UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q


(Mark
One)





x
            QUARTERLY
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934





For the
quarterly period ended March 31, 2010





o
            TRANSITION
      REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE
  ACT





For the
transition period from ______________to _______________.





Commission
File Number 0-49801





MEDIANET
GROUP TECHNOLOGIES, INC.


(Exact
name of small business issuer as specified in its charter)





Nevada
              (State
      or other jurisdiction of incorporation or organization)
            13-4067623
              (I.R.S.
      Employer Identification No.)





5200
Town Center Circle, Suite 601


Boca
Raton, FL 33486


(Address
of principal executive offices)




561-417-1500


(Issuer’s
telephone number)




(Former
name, former address and former fiscal year if changed since last
report)





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 the such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.


Yes  x     No
o





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files).    Yes o    No o





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See definitions of “large accelerated filer”, “accelerated
filer” and “smaller reporting company” as defined in Rule 12b-2 of the Exchange
Act.





Large
accelerated filer o


Non-accelerated
filer o


Accelerated
filer o


Smaller
reporting company x




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




Number of
shares of preferred stock outstanding as of May 24,
2010: 3,858,067




Number of
shares common stock outstanding as of May 24, 2010: 28,621,680









FORM
10-Q


INDEX





PART
      I: FINANCIAL INFORMATION
              
              3Item
      1. Financial Statements
              
              3§ Consolidated Balance Sheets as of
      March 31, 2010 and September 30, 2009
              
              3§ Consolidated Statements of
      Operations for the Three and Six Months Ended March 31, 2010 and
      2009
              
              4§ Consolidated Statements of Cash
      Flows for the Six Months Ended March 31, 2010 and
    2009
              
              5§ Condensed Notes to Consolidated
      Financial Statements
              
              7Item
      2. Management s Discussion and Analysis of Financial Condition and Results
      of Operations
              
              24Item
      4T. Controls and Procedures
              
              30PART
      II: OTHER INFORMATION
              
              31Item
      1. Legal Proceedings
              
              31Item
      1A. Risk Factors
              
              31Item
      2. Unregistered Sales of Equity Securities and Use of
      Proceeds
              
              47Item
      5. Other Information
              
              47Item
      6. Exhibits
              
              48SIGNATURES
              
              49INDEX
      TO EXHIBITS
              
              50




2




PART I: FINANCIAL
INFORMATION


ITEM 1. FINANCIAL
STATEMENTS





MediaNet
      Group Technologies, Inc. and SubsidiariesConsolidated
      Balance SheetsMarch
            
            
            September,
      3031,
      2010
            
            
            2009(Unaudited)
            
            
            (Audited)Assets
            
            
            
            
            See Note 2Current
      AssetsCash
      and cash equivalents
            
            $
            2,162,101
            
            
            $
            2,499,237Restricted
      cash
            
            
            1,463,491
            
            
            
            722,230Accounts
      receivable, net
            
            
            465,978
            
            
            
            72,998Inventory
            
            
            608,393
            
            
            
            401,141Prepaid
      expenses and other current assets
            
            
            592,570
            
            
            
            127,209Deposits
            
            
            255,000
            
            
            
            94,070Total
      current assets
            
            
            5,547,532
            
            
            
            3,916,885Property
      and equipment, net
            
            
            2,196,348
            
            
            
            94,139Other
      Assets
            
            
            19,147
            
            
            
            32,222Total
      Assets
            
            
            7,763,026
            
            
            
            4,043,246Liabilities
      and Stockholders' EquityCurrent
      LiabilitiesAccounts
      payable
            
            
            118,363
            
            
            
            121,461Accrued
      liabilities
            
            
            298,276
            
            
            
            585,715Accrued
      incentives
            
            
            300,000
            
            
            
            644,292Loyalty
      points payable
            
            
            264,268
            
            
            
            209,025Commissions
      payable
            
            
            1,320,348
            
            
            
            1,876,605Income
      taxes payable
            
            
            1,110,755
            
            
            
            287,838Customer
      deposits
            
            
            81,892
            
            
            
            18,348Deferred
      revenue
            
            
            3,708,029
            
            
            
            2,626,835Accrued
      interest - related party
            
            
            6,692
            
            
            
            -Note
      Payable-related party
            
            
            -
            
            
            
            191,355Total
      current liabilities
            
            
            7,208,623
            
            
            
            6,561,475Stockholders'
      Equity (Deficit)Preferred
      stock - $.01 par value, 5 million shares authorized, 5 million shares and
      0 shares issued and outstanding as of March 31, 2010 and September 30,
      2009, respectively
            
            
            50,000
            
            
            
            -Common
      stock - $.001 par value, 50,000,000 sharesauthorized,
      28,621,680 and  27,303,552 shares issued and outstanding as of
      March 31, 2010 and September 30, 2009, respectively (See Note
      12)
            
            
            28,621
            
            
            
            27,304Additional
      paid-in capital
            
            
            666,967
            
            
            
            (768,528
            )Accumulated
      other comprehensive income (loss)
            
            
            (101,480
            )
            
            
            (14,177
            )Deficit
      in retained earnings
            
            
            (89,704
            )
            
            
            (1,762,828
            )Total
      stockholders' equity
            
            
            554,404
            
            
            
            (2,518,229
            )Total
      liabilities and stockholders' equity
            
            $
            7,763,026
            
            
            $
            4,043,246





See accompanying notes to condensed
consolidated financial statements




3




MediaNet
      Group Technologies, Inc. and SubsidiariesConsolidated
      Statements of Operations(Unaudited)For
      the three months
            
            
            For
      the six monthsended March
      31,
            
            
            ended March
      31,2010
            
            
            2009
            
            
            2010
            
            
            2009Revenues
            
            $
            7,030,213
            
            
            $
            4,999,126
            
            
            $
            14,520,401
            
            
            $
            8,187,410Direct
      cost of revenues
            
            
            4,364,647
            
            
            
            3,040,577
            
            
            
            9,422,196
            
            
            
            5,257,094Gross
      Profit
            
            
            2,665,566
            
            
            
            1,958,549
            
            
            
            5,098,205
            
            
            
            2,930,317Operating
      ExpensesAdvertising
      and marketing
            
            
            179,098
            
            
            
            70,970
            
            
            
            271,177
            
            
            
            172,890General
      and administrative
            
            
            1,213,386
            
            
            
            1,282,750
            
            
            
            2,586,581
            
            
            
            2,266,693Total
      operating expenses
            
            
            1,392,484
            
            
            
            1,353,720
            
            
            
            2,857,758
            
            
            
            2,439,584Income
      (loss) from operations
            
            
            1,273,083
            
            
            
            604,829
            
            
            
            2,240,447
            
            
            
            490,733Interest
      income (expense) -net
            
            
            (
      5,506
            )
            
            
            (3,437
            )
            
            
            (
      7,002
            )
            
            
            (
      3,437
            )Income
      (loss) from continuing operations before income taxes
            
            
            1,267,577
            
            
            
            601,392
            
            
            
            2,233,446
            
            
            
            487,296Provision
      for income taxes
            
            
            (
      430,976
            )
            
            
            -
            
            
            
            (
      939,976
            )
            
            
            -Income
      (loss) from continuing operations
            
            
            836,601
            
            
            
            601,392
            
            
            
            1,293,470
            
            
            
            487,296Discontinued
      operationsGain
      from sale of subsidiary
            
            
            -
            
            
            
            74,990
            
            
            
            -
            
            
            
            74,990Net
      income (loss)
            
            
            836,601
            
            
            
            676,382
            
            
            
            1,293,470
            
            
            
            562,286Foreign
      currency translation adjustment
            
            
            (40,426
            )
            
            
            -
            
            
            
            (87,303
            )
            
            
            -Comprehensive
      Income (Loss)
            
            $
            796,174
            
            
            $
            676,382
            
            
            $
            1,206,166
            
            
            $
            562,286Earnings
      (loss) per share:Continuing
      operationsBasic
            
            $
            0.03
            
            
            $
            0.03
            
            
            $
            0.05
            
            
            $
            0.02Fully
      Diluted
            
            $
            0.00
            
            
            $
            0.03
            
            
            $
            0.00
            
            
            $
            0.02Discontinued
      operationsBasic
            
            $
            0.03
            
            
            $
            0.03
            
            
            $
            0.04
            
            
            $
            0.03Fully
      Diluted
            
            $
            0.00
            
            
            $
            0.03
            
            
            $
            0.00
            
            
            $
            0.03Weighted
      average number of shares outstanding during the periodBasic
            
            
            28,484,206
            
            
            
            20,674,802
            
            
            
            28,484,206
            
            
            
            20,674,802Fully
      Diluted
            
            
            339,037,717
            
            
            
            20,674,802
            
            
            
            277,167,462
            
            
            
            20,674,802




See
accompanying notes to condensed consolidated financial statements.




4





MediaNet
Group Technologies, Inc. and Subsidiaries


Consolidated
Statements of Cash Flows


(Unaudited)


For
      the six monthsended March
      31,2010
            
            
            2009Cash
      flows from operating activitiesNet
      Income from continuing operations
            
            $
            1,293,470
            
            
            
            261,314Reconcile
      net income (loss) to net cash used in operating
activities:
            
            
            
            
            
            
            -Depreciation
      and amortization
            
            
            19,595
            
            
            
            11,722Stock
      and Warrants issued for services
            
            
            
            
            
            
            90,749(Increase)
      decrease in assets:
            
            
            
            
            
            
            -Restricted
      cash
            
            
            (741,261
            )
            
            
            1,079,761Accounts
      receivable
            
            
            (392,980
            )
            
            
            (326,764
            )Inventory
            
            
            (207,252
            )
            
            
            (34,412
            )Prepaid
      expenses
            
            
            (465,361
            )
            
            
            (13,553
            )Deposits
            
            
            (160,930
            )
            
            
            -Other
      current assets
            
            
            13,075
            
            
            
            (837,162
            )Increase
      (decrease) in liabilities:
            
            
            
            
            
            
            -Accounts
      payable
            
            
            (3,099
            )
            
            
            220,104Accrued
      liabilities
            
            
            (280,747
            )
            
            
            101,890Accrued
      incentives
            
            
            (344,292
            )
            
            
            -Loyalty
      points payable
            
            
            55,243
            
            
            
            -Commission
      payable
            
            
            (556,257
            )
            
            
            -Income
      tax payable
            
            
            822,917
            
            
            
            -Customer
      deposits
            
            
            63,544
            
            
            
            1,367Deferred
      revenue
            
            
            1,081,194
            
            
            
            16,174Accrued
      interest - related party
            
            
            6,692
            
            
            
            1,519Note
      Payable-related party
            
            
            (191,355
            )
            
            
            169,500Net
      cash provided (used) in operating activities
            
            
            12,196
            
            
            
            742,211Cash
      flows from investing activities:Purchase
      of software license
            
            
            (400,000
            )
            
            
            -Purchase
      fixed assets
            
            
            (640,812
            )
            
            
            (1,059
            )Net
      cash provided (used) in investing activities
            
            
            (1,040,812
            )
            
            
            (1,059
            )Cash
      flows from financing activitiesProceeds
      from the issuance of warrants
            
            
            113,185
            
            
            
            29,247Proceeds
      from issuance common shares
            
            
            578,294
            
            
            
            165,738Net
      cash provided (used) by financing activities
            
            
            691,479
            
            
            
            194,985Net
      increase (decrease) in cash and equivalents
            
            
            (337,137
            )
            
            
            936,136Cash
      at beginning of period
            
            
            2,499,237
            
            
            
            1,480,199Cash
      at end of period
            
            $
            2,162,100
            
            
            $
            2,416,335





See
accompanying notes to condensed consolidated financial statements.




5




MediaNet
Group Technologies, Inc. and Subsidiaries


Consolidated
Statements of Cash Flows (Continued)


(Unaudited)





Supplemental
      disclosures of cash flow information:Cash
      paid for interest
            
            $
            3,671
            
            
            $
            1,989Cash
      paid for income taxes
            
            
            -
            
            
            
            -Supplemental
      disclosures of non-cash transactions:Foreign
      translation adjustment - comprehensive loss
            
            $
            (87,303
            )
            
            
            -Stock
      issued for Software
            
            $
            1,337,673
            
            
            
            -Recapitalization
            
            $
            6,874,886
            
            
            
            -




See
accompanying notes to condensed consolidated financial statement.




6




MediaNet
Group Technologies, Inc. and Subsidiaries


Condensed
Notes to Consolidated Financial Statements


(Unaudited)





Note
1 - Description of Business





MediaNet
Group Technologies, Inc. (“MediaNet Group” or the “Company”), through its wholly
owned subsidiaries, is a global marketing company that sells high end branded
merchandise to consumers through Internet-based auctions conducted under the
trade name “DubLi.com.”  As of March 31, 2010, our online auctions
were conducted in Europe, North America, Australia and New Zealand and we had a
large network of independent business associates that sold “credits”, or the
right to make a bid in one of our auctions (referred to herein as “Credit” or
“DubLi Credits”).  These auctions are designed to offer consumers real
savings on these high end goods.  The Company, through its BSP Rewards
subsidiary, also offers private branded loyalty and reward web malls where
members receive rebates (rewards) on products and services from participating
merchants.





The
Company is organized in Nevada and has its principal executive offices in Boca
Raton, Florida.  The Company’s wholly owned subsidiaries are domiciled
in Delaware, Florida and Nevada in the United States and in the, British Virgin
Islands, Cyprus and Berlin, Germany.





As of May
24, 2010, our President and Chief Executive Officer, through his beneficial
ownership of the Company’s outstanding Series A Preferred Stock, has the
indirect shared power to cast approximately 88% of the combined votes that can
be cast by the holders of the Common Stock and the Series A Preferred Stock,
which generally vote together as a single class on all matters submitted to the
vote of shareholders. Accordingly, he, along with another person who is not an
officer or director of the Company, has the power to influence or control the
outcome of important corporate decisions or matters submitted to a vote of our
shareholders, including, but not limited to, increasing the authorized capital
stock of the Company, the dissolution, merger or sale of the Company’s assets
and the size and membership of the Board of Directors and all other corporate
actions.





Note
2 - Summary of Significant Accounting Policies





Basis of
Presentation




The
accompanying unaudited condensed consolidated financial statements are prepared
in accordance with accounting principles generally accepted in the United States
of America for interim financial information, the instructions to Form 10-Q and
Article 10 of Regulation S-X of the Securities and Exchange Commission.
Accordingly, they do not contain all the information and notes required by
accounting principles generally accepted in the United States of America for
complete financial statements. In the opinion of management, all adjustments
which are necessary for the fair presentation of the condensed consolidated
financial statements have been included and all such adjustments are of a normal
and recurring nature. The operating results for the three months ended March 31,
2010 are not necessarily representative of the results of future quarterly or
annual periods. The following information should be read in conjunction with the
audited consolidated financial statements and accompanying notes thereto
included in the Company’s Annual Report on Form 10-K for the fiscal year ended
September 30, 2009.





The
unaudited condensed consolidated financial statements include the accounts of
MediaNet Group Technologies, Inc. and its subsidiaries which are wholly owned or
otherwise under common control. All intercompany accounts and transactions have
been eliminated in consolidation. The following subsidiaries are included in the
consolidation at March 31, 2010 and 2009.





BSP
      Rewards, Inc.
            Wholly
      owned
            Actively
      engaged in businessCG
      Holdings, Ltd.
            Wholly
      owned
            Actively
      engaged in businessDUBLICOM
      Limited
            Wholly
      owned
            Actively
      engaged in businessDubLi
      Network Limited
            Wholly
      owned
            Actively
      engaged in businessLenox
      Logistik und Service GmbH
            Wholly
      owned
            Actively
      engaged in businessLenox
      Resources, LLC
            Wholly
      owned
            Actively
      engaged in businessDubLi
      Logistics LLC
            Under
      Common Control*
            Actively
      engaged in businessDubLi.com,
      LLC
            Under
      Common Control
            Discontinued
      operationsDubLi.com
      GmbH
            Under
      Common Control
            Discontinued
      operationsDubLi
      Network, LLC
            Under
      Common Control
            Discontinued
      operations




*
Acquired May 24, 2010




7





As is
more fully described in Note 12 to the Financial Statements, DubLi Logistics was
identified as one of the consolidated subsidiaries of the Company in Amendment
No. 1 to the Company’s Form 8-K filed with the SEC on February 4, 2010 (the
“Form 8-K”) and the Company’s Form 10-Q for the quarter ended December 31, 2009
(the “Form 10-Q”) based upon DubLi Logistic’s historical and current operation
as an affiliated, profitless, product purchasing agent of
DUBLICOM.  DubLi Logistics is operated exclusively by employees of
Lenox Logistik.





The results of operations and assets
and liabilities of DubLi.com, LLC’s subsidiaries were also included in the
Company’s consolidated results of operations as reported in the Form 8-K and
Form 10-Q based upon their common ownership and historical relationship to CG
and its other consolidated subsidiaries. DubLi.com, LLC, which is a holding
company, has never directly operated a business and its subsidiaries were sold
or their businesses were discontinued in the second quarter of
2009.





