUITY ANDRELATED 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 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 July 31, 2007, there were 4,062,897 shares of common stock issued and outstanding held by approximately 136 shareholders of record on that date. There are no shares of preferred stock outstanding.

4

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|(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.

(e)   CUSIP Number.

The CUSIP number for our $0.00001 par value common stock is 587572 30 6.

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 2007. The Company is a development stage business, which intends to acquire a United States or foreign based business which is privately owned and wishes to become a publicly owned business. The Company is now 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.

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, and, in 2007, from the proceeds of loans and sales of common shares.



|Liquidity and Capital Resources
|-------------------------------

The Company requires working capital principally to fund its current operations, which briefly include continuing to remain current under the reporting obligations of the 1934 Act. There are no commitments from banks or other lending sources, including from officers and directors, for lines of credit or similar short-term borrowing, but the Company has in the past been able to obtain additional capital required from its directors. From time to time in years before 2006, 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 at such time as a business acquisition opportunity becomes available.



|ITEM 7 FINANCIAL STATEMENTS
|---------------------------

The financial statements of the Company and supplementary data are included beginning immediately following the signature page to this report. See Item 13 for a list of the financial statements and financial statement schedules included.

5

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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 accountants on any matter of accounting principal or practice, financial statement disclosure or auditing scope or procedure which would have caused the accountant to make reference in its report upon the subject matter of the disagreement.



|ITEM 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 President and the Treasurer, 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 and the Treasurer concluded that, as of the end of the period, the Company's disclosure controls and procedures were effective in timely alerting them 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 their evaluation as of May 31, 2007, 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.



|ITEM 8(b) OTHER INFORMATION
|---------------------------

None. See summary of Reports on Form 8-K filed during 2007 in Item 13 below.



|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 the end of the last fiscal year and on the date of this report:

Directors Name
     
     Age
     
     Position
     
     Date First Elected/AppointedL. Michael Underwood
     
     54
     
     President and Director
     
     March 21, 2007John P. Kanouff
     
     63
     
     Secretary, Treasurer and Director
     
     March 21, 2007


No current director has any arrangement or understanding whereby they are or will be selected as a director or nominee past the current term of office.

Officers will hold office until the next annual meeting of shareholders and until their successors have been duly elected and qualified. The officers are elected by the Board of Directors at its annual meeting immediately following the shareholders annual meeting and hold office until their death or until they earlier resign or are removed from office. There are no written or other contracts providing for the election of directors or term of employment of executive officers, all of whom serve on an at will basis.

6

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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 small size, relative inactivity and limited financial resources. The Board of Directors acts to make nominations of person to be considered for election or appointment as a director, a process considered to be acceptable for the Company, given its small size and limited activities.

The Board of Directors will meet periodically throughout the year as the level of corporate activity dictates. During the years of 1990 through 1999 the Board held no meetings and there were no actions taken by unanimous consent. During each fiscal year from 2001 through May 31, 2006 there was one meeting of the Board of Directors, by telephone. During the fiscal year ended May 31, 2007, there were four meetings of the Board, all by unanimous written consent.

On April 23, 2007, Thomas A. Higgins and Allan Bergenfield resigned as Directors of the Company. On April 24, 2007, Robert W. Marsik appointed Messrs. Underwood and Kanouff to fill the existing vacancies on the Board and then resigned as a Director of the Company and as President, Secretary and Treasurer of the Company.



|Executive Profiles
|------------------

L. Michael Underwood.  During the past five years, Mr. Underwoods principal occupation has been acting as the sole officer of LMU & Company (LMUCO), a Colorado corporation wholly owned by Mr. Underwood. LMUCOs business consists of providing consulting services to businesses. Mr. Underwood is not currently a director of a publicly held entity.

John P. Kanouff.  During the past five years, Mr. Kanouffs principal occupation has been acting as the manager of Kanouff, LLC (KLLC), a Colorado limited liability company wholly owned by Mr. Kanouff. KLLCs business consists of providing consulting services to businesses. From May to December of 2002, Mr. Kanouff was a registered representative with Sands Brothers & Co., Ltd., a member of the New York Stock Exchange; and from November of 2004, to July of 2006, Mr. Kanouff was a registered representative with US EURO Securities, Inc., a member of the National Association of Securities Dealers. Mr. Kanouff is not currently a director of a publicly held entity.

