UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q


(Mark
one)


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





For
the quarterly period ended November 30, 2009





 ̈
            TRANSITION REPORT PURSUANT TO
      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934





Commission
file number 0-17284


MERCARI
COMMUNICATIONS GROUP, LTD.


(Exact
name of registrant as specified in its charter)





Colorado
            
            84-1085935(State
      or other jurisdiction
            
            (IRS
      Employer Identification No.)of
      incorporation or organization)








135 Fifth Ave.,
10thFloor, New York, NY
10010


(Address
of principal executive offices)





(212)
739-7689


(Issuer’s
telephone number)





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.


Yes
x  No
 ̈





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files).


Yes
 ̈  No
 ̈





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.


Large
      accelerated filer
             ̈
            
            Accelerated
      filer
             ̈Non-accelerated
      filer
             ̈
            
            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
x  No
 ̈





Indicate the number of shares
outstanding of each of the issuer’s classes of common stock, as of the latest
practical date:  As of December 30, 2009, there were 45,411,400 shares
of issuer’s common stock outstanding.










MERCARI
COMMUNICATIONS GROUP, LTD.


FORM
10-Q


November
30, 2009





INDEX








Part I – Financial Information
            PageItem 1.
            Financial Statements
            4Balance Sheets
            4Statements of Operations
            5Statements of Cash Flows
            6Notes to Consolidated Financial
    Statements
            7
      – 13Item 2.
            Management’s Discussion and Analysis of Financial Condition and
      Results of Operations
            14Item 3.
            Quantitative And Qualitative Disclosures About Market
      Risk
            16Item 4(T).
            Controls And Procedures
            16Part II – Other InformationItem 1.
            Legal Proceedings
            17Item 1A.
            Risk Factors
            17Item 2.
            Unregistered Sales of Equity Securities and Use of
      Proceeds
            17Item 3.
            Defaults Upon Senior Securities
            17Item 4.
            Submission of Matters to a Vote of Security
      Holders
            17Item 5.
            Other Information
            17Item 6.
            Exhibits
            17Signatures
            18





- 2
-


INTRODUCTORY
NOTE





This Quarterly Report on Form 10-Q
contains “forward-looking statements” within the meaning of the Private
Securities Litigation Reform Act of 1995 about Mercari Communications Group,
Ltd. (the “Company,” “Mercari,” “we,” “us,” and “our”) that are subject to risks
and uncertainties.  Forward-looking statements include information
concerning future financial performance, business strategy, projected plans and
objectives.  Statements preceded by, followed by or that otherwise include
the words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,”
“may increase,” “may fluctuate” and similar expressions of future or conditional
verbs such as “will,” “should,” “would,” and “could” are generally
forward-looking in nature and not historical facts.  Actual results may
differ materially from those projected, implied, anticipated or expected in the
forward-looking statements.  Readers of this quarterly report should
not rely solely on the forward-looking statements and should consider all
uncertainties and risks throughout this report. The statements are
representative only as of the date they are made.  The Company
undertakes no obligation to update any forward-looking statement.





These forward-looking statements,
implicitly and explicitly, include the assumptions underlying the statements and
other information with respect to the Company's beliefs, plans, objectives,
goals, expectations, anticipations, estimates, financial condition, results of
operations, future performance and business, including management's expectations
and estimates with respect to revenues, expenses, return on equity, return on
assets, asset quality and other financial data.





Although the Company believes that the
expectations reflected in the forward-looking statements are reasonable, these
statements involve risks and uncertainties that are subject to change based on
various important factors, some of which are beyond the control of the Company.
The following factors, among others, could cause the Company's results or
financial performance to differ materially from its goals, plans, objectives,
intentions, expectations and other forward-looking statements:





·
            general
      economic and industry conditions;





·
            limited
      resources and need for additional
financing;





·
            competition
      for suitable private companies with which to
  merge;





·
            no
      definitive agreements or business opportunities
  identified;





·
            substantial
      dilution to current shareholders if a merger occurs;
  and





·
            our
      stock is thinly traded with limited
liquidity.