The
condensed balance sheet as of September 30, 2009 has been derived from financial
statements audited by Lake & Associates LLC, independent public accountants,
as indicated in their report included in the Company’s 10-K for September 30,
2009.





The
balance sheet as of March 31, 2010 have been corrected for an understatement of
500,000 outstanding shares, an error that existed from July 2007 until December
31, 2009 and the omission of existence of 5 million shares of authorized
preferred stock for the periods from inception until December 31,
2009.  This Note also contains previously undisclosed information
about each subsidiary company’s status as either wholly owned or
controlled.




The
Company has evaluated subsequent events and determined no adjustment or
additional disclosure other than that already made to these financial statements
, specifically in Note 12, is considered necessary based on this
evaluation.





Accounting
Principles




The
consolidated financial statements and accompanying notes are prepared in
accordance with accounting principles generally accepted in the United States of
America.





Recent Authoritative
Accounting Pronouncements




In
September 2009, the Financial Accounting Standards Board (“FASB”) issued ASC
605-25,Revenue Recognition -
Multiple-Deliverable Revenue Arrangements. This guidance addresses how to
separate deliverables and how to measure and allocate consideration to one or
more units of accounting. Specifically, the guidance requires that consideration
be allocated among multiple deliverables based on relative selling prices. The
guidance establishes a selling price hierarchy of (1) vendor-specific
objective evidence, (2) third-party evidence and (3) estimated selling
price. This guidance is effective for annual periods beginning after
December 15, 2009 but may be early adopted as of the beginning of an annual
period. The Company is currently evaluating the effect that this guidance will
have on its consolidated financial position and results of operations, if
any.




Foreign
Currency




Financial
statements of foreign subsidiaries operating in other than highly inflationary
economies are translated at year-end exchange rates for assets and liabilities
and historical exchange rates during the year for income and expense accounts.
The resulting translation adjustments are recorded within accumulated other
comprehensive income or loss. Financial statements of subsidiaries operating in
highly inflationary economies are translated using a combination of current and
historical exchange rates and any translation adjustments are included in
current earnings. Gains or losses resulting from foreign currency transactions
are recorded in other expense.




8





Reclassifications




Certain
amounts reported in previous periods have been reclassified to conform to the
Company’s current period presentation.




Management’s Use of
Estimates and Assumptions




The
preparation of the consolidated financial statements in conformity with
generally accepted accounting principles in the United States of America
requires management to make estimates, judgments and assumptions that affect the
reported amounts of the assets and liabilities, disclosure of contingent assets
and liabilities, deferred income, accruals for incentive awards and unearned
auction Credits at the date of the consolidated financial statements, and the
reported amounts of revenue and expense during the reporting periods. Examples,
though not exclusive, include estimates and assumptions of: loss contingencies;
depreciation or amortization of the economic useful life of an asset;
stock-based compensation forfeiture rates; estimating the fair value and
impairment of assets; potential outcome of future tax consequences of events
that have been recognized in our financial statements or tax returns; estimates
of incentive awards and unearned auction Credits and determining when investment
impairments are other-than temporary. The Company bases its estimates on
historical experience and on various assumptions that the Company believes to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may materially differ
from these estimates under different assumptions and conditions.




Cash, Cash Equivalents and
Financial Instruments




The
Company considers all highly liquid instruments with original maturities of
three months or less at the date of purchase to be cash equivalents. In general,
investments with original maturities of greater than three months and remaining
maturities of less than one year are classified as short term
investments.




Concentrations




The
Company maintains its cash in a bank deposit account, which at times may exceed
the federally insured limits. The Company has not experienced any losses in such
account and believes it is not exposed to any significant credit risk on cash
and cash equivalents.




Fair Value of Financial
Instruments




The
Company has adopted and follows ASC 820-10,“Fair Value Measurements and
Disclosures” for measurement and disclosures about the fair value of its
financial instruments. ASC 820-10 establishes a framework for measuring fair
value in accordance with generally accepted accounting principles (GAAP), and
expands disclosures about fair value measurements. To increase consistency and
comparability in fair value measurements and related disclosures, ASC 820-10
establishes a fair value hierarchy which prioritizes the inputs to valuation
techniques used to measure fair value into three (3) broad levels. The fair
value hierarchy gives the highest priority to quoted prices (unadjusted) in
active markets for identical assets or liabilities and the lowest priority to
unobservable inputs. The three (3) levels of fair value hierarchy defined by ASC
820-10 are:




Level 1 —                      Inputs
are unadjusted, quoted prices in active markets for identical assets or
liabilities at the measurement date.





Level 2 —                      Inputs
(other than quoted market prices included in Level 1) are either
directly or indirectly observable for the asset or liability through correlation
with market data at the measurement date and for the duration of the
instrument’s anticipated life.





Level 3 —                      Inputs
reflect management’s best estimate of what market participants would use in
pricing the asset or liability at the measurement date. Consideration is given
to the risk inherent in the valuation technique and the risk inherent in the
inputs to the model. Valuation of instruments includes unobservable inputs to
the valuation methodology that are significant to the measurement of fair value
of assets or liabilities.




9




As
defined by ASC 820-10, the fair value of a financial instrument is the amount at
which the instrument could be exchanged in a current transaction between willing
parties, other than in a forced or liquidation sale, which was further clarified
as the price that would be received to sell an asset or paid to transfer a
liability (“an exit price”) in an orderly transaction between market
participants at the measurement date. The carrying amounts of the Company’s
financial assets and liabilities, such as cash and cash equivalents, prepaid and
other current assets,  and other assets, accounts payable, accrued
expenses, accrued interest, taxes payable, and other current liabilities,
approximate their fair values because of the short maturity of these
instruments. The Company’s notes payable to shareholders approximates the fair
value of such instrument based upon management’s best estimate of interest rates
that would be available to the Company for similar financial arrangements at
March 31, 2010.




The
Company does not have any assets or liabilities measured at fair value on a
recurring or a non-recurring basis and, consequently, the Company did not have
any fair value adjustments for assets and liabilities measured at fair value at
March 31, 2010, nor any gains or losses reported in the statement of operations
that are attributable to the change in unrealized gains or losses relating to
those assets and liabilities still held at the reporting date.




Inventory




The
inventory represents merchandise purchased at cost. Inventories are stated at
lower of cost or market. Cost is determined on the first-in, first-out basis.
Shipping and handling costs are included in purchases for all periods
presented.




Property, Software and
Leasehold Improvements




Property
is recorded at cost. The cost of maintenance and repairs of equipment is charged
to operating expense when incurred. Depreciation and amortization is determined
based upon the assets’ estimated useful lives, and is calculated on a
straight-line basis when the asset is placed in service. When the Company sells,
disposes or retires equipment or replaces a leasehold improvement, the related
gains or losses are included in operating results. Property is depreciated over
five or seven years and begins when it is placed in service.




Depreciation
and amortization are provided for financial reporting primarily on the
accelerated and the straight-line methods over the estimated useful lives of the
respective assets as follows:







Estimated
              Useful
      LifeOffice
      furniture, computer equipment and software
            5
      years





Leasehold
improvements are recorded at cost and are amortized over the remaining lease
term.





Impairment of Long-Lived
Assets




In
accordance with Statement of ASC 360-10-35,Property, Plant and Equipment –
Subsequent Measurement, the Company reviews the carrying value of its
long-lived assets, which includes property and equipment, and intangible assets
(other than goodwill) annually or whenever events or changes in
circumstances indicate that the historical cost-carrying value of an asset may
no longer be appropriate. The Company assesses recoverability of the carrying
value of the asset by estimating the future net cash flows expected to result
from the asset, including eventual disposition. The estimate of cash flows is
based upon, among other things, certain assumptions about expected future
operating performance, growth rates and other factors. Estimates of undiscounted
cash flows may differ from actual cash flows due to, among other things,
technological changes, economic conditions, changes to the business model or
changes in operating performance. If the sum of the undiscounted cash flows
(excluding interest) is less than the carrying value, an impairment loss will be
recognized, measured as the amount by which the carrying value exceeds the fair
value of the asset. Fair value is determined using available market data,
comparable asset quotes and/or discounted cash flow models.  Management
conducted an evaluation of long-lived assets and determined no impairments
currently exist.




10





Revenue
Recognition




Product
Sales and Services - The Company recognizes revenue in accordance with
Accounting Standards Codification subtopic 605-10, Revenue Recognition (“ASC
605-10”).  ASC 605-10 requires that four basic criteria be met before
revenue can be recognized: (i) persuasive evidence of an arrangement exists;
(ii) delivery has occurred or services have been rendered; (iii) the selling
price is fixed and determinable; and (iv) collectability is reasonably
assured.  Determination of criteria (iii) and (iv) are based on
management's judgments regarding the fixed nature of the selling prices of the
products delivered and the collectability of those
amounts.  Provisions for discounts and rebates to customers, estimated
returns and allowances, and other adjustments are provided for in the same
period the related sales are recorded.  The Company defers any revenue
for which the product has not been delivered or is subject to refund until such
time that the Company and the customer jointly determine that the product has
been delivered or no refund will be required.





Sales of
“DubLi Credits” - Consumers bid on the Company’s online auctions by purchasing
“DubLi Credits” either directly on DubLi.com or from DubLi’s independent
business associates who are members of the DubLi Marketing Network. All proceeds
from the sales of “DubLi Credits” are recorded as deferred revenue until used by
the consumer in the bidding process and the related revenue is
earned.   Purchases of DubLi Credits are non-refundable after six
months.  Unused Credits remaining in deferred revenue after 12 months
are recorded as revenue as if earned.  Management makes this estimated
adjustment to reduce the deferred revenue liability and to increase revenue
recognized based upon historical statistical utilization rates.




BSP
Rewards revenue is earned principally from revenue rebates (commissions) earned
from merchants participating in its online shopping malls, gift card sales from
each rewards mall program and, web design/maintenance/hosting it earns for
building and hosting its private-branded online mall platform for outside
organizations. The Company receives rebates from participating merchants on all
transactions processed by BSP through its online mall platform. The percentage
rebate paid by merchants varies between 1% and 30% and BSP normally shares 50%
of the rebate with the member who made the purchase.




Direct Cost of
Revenues




Included
in Direct Cost of Revenues are the costs of goods sold and commissions and
incentive bonuses earned by business associates on the sales of DubLi
Credits.  Commissions are based upon each business associate’s volume
of Credit sales and that of other business associates who are sponsored by the
subject business associate. Commissions are paid business associates at the
time of the sale of the Credits and are recognized as a deferred expense until
the Credits are used and then are charged to expense. Incentive bonuses are paid
either monthly or quarterly and the related expense is recorded when the
business associate meets the stated sales goal for each particular promotional
event.





Advertising and Marketing
Expenses




Advertising
and marketing costs are expensed as incurred and include the costs associated
with internally developed websites and other marketing programs and
materials.





Selling, General and
Administrative Expenses




Selling,
general and administrative expenses include costs associated with distribution
activities, research and development, information technology, and other
administrative costs, including finance, legal and human resource functions.
Research and development is performed by in-house staff and outside consultants
and those costs are expensed as incurred.




Comprehensive
Income




Comprehensive
income consists of net earnings, unrealized gains or losses on investments,
foreign currency translation adjustments and the effective portion of the
unrealized gains or losses on derivatives. Comprehensive income is presented in
the consolidated statements of shareholders’ equity and comprehensive
income.




11





Income
Taxes




The
Company accounts for income taxes under ASC 740-10,Income Taxes. Deferred
income tax assets and liabilities are recognized based on differences between
the financial statement and tax basis of assets and liabilities using presently
enacted tax rates. At each balance sheet date, the Company evaluates the
available evidence about future taxable income and other possible sources of
realization of deferred tax assets, and records a valuation allowance that
reduces the deferred tax assets to an amount that represents management’s best
estimate of the amount of such deferred tax assets that more likely than not
will 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.





Computation of Income and
Loss per Share




The
Company computes income and loss per share in accordance with ASC 260,
previously SFAS No. 128,Earnings per Share.ASC 260 requires presentation of both basic and
diluted earnings per share (“EPS”) on the face of the statement of operations.
Basic EPS is computed by dividing net income (loss) available to common
shareholders (numerator) by the weighted average number of shares outstanding
(denominator) during the period. Diluted EPS gives effect to all dilutive
potential Common Stock outstanding during the period using the treasury stock
method and convertible preferred stock using the if-converted method. In
computing diluted EPS, the average stock price for the period is used in
determining the number of shares assumed to be purchased from the exercise of
stock options or warrants. Diluted EPS excludes all dilutive potential shares if
their effect is anti-dilutive. In periods in which a net loss has been incurred,
all potentially dilutive shares of Common Stock are considered anti-dilutive and
thus are excluded from the calculation. As of March 31, 2010, the Company had
two classes of potentially dilutive derivatives of Common Stock as a result of
warrants granted and convertible preferred stock issued.





Dividends




The
Company’s policy is to retain earnings to provide funds for the operation and
expansion of our business and not to pay dividends.





Share-Based
Payments




The
Company accounts for stock-based compensation in accordance with the provisions
of ASC 718,Stock
Compensation, which establishes the accounting for share-based awards and
the inclusion of their fair value in net earnings in the respective periods the
awards, were earned. Consistent with the provisions of ASC 718, the Company
estimates the fair value of stock options and shares issued under its employee
stock purchase plan using the Black-Scholes option-pricing model. Fair value is
estimated on the date of grant and is then recognized (net of estimated
forfeitures) as expense in the Consolidated Statement of Operations over the
requisite service period (generally the vesting period).




ASC 718
requires companies to estimate the fair value of stock-based compensation on the
date of grant using an option-pricing model. The Company uses the Black-Scholes
model to value stock-based compensation. The Black-Scholes model determines the
fair value of stock-based payment awards based on the stock price on the date of
grant and is affected by assumptions regarding a number of highly complex and
subjective variables. These variables include, but are not limited to the
Company’s expected stock price volatility over the term of the awards, and
actual and projected employee stock option exercise behaviors. Option-pricing
models were developed for use in estimating the value of traded options that
have no vesting or hedging restrictions and are fully transferable. Although the
fair value of stock options granted by the Company is determined in accordance
with ASC 718 and Staff Accounting Bulletin (“SAB”) No. 107,Share-Based Payment,
(“SAB 107”) as amended by SAB No. 110, using an option-pricing
model, that value may not be indicative of the fair value observed in a willing
buyer/willing seller market transaction.




12




Subsequent Events




(Included in Accounting Standards
Codification (“ASC”) 855 “Subsequent Events”, previously SFAS No. 165
“Subsequent Events”)





SFAS
No. 165 established general standards of accounting for and disclosure of
events that occur after the balance sheet date, but before the financial
statements are issued or available to be issued (“subsequent events”). An entity
is required to disclose the date through which subsequent events have been
evaluated and the basis for that date. For public entities, this is the date the
financial statements are issued. SFAS No. 165 does not apply to subsequent
events or transactions that are within the scope of other GAAP and did not
result in significant changes in the subsequent events reported by the Company.
SFAS No. 165 became effective for interim or annual periods ending after
June 15, 2009 and did not impact the Company’s financial statements. The
Company evaluated for subsequent events through the issuance date of the
Company’s financial statements. No recognized or non-recognized subsequent
events were noted except as described below in Note 11.




Note
3 – Restricted Cash





The
Company has agreements with organizations that process credit card transactions
arising from purchases of products by customers of the Company. Credit card
processors have financial risk associated with the products and services
purchased because the processor generally forwards the cash related to the
purchase to the Company soon after the purchase is completed. The organization
that processes MasterCard/Visa transactions allows the credit card processor to
create and maintain a reserve account that is funded by retaining cash that it
otherwise would deliver to the Company (i.e., “restricted cash”). The current
agreement requires a 20% reserve or holdback on each sale for a period of six
months.





Note
4 – Foreign Currency





All of
the Company’s foreign subsidiaries designate the Euro as their functional
currency. As of March 31, 2010, the total amount of cash held by foreign
subsidiaries was $3.5 million and, of that amount, $1.8 million and was
maintained or invested in Euros.





Note
5 – Inventory





Inventory
consists of the following at the dates indicated:





March
      31,
            
            
            September
      30,2010
            
            
            2009Merchandise
            
            $
            434,531
            
            
            $
            321,095Gift
      Cards
            
            
            173,862
            
            
            
            80,046Total
            
            $
            608,393
            
            
            $
            401,141





Note
6 – Property and Equipment





Equipment
at cost consists of office furniture, computer equipment and software.
Depreciation expense for the three months and six months ended March 31, 2010
and September 30, 2009 was $7,576 and $19,595, respectively.





March
      31,
            
            
            September
      30,2010
            
            
            2009Cost
            
            $
            2,251,173
            
            
            $
            140,514Accumulated
      Depreciation
            
            
            (54,825
            )
            
            
            (46,375
            )Net
            
            $
            2,196,348
            
            
            $
            94,139





See also
Note 11 Subsequent Events for a description of the May 24, 2010 acquisition of
DubLi Properties, LLC and its land purchase agreement.