Audit Committee and Audit Committee Financial Expert

The Company does not have a standing audit committee at the present time. Our board of directors has determined that the Company does not have a board member that qualifies as an audit committee financial expert as defined in Item 401(e) of Regulation S-B, nor do we have a board member that qualifies as independent as the term is used in Item 7(d)(3)(iv) of Schedule 14A under the Securities Exchange Act of 1934, as amended.

We believe that our directors are capable of analyzing and evaluating our financial statements and understanding internal controls and procedures for financial reporting. The board of directors of our company does not believe that it is necessary to have an audit committee because we believe that the functions of an audit committee for this corporation can be adequately performed by the board of directors. In addition, we believe that retaining an independent director who would qualify as an audit committee financial expert would be overly costly and burdensome and is not warranted in our circumstances given the level of our business activity and the fact that we have generated no revenue from operations to date.

Section 16(a) Beneficial Ownership Compliance

Based solely on our review of the copies of the Section 16(a) reports furnished to the Company, the Company considers that all Section 16(a) filing requirements applicable to the officers, directors, and holders of 10% of our outstanding common stock were timely met except that Thomas A. Higgins, an officer and director, and Allan Bergenfield, a director, were each late in filing one Form 4.



|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.

7

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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 July 31, 2007, the shares of common stock owned by each current 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)
     
     
     PercentJohn P. Kanouff
     
     1,760,126
     (2)
     
     43.3
     %2525 E. Cedar Ave.Denver, CO 80209L. Michael Underwood
     
     1,760,126
     (3)
     
     43.3
     %5 Eagle Point LnCastle Pines, CO 80108Robert W. Marsik
     
     216,000
     
     
     5.3
     %6353 Vacquero DriveCastle Rock, CO 80108All Executive Officers andDirectors as a Group(2 persons)
     
     3,736,252
     
     
     86.7
     %


(1)
     Based upon 4,062,897 shares of common stock issued and outstanding as of August 27, 2004.(2)
     The shares are owned by Kanouff, LLC, of which Mr. Kanouff is the sole owner and Manager.(3)
     The shares are owned by Underwood Family Partners, Ltd., of which Mr. Underwood is the General Partner and a beneficial owner.


ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The office space, telephone and office supplies consumed by the Company through April 2007 were provided without cost by Thomas A. Higgins, who was then the Chairman, and Robert W. Marsik, who was then the President. Since May 1, 2007, such facilities and supplies have been provided by John P. Kanouff, Treasurer, without cost to the Company.

On January 19, 2007, Kanouff, LLC, an entity owned and controlled by Mr. Kanouff and Underwood Family Partners, Ltd. an entity controlled by Mr. Sherwood, each loaned $10,000 to the Company and the Company agreed to use the proceeds of the loans in a manner consistent with bringing the Company current with its reporting obligations under the Securities Exchange Act of 1934, as amended. The two entities also loaned $35,000 to the three persons who were then the directors of the Company on January 19, 2007. The terms of the loans to the Company provided that they would be repaid once the Company was current in its reporting obligations by issuance of 1.0 million shares to each lending entity. The loan to the three individuals provided that it would be repaid when the Companys loan was repaid, by transferring a total of 570,125 shares of common stock held by the three individuals to the two lending entities.

On March 21, 2007, the Company repaid the loans by issuing 1.0 million shares to each lending entity. Also on that date, he three individuals repaid the loan and transferred 570,125 shares, one-half to each lending entity. As a result of the repayment of the three loans described above, a change in control of the Company occurred on or about march 21, 2007, as reported on form 8-K filed by the Company on that date.

On June 18, 2007, the Company sold 500,000 shares of its common stock to Kanouff, LLC, of which John P. Kanouff is the sole owner, for $5,000. On that date the Company also sold 500,000 shares of its common stock to Underwood Family Partners, Ltd., of which L. Michael Underwood is the General Partner, for $5,000.