For a discussion of these and other
risks and uncertainties that could cause actual results to differ from those
contained in the forward-looking statements, see “Risk Factors” in Item 1A of
the Company’s 2009 Annual Report filed on Form 10-K with the SEC, which is
available on the SEC’s website at www.sec.gov.  All forward-looking
statements are qualified in their entirety by this cautionary statement, and the
Company undertakes no obligation to revise or update this Quarterly Report on
Form 10-Q to reflect events or circumstances after the date
hereof.  New factors emerge from time to time, and it is not possible
for us to predict which factors, if any, will arise.  In addition, the
Company cannot assess the impact of each factor on the Company’s business or the
extent to which any factor, or combination of factors, may cause actual results
to differ materially from those contained in any forward-looking
statements.


- 3
-


PART I - FINANCIAL INFORMATION





Item 1.  Financial Statements





MERCARI COMMUNICATIONS GROUP, LTD.


(A
Development Stage Company)


BALANCE
SHEETS





(Unaudited)
                November 30,
                2009
              
              
              May 31,
                2009Current
      AssetsCash
              
              $
              44,975
              
              
              $
              -Cash
      in Escrow
              
              
              -
              
              
              
              6,250Total
      Current Assets
              
              
              44,975
              
              
              
              6,250Total
      Assets
              
              $
              44,975
              
              
              $
              6,250Current
      Liabilities:Accounts
      Payable & Accrued Liabilities
              
              
              1,836
              
              
              
              566Shareholder
      Loans
              
              
              -
              
              
              
              27,849Total
      Liabilities
              
              $
              1,836
              
              
              $
              28,415Stockholders'
      Equity:Common
      Stock, Par value $.00001
                Authorized
      950,000,000 shares, Issued 45,411,400 shares at November 30, 2009 and
      1,589,399 at May 31, 2009
              
              
              454
              
              
              
              16Paid-In
      Capital
              
              
              158,722
              
              
              
              82,868Deficit
      accumulated during the development stage since March 1, 2004 in
      connection with quasi reorganization
              
              
              (116,037
              )
              
              
              (105,049
              )Total
      Stockholders' Equity
              
              
              43,139
              
              
              
              (22,165
              )Total
      Liabilities and Stockholders' Equity
              
              $
              44,975
              
              
              $
              6,250








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


- 4
-





MERCARICOMMUNICATIONS GROUP, LTD.


(A
Development Stage Company)


STATEMENTS
OF OPERATIONS





CumulativesinceMarch
      1,(Unaudited)
              
              
              (Unaudited)
              
              
              2004For
      the three months ended
              
              
              For
      the six months ended
              
              
              Inception
      ofNovember
      30,
              
              
              November
      30
              
              
              development2009
              
              
              2008
              
              
              2009
              
              
              2008
              
              
              stageRevenues:
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -Expenses:General
      and administrative
              
              
              8,813
              
              
              
              4,806
              
              
              
              10,367
              
              
              
              16,051
              
              
              
              114,567Other
      Income (Expense):Interest
      expense
              
              
              (270
              )
              
              
              (156
              )
              
              
              (621
              )
              
              
              (295
              )
              
              
              (1,470
              )Net
      Income (Loss)
              
              $
              (9,083
              )
              
              $
              (4,962
              )
              
              $
              (10,988
              )
              
              $
              (16,346
              )
              
              $
              (116,037
              )Basic
      & Diluted Loss Per Share
              
              
              (0.001
              )
              
              
              (0.003
              )
              
              
              (0.002
              )
              
              
              (0.010
              )Weighted
      Average Shares
              
              
              11,592,247
              
              
              
              1,589,399
              
              
              
              6,618,153
              
              
              
              1,589,399











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


- 5
-


MERCARI COMMUNICATIONS GROUP, LTD.


(A
Development Stage Company)


STATEMENTS
OF CASH FLOWS








(Unaudited)
                For
      the six months ended
                November
      30,
              
              
              Cumulative
      Since March 31, 2004 Inception of Development2009
              
              
              2008
              
              
              StageCASH FLOWS FROM
      OPERATING ACTIVITIES:Net
      Loss
              
              $
              (10,988
              )
              
              $
              (16,346
              )
              
              $
              (116,037
              )Increase
      (Decrease) in Accounts Payable
              
              
              1,270
              
              
              
              (382
              )
              
              
              (17,130
              )Increase
      (Decrease) in Accrued Interest
              
              
              621
              
              
              
              295
              
              
              
              1,470Net
      Cash Used in operating activities
              
              
              (9,097
              )
              
              
              (16,433
              )
              