13





Note
7 – Commitments and Contingencies




The
Company has non-cancellable operating leases for office space in Berlin, Germany
and Boca Raton, Florida that expire in 2014 and 2020, respectively. Under the
lease agreement in Berlin, the Company leases 589.9 square meters of office
space and is obligated to pay property taxes, insurance and maintenance costs.
The lease agreement in Boca Raton is for 10,476 square feet of office space and
the Company is obligated to pay common area maintenance and sales
tax.  Total rental expense for the three and six months ended March
31, 2010 was $119,955 and $165,697, respectively.




Future
minimum rental commitments for non-cancellable operating leases at March 31,
2010, were as follows:





2010
            
            $
            330,8392011
            
            
            407,3332012
            
            
            418,5872013
            
            
            430,129Thereafter
            
            
            1,902,025Total
            
            $
            3,488,913





Note
8 – Loans from Shareholders




During
2009, Michael Hansen, the President and Chief Executive Officer of the Company,
loaned the Company $99,855.  That loan together with a $116,500 loan
from the Company’s former CEO Martin Berns were repaid in the second
quarter.





Note 9 – Income
Taxes





MediaNet
Group Technologies Inc. and its subsidiaries file income tax returns in the
U.S., Cyprus and Germany. The Company and each of its subsidiaries file separate
income tax returns.





The
United States of America





MediaNet
Group Technologies Inc., organized in Nevada and headquartered in Florida, is
subject to a gradual U.S. federal corporate income tax of 15% to 35%. The state
of Florida imposes a 5.5% corporate income tax.




BSP
Rewards Inc. is organized and headquartered in Florida and is subject to a
gradual U.S. federal corporate income tax of 15% to 35%. The state of Florida
imposes a 5.5% corporate income tax.




DubLi
Logistics LLC and Lenox Resources, LLC are organized in Delaware and are treated
as partnerships for US federal and state income tax purposes passing all tax
liabilities and benefits to their owners.




Cyprus





DUBLICOM
Limited is organized under the current laws of the Cyprus and is not subject to
tax on income or capital gains. In addition, upon payment of dividends by the
Company, no Cyprus withholding tax will be imposed.




British
Virgin Islands




DubLi
Network Limited is organized under the current laws of the British Virgin
Islands, and is not subject to tax on income or capital gains. In addition, upon
payment of dividends by the Company, no British Virgin Islands withholding tax
will be imposed.




14




Germany




Lenox
Logistik und Service GmbH is subject to tax on income or capital gains under the
laws of Germany.





Income
tax expense (benefit) attributable to earnings before income taxes in the
quarter ended March 31, 2010, consists of:





For
      the three months
            
            
            For
      the six monthsended March
      31,
            
            
            ended March
      31,2010
            
            
            2009
            
            
            2010
            
            
            2009United
      States:Current
      taxesFederal
            
            
            380,273
            
            
            
            -
            
            
            
            670,034
            
            
            
            -State
            
            
            50,703
            
            
            
            
            
            
            
            269,942Total
      U.S. Tax Expense
            
            
            430,976
            
            
            
            -
            
            
            
            939,976
            
            
            
            -GermanyCurrent
      Taxes
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Total
      income Tax expense
            
            
            430,976
            
            
            
            -
            
            
            
            939,976
            
            
            
            -





In fiscal
year 2009, the Company adopted amendments under ASC 740-10-50,Accounting for Uncertain Tax
Positions, formerly Financial Accounting Standards Board Interpretation
No. 48 (“FIN 48”), which clarify the accounting for uncertainty in tax positions
recognized in the financial statements. Under these provisions, 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 would be
measured based on the largest benefit that has a greater than 50% likelihood of
being realized upon ultimate settlement. The related amendments also provide
guidance on measurement, classification, interest and penalties associated with
tax positions, and income tax disclosures.




The
Company is subject to taxation in the U.S., Germany, and various state
jurisdictions. The Company’s calculation of its tax liabilities involves dealing
with uncertainties in the application of complex tax laws and regulations in
various taxing jurisdictions. If, based on new facts that arise within a period,
management ultimately determines that the payment of these liabilities will be
unnecessary, the liability will be reversed and the Company will recognize a tax
benefit during the period in which it is determined the liability no longer
applies. Conversely, the Company records additional tax charges in a period in
which it is determined that a recorded tax liability is less than the ultimate
assessment is expected to be.




The
application of tax laws and regulations is subject to legal and factual
interpretation, judgment and uncertainty. Tax laws and regulations themselves
are subject to change as a result of changes in fiscal policy, changes in
legislation, the evolution of regulations and court rulings. Therefore, the
actual liability for U.S., Germany taxes, or the various state jurisdictions,
may be materially different from management’s estimates, which could result in
the need to record additional tax liabilities or potentially reverse previously
recorded tax liabilities. Interest and penalties are included in tax
expense.




Value
Added Tax




In
accordance with the relevant taxation laws in the Germany, the normal VAT rate
for domestic sales is levied on the invoiced value of sales and is payable by
the purchaser. The Company is required to remit the VAT it collects to the tax
authority. The Company is also potentially subject to VAT tax in other European
Union jurisdictions.




15




The value
added tax refundable presents the VAT that the Company paid for the purchasing
products and can be used to deduct the VAT related to the sale of
products.




Note
10 – Stock and Equity




Common
Stock




The
Company had authorized 50,000,000 shares of Common Stock, par value $.001 per
share, at March 31, 2010 and September 30, 2009, respectively. At September 30,
2009, the Company had 27,843,552 shares of Common stock outstanding. At March
31, 2010 the Company had 28,621,680 shares of Common Stock
outstanding.





Preferred
Stock




The
Company had authorized 5,000,000 shares of Preferred Stock, par value $0.01 per
share, at March 31, 2010 and September 30, 2009, respectively. As of September
30, 2009, there were 0 shares of Preferred Stock outstanding.  As of
March 31, 2010, there were 5,000,000 shares of Preferred Stock outstanding, all
of which were designated as “Series A Convertible Preferred Stock” (the “Series
A Preferred Stock”).





On
October 16, 2009, the Company filed a Certificate of Designation for the Series
A Preferred Stock pursuant to which the Company, at the direction of its Board
of Directors, designated the rights and preferences of all 5,000,000 authorized
shares of Preferred Stock. The Certificate of Designation was subsequently
amended on December 24, 2009 and May 24, 2010 to adjust the Conversion Ratio
(defined below).





Under the
Certificate of Designation in effect at March 31, 2010, the Series A Preferred
Stock is automatically convertible into shares of the Common Stock at the
conversion ratio of 54.7229736 shares of Common Stock for each share of the
Series A Preferred Stock (the “Conversion Ratio”) in the event the shareholders
approve an increase in the number of authorized shares of Common Stock to not
less than five hundred million.  The holders of the Series A Preferred
Stock are not entitled to any dividend preference but are entitled to
participate pari passu in dividends declared with respect to the Common Stock as
if the Series A Preferred Stock was converted in Common Stock at the Conversion
Ratio.  Similarly, the holders of the Series A Preferred Stock are not
entitled to any liquidation preference but, in the event of any liquidation,
dissolution or winding up of the Company, the outstanding shares of Series A
Preferred Stock shall be deemed converted into shares of Common Stock at the
Conversion Ratio and shall participate pari passu in the distribution of
liquidation proceeds.  Holders of the Series A Preferred Stock are
entitled to vote on matters presented to the holders of Common Stock as if the
Series A Preferred Stock was converted into the Common Stock at the Conversion
Ratio.  Except as provided by Nevada law, holders of Series A
Preferred Stock vote together with the holders of Common Stock as a single
class.





As more
fully described in Note 12, Subsequent Events, on May 24, 2010, the Company
amended the Certificate of Designation for the Series A Preferred Stock to
increase the Conversion Ratio from 54.7229736 to 55.514574.





The
Company does not have reserved and available out of its authorized but unissued
shares of Common Stock the number of shares of common stock that shall be
sufficient to effect the conversion of all outstanding shares of Series A
Preferred Stock. The Company’s shareholders have not yet effectively approved an
increase in the Company’s authorized shares of Common Stock to five hundred
million (500,000,000) shares. These financial statements for the three and six
months period ended March 31, 2010 have been prepared using the Conversion Ratio
in effect as of March 31, 2010 (54.7229736 shares of Common Stock for each share
of Series A Preferred Stock).




Change in
control




On
October 19, 2009, there was a change in the effective control of the Company. On
that date, pursuant to the Merger Agreement (the “Merger Agreement”), dated as
of August 10, 2009, and subsequently amended on September 25, 2009, among the
Company, the Company’s then subsidiary MediaNet Merger Sub, Inc., a Nevada
corporation, and CG Holdings Limited, the Company acquired all of the issued and
outstanding shares of CG for 5,000,000 shares of the Company’s Series A
Preferred Stock (the “Merger”). Holders of the Series A Preferred Stock are
entitled to vote on matters presented to the holders of Common Stock as if the
Series A Preferred Stock was converted into the Common Stock at the Conversion
Ratio.  In addition, the Series A Preferred Stock will automatically
convert into shares of the Common Stock at the Conversion Ratio in the event the
shareholders approve an increase in the number of authorized shares of Common
Stock to not less than five hundred million.  Accordingly, Zen Holding
Group Limited, the sole record holder of CG owns approximately 90% of the voting
power of the Company.  Michael Hansen and Michel Saouma, who is
neither a director nor executive officer of the Company, indirectly share the
right to vote and make investment decisions with respect to the shares held by
Zen.




16





In
addition, as a condition to the Merger, the Company agreed to
appoint:





·
            Michael
      Hansen as a director and as President and Chief Executive Officer of the
      Company;




·
            Kent
      Holmstoel as Chairman of the Board and Chief Operating Officer of the
      Company; and




·
            Andreas
      Kusche as a director and as General Counsel of the
  Company.




In
connection with the Merger, all of the persons serving as directors of the
Company as of October 19, 2009, other than Mr. Martin Berns, resigned as of such
date. On October 29, 2009, the Company appointed Mr. Hansen as President and
Chief Executive Officer, Mr. Holmstoel as Chief Operating Officer and Mr. Kusche
as General Counsel of the Company.  Also on such date, Steven
Adelstein was appointed to the Board by Mr. Berns, who was then the sole
remaining Board member. On February 23, 2010, Mr. Adelstein resigned and was
replaced by Andreas Kusche. The appointment of Messrs. Hansen and Holmstoel
is expected to be effective upon our compliance with Securities and Exchange
Commission Rule 14f-1, which requires us to distribute certain information
regarding the proposed directors.  We are seeking to circulate such
information as part of a Schedule 14C previously filed with the Securities and
Exchange Commission and in the process of being amended.





Note
11 – Warrants and Options




As of
September 30, 2009 and March 31, 2010, the Company had outstanding warrants to
purchase up to 3,058,000 and 2,219,750 shares of Common Stock, respectively.
These securities give the holder the right to purchase shares of the Common
Stock in accordance with the terms of the instrument.




WarrantsBalance,
      September 30, 2009
            
            
            3,098,000Exercised
            
            
            (878,250
            )Balance,
      March 31, 2010
            
            
            2,219,750




The
following table summarizes information with respect to the above referenced
warrants outstanding at March 31, 2010 which have expiration dates ranging from
June 2010 to February 2011:




Exercise
      Price
            
            Number
              Outstanding
            
            Weighted
              Average
              Exercise
      Price
            
            Weighted
              Average
              Life
      YearsWarrants
            
            $
            0.25—
      $.55
            
            2,219,750
            
            $
            0.43
            
            1.0




Note
12 – Subsequent Events




Currency Translation
Effects









The Merger and Merger
Related Transactions





Pursuant
to the Merger Agreement, the Company acquired on October 19, 2009 all of the
outstanding shares of CG in exchange for the issuance to CG’s shareholders of
5,000,000 shares of the Series A Preferred Stock.  The Agreement
provides that the Series A Preferred Stock will be automatically converted into
Common Stock of at such time as the Company’s Articles of Incorporation are
amended to increase the number of authorized shares of Common Stock to
500,000,000 shares.  Assuming all of the shares of Series A Preferred
Stock were converted into Common Stock as of October 19, 2009, the former record
holder of CG, Zen Holding Group Limited (“Zen”), would have become the record
holder of 90% of the then issued and outstanding Common Stock, on a fully
diluted basis.




17





The
Company and CG originally contemplated that Zen would receive Common Stock upon
consummation of the Merger and the Merger would be completed in the first
quarter of 2010 in order to:





-           
provide the Company sufficient time to prepare a complex proxy statement and
hold a shareholder meeting to consider approval of the Merger Agreement and an
amendment to the Company’s articles of incorporation to increase the number of
authorized shares of common stock from 50 million to 500 million shares;
and





-           provide
the beneficial owners of CG adequate time to contribute and/or transfer a number
of entities or properties to CG.





For
instance, upon completion of the merger the Company expected that CG would own
directly or indirectly all of the following subsidiaries or assets:





-           DUBLICOM
LIMITED (“DUBLICOM”), a Cyprus limited company, which runs DubLi’s auction
websites;





-           Lenox
Resources, LLC, a Delaware limited liability company, that holds DubLi’s
intellectual property;





-           DUBLI
NETWORK LIMITED (“DUBLI NETWORK”), a British Virgin Islands limited company,
that operates DubLi’s global network with its business associates;





-           Lenox
Logistik und Service GmbH (“Lenox Logistik”), a German corporation, serves as
the product purchasing agent of DUBLICOM for products sold to customers outside
of North America, Australia and New Zealand. Lenox Logistik also serves as an
outsourced service provider that employs persons who are collectively
responsible for DubLi’s administrative, accounting, marketing and purchasing
activities.





-           DubLi
Logistics, LLC, a Delaware limited liability company (“DubLi Logistics”), serves
exclusively as the product purchasing agent of DUBLICOM for products sold to
customers in North America (United States, Mexico, Puerto Rico, Canada),
Australia and New Zealand;





-           certain
rights to real estate in the Cayman Islands (the “Cayman Property Rights”) now
held by DubLi Properties, LLC, a Delaware limited liability
corporation.





In compliance with Generally Accepted
Accounting Principles, the Company also expected to include in its consolidated
financial statements DubLi.com, LLC, a Delaware limited liability company that
was the holding company for two subsidiaries that have since discontinued
operations: DubLi.com GmbH, a German corporation, and DubLi Network, LLC, a
Delaware limited liability company.





In early September 2009, the Company
and CG were advised by legal counsel that the merger could be effected sooner
than previously anticipated if, in lieu of Common Stock, Zen received the Series
A Preferred Stock, which was later converted into Common Stock and distributed
to the beneficial holders of Zen. Accordingly, on October 19, 2009, the Merger
was consummated and Zen was issued the Series A Preferred Stock.




18





Completed Post-Merger
Adjustments





After completing the Merger, the
Company determined that certain of its expectations with respect to the Merger
had not been met.  In particular, upon completion of the Merger on or
about the targeted completion date of March 31, 2010, the Company expected that:
it would (i) directly or indirectly hold 100% of the equity interests of DubLi
Logistics; (ii) directly or indirectly hold certain real estate rights now held
by DubLi Properties LLC; and (iii) certain investors in DubLi.com, LLC would
become shareholders in the Company.





As a result of the acceleration of the
Merger closing and the substantial amount of work required to complete the
Merger and the related SEC disclosure documents, Mr. Hansen’s oral pledge to,
prior to the Merger, transfer his 100% ownership interest in DubLi Logistics to
CG was not evidenced by definitive transfer documents until May 24, 2010.
Similarly, Mr. Hansen’s oral pledge to contribute his 100% indirect ownership
interest in the Cayman Property Rights (now owned by DubLi Properties, LLC) to
the Company in support of DubLi’s marketing programs was not evidenced by
definitive transfer documents until May 24, 2010.





As of May 24, 2010, the Company has
acquired all of the equity interests in DubLi Logistics and DubLi Properties LLC
that the Company expected it would own.





DubLi Logistics - Purchasing Agent of
DUBLICOM





DubLi Logistics was identified as one
of the consolidated subsidiaries of the Company in Amendment No. 1 to the
Company’s Form 8-K filed with the SEC on February 4, 2010 (the “Form 8-K”) and
the Company’s Form 10-Q for the quarter ended December 31, 2009 (the “Form
10-Q”) based upon DubLi Logistic’s historical and current operation as an
affiliated, profitless, product purchasing agent of DUBLICOM.  DubLi
Logistics is operated exclusively by employees of Lenox Logistik.





DubLi Properties - Property Orally
Pledged to DubLi





DubLi Properties, LLC was contributed
to the Company by Mr. Hansen on May 24, 2010 in satisfaction of Mr. Hansen’s
oral pledge to contribute the Cayman Property Rights to the
Company.  The Cayman Property Rights, which had a book value of
$2,219,138 as of March 31, 2010, were acquired by DubLi Properties, LLC in
December 2009 in exchange for 34 parcels of real property, $43,381 of cash and
an agreement by DubLi Properties LLC to make an additional $824,244 of
payments.  The primary purpose of the Cayman Property Rights, which
consists of a purchase deed with respect to 15 lots in the Cayman Islands, is to
reward DubLi business associates upon completion of certain performance
objectives.