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As of the date of this report, we do not have in place any policies with respect to whether we will enter into agreements with related persons in the future.

|  |   |  | 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, 2007 and 2006                              |  | F-3 
|  |   |  | Statement of Operations for the years ended May 31, 2007 and 2006       |  |     
|  |   |  | and for the cumulative period from March 1, 2004 to May 31, 2007        |  | F-4 
|  |   |  | Statement of Stockholders Equity for the                               |  |     
|  |   |  | Period from December 30, 1987 (inception) to May 31, 2007               |  | F-5 
|  |   |  | Statement of Cash Flows for the years ended May 31, 2007 and 2006       |  |     
|  |   |  | and for the cumulative period from March 1, 2004 to May 31, 2007        |  | F-9 
|  |   |  | Notes to Financial Statements                                           |  | F-11

|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, 2004.*                       
|    
|31.1 | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|    
|31.2 | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|    
|32.1 | Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|    
|32.2 | Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

_________________

|* | Incorporated by reference to such exhibits filed with Form 10-KSB for the fiscal year ended May 31,2006.
|- | --------------------------------------------------------------------------------------------------------
| 
|  | (b) Reports on Form 8-K.                                                                                

During the third and fourth fiscal quarters ended May 31, 2007, and through the date of their Report, the Company filed the following reports on Form 8-K:

January 19, 2007 to report borrowing of $20,000 made by the Company and the issuance of two convertible promissory 
                    notes of the Company.

March 21, 2007 to report the issuance of 2,000,000 shares of its common stock and a change in control.

April 24, 2007 to report resignations of directors and officers and appointment of replacements.

June 18, 2007 to report the sale of 1,000,000 shares of its common stock.

9

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ITEM 14. PRINCIPAL ACCOUNTANT FEES & SERVICES

The firm of Robison Hill & Company has acted as independent auditor for the Company for the fiscal years ended May 31, 2001 through 2007. 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:

Year Ended May 31, 2007
     
     
     Year Ended May 31, 2006Audit Fees
     $
     4,442
     
     $
     2,805Tax Fees
     
     75
     
     
     75All 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

The Audit Committee, consisting of all directors, is to 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 Audit Committee regarding the extent of services provided by the independent auditors in accordance with this pre-approval and the fees incurred to date. The Audit Committee 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.

10

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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/ L. Michael Underwood       
| |  |  | L. Michael Underwood, President   
| |  |  | (Principal Executive)             
| |  |  |                                   
| |  |  | By /s/ John P. Kanouff            
| |  |  | John P. Kanouff                   
| |  |  | (Principal Financial Officer)     



|Dated: August 31, 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 31st day of August 2007.

|Signatures               | Title              
|------------------------ | -------------------
|                        
|                        
|/s/ L. Michael Underwood |                    
|L. Michael Underwood     | President          
|                        
|                        
|                        
|/s/ John P. Kanouff      |                    
|John P. Kanouff          | Secretary/Treasurer

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INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS REPORT



|Mercari Communications Group, Ltd.(A Development Stage Company)
|---------------------------------------------------------------

We have audited the accompanying balance sheets of Mercari Communications Group, Ltd. (a development stage company) as of May 31, 2007 and 2006, and the related statements of operations and cash flows for the two years ended May 31, 2007, and the cumulative period from March 1, 2004 (inception of development stage) to May 31, 2007, and the statement of stockholders equity for the period from December 30, 1987 (inception) to May 31, 2007. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the companys internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Mercari Communications Group, Ltd. (a development stage company) as of May 31, 2007 and 2006, and the results of its operations and its cash flows for the two years ended May 31, 2007, and the cumulative period from March 1, 2004 (inception of development stage) to May 31, 2007 in conformity with accounting principles generally accepted in the United States of America.