              
              (131,697
              )CASH FLOWS FROM
      INVESTING ACTIVITIES:Net
      cash provided by investing activities
              
              
              -
              
              
              
              -
              
              
              
              -CASH FLOWS FROM
      FINANCING ACTIVITIES:Payments
      on shareholder loans
              
              
              -
              
              
              
              -
              
              
              
              (610
              )Proceeds
      from shareholder loans
              
              
              4,000
              
              
              
              10,000
              
              
              
              33,350Proceeds
      from notes payable
              
              
              -
              
              
              
              -
              
              
              
              20,000Proceeds
      from sale of stock
              
              
              43,822
              
              
              
              -
              
              
              
              68,822Cash
      contributed by shareholders
              
              
              -
              
              
              
              -
              
              
              
              55,000Net
      Cash Provided by financing activities
              
              
              47,822
              
              
              
              10,000
              
              
              
              176,562Net
      (Decrease) Increase in Cash and Cash Equivalents
              
              
              38,725
              
              
              
              (6,433
              )
              
              
              44,865Cash
      and Cash Equivalents at Beginning of Period
              
              
              6,250
              
              
              
              10,513
              
              
              
              110Cash
      and Cash Equivalents at End of Period
              
              $
              44,975
              
              
              $
              4,080
              
              
              $
              44,975SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATION:Cash
      paid during the year for:Interest
              
              $
              -
              
              
              $
              -
              
              
              $
              -Franchise
      and income taxes
              
              $
              -
              
              
              $
              -
              
              
              $
              -SUPPLEMENTAL
      DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:On
      November 9, 2009, two former directors of the Company forgave a total of
      $32,470 of loans

                  previously
      made to the Company. This amount included principal of $31,000 and
      accrued interest

                    of
      $1,470. The forgiveness of these loans was classified as paid-in
      capital in the financial statements.








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


- 6
-


MERCARI COMMUNICATIONS GROUP, LTD.


(A
Development Stage Company)


NOTES
TO FINANCIAL STATEMENTS





NOTE 1 - ORGANIZATION AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





This summary of accounting policies for
Mercari Communications Group, Ltd. (a development stage company) is presented to
assist in understanding the Company's financial statements. The accounting
policies conform to generally accepted accounting principles and have been
consistently applied in the preparation of the financial
statements.





Interim
Reporting





The unaudited financial statements as
of November 30, 2009 and for the three and six months then ended reflect, in the
opinion of management, all adjustments (which include only normal recurring
adjustments) necessary to fairly state the financial position and results of
operations for the three and six months. Operating results for interim periods
are not necessarily indicative of the results which can be expected for full
years.





Nature of Operations and
Going Concern





The accompanying financial statements
have been prepared on the basis of accounting principles applicable to a “going
concern”, which assume that Mercari Communications Group, Ltd. will continue in
operation for at least one year and will be able to realize its assets and
discharge its liabilities in the normal course of operations.





Several conditions and events cast
doubt about the Company’s ability to continue as a “going concern.” The Company
has incurred net losses of approximately $116,037 for the period from March 1,
2004 (inception of development stage) to November 30, 2009, has no revenues and
requires additional financing in order to finance its business activities on an
ongoing basis. The Company’s future capital requirements will depend on numerous
factors including, but not limited to, continued progress in finding a merger
candidate and the pursuit of business opportunities. The Company is actively
pursuing alternative financing and has had discussions with various third
parties, although no firm commitments have been obtained. In the interim,
shareholders of the Company have been contributing capital to the Company to
meet its ordinary and normal operating expenses. Management believes that
actions presently being taken to revise the Company’s operating and financial
requirements provide them with the opportunity to continue as a “going
concern”.





These financial statements do not
reflect adjustments that would be necessary if the Company were unable to
continue as a “going concern”. While management believes that the actions
already taken or planned, will mitigate the adverse conditions and events which
raise doubt about the validity of the “going concern” assumption used in
preparing these financial statements, there can be no assurance that these
actions will be successful. If the Company were unable to continue as a “going
concern,” then substantial adjustments would be necessary to the carrying values
of assets, the reported amounts of its liabilities, the reported revenues and
expenses, and the balance sheet classifications used.





- 7
-


MERCARI
COMMUNICATIONS GROUP, LTD.