DubLi.com, LLC - Discontinued
Businesses





The results of operations and assets
and liabilities of DubLi.com, LLC’s subsidiaries were also included in the
Company’s consolidated results of operations as reported in the Form 8-K and
Form 10-Q based upon their common ownership and historical relationship to CG
and its other consolidated subsidiaries. DubLi.com, LLC, which is a holding
company, has never directly operated a business and its subsidiaries were sold
or their businesses were discontinued in the second quarter of
2009.





The Company and Mr. Hansen had
previously expected that the investors in DubLi.com, LLC (the “DubLi.com
Investors”) would receive from Zen certain shares of “restricted” Common
Stock.  With the acceleration of the Merger closing and Merger
restructuring, the DubLi.com Investors were expected to receive from Zen
62,679,116 shares of restricted Common Stock upon the conversion of the Series A
Preferred Stock to Common Stock.   Since Zen has not transferred
and does not intend to transfer Common Stock to the DubLi.com Investors as
previously anticipated, the Company and Zen entered into an agreement, dated May
24, 2010 (the “Post-Merger Agreement”), pursuant to which Zen has returned to
the Company 1,129,057 shares of Preferred Stock, which were otherwise
convertible into 62,679,116 shares of Common Stock.




19





Pursuant to the Post-Merger Agreement,
Zen has also returned to the Company 12,876 shares of Series A Preferred Stock
which were convertible into 714,817 shares of Common Stock (the “Lenox
Shares”).  Since Zen had not distributed the Lenox Shares to various
employees of Lenox, Zen returned the shares to the Company for future use in the
Company’s employee benefit plans.





Accordingly, as of May 24, 2010, the
Company had 3,858,067 and 28,621,680 issued and outstanding shares of Series A
Preferred Stock and Common Stock, respectively.





The
following table sets forth the beneficial ownership of the Common Stock and the
Preferred Stock as of May 24, 2010 for each of the Company’s greater than 5%
shareholders, directors, named executive officers and by all of the Company’s
directors and executive officers as a group.  For purposes of this
table, beneficial ownership is determined in accordance with Rule 13d-3 of
the Securities Exchange Act of 1934, which rule focuses on the power to vote
shares or make investment decisions with respect to such shares, potentially
irrespective of any pecuniary interest in such shares.  The
information as to the securities beneficially owned by Zen, Mr. Hansen and Mr.
Saouma are based upon a Schedule 13D filing received by the Company on May 24,
2010 that has not yet been filed but which has been signed by Mr. Hansen and Mr.
Saouma.





Title
      of Class
            
            Name
      of Beneficial Owner
            
            
            
            
            Amount
      and Nature of Beneficial Ownership (1)
            
            
            
            
            
            Percentage
      of Class Owned (2)Series
      A Convertible Preferred Stock
            
            Zen
      Holding Group Limited
            
            
            (3
            )
            
            
            3,858,067
            
            
            
            (4
            )
            
            
            100
            %Michael
      B. Hansen
            
            
            (5
            )
            
            
            3,858,067
            
            
            
            (4
            )
            
            
            100
            %Michel
      Saouma
            
            
            (6
            )
            
            
            3,858,067
            
            
            
            (4
            )
            
            
            100
            %Common
      Stock
            
            Zen
      Holding Group Limited
            
            
            
            
            
            
            214,178,946
            
            
            
            (4
            ),
      (7)
            
            
            88.2
            %Michael
      B. Hansen**
            
            
            
            
            
            
            214,178,946
            
            
            
            (4
            ),
      (7)
            
            
            88.2
            %Michel
      Saouma
            
            
            
            
            
            
            214,178,946
            
            
            
            (4
            ),
      (7)
            
            
            88.2
            %Joseph
      Saouma
            
            
            (8
            )
            
            
            —
            
            
            
            (9
            )
            
            
            *Martin
      A. Berns**
            
            
            (10
            )
            
            
            5,907,511
            
            
            
            (11
            )
            
            
            20.6
            %Kent
      L. Holmstoel**
            
            
            (12
            )
            
            
            —
            
            
            
            
            
            
            
            —Andreas
      Kusche**
            
            
            (13
            )
            
            
            —
            
            
            
            
            
            
            
            —Alfred
      Fernandez**
            
            
            (14
            )
            
            
            345,000
            
            
            
            (15
            )
            
            
            1.4
            %Directors
      and Executive Officers as a Group
            
            
            
            
            
            
            220,496,457
            
            
            
            
            
            
            
            90.8
            %





*           Indicates
less than 1% of outstanding shares beneficially owned.


**           Serves
as an executive officer or director of the Company as of May 24,
2010.





(1)           A
person is deemed to be the beneficial owner of securities that can be acquired
by such person within 60 days from May 24, 2010 upon exercise of options and
warrants and upon conversion of convertible securities.  The Series A
Preferred Stock is automatically convertible into shares of Common Stock upon
our amendment of our Articles of Incorporation to increase the authorized number
of shares of Common Stock to 500,000,000 (the “Articles
Amendment”).  For purposes of this table, we have assumed that the
Articles Amendment will be approved by our shareholders and filed with the
Nevada Secretary of State within 60 days of May 24, 2010 and, accordingly, that
the holders of the Series A Preferred Stock beneficially own the shares of
Common Stock into which the shares of Series A Preferred Stock are convertible.
Each beneficial owner's percentage ownership is determined by assuming that
options, warrants and convertible securities that are held by such person (but
not those held by any other person) and that are exercisable or convertible
within 60 days from May 24, 2010 have been exercised or converted.




20





(2)           Applicable
percentage ownership is based on 3,858,067 shares of Series A Preferred Stock
and 28,621,680 shares of Common Stock outstanding as of May 24,
2010.





(3)           Zen
Holding Group Limited’s (“Zen”) address is 197 Main Street, Road Town, Tortola,
British Virgin Islands.





(4)           All
of the outstanding shares of Preferred Stock are held of record by
Zen.  Mr. Hansen and Mr. Saouma have the indirect shared right to vote
and make investment decisions with respect to these shares held by Zen pursuant
to an oral agreement.  Mr. Hansen and Mr. Souma have a 24%% and 2%
pecuniary interest, respectively, in Zen’s assets as of May 24, 2010 and,
accordingly, claim a 21.6% and 1.8% pecuniary interest, respectively, in the
outstanding shares of our Common Stock as of May 24, 2010 (assuming conversion
of the Series A Preferred Stock).  Each of Mr. Hansen and Mr. Saouma
disclaim a pecuniary interest in any other shares of Common
Stock.  The figures provided do not include the 1,141,933 shares of
Series A Preferred Stock returned by Zen to the Company and otherwise
representing a 20.70 % beneficial interest in the Company.





(5)           Mr.
Hansen’s address is The Palm Jumeirah, P.O. Box 283612, Dubai,
U.A.E.





(6)           Mr.
Michel Saouma’s address is Amine Gemayelstreet 226, Beirut, Achrafieh,
Lebanon.





(7)           Includes
214,178,946 shares issuable upon the conversion of the Series A Preferred Stock
at the conversion ratio of 55.514574 shares of Common Stock for each share of
Series A Preferred Stock.





(8)           Mr.
Joseph Saouma’s address is Amine Gemayelstreet 226, Beirut, Achrafieh,
Lebanon.  Mr. Joseph Saouma is the father of Mr. Michel
Saouma.





(9)           Although
Mr. Joseph Saouma does not beneficially own any shares of Series A Preferred
Stock or Common Stock of the Company, he has a 21.39% pecuniary interest in
Zen’s assets as of May 24, 2010 and, accordingly, claims a 19.39% pecuniary
interest in the outstanding shares of our Common Stock as of May 24, 2010
(assuming conversion of the Preferred Stock).  Mr. Joseph Saouma
disclaims a pecuniary interest in any other shares of Common Stock.





(10)           Mr.
Martin A. Bern’s address is 2936 Via Napoli, Deerlield Beach, FL
33442.





(11)           Assuming
that the Series A Preferred Stock was converted to Common Stock as of May 24,
2010, Mr. Berns’ percentage beneficial ownership would decrease to
2.4%.





(12)           Mr.
Kent L. Holmstoel’s address is Urbanización Haza del Algarrobo 32, Carretera de
Mijas, 2,2 km, 29639 Mijas Costa, Malaga, Spain.





(13)           Mr.
Kusche’s address is Wisbyer Stasse 10B, 10439 Berlin, Germany.




21





(14)           Mr.
Alfred Fernandez’s address is 18775 SW 27th Ct., Miramar, Florida
33029





(15)           Assuming
that the Series A Preferred Stock was converted to Common Stock as of May 24,
2010, Mr. Fernandez’s percentage beneficial ownership would decrease to less
than one percent.





See the
section below entitled “Beneficial Ownership” for more information regarding the
beneficial ownership of the Company’s equity securities.





Outstanding Post-Merger
Adjustments





Amendment of Certificate of
Designation





In connection with the preparation of
this Quarterly Report on Form 10-Q for the quarter ended March 31, 2010 and a
review of the transfer agent records, it came to the Company’s attention that
the number of shares of the Company’s Common Stock outstanding prior to the
Merger was understated by a total of 439,878 (the “Additional Common Stock”),
comprised of 500,000 shares purchased by a shareholder in July 2007 (although
the certificate was not issued until January 2010) offset by an accounting error
in connection with the net exercise of warrants involving approximately 60,000
shares.  In light of this understatement, as of May 24, 2010 the
Company amended the Certificate of Designation setting forth the terms of the
Preferred Stock (the “Adjustment Amendment”).  In the Adjustment
Amendment, the Conversion Ratio was increased from 54.7229736 to 55.514574 to
permit the holders of the Preferred Stock to maintain their expected percentage
ownership after taking into account the Additional Common Stock.





Tender Offer for Outstanding DubLi
Interests





As soon as reasonably practicable the
Company intends to commence a tender offer (the “Tender Offer”) to purchase from
the DubLi.com Investors all of their right, title and interest in DubLi.com,
LLC.  The Company anticipates seeking to register with the U.S.
Securities and Exchange Commission (“SEC”) an aggregate of 62,679,116 shares of
the Company’s Common Stock for the Outstanding DubLi Interest (the “Tender
Rate”), which offer is expected to be contingent upon at least 80% of the
Outstanding DubLi Interests being tendered.  Since the commencement of
the Tender Offer is contingent upon the Company filing a Registration Statement
(the “Tender Registration Statement”) with the SEC and the Tender Registration
Statement being declared effective by the SEC, the Company is seeking to file
the Registration Statement with the SEC by July 15, 2010.





The Company would like to acquire the
Outstanding DubLi Interest in order to provide the DubLi.com, LLC Investors a
significant ownership interest in the Company.  Virtually all of the
DubLi.com, LLC Investors are former business associates of DubLi.com, LLC and
current business associates of DubLi Network, Ltd.  Notwithstanding
the financial failure of DubLi.com, LLC’s discontinued, standard on-line auction
business, the Company believes that the DubLi.com, LLC business associates
assisted the Company build brand awareness for the DubLi.com trade name and,
consistent with many of their expectations, would like them to have a
significant ownership interest in the entity which owns and is further
developing the DubLi.com brand.  See “Part II, Item 1A - Risk Factors
- The DubLi.com investors may not agree to participate in the Tender Offer” for
a description of certain risks related to the proposed Tender
Offer.





Registration of Zen’s Proposed
Distribution of Common Stock





Pursuant to the Post-Merger Agreement,
the Company has agreed with Zen to register Zen’s proposed distribution of the
Company’s Common Stock to Zen’s beneficial holders with the SEC. The Company and
Zen have agreed to seek to have the subject registration statement declared
effective at such time as the Company is seeking to complete the Tender Offer
described above so that the DubLi.com, LLC Investors and the current beneficial
owners of Zen all receive registered Common Stock at about the same
time.




22





Beneficial
Ownership





As of
October 19, 2009 (the "Merger Date”), the Company had 5,000,000 shares of
Preferred Stock issued and outstanding, all of which were held of record by
Zen.  Mr. Michael Hansen and Mr. Michel Saouma indirectly control Zen
pursuant to an oral agreement.  As of the Merger Date, Zen was held of
record by two shareholders: MBD Investment Limited, a British Virgin Islands
company ("MBD"), which held 50% of the stock Zen, and Sara Alpha Limited, a
British Virgin Islands Company ("Saouma Nominee"), which held 50% stock of Zen
as a trustee for Michel Saouma.  Sara Alpha shall also serve as the
sole record holder of MBD pursuant to the terms of a trust agreement with Mr.
Hansen.





Notwithstanding
Zen's record ownership as of the Merger Date and each of Mr. Hansen’s and Mr.
Michel Saouma’s power to direct the voting and investment of the Company’s
equity securities held by Zen, each of MBD and the Saouma Nominee had previously
transferred certain pecuniary interests in Zen to various third parties (the
“Pre-Merger Zen Shareholders”).





In
connection with the Company’s acquisition of MSC, Inc. on October 29, 2009, each
of MBD and the Saouma Nominee agreed to transfer to MSC, Inc. a pecuniary
interest in Zen that was equivalent to a 2.0% pecuniary interest in the Company
as of October 29, 2009.





As
previously described, on May 24, 2010 Zen returned to the Company an aggregate
of 1,141,933 shares of Preferred Stock pursuant to the Adjustment
Agreement.




23





ITEM 2. MANAGEMENT’S
DISCUSSION AND ANALYSIS OR PLAN OF OPERATION





FORWARD
LOOKING STATEMENTS





Introductory
Note


Caution
Concerning Forward-Looking Statements





The discussion contained in this 10-Q
under the Securities Exchange Act of 1934, contains forward-looking statements
that involve risks and uncertainties.  The issuer’s actual results
could differ significantly from those discussed herein.  These include
statements about our expectations, beliefs, intentions or strategies for the
future, which we indicate by words or phrases such as “anticipate,” “expect,”
“intend,” “plan,” “will,” “we believe,” “the Company believes,” “management
believes” and similar language, including those set forth in the discussions
under “Notes to Financial Statements” and “Management’s Discussion and Analysis
or Plan of Operation” as well as those discussed elsewhere in this Form
10-Q.  The forward-looking statements reflect our current view about
future events and are subject to risks, uncertainties and
assumptions.  We wish to caution readers that certain important
factors may have affected and could in the future affect our actual results and
could cause actual results to differ significantly from those expressed in any
forward-looking statement.  The following important factors could
prevent us from achieving our goals and cause the assumptions underlying the
forward-looking statements and the actual results to differ materially from
those expressed in or implied by those forward-looking statements:





·
            our
      inability to establish a maintain a large growing base of business
      associates;




·
            our
      inability to develop brand awareness for our online
    auctions;




·
            our
      failure to maintain the competitive bidding environment for our online
      auctions;




·
            our
      failure to adapt to technological
change;




·
            an
      assertion by a regulatory agency that one ore more of our auctions
      constitute some form of “gaming” or a
“lottery”;




·
            increased
      competition;




·
            increased
      operating costs;




·
            changes
      in legislation applicable to our
business.




·
            our
      failure to improve our internal
controls.




See also
the risks discussed in under the heading “Risk Factors” in Part II, Item 1A
and those discussed in other documents we file with the Securities and Exchange
Commission.





However,
other factors besides those referenced could adversely affect our results, and
you should not consider any such list of factors to be a complete set of all
potential risks or uncertainties. Any forward-looking statements made by us
herein speak as of the date of this 10-Q. We do not undertake to update any
forward-looking statement, except as required by law.  Given these
risks and uncertainties, readers are cautioned not to place undue reliance on
such forward-looking statements.





INTRODUCTION




The
following discussion and analysis summarizes the significant factors affecting:
(i) our consolidated results of operations for the three months and six months
ended March 31, 2010 compared to the three months and six months ended March 31,
2009; and (ii) our financial liquidity and capital resources.  This
discussion and analysis should be read in conjunction with our consolidated
financial statements and notes included in this Form 10-Q.





MediaNet
Group Technologies, Inc. (“MediaNet Group” or the “Company”) through its wholly
owned subsidiaries, is a global marketing company that sells high end branded
merchandise to consumers through Internet-based auctions conducted under the
trade name “DubLi.com.”  As of March 31, 2010, our online auctions
were conducted in Europe, North America, Australia and New Zealand and we had a
large network of independent business associates that sold “credits”, or the
right to make a bid in one of our auctions (referred to herein as “Credit” or
“DubLi Credits”).  These auctions are designed to offer consumers real
savings on these high end goods.  The Company, through its BSP Rewards
subsidiary, also offers private branded loyalty and reward web malls where
members receive rebates (rewards) on products and services from participating
merchants.





24


Online
Auctions





The
DubLi.com auctions are designed to provide consumers with the ability to obtain
high quality goods at discounts to retail prices through a fun and convenient
shopping portal.  These auctions offer only high quality inventory
(brand new, newest model, full warranty) from the world’s leading
manufacturers.





In order
to participate in and make bids in any the DubLi.com online auctions, consumers
must purchase Credits.  Each Credit costs US$0.80 (EUR 0.50) and
entitles the consumer to one bid in one auction.  Discounts are
available on the purchase of a substantial volume of Credits at one
time.  Credits can be purchased directly from DubLi or from one of
DubLi’s business associates.  Accordingly, we generate revenue from
the DubLi.com auctions both on the sale of Credits and on the sale of products
to the ultimate auction winners.