F - 1

---

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 & CoCertified Public Accountants
|-------------------------------------------------



|Salt Lake City, UtahAugust 10, 2007
|-----------------------------------



F - 2

---



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



May 31,
     20062007Current AssetsCash
     
     $
     -
     
     
     $
     1,071Cash in Escrow
     
     
     -
     
     
     
     62Total Current Assets
     
     
     -
     
     
     
     1,133Total Assets
     
     $
     -
     
     
     $
     1,133Current Liabilities:Accounts Payable & Accrued Liabilities
     
     $
     2,825
     
     
     $
     2,100Shareholder Loans
     
     
     -
     
     
     
     2,350Total Liabilities
     
     
     2,825
     
     
     
     4,450Stockholders' Equity:Common Stock, Par value $.00001Authorized 950,000,000 shares,Issued 3,062,897 shares at May 31, 2007 and
     
     
     30
     
     
     
     101,062,897 at May 31, 2006Paid-In Capital
     
     
     57,854
     
     
     
     36,134Deficit accumulated during thedevelopment stage since March 1, 2004in connection with quasi reorganization
     
     
     (60,709
     )
     
     
     (39,461
     )Total Stockholders' Equity
     
     
     (2,825
     )
     
     
     (3,317
     )Total Liabilities andStockholders' Equity
     
     $
     -
     
     
     $
     1,133


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



F - 3

---



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

Cumulative since March 1, 2004 Inception of development stageFor the year endedMay 31,
     20062007Revenues:
     
     $
     -
     
     
     $
     -
     
     
     $
     -Expenses:General and administrative
     
     
     21,248
     
     
     
     7,728
     
     
     
     60,709Net Income
     
     $
     (21,248
     )
     
     $
     (7,728
     )
     
     $
     (60,709
     )Basic & Diluted Earnings Per Share
     
     $
     (0.01
     )
     
     $
     (0.01
     )Weighted Average Shares
     
     
     1,517,692
     
     
     
     1,062,897


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

F - 4

---



MERCARI COMMUNICATIONS GROUP, LTD. 
(A Development Stage Company) 
STATEMENT OF STOCKHOLDERS' EQUITYFOR THE PERIOD FROM DECEMBER 30, 1987 (INCEPTION) TO MAY 31, 2007



|                                   |                                 |              |           |   |                 |   |   | Common Stock to be Issued |   | Paid-InCapital |   |   | RetainedDeficit |   |  |   | Deficit | Deficit Accumulated Since March 1, 2004 Inception of Development Stage (Since quasi
|---------------------------------- | ------------------------------- | ------------ | --------- | - | --------------- | - | - | ------------------------- | - | -------------- | - | - | --------------- | - |  | - | ------- | -----------------------------------------------------------------------------------
|Accumulated                       
|                                   |                                 | Since       
|August 31, 2001                   
|                                   |                                 | Inception of
|Development                       
|                                   |                                 | Stage       
|Common Stock                       | (Prior to quasi reorganization)
|Shares                             |                                 |              | Par Value |   | 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        | ) |  |   | -       |                                                                                    



|
|



F - 5

---



MERCARI COMMUNICATIONS GROUP, LTD.(A Development Stage Company)STATEMENT OF STOCKHOLDERS' EQUITYFOR THE PERIOD FROM DECEMBER 30, 1987 (INCEPTION) TO MAY 31, 2007(continued)

|                         |  |                              |                 |              |                 |   |                 |   |   | Paid-InCapital |  |   | RetainedDeficit |   |  |   | DeficitAccumulatedSince |   | Deficit Accumulated Since March 1, 2004 Inception of Development Stage (Since quasi
|------------------------ |  | ---------------------------- | --------------- | ------------ | --------------- | - | --------------- | - | - | -------------- |  | - | --------------- | - |  | - | ----------------------- | - | -----------------------------------------------------------------------------------
|
|
|August 31, 2001         
|                         |  | Inception ofDevelopmentStage
|
|Common                  
|Common Stock             |  | Stock                        | (Prior to quasi
|Shares                   |  |                              | Par Value       | to be Issued | 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                 | ) |                                                                                    



|
|



F - 6

---



MERCARI COMMUNICATIONS GROUP, LTD.(A Development Stage Company)STATEMENT OF STOCKHOLDERS' EQUITYFOR THE PERIOD FROM DECEMBER 30, 1987 (INCEPTION) TO MAY 31, 2007(continued)