DubLi has
two types of auctions which it operates on separate platforms for Europe and for
North America (United States, Mexico, Puerto Rico, Canada): Xpress and Unique
Bid.




In an
Xpress auctions, the product up for auction is displayed with a starting price,
which is the lowest available retail price (the “Starting Price”). Each time a
person makes a bid (which costs him or her one Credit), the Starting Price is
decreased by US$0.25 (EUR 0.20) and the reduced price becomes visible to the
person making a bid and to no other person.  The bidder can choose to
purchase the item at the reduced price so shown or can opt to wait in the hopes
that others will make bids and drive down the price.  The actual
purchase price is always less than the Starting Price and is often a substantial
discount to the Starting Price.




In an
Unique Bid auction, the auction is scheduled with a definitive start and end
time.  At any time prior to the auction end time, persons can make
bids (one bid for one Credit) on the price at which it would purchase the
product. Bids must be made in US$0.25 increments. The person who has placed the
lowest unique bid (i.e. no other person has bid the same US$0.25 incremental
amount) is entitled to purchase the product at such bid price.





In both
styles of auctions, there are generally a high number of bidders and most
bidders place more than one bid.  Accordingly, between the sale of the
product and Credits, DubLi often realizes more than the price which it paid for
an item. Substantially all items sold by DubLi in the online auctions are
purchased by DubLi on the open market at market price without any discount,
although in the future DubLi may seek to work with wholesalers or retailers to
purchase items for less than they can be purchased by the average
customer.





Credits
are sold to consumers directly by DubLi, through our network of business
associates, or through the Partner Program (described below).  As of
March 31, 2010, approximately 94% of our Credit sales are made through our
network of business associates and, accordingly, we are dependent on our
business associates for a significant portion of our sales.  As of
March 31, 2010, we had business associates located in over 100
countries.  Business associates are incentivized to locate and sponsor
new business associates (“Downstream Associates”) and establish their own sales
organization.





Business
associates earn commissions on:





·
              the
      sale of Credits by the subject business associate directly to retail
      consumers (“Affiliated Consumers”) who are signed up by such business
      associate (“Retail
Commissions”);




·
              the
      sale of Credits by Downstream Associates sponsored by the subject business
      associate or such business associate’s Downstream Associates
      (“Organizational
Commission”).





25


To earn
Retail Commissions, a business associate must purchase Credits from DubLi and
resell such Credits to its Affiliated Consumers.  Credits are sold to
business associates by DubLi at the same price offered to retail
consumers.  When an Affiliated Consumer places an order for Credits,
the Credits are automatically deducted from the subject Business Associate’s
account and transferred to the Affiliated Consumer’s account, and the Business
Associate is eligible to earn Retail Commission.  If a Business
Associate does not have sufficient Credits in his account to cover an order by
an Affiliated Consumer, DubLi will supply the balance of Credits to fill the
order, but the business associate will not be eligible to earn commissions on
the Credits supplied by DubLi.  The amount of the Retail Commissions
earned by a business associate varies from 5-25% based on the total Credits
purchased by the business associate over a consecutive twelve-month
period.





To become
a business associate, an applicant must register with DubLi by filling out an
online Business Associate Application and Agreement and purchase an e-Biz kit
for US $175.00. The e-Biz kit is the only purchase required to become a business
associate.





DubLi
also offers a partner package and program (the “Partner Program”) to companies,
associations, affinity groups and non-profit organizations (which it refers to
as a “white label solution”). Using the Partner Program, these groups can,
through DubLi, open and utilize an auction portal open to their members. Each
partner earns a thirty percent (30%) commission on all Credits sold to such
Partner’s members through their portal. Using the Partner Program gives
participating organizations a professional web presence, access to products
offered on the auction portal through DubLi, and the use of DubLi to complete
all customer purchase processes. DubLi provides a variety of ready-made
templates that can be customized to the individual requirements of any
organization, including the use of the organization’s URL. The Company receives
the remaining 70% of the of the sales proceeds from which it pays all related
costs and expenses.





BSP
Rewards





BSP
Rewards provides private branded loyalty and rewards programs designed as a
shopping service through which members receive rebates (rewards points) on
purchases of products and services from participating merchants in our Internet
mall platform.  These rewards act as a common currency that may be
accumulated and used to make purchases of gift cards or donations to a
charity.  The rewards can additional be loaded onto a debit MasterCard
and used towards additional purchases from any participating merchant in the
program. Additionally, once the loyalty points are loaded on the MasterCard, the
consumer can utilize this debit card at any merchant where the debit MasterCard
is accepted.




The BSP
Rewards program is a web based retail mall concept. Retail sellers of goods and
services who join in the program as participating merchants agree to pay rebates
to us for our members who purchase goods and services through the program at
their individual web stores. We collect all rebates paid by participating
merchants and retain a portion as our fee for operating the program. Another
portion of the rebate (generally one-half), is designated as a “reward” earned
by the member who made the purchase. A portion of the Company’s rebate is paid
to the organization or company which enrolled the member in the
program.





DubLi
uses the BSP Shopping Mall in combination with its auction sites.





We are
also in the process of developing a new platform of websites to better provide
DubLi.com shoppers with an enjoyable experience. The new platform is expected to
provide DubLi.com shoppers website displays that, among other things: facilitate
a shoppers’ monitoring and participation in Xpress Auctions and Unique Bid
Auctions simultaneously; provide shoppers with expanded merchandise search
capabilities; and provides shoppers with expanded capabilities to monitor
auctions.





We are
also contemporaneously seeking to expand our service offering to a wide range of
entertainment products and services via streaming content downloads (i.e. music,
movies, television and radio).





Working
from the “Cinch” technology we acquired from MSC, Inc. doing business as Lariat
in October 2009, we intend to offer users a fast and convenient method of
locating and enjoying entertainment content readily available on the Internet,
free of charge.  We hope that Cinch will expand DubLi.com's relationship
with its shoppers and thereby assist us to better identify our shopper’s needs
and shopping habits.




26


MediaNet
is targeting to launch its new websites and Cinch in the third quarter of
2010.  See “Risk Factors.”





Our
Industry




The
Company provides a variety of shopping alternatives for which the industry is
segmented and diverse.  MediaNet Group’s service offering emphasize
bringing pricing value to consumers in a format that is unusual within the
current ecommerce environment. While the industry consists of many companies and
organizations that provide shopping, loyalty and rewards in various means and
fashions, few offer a complete package. There are many other similar businesses;
however, most others do not include many of the features and benefits that
MediaNet Group does. It requires significant time and resources to develop a
mature, flexible, broad-based platform and to attract and market the program to
a wide variety of business segments. We believe our various businesses have and
will generally continue to benefit from the growing popularity of online
shopping versus traditional brick and mortar shopping.





Competition




MediaNet
Group believes that there are a number of companies engaging in reverse
auctions. However, it does not believe that any of these companies present
significant competition to DubLi. The Company believes that its DubLi online
auction business has been able to distinguish itself from other competitors
based upon its advanced, customer friendly technology multi-level marketing
strategy, local marketing knowledge through the DubLi Network sales
force,  and its exclusive focus on high quality inventory (brand new,
newest model, full warranty) from the world’s leading
manufacturers.





The BSP
Rewards services offer private branded web mall program for companies,
organizations and associations with features that include, but is not limited
to, their logo and corporate image, cross links between the mall and their own
corporate websites where the end user associates the mall with the host brand.
Our competition includes other established loyalty/rewards companies, service
providers that aggregate affiliate network merchants and existing web portals.
While some competitors offer a private branded rewards program, most do not
offer all of the features as BSP, including our redemption option through a
stored value MasterCard, cross marketing applications and customer
communications. BSP intends to compete on the basis of pricing and speed to
market, ease of use, our platform and the number of features available in our
proprietary BSP Rewards application.





Our
customers




DubLi’s
customers are derived primarily from three sources, consumers from the general
public who are interested in the DubLi auction formats, consumers signed up by
business associates and consumers introduced to the DubLi auctions through our
Partner Program. . Sometimes there is overlap among the three categories. Our
customers are based all over the world including Europe and North America. We
believe that our ability to attract potential buyers to our website is based
upon the quality of our merchandise and our focus on word-of-mouth advertising.
Our business strategy was designed based on the concept that by rewarding people
for their recommendation through referral based commissions, we could
potentially attract a large numbers of customers from around the world to our
auction portal.





BSP’s
business to business model enables customers from each of its private branded
malls to participate in the rewards malls.  These customer members are
either employees from the sponsor of the private branded mall, debit card
customers, representatives of network marketing programs and a variety of other
membership bases.





Results
of Operations





The following table sets forth certain
of our results of operations for the periods indicated.





For
      the three months
            
            
            Percent
            
            
            For
      the six months
            
            
            Percentended March
      31,
            
            
            Change
            
            
            ended March
      31,
            
            
            Change2010
            
            
            2009
            
            
            
            
            
            2010
            
            
            2009Revenues
            
            
            7,030,213
            
            
            
            4,999,126
            
            
            
            41
            %
            
            
            14,520,401
            
            
            
            8,187,410
            
            
            
            77
            %Direct
      cost of revenues
            
            
            4,364,647
            
            
            
            3,040,577
            
            
            
            44
            %
            
            
            9,422,196
            
            
            
            5,257,094
            
            
            
            79
            %Gross
      Profit
            
            
            2,665,566
            
            
            
            1,958,549
            
            
            
            36
            %
            
            
            5,098,205
            
            
            
            2,930,317
            
            
            
            74
            %Operating
      Expenses
            
            
            1,392,484
            
            
            
            1,353,720
            
            
            
            3
            %
            
            
            2,857,758
            
            
            
            2,439,584
            
            
            
            17
            %Income
      (loss) from operations
            
            
            1,273,083
            
            
            
            604,829
            
            
            
            110
            %
            
            
            2,240,447
            
            
            
            490,733
            
            
            
            357
            %Interest
      income (expense) -net
            
            
            5,506
            
            
            
            3,437
            
            
            
            60
            %
            
            
            7,002
            
            
            
            3,437
            
            
            
            104
            %Provision
      for income taxes
            
            
            430,976
            
            
            
            -
            
            
            
            
            
            
            
            939,976
            
            
            
            -Gain
      from sale of subsidiary
            
            
            -
            
            
            
            74,990
            
            
            
            
            
            
            
            -
            
            
            
            74,990Foreign
      currency translation adjustment
            
            
            (40,426
            )
            
            
            -
            
            
            
            
            
            
            
            (87,303
            )
            
            
            -Comprehensive  income
            
            
            796,174
            
            
            
            676,382
            
            
            
            18
            %
            
            
            1,206,166
            
            
            
            562,286
            
            
            
            115
            %





27


Revenues




We had
revenues of $7,030,213 for the three months ended March 31, 2010, an increase of
$2,031,087, or 41%, as compared to $4,999,126 in the same period ended March 31,
2009. In the six months ended March 31, 2010, we had net revenues of
$14,520,401, an increase of $6,332,991, or 77%, as compared to $8,187,410 in the
same period ended March 31, 2009.





Revenue
increases occurred in both the sales of products and sales of Credits. The
increase in Credits sold was due to our overall domestic and foreign business
expansion resulting from our addition of new business associates and increased
productivity from existing associates between March 31, 2009 and March 31, 2010
as well as certain new promotions.




Direct
Cost of Revenues




Direct
Cost of Revenues primarily includes the cost of acquiring products to sell in
our online auctions, website operation costs and business associate commission
expenses. During the three months ended March 31, 2010, we had direct cost of
revenues of $4,364,647, or 62% of revenues, versus direct cost of revenues of
$3,040,577, or 61% of revenues in the same period in 2009.  During the
six months ended March 31, 2010, we had direct cost of revenues of $9,422,196,
or 65% of revenues, compared to direct cost of revenues of $5,257,094, or 64%,
of revenues in the same period in 2009. This 44% and 77% respective increase is
consistent with and primarily attributable to our increase in revenues. In
addition, increased incentives earned by our business associates contributed to
the increase in direct cost of revenues.





Gross
profit




We had
gross profit of $2,665,566 and $1,958,549 for three months ended March 31, 2010
and March 31, 2009, respectively.  Gross profit margin was relatively
consistent at 38% and 39% for the three months ended March 31, 2010 and March
31, 2009, respectively.





28


We had
gross profit of $5,098,205 and $2,930,317 for the six months ended March 31,
2010 and March 31, 2009, respectively.  Gross profit margin was 35%
and 36% for the six months ended March 31, 2010 and March 31, 2009,
respectively.





Operating
Expenses





Operating
expenses for the three months ended March 31, 2010 were $1,392,484, or 20% of
revenues, compared to operating expenses of $1,353,720, or 27% of revenues, for
the same period ended March 31, 2009. Operating expenses for the six months
ended March 31, 2010 were $2,857,758, or 20% of revenues, compared to operating
expenses of $2,439,584, or 30% of revenues, for the same period ended March 31,
2009. The increase in operating expenses during the three and six months ended
March 31, 2010 was attributable to increases in our advertising and marketing
expenses and increases in administrative expenses resulting from planned
improvements to our operations.





Comprehensive
Income




We had a
comprehensive income of $796,174 or 11% of revenues for the three month period
ended March 31, 2010 compared to comprehensive income of $676,382 or 14% of
revenues for the same period ended March 31, 2009. Our comprehensive income is a
function of revenues, cost of sales and other expenses and foreign currency
translation adjustment as described above. The increase in comprehensive income
in 2010 was due primarily to the increase in revenues less a provision for
income taxes and foreign currency translation adjustment. Earnings per share in
the three month period ended March 31, 2010 were $0.03 per basic and $0.00 per
fully diluted share based on basic weighted average number of shares outstanding
during the period of 28,484,206 and fully diluted weighted average number of
shares of 339,037,717 compared to earnings per basic share of $0.03 and $0.03
per fully diluted share in the three months ended March 31, 2009 on the basic
and fully diluted weighted average number of shares outstanding of
20,674,802.





We had a
comprehensive income of $1,206,166 or 8% of revenues for the six month period
ended March 31, 2010 compared to a $562,286 or 7% of revenues for the same
period ended March 31, 2009. Earnings per share for continuing operations in the
six month period ended March 31, 2010 were $0.05 per basic and $0.00 per diluted
share based on the basic weighted average number of shares outstanding during
the period of 28,484,206 and fully diluted shares of 277,167,462 compared to
earnings per basic share of $0.02 and $0.02 per fully diluted shares in the six
months ended March 31, 2009 on the basic and fully diluted weighted average
number of shares outstanding of 20,674,802.





Liquidity
and Capital Resources





General




As of
March 31, 2010, we had cash and cash equivalents of $2,162,101.  We
also had $1,463,491 of restricted cash.  Restricted cash is cash
maintained by our credit card processors on sales processed by them to secure
against their financial risk.  Our current agreement with the
processors permits them to maintain a 20% reserve or holdback for six months on
each sale processed by them.





Our
principal use of cash in our operating activities has historically been for
inventory and for selling and general and administrative expenses.  Our
principal source of liquidity has historically been from operating
activities. Our cash flow has improved during the six months ended March
31, 2010 as a result of our increase in sales of Credits and
products.





Operating
Activities





Cash
flows provided by operating activities during the six months ended March 31,
2010 were $12,196, compared to cash flows provided by operating activities of
$742,211 during the six months ended March 31, 2009. Significant items reducing
cash flows from operations for the six months ended March 31, 2010 include
increases in restricted cash of $741,261; accounts receivable of $392,980;
inventory, prepaid expenses and deposits of $833,542 and reduction in accounts
payable and accrued expenses of $1,129,152.  Items increasing cash
flows from operations include significant increases in deferred revenue of
1,081,194 and other accruals of $906,228.





29


Investing
and Financing Activities





Cash
flows (used) in investing activities were $1,040,812 and $1,519 for the six
months ended March 31, 2010 and 2009, respectively, due primarily to the
purchase of a software license and office equipment.




Cash
flows provided by financing activities was $691,479 and $194,985 for the six
months ended March 31, 2010, and 2009, respectively, from proceeds of warrant
redemptions and sales of common stock





Demand
for the products and services will be dependent on, among other things, market
acceptance of our products, traffic to our websites, and general economic
conditions. Inasmuch as a major portion of our activities is the receipt of
revenues from the sales of Credits and continued demand at our auction
portals.




Our
success will be dependent upon implementing our plan of operations and the risks
associated with our business plans. We strive to provide high quality products
to our customers. We plan to strengthen our position in existing and new
markets. We also plan to expand our operations through aggressively marketing
our products and our concept.





ITEM
4T. CONTROLS AND PROCEDURES




Disclosure
controls and procedures are the controls and other procedures that are designed
to ensure that information required to be disclosed by us in the reports that we
file or submit under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the Securities and Exchange
Commission's rules and forms.




Under the
supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, we conducted an evaluation of our
disclosure controls and procedures, as such term is defined under Rule 13a-15(e)
promulgated under the Exchange Act as of March 31, 2010.  Based on
that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that as of such date, our disclosure controls and procedures were (1)
not sufficiently designed to ensure that material information relating to
Company, including our consolidated subsidiaries, was made known to them by
others within those entities, particularly in the period in which this report
was being prepared and (2) not effective, in that they did not provide
reasonable assurance that information required to be disclosed by us in the
reports that we file or submit under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the SEC's rules and
forms. The Chief Executive Officer and Chief Financial Officer further concluded
that the disclosure controls and procedures were not effective as of the
following prior periods: Nine Months ended September 30,2009; Three months ended
December 31, 2009 and; Six Months Ended March 31, 2010





More
specifically, the Chief Executive Officer and Chief Financial Officer concluded
that our disclosure controls and procedures were not effective due
to:





(i)           our
understatement of our outstanding number of shares from July 2007 until December
31, 2009 by approximately 500,000 shares;





(ii)           our
failure to indicate on our balance sheet for the periods from inception until
December 31, 2009 that we had any authorized preferred stock;





(iii)           our
failure to accurately identify in our Quarterly Report on Form 10-Q for the
quarter ended December 31, 2009 and our Current Report on Form 8-K regarding the
Merger, filed on October 23, 2009 and amended on February 4, 2010, that certain
direct and indirect subsidiaries of CG planned to be included in the Merger had
yet to be actually acquired by CG;





(iv)           inadequate
accounting personnel;





30


(v)           delays
in the post-Merger integration of the Company’s and CG’s administrative,
accounting and reporting systems and procedures; and





(vi)           delays
in the post-Merger integration and implantation of an effective system of
internal control that governs the combined entities.





Remediation
Steps to Address Material Weakness:





To
address the identified material weakness discussed above, we are in the process
of enhancing our internal control processes.  To date, we
have:





(i)           engaged
a new law firm to assist us in improving our securities law compliance and SEC
reporting;





(ii)           engaged
a firm of ERP system consultants to assist with the integration of the merged
companies’ accounting and reporting systems into a single automated
system;





(iii)           hired
a new Chief Technical Officer;





(iv)           commenced
a process to engage a new Chief Financial Officer, for which we have identified
one highly qualified candidate, who is currently assisting the Company with
these remediation steps in a consultant capacity.





(v)           commenced
a reorganization of our accounting and administrative staff designed to improve
workflow and enhance internal controls.





We will
soon begin the documentation and testing of a revised system of internal
controls over financial reporting as defined in Rule 13a-15(f) or 15d-15(f)
promulgated under the Exchange Act and in preparation for an attestation report
by our registered public accounting firm regarding internal control over
financial reporting for the year ending September 30, 2010.





Other
than as set forth above, there were no changes in our internal control over
financial reporting identified in connection with the evaluation required by
paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during our
last fiscal quarter that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.





PART II: OTHER
INFORMATION




ITEM 1. LEGAL PROCEEDINGS




As of the
date of this report, we are not a party to any pending legal proceeding and are
not aware of any threatened legal proceeding. From time to time, we may be
involved in a variety of claims, suits, investigations, and proceedings arising
from the ordinary course of our business. Regardless of the outcome, litigation
can have an adverse impact on us because of defense costs, diversion of
management resources, and other factors. In addition, it is possible that an
unfavorable resolution of one or more such proceedings could in the future
materially and adversely affect our financial position, results of operations,
or cash flows in a particular period.




ITEM 1A. RISK FACTORS





RISK
FACTORS




Risks
Related to Our Operations




Our
success is dependent on our ability to establish and maintain a large and
growing base of business associates.


Approximately
96% of our auction Credit sales are made through our network of business
associates and, accordingly, we are dependent on our business associates for a
significant portion of our sales. To increase our revenue, we must increase the
number of and/or the productivity of our business
associates.  Accordingly, our success depends in significant part upon
our ability to recruit, retain and motivate a large base of business
associates.  Our operating results could be harmed if our existing and
new business opportunities do not generate sufficient interest to retain
existing business associates and attract new business associates.
  31


The
primary way we recruit new business associates is through a multi-level
marketing strategy.  The success of a multi-level marketing force is
highly dependent upon our ability to offer a commission structure and sales
incentive program that enables our business associates to recruit and develop
other business associates to create an organization.  To compete with
other multi-level marketing organizations, we may be required to increase our
marketing costs through increases in commissions, sales incentives or other
features, any of which could adversely impact our future earnings.


There is
a high rate of turnover among business associates, which is a characteristic of
the network marketing business. The loss of a significant number of business
associates for any reason could negatively impact sales of Credits and could
impair our ability to attract new business associates. In addition, the level of
confidence of the business associates in our ability to perform is an important
factor in maintaining and growing our business associate
network.  Adverse publicity or financial developments concerning the
Company, could adversely affect our ability to maintain the confidence of our
business associates.


Our
business associates may not comply with our policies and
procedures.


Our
business associates are independent contractors and, accordingly, we are not in
a position to directly provide the same direction, motivation and oversight as
we would if the business associates were employed by the Company. As a result,
there can be no assurance that our business associates will participate in our
marketing strategies or plans or comply with our Business Associate Policies and
Procedures and Terms and Conditions.


Extensive
federal, state and local laws regulate our business and network marketing
program. Because we conduct operations in foreign countries, our policies and
procedures for our business associates differ due to the different legal
requirements of each country in which we do business. While we have implemented
business associate policies and procedures designed to govern business associate
conduct and to protect the goodwill associated with our trademarks and trade
names, it can be difficult to enforce these policies and procedures because of
the large number of business associates and their independent status. Violations
by our independent business associates of applicable law or of our policies and
procedures in dealing with customers could reflect negatively on our operations
and harm our business reputation. In addition, it is possible that a court could
hold us civilly or criminally accountable based on vicarious liability because
of the actions of our independent business associates.


We
may not be successful in developing brand awareness, which is critical to our
business.




We
believe that brand recognition is critical to our business. Development and
awareness of our brand will depend largely on our ability to increase our
business associate network and customer base. If business associates and
consumers do not perceive us as offering an entertaining and/or efficient way to
purchase merchandise, we may be unsuccessful in promoting and maintaining our
brand. To promote our brand, we expect to continue to recruit new business
associates, incent existing business associates and to increase our marketing
and advertising budgets. Since a significant percentage of our cost of sales is
the commissions paid to our business associates, we anticipate that, relative to
some of our competitors, a smaller percentage of our gross revenue will be
available for marketing or promotional activities.  Failure to
successfully promote our brand in a cost effective manner could significantly
harm our business and financial condition.




32


We
may not be able to maintain the competitive bidding environment critical to our
business model.




Our
business model relies upon our generation of a competitive bidding environment
involving numerous active bidders.  If we are unable to maintain such
an environment for any reason, we anticipate that our revenue associated
activities other than actually purchasing merchandise (i.e., viewing prices on
Xpress auction and submitting bids on Unique Bid auction) would generally
decrease and, as a result, the price discount realized on purchased merchandise
would also generally decrease.  We believe our success depends in part
on our ability to offer merchandise that enjoys wide demand by consumers.
Consumers’ tastes are subject to frequent, significant and sometimes
unpredictable changes. If the merchandise we offer for sale fails to generate
brand consumer interest, our revenues and gross margins could be negatively
impacted.  Any reduction in the price discounts actually realized by
auction participants might further discourage an active bidding
environment.




We
may not be successful in procuring and auctioning merchandise in a manner that
generates positive gross margins.




We
currently purchase a considerable amount of merchandise to be sold in our
auctions, and in doing so assume the inventory and price risks of this
merchandise. These risks are especially significant because most of the
merchandise we sell is subject to rapid technological change, obsolescence and
price erosion. Our success will depend in part on our ability to sell such
inventory rapidly through our websites. We also rely heavily on the ability of
our staff to purchase inventory at attractive prices relative to resale
value.




Due to the inherently unpredictable nature of our auction style
format, it is impossible for us to determine with certainty whether the revenue
we generate in connection with each sale item will exceed the price we pay for
the item.  Further, because the ultimate sales prices for the
merchandise sold in our auctions generally are lower than the acquisition costs
for the merchandise, we cannot be certain that we will sell enough Credits to
achieve positive gross margins on any given sale. If we are unable to sell our
purchased inventory rapidly, if our staff fails to purchase inventory at
attractive prices relative to resale value at auction, or if we fail to predict
with accuracy the resale prices and Credits purchased for our purchased
merchandise, we may sell our inventory at a negative gross margin which would
negatively impact our profitability.




We
may not be able to sustain or grow our business unless we keep up with rapid
technology changes.




The
Internet and electronic commerce industries are characterized by:




·
              changes
      in consumer demands;




·
              frequent
      introductions of new services or products that embody new
      technologies.




·
              rapidly
      changing technology; and




·
              evolving
      industry standards and practices that could render our websites and
      proprietary technology
obsolete.




Our
future performance may depend, in part, on our ability to develop, license
and/or acquire leading technologies, enhance our existing services and respond
to technological advances and emerging industry standards and practices on a
timely and cost-effective basis. Developing websites and other proprietary
technology involves significant technological and business risks. We also cannot
assure you that we will be able to successfully use new technologies or adapt
our websites and proprietary technology to emerging industry standards. We may
not be able to remain competitive or sustain growth if we do not adapt to
changing market conditions or customer requirements.




33


Customer
complaints, negative publicity or our security measures could diminish use of
our services.




Customer
complaints, negative publicity or poor customer service, which is fairly common
with any network marketing or Internet related business, could severely diminish
consumer confidence in and use of our services. If we fail to consistently
deliver high quality inventory (brand new, newest model, full warranty, from the
world’s leading manufacturers, or if there are rumors, articles, reviews or
blogs that indicate or suggest that we have failed to consistently deliver such
merchandise, customer participation in our auctions could
decrease.  Similarly, measures we sometimes take to combat risks of
fraud and breaches of privacy and security have the potential to damage
relations with our customers or decrease activity on our sites by making our
sites more difficult to use or restricting the activities of certain users.
Negative publicity about, or negative experiences with, customer support for any
of our businesses could cause our reputation to suffer or affect consumer
confidence in our brands as a whole.




System
failures could harm our business.




We have
experienced short system failures from time to time, and any interruption in the
availability of our websites will reduce our current revenues and profits, could
harm our future revenues and profits, and could subject us to regulatory
scrutiny. Any unscheduled interruption in our services results in an immediate,
and possibly substantial, loss of revenues. Frequent or persistent interruptions
in our services could cause current or potential users to believe that our
systems are unreliable, leading them to switch to our competitors or to avoid
our sites, and could permanently harm our reputation and brands.




Although
our systems have been designed around industry-standard architectures to reduce
downtime in the event of outages or catastrophic occurrences through worldwide
redundant servers, they remain vulnerable to damage or interruption from
earthquakes, floods, fires, power loss, telecommunication failures, terrorist
attacks, computer viruses, computer denial-of-service attacks, and similar
events. Our systems are also subject to break-ins, sabotage, and intentional
acts of vandalism. Despite any precautions we may take, the occurrence of a
natural disaster, a decision by any of our third-party hosting providers to
close a facility we use without adequate notice for financial or other reasons,
or other unanticipated problems at our hosting facilities could result in
lengthy interruptions in our services. We do not carry business interruption
insurance sufficient to compensate us for losses that may result from
interruptions in our service as a result of system failures.




Any
interruptions in Internet service could harm our business.




Our
customers rely on access to the Internet to access our products and services.
Interference with our offerings or higher charges for access to our offerings,
whether paid by us or by our customers, could cause us to lose existing
customers, impair our ability to attract new customers, and harm our revenue and
growth.




The
success of our services also depends largely on the continued availability of
the Internet infrastructure. This includes maintenance of a reliable network
backbone with the necessary speed, data capacity, and security, as well as
timely development of complementary products, for providing reliable Internet
access and services. The Internet has experienced, and is likely to continue to
experience, significant growth in the numbers of users and amount of traffic.
The Internet infrastructure may be unable to support such demands. In addition,
increasing numbers of users, increasing bandwidth requirements, or problems
caused by “viruses,” “worms,” malware and similar programs may harm the
performance of the Internet. The backbone computers of the Internet have been
the targets of such programs. The Internet has experienced a variety of outages
and other delays as a result of damage to portions of its infrastructure, and it
could face outages and delays in the future. These outages and delays could
reduce the level of Internet usage generally as well as the level of usage of
our services.




We
face risks in connection with our relationships with our credit card
processors.





We
currently have agreements in place with one credit card processor in each of the
United States and Europe who process credit card transactions completed on our
websites.  Pursuant to the current terms and conditions of these
agreements, the processors are permitted to maintain a 20% reserve or holdback
for six months on each sale processed by them. Holdbacks are the portion of the
revenue from a credit card transaction that is held in reserve by the credit
card processor to cover possible disputed charges, chargeback fees, and other
expenses. In the event a credit card processor declares bankruptcy, encounters
financial difficulties, refuses or fails to honor its contract with us for any
reason or ceases operations, there can be no assurance that we would be able to
access funds due to us on a timely basis, which could have a material adverse
effect on our business, financial condition, results of operations and cash
flows.  In addition, from time to time, these processors may increase
the amount that they keep in reserve as holdbacks. Although we are entitled to
receive any remaining holdback amount after a designated period of time, any
increase in the holdback percentage would result in a delay in our receiving the
full proceeds from the sales of products and Credits.  This would
adversely affect our cash flow and financial condition.




34


Our
ability to successful develop website enhancements and new service offerings are
a significant component of our business strategy.





We are in
the process of developing a new platform of websites to better provide DubLi.com
shoppers with an enjoyable experience.  We are also contemporaneously
seeking to expand our service offering to a wide range of entertainment products
and services via streaming content downloads.  Our ability to succeed
in these new offerings may require significant resources and management
attention.  The success of new and enhanced offering introductions
depend on several factors, including our ability to develop and complete these
offerings in a timely manner, successfully promote the offerings, manage the
risks associated with the offerings, make sufficient resources available to
support them, secure appropriate intellectual property rights and address any
quality or other defects in the early stages of introduction.  Despite
the allocation of resources, there are no assurances that the new offerings will
be successfully developed or accepted by our customers.




We
may not be able to compete successfully.




The
electronic commerce marketplace is rapidly evolving and intensely competitive,
and we expect competition to intensify in the future.  We compete with
a variety of other companies based upon  on the type of merchandise
and the sales format they offer to customers. These competitors include, but are
not limited to:




·
              online
      bidding fee auction websites such as Swoopo, Beezid and
      Zapadeal;




·
              various
      standard, online auction websites such as eBay.com, Bidz.com and uBid.com;
      and




·
              a
      number of e-commerce companies focused primarily on excess and overstock
      products with fixed price formats, including Amazon.com, Overstock.com,
      Shopping.com, eCost.com, and
SmartBargains.com.




We
believe our ability to effectively compete is contingent upon our ability to
make customers aware of our service offering, provide an enjoyable shopping
experience and provide customers with an opportunity to purchase high quality
merchandise at a potential, significant discount to prevailing market
prices.




Many of our potential competitors have significantly greater
brand awareness and greater financial, marketing, customer support, technical
and other resources than we have.  These competitors, especially
competitors with good brand recognition, could develop online auctions that are
similar to our online auctions.  We believe that there are only a
limited number or factors that restrict or discourage competitors from seeking
to directly compete with us.




Competitors
may be able to secure merchandise from suppliers on more favorable terms than we
are able to. They may also be able to respond more quickly to changes in
customer preferences or devote greater resources to developing and promoting
their merchandise. Some of our current and potential competitors have
established or may establish cooperative relationships among themselves or
directly with suppliers to obtain exclusive or semi-exclusive sources of
merchandise.




35


We may
fail to compete successfully against current and future competitors. Increased
competition could reduce our revenues, operating margins and/or diminish the
value of our brand.




Our
auctions may be subject to regulation as a form of gaming in certain
jurisdictions.




Although
the Company had sought to structure all of its auctions so that they are not
regulated as a form of “gaming” or a “lottery”, there can be no assurances that
the regulatory authorities of any country, state, county or municipality will
not assert the view that the Company’s Unique Bid auctions constitute some form
of “gaming” or a “lottery”, subject to regulation and/or prohibited by such
regulatory entity.  The laws, regulations and case law defining and
governing “gaming” and “lotteries”, especially in the context of electronic
commerce, are generally regarded as an “emerging” area of the law, apparently
subject to less than certain and often divergent interpretations, vary from
jurisdiction to jurisdiction, and are subject to varying levels of
enforcement.  Given the regulatory landscape, the Company risks
violating the laws of a particular country, state, county or municipality, even
in those jurisdictions where it believes it has conducted considerable legal
research and/or secured an independent legal opinion.  In certain
instances, the Company has sought to limit its activities and its business
associates’ activities in such jurisdictions.  If the Unique Auction
were deemed to be a form of gambling or lottery or otherwise subject to
regulation, the Company could be potentially subject In addition, even if the
Company believed it was not properly subject to such regulations, it might be
compelled or deem it in the best interest of the Company to suspend future
auctions in the subject jurisdiction




Current
and future laws could affect our auctions business.