|                                    |  |              |           |                 |                 |   |  |  |                 |    |   |   | Paid-InCapital |   |   | RetainedDeficit |   |  |  |   | Deficit |   |  | DeficitAccumulatedSinceMarch 1, 2004Inception ofDevelopmentStage(Since quasi |  
|----------------------------------- |  | ------------ | --------- | --------------- | --------------- | - |  |  | --------------- | -- | - | - | -------------- | - | - | --------------- | - |  |  | - | ------- | - |  | ---------------------------------------------------------------------------- | -
|Accumulated                        
|                                    |  | Since       
|August 31, 2001                    
|                                    |  | Inception of
|Development                        
|Common                              |  |              | Stage    
|Common Stock                        |  |              | Stock     | (Prior to quasi
|Shares                              |  |              | Par Value | to be Issued    | 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                                                                      | )



|
|

F - 7

---



MERCARI COMMUNICATIONS GROUP, LTD.(A Development Stage Company)STATEMENT OF STOCKHOLDERS' EQUITYFOR THE PERIOD FROM DECEMBER 30, 1987 (INCEPTION) TO MAY 31, 2007 (continued)

|                                   |  |              |                                 |              |    |  |   |   |  |   | Paid-In Capital |  |   | Retained Deficit |  |   |  | Deficit |  |   | DeficitAccumulatedSinceMarch 1, 2004Inception ofDevelopmentStage(Since quasi
reorganization) |  
|---------------------------------- |  | ------------ | ------------------------------- | ------------ | -- |  | - | - |  | - | --------------- |  | - | ---------------- |  | - |  | ------- |  | - | -------------------------------------------------------------------------------------------- | -
|Accumulated                       
|                                   |  | Since       
|August 31, 2001                   
|                                   |  | Inception of
|Development                       
|Common                             |  |              | Stage                          
|Common Stock                       |  | Stock        | (Prior to quasi reorganization)
|Shares                             |  |              | Par Value                       | to be Issued
|                                  
|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                                                                                      | )
|                                  
|Capital Contributed by shareholder |  | -            |                                 |              | -  |  |   | - |  |   | 1,740           |  |   | -                |  |   |  | -       |  |   | -                                                                                            |  
|Issuance of Shares for notes       |  |              |                                 |              |    |  |   |   |  |   |                 |  |   |                  |  |   |  |         |  |   |                                                                                              |  
|payable                            |  | 2,000,000    |                                 |              | 20 |  |   | - |  |   | 19,980          |  |   | -                |  |   |  | -       |  |   | -                                                                                            |  
|Net Loss                           |  | -            |                                 |              | -  |  |   | - |  |   | -               |  |   | -                |  |   |  | -       |  |   | (21,248                                                                                      | )
|                                  
|Balance at May 31, 2007            |  | 3,062,897    |                                 | $            | 30 |  | $ | - |  | $ | 57,854          |  | $ | -                |  | $ |  | -       |  | $ | (60,709                                                                                      | )



|The accompanying notes are an integral part of these financial statements
|-------------------------------------------------------------------------



F - 8

---



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

CumulativeSinceMarch 31,2004Inception ofDevelopmentStageFor the years endedMay 31,
     
     20062007CASH FLOWS FROM OPERATINGACTIVITIES:Net Loss
     $
     (21,248
     )
     $
     (7,728
     )
     $
     (60,709
     )Increase (Decrease) in Accounts Payable
     
     725
     
     
     1,908
     
     
     (16,141
     )Net Cash Used in operating activities
     
     (20,523
     )
     
     (5,820
     )
     
     (76,850
     )CASH FLOWS FROM INVESTINGACTIVITIES:Net cash provided by investing activities
     
     -
     
     
     -
     
     
     -CASH FLOWS FROM FINANCINGACTIVITIES:Payments on shareholder loans
     
     (610
     )
     
     -
     
     
     (610
     )Proceeds from shareholder loans
     
     -
     
     
     -
     
     
     2,350Proceeds from notes payable
     
     20,000
     
     
     -
     
     
     20,000Cash contributed by shareholders
     
     -
     
     
     -
     
     
     55,000Net Cash Provided by financing activities
     
     19,390
     
     
     -
     
     
     76,740Net (Decrease) Increase inCash and Cash Equivalents
     
     (1,133
     )
     
     (5,820
     )
     
     (110
     )Cash and Cash Equivalentsat Beginning of Period
     
     1,133
     
     
     6,953
     
     
     110Cash and Cash Equivalentsat End of Period
     $
     -
     
     $
     1,133
     
     $
     -




|
|

F - 9

---



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

Cumulative  Since  March 31,  2004  Inception ofFor the years ended2007
     May 31,
     2006
     DevelopmentStageSUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:Cash paid during the year for:Interest
     $
     -
     $
     -
     $
     -Franchise and income taxes
     $
     -
     $
     -
     $
     -


SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCINGACTIVITIES:

On January 19, 2007, the Company issued two promissory notes for $10,000 each to two nonaffiliated lenders. The notes are payable by the Company only at the time, and in the event, the Company becomes current in reporting obligations under the Securities Exchange Act of 1934, as amended. At the time when the notes become payable, the Company agreed to issue and deliver to each of the two lenders 1,000,000 shares of the Companys unregistered common stock. On March 9, 2007, the Company issued 2,000,000 shares of stock as payment for the notes payable.









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

F - 10

---



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 $60,700 for the period from March 1, 2004 (inception of development stage) to May 31, 2007, 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.





F - 11

---



|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, 2007. 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, 2007 and 2006 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.





F - 12

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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, 2007, the Company had a net operating loss carry forward for income tax reporting purposes of approximately $60,709 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.

2007
     
     
     2006Net Operating Losses
     
     
     9,106
     
     $
     5,919Valuation Allowance
     
     
     (9,106
     )
     
     (5,919
     )-
     
     $
     -


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

2007
     
     
     2006Provision (Benefit) at US Statutory Rate
     $
     3,187
     
     $
     1,159Increase (Decrease) in Valuation Allowance
     
     (3,187
     )
     
     (1,159
     )$
     -
     
     $
     -


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, 2007 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.



|
|

F - 13

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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.

On January 19, 2007, the Company issued two promissory notes for $10,000 each to two nonaffiliated lenders. The notes are payable by the Company only at the time, and in the event, the Company becomes current in reporting obligations under the Securities Exchange Act of 1934, as amended. At the time when the notes become payable, the Company agreed to issue and deliver to each of the two lenders 1,000,000 shares of the Companys unregistered common stock. On March 9, 2007, the Company issued 2,000,000 shares of stock as payment for the notes payable.



|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.



|
|



F - 14

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



|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.

In February 2007, the Company repaid $610 of the total shareholder loan due of $2,350, and the balance of the loan of $1,740 was forgiven and reclassified as paid-in capital.



|NOTE 8 - NOTES PAYABLE
|----------------------

On January 19, 2007, the Company borrowed $10,000 from each of two nonaffiliated lenders, and agreed to use the proceeds of the loans to pay legal, accounting and other expenses anticipated to be incurred by the Company in filing all reports and other filings required under the Securities Exchange Act of 1934, as amended (the Exchange Act). Pursuant to the notes, the Company has agreed to repay the loans within two business days after the date that the Company has become current with its reporting and other filing obligations under the Exchange Act. Each note is payable only by the issuance by the Company of 1,000,000 shares of newly-issued, unregistered common stock of the Company. On March 9, 2007, the Company issued 2,000,000 shares of stock to redeem the notes. At May 31, 2007, the total amount due on these notes was $0.



|NOTE 9 - QUASI REORGANIZATION
|-----------------------------

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



|NOTE 10 - SUBSEQUENT EVENTS
|---------------------------

On June 18, 2007, the Company sold 500,000 shares of its common stock to Kanouff, LLC (KLLC), a Colorado limited liability company, for $5,000 in cash and 500,000 shares of its common stock to Underwood Family Partners, Ltd. (Partnership), a Colorado limited partnership, for $5,000 in cash. John P. Kanouff, an officer and director of the Company, is the sole owner and member of KLLC; and L. Michael Underwood, an officer and director of the Company, is the general partner of the Partnership. The Company sold such shares to KLLC and the Partnership in order to obtain working capital. The Registrant relied upon Section 4(2) of the Securities Act of 1933 as providing the exemption from registration under such Act for such transactions.

F - 15

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