Numerous
states and foreign jurisdictions have regulations governing the conduct of
traditional “auctions” and the liability of traditional “auctioneers” in
conducting auctions. These types of regulations may become applicable to online
auction sites. We are aware that several states and some foreign jurisdictions
have attempted to impose such regulations on other companies operating online
auction sites or on the users of those sites. Attempted enforcement of these
laws appears to be increasing and such attempted enforcements could harm our
business.  In addition, some states have laws or regulations that do
expressly apply to online auction site services. We may incur costs in complying
with these laws. We may, from time to time, be required to make changes in our
business that may increase our costs, reduce our revenues, and cause us to
prohibit the listing of some items in certain locations, or make other changes
that may adversely affect our auctions business.


Our
network marketing program could be found to be not in compliance with current or
newly adopted laws or regulations in one or more markets.




Our
network marketing program is subject to a number of federal and state
regulations administered by the FTC and various state agencies in the United
States as well as regulations on direct selling in foreign markets administered
by foreign agencies. We are subject to the risk that, in one or more markets,
our network marketing program could be found not to be in compliance with
applicable law or regulations. Regulations applicable to network marketing
organizations generally are directed at preventing fraudulent or deceptive
schemes, often referred to as “pyramid” or “chain sales” schemes, by ensuring
that product sales ultimately are made to consumers and that advancement within
an organization is based on sales of the organization’s products rather than
investments in the organization or other non-retail sales-related criteria. The
regulatory requirements concerning network marketing programs do not include
“bright line” rules and are inherently fact-based, and thus, even in
jurisdictions where we believe that our network marketing program is in full
compliance with applicable laws or regulations governing network marketing
systems, we are subject to the risk that these laws or regulations or the
enforcement or interpretation of these laws and regulations by governmental
agencies or courts can change. The failure of our network marketing program to
comply with current or newly adopted regulations could negatively impact our
business in a particular market or in general.
  36


New
and existing regulations could harm our business.




We are
subject to foreign and domestic laws regulating the conduct of business on and
off the Internet. It is not always clear how existing laws governing issues such
as gaming, multi-level marketing, wire transfers, property ownership,
copyrights, trademarks and other intellectual property issues, parallel imports
and distribution controls, taxation, libel and defamation, and personal privacy
apply to online businesses such as ours. The majority of these laws were adopted
prior to the advent of the Internet and electronic commerce and, as a result, do
not contemplate or address the unique issues of the Internet and electronic
commerce. Those laws that do reference the Internet, such as the
U.S. Digital Millennium Copyright Act and the European Union’s Directives
on Distance Selling and Electronic Commerce, are being interpreted by the
courts, but their applicability and scope remain uncertain. Furthermore, as our
activities and the types of goods and services listed on our websites expand
regulatory agencies or courts may claim or hold that we or our users are subject
to licensure or prohibited from conducting our business in their jurisdiction,
either generally or with respect to certain actions (e.g., the sale of real
estate, event tickets, cultural goods, boats and automobiles).




As we
expand and localize our international activities, we become obligated to comply
with the laws of the countries or markets in which we operate. In addition,
because our services are accessible worldwide, and we facilitate sales of goods
to users worldwide, one or more jurisdictions may claim that we or our users are
required to comply with their laws based on the location of our servers or one
or more of our users, or the location of the product or service being sold or
provided in an ecommerce transaction. Laws regulating Internet and ecommerce
companies outside of the U.S. may be less favorable than those in the U.S.,
giving greater rights to consumers, competitors or users. Compliance may be more
costly or may require us to change our business practices or restrict our
service offerings, and the imposition of any regulations on our users may harm
our business. In addition, we may be subject to overlapping legal or regulatory
regimes that impose conflicting requirements on us. Our failure to comply with
foreign laws could subject us to penalties ranging from criminal prosecution to
significant fines to bans on our services.




Our
insurance coverage may not be adequate to cover all possible losses that our
properties could suffer. In addition, our insurance costs may increase and we
may not be able to obtain the same insurance coverage in the
future.




Although
we have all-risk property insurance for our operating properties covering damage
caused by a casualty loss (such as fire, natural disasters or certain acts of
terrorism), each policy has certain exclusions. In addition, our property
insurance coverage is in an amount that may be less than the expected full
replacement cost of rebuilding the facilities if there were a total loss. Our
level of insurance coverage may be inadequate to cover all possible losses in
the event of a major casualty. In addition, certain casualty events, such as
labor strikes, nuclear events, loss of income due to cancellation of room
reservations or conventions due to fear of terrorism, or damage resulting from
deterioration or corrosion, insects or animals and pollution, might not be
covered under our policies. Therefore, certain acts and events could expose us
to substantial uninsured losses. In addition to the damage caused to our
properties by a casualty loss, we may suffer business disruption as a result of
these events or be subject to claims by third parties who were injured or
harmed. While we carry general liability insurance we do not carry business
interruption insurance, this insurance may not continue to be available on
commercially reasonable terms and, in any event, may not be adequate to cover
all losses.




We
are exposed to fluctuations in currency exchange rates and interest
rates.




Because
more than 40% of our revenue is generated in currencies other than the U.S.
dollar but we report our financial results in U.S. dollars, we face
exposure to adverse movements in currency exchange rates. If the
U.S. dollar strengthens against foreign currencies, the translation of
these foreign currency denominated transactions will result in decreased net
revenues and net income.  We are also subject to currency exchange
risks in connection with our purchase and sale of dollars and Euros in the
ordinary course of our business to meet our obligations to our business
associates and other creditors.





37


There
are many risks associated with our international operations.





Our
international expansion has been rapid and our international business,
especially in Germany and Australia, is critical to our revenues and profits.
Net revenues outside the U.S. accounted for approximately xx% of our net
revenues in both fiscal year 2009 and the first six months of 2010. Expansion
into international markets requires management attention and resources and
requires us to localize our services to conform to local laws, cultures,
standards, and policies. The commercial, Internet, and transportation
infrastructure in lesser-developed countries may make it more difficult for us
to replicate our traditional auction business model. In many countries, we
compete with local companies that understand the local market better than we do,
and we may not benefit from first-to-market advantages. We may not be successful
in expanding into particular international markets or in generating revenues
from foreign operations.




As we
continue to expand internationally, including through the expansion our auction
site and rewards mall platforms, we are increasingly subject to risks of doing
business internationally, including the following:




·
              strong
      local competitors;




·
              regulatory
      requirements, including regulation of Internet services, communications,
      auctioneering, professional selling, distance selling, privacy and data
      protection, banking, and money transmitting, that may limit or prevent the
      offering of our services in some jurisdictions, prevent enforceable
      agreements between sellers and buyers, prohibit the listing of certain
      categories of goods, require product changes, require special licensure,
      subject us to various taxes, penalties or audits, or limit the transfer of
      information between us and our
affiliates;




·
              cultural
      ambivalence towards, or non-acceptance of, online
  trading;




·
              laws
      and business practices that favor local competitors or prohibit foreign
      ownership of certain
businesses;




·
              difficulties
      in integrating with local payment providers, including banks, credit and
      debit card networks, and electronic fund transfer systems or with the
      local telecommunications
infrastructure;




·
              differing
      levels of retail distribution, shipping, communications, and Internet
      infrastructures;




·
              difficulties
      in staffing and managing foreign
operations;




·
              difficulties
      in implementing and maintaining adequate internal
  controls;




·
              longer
      payment cycles, different accounting practices, and greater problems in
      collecting accounts
receivable;




·
              potentially
      adverse tax consequences, including local taxation of our fees or of
      transactions on our websites;




·
              higher
      telecommunications and Internet service provider
  costs;




·
              different
      and more stringent user protection, data protection, privacy and other
      laws;




·
              expenses
      associated with localizing our products, including offering customers the
      ability to transact business in the local
  currency;




38




·
              profit
      repatriation restrictions, foreign currency exchange restrictions, and
      exchange rate fluctuations;




·
              volatility
      in a specific country’s or region’s political, economic or military
      conditions;




·
              challenges
      associated with maintaining relationships with local law enforcement and
      related agencies; and




·
              differing
      intellectual property laws.




Some of
these factors may cause our international costs of doing business to exceed our
comparable domestic costs. As we expand our international operations and have
additional portions of our international revenues denominated in foreign
currencies, we also could become subject to increased difficulties in collecting
accounts receivable, repatriating money without adverse tax consequences, and
risks relating to foreign currency exchange rate fluctuations. The impact of
currency exchange rate fluctuations is discussed in more detail under the
caption “We are exposed to fluctuations in currency exchange rates and interest
rates,” above.




We
conduct certain functions, including product development, customer support and
other operations, in regions outside the U.S. We are subject to both
U.S. and local laws and regulations applicable to our offshore activities,
and any factors which reduce the anticipated benefits, including cost
efficiencies and productivity improvements, associated with providing these
functions outside of the U.S. could adversely affect our
business.




We
may be liable if third parties misappropriate our customers’ personal
information.




If third
parties are able to penetrate our network security or otherwise misappropriate
our customers’ personal information or credit card information, or if we give
third parties improper access to our customers’ personal information or credit
card information, we could be subject to liability. This liability could include
claims for unauthorized purchases with credit card information, impersonation or
other similar fraud claims. This liability could also include claims for other
misuse of personal information, including unauthorized marketing purposes. These
claims could result in litigation. Liability for misappropriation of this
information could adversely affect our business. In addition, the Federal Trade
Commission and state agencies have been investigating various Internet companies
regarding their use of personal information. We could incur additional expenses
from the introduction of new regulations regarding the use of personal
information or from government agencies investigating our privacy
practices.




We rely
on encryption and authentication technology licensed from third parties to
provide the security and authentication necessary to effect secure transmission
of confidential information, such as customer credit card numbers. We cannot
assure you that advances in computer capabilities, new discoveries in the field
of cryptography or other events or developments will not result in a compromise
or breach of the algorithms that we use to protect customer transaction data. If
any such compromise of our security were to occur, it could harm our reputation,
business, prospects, financial condition and results of operations. A party who
is able to circumvent our security measures could misappropriate proprietary
information or cause interruptions in our operations. We may be required to
expend significant capital and other resources to protect against such security
breaches or to alleviate problems caused by such breaches. We cannot assure you
that our security measures will prevent security breaches or that failure to
prevent such security breaches will not harm our business, prospects, financial
condition and results of operations.




We
may be subject to product liability claims that could be costly and time
consuming.




We sell
products manufactured by third parties, some of which may be defective. If any
product that we sell were to cause physical injury or injury to property, the
injured party or parties could bring claims against us as the retailer of the
product. Our insurance coverage may not be adequate to cover every possible
claim asserted.




39


Risks
Related to Our Intellectual Property




Our
inability to adequately protect our proprietary technology could adversely
affect our business.




Our
proprietary technology is one of the keys to our performance and ability to
remain competitive. We rely on a combination of trademark, copyright and trade
secret laws to establish and protect our proprietary rights. We also use
technical measures, confidentiality agreements and non-compete agreements to
protect our proprietary rights. Although we believe that our DubLi trade name
and our logo have certain intellectual property protections, our competitors or
others could adopt product or service names similar to “DubLi” or our other
service marks or trademarks. In addition, in light of the fact that some of our
auction services are “white-labeled” (i.e. the auction portals are hosted by
companies, associations, affinity groups or non-profit organizations rather than
DubLi), our trade name protection may not prove to be sufficient to distinguish
us from our competitors.  Any of the foregoing might impede our
ability to build brand identity and could lead to customer confusion. Our
inability to protect our service mark or trademarks adequately could adversely
affect our business and financial condition, and the value of our brand name and
other intangible assets.




All of
the software that we use to provide our auction services was specifically
developed by DubLi and, accordingly, we believe we have certain proprietary
rights to the software.  We rely on copyright laws to protect our
proprietary software and trade secret laws to protect the source code for our
proprietary software. We generally enter into agreements with our employees and
consultants and limit access to and distribution of our software, documentation
and other proprietary information. The steps we take to protect our proprietary
information may not prevent misappropriation of our technology, and the
agreements we enter into for that purpose might not be enforceable. A third
party might obtain and use our software or other proprietary information without
authorization or develop similar software independently. It is difficult for us
to police the unauthorized use of our technology, particularly because the
global nature of the Internet makes it difficult to control the ultimate
destination or security of software or other transmitted data. In addition, we
do not believe that the process of conducting online reverse auctions is
protected or protectable under the intellectual property laws of the major
markets we serve.  The laws of other countries may not provide us with
adequate or effective protection of our intellectual property.




We
may infringe on third party intellectual property rights and could become
involved in costly intellectual property litigation.




Other
parties claiming infringement by our software, processes or other aspects of our
business could sue us.  We are not currently involved in any suit that
would have a material effect on our business. However, any future claims, with
or without merit, could impair our business and financial condition because they
could:




·
            result
      in significant litigation costs;




·
            divert
      the attention of management;




·
            divert
      resources; or




·
            require
      us to enter into royalty and licensing agreements that may not be
      available on terms acceptable to us or at
  all.




In the
future, we may also file lawsuits to enforce our intellectual property rights,
to protect our trade secrets, or to determine the validity and scope of the
proprietary rights of others. Litigation over these issues, whether successful
or unsuccessful, could result in substantial costs and diversion of resources,
which could reduce our profitability.




Other
Risks Related to Our Company


If
we were to lose the services of our senior management team, we may not be able
to execute our business strategy.




Our
future success depends in a large part upon the continued service of key members
of our senior management team. In particular, our Chief Executive Officer
Michael Hansen, our Chief Operating Officer Kent L. Holmstoel and our General
Counsel Andreas Kusche are critical to the overall management of the Company as
well as the development of our business plan, our culture and our strategic
direction. All of our executive officers and key employees are at-will
employees, and we do not maintain any key-person life insurance policies. The
loss of any of our management or key personnel could seriously harm our
business.




40


If
we do not improve our internal controls and systems, our business may suffer and
the value of our shareholders’ investment may be harmed.


We
maintain and are seeking to continue to improve upon a system of internal
controls.  As of the end of the second quarter of 2010, management
identified certain material weaknesses in our system of internal controls,
including, but not limited issues arising in connection with the integration of
systems and procedures following the Merger.  See Part I, Item 4T of
this Form 10-Q for further discussion of the identified
weaknesses.  We are taking remedial measures to correct such control
deficiencies and expect to devote significant resources to improving our
internal controls.  These remedial measures include the measures
discussed in Part 1, Item 4T of this Form 10-Q.  We expect to continue
to evaluate our controls and make improvements as necessary.  However,
we cannot be certain that these measures will ensure that our controls are
adequate in the future or that the controls will be effective in preventing
fraud or material misstatement. If we fail to maintain an effective system of
internal controls, we may not be able to accurately report our financial results
and fraud may be easier to perpetrate on us. Any failures in the effectiveness
of our internal controls could have a material adverse effect on our operating
results or cause us to fail to meet our reporting obligations. Inferior internal
controls could also cause investors to lose confidence in our reported financial
information which could have a negative effect on our stock
price.




Failure
to achieve and maintain effective internal control over financial reporting in
accordance with Section 404 of the Sarbanes-Oxley Act could have a material
adverse effect on our business.




As a
public company, we are required to document and test our internal financial
control procedures in order to satisfy the requirements of Section 404 of
the Sarbanes-Oxley Act.  Section 404 requires annual management
assessments of the effectiveness of our internal control over financial
reporting and is expected to require a report by our independent auditors
starting with our Annual Report on Form 10-K for the fiscal year ending
September 30, 2010 that both addresses management’s assessments and provides for
the independent auditor’s assessment of the effectiveness of our internal
control over financial reporting. During the course of our testing, we may
identify inaccuracies or deficiencies in our financial reporting that could
require revisions to or restatement of prior period results. Testing and
maintaining internal control over financial reporting also will involve
significant costs and can divert our management’s attention from other matters
that are important to our business. We may not be able to conclude on an ongoing
basis that our internal control over financial reporting is effective in
accordance with Section 404, and our independent registered public
accounting firm may not be able or willing to issue a favorable assessment of
our conclusions. Failure to achieve and maintain an effective internal control
environment could harm our operating results and could cause us to fail to meet
our reporting obligations and could require that we restate our financial
statements for prior periods, any of which could cause investors to lose
confidence in our reported financial information and cause a decline, which
could be material, in the trading price of our Common Stock.


Our
current management team has very limited experience in operating a public
company and complying with public company obligations.


Our
current management team has limited experience in operating a publicly traded
company in the United States.  As a public company, we are subject to
a number of requirements, including the reporting requirements of the Securities
Exchange Act of 1934, as amended, and the Sarbanes-Oxley Act of 2002. These
requirements might place a strain on our systems and resources and, as a result,
our management’s attention might be diverted from other business concerns, which
could have a material adverse effect on our business, financial condition and
operating results.
  41


We
are significantly influenced by two persons that beneficially own and control a
significant majority of our Common Stock.




Through
their beneficial ownership of all of the outstanding shares of our Series A
Preferred Stock, Michael Hansen, our CEO and President, and Michel Saouma have
the power to direct the voting of  all of our outstanding Preferred
Stock, and, upon conversion of the Series A Preferred Stock, will beneficially
own  and have the power to direct the voting of a supermajority of our
Common Stock, based upon the number of shares outstanding as of May 24,
2010.  Mr. Hansen is also expected to become a member of our board of
directors in the near future.  Accordingly, Mr. Hansen and Mr. Saouma
have the power to influence or control the outcome of important corporate
decisions or matters submitted to a vote of our shareholders. Although Mr.
Hansen owes the Company certain fiduciary duties as an executive officer of the
Company, the interests of Mr. Hansen and Mr. Saouma here may conflict with, or
differ from, the interests of other holders of our Common Stock. For example,
Mr. Hansen and Mr. Saouma could unilaterally decide to replace our existing
board of directors with new directors even if such change was not supported by
most of the other shareholders.  Mr. Hansen and Mr. Saouma may also
pursue acquisition opportunities that may be complementary to our business, and
as a result, those acquisition opportunities may not be available to us. So long
as Mr. Hansen and Mr. Saouma have the power to vote a substantial number of
shares of our Common Stock, they will have the power to significantly influence
and/or control all our corporate decisions and will be able to effect or inhibit
changes in control of the Company.


Some
additional factors might inhibit changes in control of the Company


In
addition to the items referenced in the preceding paragraph, the following
factors could prevent or discourage a change in control of the Company when it
is deemed desirable by beneficial shareholders other than Mr. Michael Hansen or
Mr. Michel Saouma:


·
              The
      board of directors of the Company has the power or could secure the
      power  (pursuant to a shareholder consent process that Mr.
      Hansen and Mr. Saouma could control) to issue additional shares of
      preferred stock;


·
              The
      Company is in the process of seeking to increase the Company’s authorized
      capital to 500,000,000 shares of Common
Stock,


The power
to issue additional shares of preferred stock or Common Stock could, in some
situations, have the effect of discouraging and/or rendering more difficult a
merger, tender offer, proxy contest or other attempt to obtain control of the
Company.  This may limit the opportunity for shareholders to dispose
of their shares at the higher price generally available in takeover attempts or
that may be available under a merger proposal.




We
have no independent members of our Board of Directors or an independent audit
committee.




Our Board
of Directors is comprised of two persons, each of which is or was employed by
the Company within the last year. Accordingly, none of our directors is
“independent” using the definition set forth in the NASDAQ Marketplace
Rules.  We also do not have an independent audit
committee.  Although our directors are subject to the fiduciary duties
imposed on Board members pursuant to Nevada law, our shareholders do not have
the protection afforded by independent directors and an independent audit
committee which are some of the traditional procedural safeguards that protects
the interests of minority shareholders.  Our lack of independent
directors on our board of directors may also make decisions of our board of
directors more prone to legal claims or shareholder criticism than if made by a
board of directors with independent board members.
  42


Acquisitions
and joint ventures could result in operating difficulties, dilution, and other
harmful consequences.




We have
acquired a number of businesses in the past, including, most recently, our
merger of MediaNet Group and CG Holdings and its
Subsidiaries.   We expect to continue to evaluate and consider a
wide array of potential strategic transactions, including business combinations,
acquisitions and dispositions of businesses, technologies, services, products
and other assets. At any given time we may be engaged in discussions or
negotiations with respect to one or more of these types of transactions. Any of
these transactions could be material to our financial condition and results of
operations. The process of integrating any acquired business may create
unforeseen operating difficulties and expenditures and is itself risky. The
areas where we may face difficulties include:


·
            diversion
      of management time, as well as a shift of focus from operating the
      businesses to issues related to integration and administration,
      particularly given the varying scope of our recent
      acquisitions;




·
            declining
      employee morale and retention issues resulting from changes in, or
      acceleration of, compensation, or changes in management, reporting
      relationships, future prospects, or the direction of the
      business;




·
            the
      need to integrate each company’s accounting, management, information,
      human resource and other administrative systems to permit effective
      management, and the lack of control if such integration is delayed or not
      implemented;




·
            the
      need to implement controls, procedures and policies appropriate for a
      public company at companies that prior to acquisition had lacked such
      controls, procedures and policies;




·
            in
      the case of foreign acquisitions, the need to integrate operations across
      different cultures and languages and to address the particular economic,
      currency, political, and regulatory risks associated with specific
      countries;




·
            in
      some cases, the need to transition operations, users, and customers onto
      our existing platforms; and




·
            liability
      for activities of the acquired company before the acquisition, including
      violations of laws, rules and regulations, commercial disputes, tax
      liabilities and other known and unknown
  liabilities.




Moreover,
we may not realize the anticipated benefits of any or all of our acquisitions,
or may not realize them in the time frame expected. Future acquisitions or
mergers may require us to issue additional equity securities, spend our cash, or
incur debt, liabilities, and amortization expenses related to intangible assets
or write-offs of goodwill, any of which could reduce our profitability and harm
our business.


In
addition, we may make certain investments, including through joint ventures, in
which we have a minority equity interest and lack management and operational
control. These investments may involve risks. For example, the controlling joint
venture partner in a joint venture investment may have business interests,
strategies or goals that are inconsistent with ours, and business decisions or
other actions or omissions of the controlling joint venture partner or the joint
venture company may result in harm to our reputation or adversely affect the
value of our investment in the joint venture.
  43


Our
business and users may be subject to sales tax and other taxes.




The
application of indirect taxes (such as sales and use tax, value-added tax (VAT),
goods and services tax, business tax, and gross receipt tax) to ecommerce
businesses and to our users is a complex and evolving issue. Many of the
fundamental statutes and regulations that impose these taxes were established
before the growth of the Internet and ecommerce. In many cases, it is not clear
how existing statutes apply to the Internet or ecommerce or communications
conducted over the Internet. In addition, some jurisdictions have implemented or
may implement laws specifically addressing the Internet or some aspect of
electronic commerce or communications on the Internet. For example, the State of
New York has passed legislation that requires any out-of-state seller of
tangible personal property to collect and remit New York use tax if the seller
engages affiliates above certain financial thresholds in New York to perform
certain business promotion activities. Several ecommerce companies are
challenging this new law, which was recently upheld by a lower level New York
court. Some states are considering similar legislation related to affiliate
activities. The proliferation of such state legislation could adversely affect
us at some point in the future and indirectly harm our business.


Several
proposals have been made at the U.S. state and local level that would
impose additional taxes on the sale of goods and services or communications
through the Internet. These proposals, if adopted, could substantially impair
the growth of ecommerce and our brands, and could diminish our opportunity to
derive financial benefit from our activities. The U.S. federal government’s
moratorium on state and local taxation of Internet access or multiple or
discriminatory taxes on ecommerce was extended through November 2014. This
moratorium does not prohibit federal, state, or local authorities from
collecting taxes on our income or from collecting certain taxes that were in
effect prior to the enactment of the moratorium and/or one of its
extensions.


One or
more states or the federal government or foreign countries may seek to impose a
tax collection, reporting or record-keeping obligation on companies that engage
in or facilitate ecommerce. Such an obligation could be imposed by legislation
intended to improve tax compliance (and legislation to such effect has been
discussed in the U.S. Congress, several states, and a number of foreign
jurisdictions.) One or more other jurisdictions may also seek to impose
tax-collection or reporting obligations based on the location of the product or
service being sold or provided in an ecommerce transaction, regardless of where
the respective users are located. Imposition of a discriminatory record keeping
or tax collecting requirement could decrease seller activity on our sites and
would harm our business


We pay
input VAT on applicable taxable purchases within the various countries in which
we operate. In most cases, we are entitled to reclaim this input VAT from the
various countries. However, because of our unique business model, the
application of the laws and rules that allow such reclamation is sometimes
uncertain. A successful assertion by one or more countries that we are not
entitled to reclaim VAT could harm our business.


The
Dubli.com Investors may not agree to participate in the Tender
Offer.




There can
be no assurance that the terms of Tender Offer, when made, will be acceptable to
any or all of the DubLi.com, LLC Investors.   Notwithstanding the
Company’s view that  DubLi.com, LLC’s discontinued, standard, on-line
auction business has virtually no value and the Company’s views regarding the
long term value of its Common Stock, the Company anticipates that certain of the
DubLi.com, LLC Investors will want to receive in the Tender Offer securities
with a perceived market value at least as great as such shareholder’s perception
of the value of its investment in DubLi.com, LLC, which may be substantially
more than or less than its actual cash investment in DubLi.com,
LLC.  There can be no assurance that the Tender Rate offered by the
Company will meet or exceed each or any DubLi.com, LLC Investors’ expectations
at the time of the Tender Offer.   Since substantially all of the
DubLi.com LLC Investors are business associates of the Company’s existing
reverse-auction business, the Company also faces the risk that if the Tender
Offer is not completed on terms perceived as attractive to certain of the
DubLi.com LLC Investors, they might cease to serve as a business associate of
the Company.  The Company also recognizes that certain DubLi.com, LLC
investors might, in an effort to improve their personal negotiating position
with the Company or DubLi.com, LLC,   seek to make threats or
file legal claims against the Company, DubLi.com, LLC or either of their
directors or officers.  The Company intends to contest any such threat
or claim and offer each and every DubLi.com, LLC Investors the exact same Tender
Rate.




44




Risks
Related To Our Common Stock


Broker-dealers
may be discouraged from effecting transactions in our Common Stock because they
are considered a penny stock and are subject to the penny stock
rules.


Our
Common Stock currently constitutes “penny stock”. Subject to certain exceptions,
for the purposes relevant to us, “penny stock” includes any equity security that
has a market price of less than $5.00 per share or with an exercise price of
less than $5.00 per share. Rules 15g-1 through 15g-9 promulgated under the
Securities Exchange Act of 1934, as amended, impose sales practice and
disclosure requirements on certain brokers-dealers who engage in certain
transactions involving a “penny stock.” In particular, a broker-dealer selling
penny stock to anyone other than an established customer or “accredited
investor” (generally, an individual with net worth in excess of $1,000,000 or an
annual income exceeding $200,000, or $300,000 together with his or her spouse),
must make a special suitability determination for the purchaser and must receive
the purchaser’s written consent to the transaction prior to sale, unless the
broker-dealer or the transaction is otherwise exempt. In addition, the penny
stock regulations require the broker-dealer to deliver, prior to any transaction
involving a penny stock, a disclosure schedule prepared by the SEC relating to
the penny stock market, unless the broker-dealer or the transaction is otherwise
exempt. A broker-dealer is also required to disclose commissions payable to the
broker-dealer and the registered representative and current quotations for the
securities. Finally, a broker-dealer is required to send monthly statements
disclosing recent price information with respect to the penny stock held in a
customer’s account and information with respect to the limited market in penny
stocks.


The
additional sales practice and disclosure requirements imposed upon
broker-dealers may discourage broker-dealers from effecting transactions in our
shares, which could severely limit the market liquidity of the shares and impede
the sale of our shares in the secondary market.


As
an issuer of “Penny Stock” the protection provided by the federal securities
laws relating to forward looking statements does not apply to us.




Although
the federal securities laws provide a safe harbor for forward-looking statements
made by a public company that files reports under the federal securities laws,
this safe harbor is not available to issuers of penny stocks. As a result, if we
are a penny stock, we will not have the benefit of this particular safe harbor
protection in the event of any claim that the material provided by us contained
a material misstatement of fact or was misleading in any material respect
because of our failure to include any statements necessary to make the
statements not misleading.


We
have a limited market for our securities.


Although
certain market makers facilitate trades of our  Common Stock on the
Over The Counter Bulletin Board (“OTCBB”), there is currently a limited market
for shares of our Common Stock and we cannot be certain that an active market
will develop. The lack of an active public market could have a material adverse
effect on the price and liquidity of our Common Stock.  Broker-dealers
often decline to trade in OTCBB stocks given that the market for such securities
is often limited, the stocks are more volatile, and the risk to investors is
greater. Consequently, selling our Common Stock may be difficult because smaller
quantities of shares can be bought and sold, transactions can be delayed and
securities analyst and news media coverage of our Company may be reduced. These
factors could result in lower prices and larger spreads in the bid and ask
prices for shares of our Common Stock as well as lower trading volume. Investors
should realize that they may be unable to sell shares of our Common Stock that
they purchase. Accordingly, investors must be able to bear the financial risk of
losing their entire investment in our Common Stock.
  45




The
market price of our Common Stock is volatile.




The
market price of our Common Stock is volatile, and this volatility may continue.
For instance, between March 31, 2009 and March 31, 2010, the closing bid price
of our Common Stock, as reported on the markets on which our securities have
traded, ranged between $0.03 and $0.90. Numerous factors, many of which are
beyond our control, may cause the market price of our Common Stock to fluctuate
significantly. These factors include:


·
            our
      earnings releases, actual or anticipated changes in our earnings,
      fluctuations in our operating results or our failure to meet the
      expectations of financial market analysts and
  investors;




·
            changes
      in financial estimates by us or by any securities analysts who might cover
      our stock;




·
            speculation
      about our business in the press or the investment
    community;




·
            significant
      developments relating to our relationships with our business associates,
      customers or suppliers;




·
            stock
      market price and volume fluctuations of other publicly traded companies
      and, in particular, those that are in the web-based
    industry;




·
            customer
      demand for our products;




·
            general
      economic conditions and trends;




·
            major
      catastrophic events;




·
            changes
      in accounting standards, policies, guidance, interpretation or
      principles;




·
            loss
      of external funding sources;




·
            sales
      of our Common Stock, including sales by our directors, officers or
      significant stockholders;




·
            additions
      or departures of key personnel.




Moreover,
securities markets may from time to time experience significant price and volume
fluctuations for reasons unrelated to operating performance of particular
companies. These market fluctuations may adversely affect the price of our
Common Stock and other interests in our company at a time when you want to sell
your interest in us.




We
do not intend to pay cash dividends on our Common Stock in the foreseeable
future.


Our
policy is to retain earnings to provide funds for the operation and expansion of
our business and, accordingly, we have never declared or paid any cash dividends
on our Common Stock or other securities and do not currently anticipate paying
any cash dividends in the foreseeable future. Consequently, shareholders will
need to sell shares of our Common Stock to realize a return on their
investments, if any and this capital appreciation, if any, will be a
shareholder’s sole source of gain from an investment in the Common Stock. The
declaration and payment of dividends by us are subject to the discretion of our
Board of Directors and the restrictions specified in our articles of
incorporation and by applicable law. Any future determination to pay cash
dividends will depend on our results of operations, financial condition, capital
requirements, contractual restrictions and other factors deemed relevant by our
Board of Directors.
  46


The
rights of the holders of Common Stock may be impaired by the potential issuance
of preferred stock.




Our board
of directors has the right, without stockholder approval, to issue preferred
stock with voting, dividend, conversion, liquidation or other rights which could
adversely affect the voting power and equity interest of the holders of Common
Stock., which could be issued with the right to more than one vote per share,
could be utilized as a method of discouraging, delaying or preventing a change
of control. The possible impact on takeover attempts could adversely affect the
price of our Common Stock. Although we have no present intention to issue any
additional shares of preferred stock or to create any new series of preferred
stock, we may issue such shares in the future.


ITEM 2 – UNREGISTERED SALES
OF EQUITY SECURITIES AND USE OF PROCEEDS




During
the quarter ended March 31, 2010, we issued an aggregate of 336, 250 shares of
our common stock to four persons upon the exercise of warrants for aggregate
cash consideration of $133,125.  We also issued 481,778 shares of
common stock to one person upon the net exercise of 542,000 warrants with an
exercise price of $0.01 per share.  The issuance of shares of our
common stock upon exercise of these warrants were not registered under the
Securities Act of 1933, as amended, in reliance on Section 4(2)
thereof.




ITEM 5. OTHER INFORMATION





Effective
May 1, 2010, we engaged Brack Jaskey as our new Chief Technical
Officer.  We are also seeking to engage a new Chief Financial Officer
and have been in discussions with one highly qualified candidate, Mr. Mark
Mroczkowski, who is currently assisting MediaNet in a consultant
capacity.




47





ITEM 6.
EXHIBITS






No.
            Description3.1
            Amendment
      to Certificate of Designation*10.1
            Agreement
      between the Company and Zen Holding Group Limited dated May 24,
      2010*





31.1
            Certification
      of Chief Executive Officer*





31.2
            Certification
      of Chief Financial Officer*





32.1
            Statement
      required by 18 U.S.C. Section 1350, as adopted pursuant to section 906 of
      the Sarbanes-Oxley Act of 2002.**





32.2
            Statement
      required by 18 U.S.C. Section 1350, as adopted pursuant to section 906 of
      the Sarbanes-Oxley Act of 2002**





*           Filed
Herewith


**           Furnished
Herewith




48




SIGNATURES




Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, there
unto duly authorized.




MEDIANET
      GROUP TECHNOLOGIES, INC.Date:
      May 24, 2010
              By:
              /s/ Michael B. HansenMichael
      B. HansenPresident




49




INDEX
TO EXHIBITS




No.
            Description3.1
            Amendment
      to Certificate of Designation*10.1
            Agreement
      between the Company and Zen Holding Group Limited dated May 24,
      2010*





31.1
            Certification
      of Chief Executive Officer*





31.2
            Certification
      of Chief Financial Officer*





32.1
            Statement
      required by 18 U.S.C. Section 1350, as adopted pursuant to section 906 of
      the Sarbanes-Oxley Act of 2002.**





32.2
            Statement
      required by 18 U.S.C. Section 1350, as adopted pursuant to section 906 of
      the Sarbanes-Oxley Act of 2002**





*           Filed
Herewith


**           Furnished
Herewith




50