(A
Development Stage Company)


NOTES
TO FINANCIAL STATEMENTS


(continued)





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





Organization and Basis of
Presentation





The Company was incorporated under the
laws of the State of Colorado on December 30, 1987. From 1988 until early
in 1990, the Company was engaged in the business of providing educational
products, counseling, seminar programs, and publications such as newsletters to
adults aged 30 to 50. The Company financed its business with private offerings
of securities, obtaining shareholder loans, and with an underwritten initial
public offering of securities registered with the Securities and Exchange
Commission (“SEC”). The Company’s business failed in early 1990. The Company
ceased all operating activities during the period from June 1, 1990 to
November 30, 2001 and was considered dormant. During this period that the
Company was dormant, it did not file required reports with the SEC under the
Securities Exchange Act of 1934, as amended (“Exchange Act”). From
November 30, 2001 to March 1, 2004, the Company was in the development
stage. On August 3, 2004, the stockholders of the Company approved a plan of
quasi reorganization which called for a restatement of accounts to eliminate the
accumulated deficit and related capital accounts on the Company’s balance sheet.
The quasi reorganization was effective March 1, 2004. Since March 1,
2004, the Company is in the development stage, and has not commenced planned
principal operations.





Nature of
Business





The Company has no products or services
as of November 30, 2009. The Company is seeking merger or acquisition
candidates. The Company intends to acquire interests in various business
opportunities, which in the opinion of management will provide a profit to the
Company.





Cash and Cash
Equivalents





For purposes of the statement of cash
flows, the Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents to the extent the funds
are not being held for investment purposes.





Pervasiveness of
Estimates





The preparation of financial statements
in conformity with generally accepted accounting principles required management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.


- 8
-


MERCARI
COMMUNICATIONS GROUP, LTD.


(A
Development Stage Company)


NOTES
TO FINANCIAL STATEMENTS


(continued)





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





Income
Taxes





The Company accounts for income taxes
under the provisions of SFAS No.109, “Accounting for Income Taxes.” SFAS No.109
requires recognition of deferred income tax assets and liabilities for the
expected future income tax consequences, based on enacted tax laws, of temporary
differences between the financial reporting and tax bases of assets and
liabilities.





Loss per
Share





Basic loss per share has been computed
by dividing the loss for the year applicable to the common shareholders by the
weighted average number of common shares during the years. There are no
outstanding common stock equivalents for November 30, 2009 and 2008 and are thus
not considered.





Concentration of Credit
Risk





The Company has no significant
off-balance-sheet concentrations of credit risk such as foreign exchange
contracts, options contracts or other foreign hedging arrangements.





Fair Value of Financial
Instruments





The carrying value of the Company's
financial instruments, including cash, accounts payable and accrued liabilities
at November 30, 2009 and May 31, 2009  approximates their fair values
due to the short-term nature of these financial instruments.





NOTE 2 - INCOME
TAXES





As of May 31, 2009, the Company had a
net operating loss carry forward for income tax reporting purposes of
approximately $105,000 that may be offset against future taxable income through
2028.  Current tax laws limit the amount of loss available to be
offset against future taxable income when a substantial change in ownership
occurs.  Therefore, the amount available to offset future taxable
income may be limited.  No tax benefit has been reported in the
financial statements, because the Company believes there is a 50% or greater
chance the carry-forwards will expire unused.  Accordingly, the
potential tax benefits of the loss carry-forwards are offset by a valuation
allowance of the same amount.





2009
              
              
              2008Net
      Operating Losses
              
              $
              15,750
              
              
              $
              12,651Valuation
      Allowance
              
              
              (15,750
              )
              
              
              (12,651
              )$
              -
              
              
              $
              -




- 9
-





MERCARI
COMMUNICATIONS GROUP, LTD.


(A
Development Stage Company)


NOTES
TO FINANCIAL STATEMENTS


(continued)





NOTE 2 - INCOME TAXES
(Continued)





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





2009
              
              
              2008Provision
      (Benefit) at US Statutory Rate
              
              $
              3,099
              
              
              $
              3,187Increase
      (Decrease) in Valuation Allowance
              
              
              (3,099
              )
              
              
              (3,187
              )$
              -
              
              
              $
              -





The Company evaluates its valuation
allowance requirements based on projected future operations.  When
circumstances change and causes a change in management's judgment about the
recoverability of deferred tax assets, the impact of the change on the valuation
is reflected in current income.





NOTE 3 - DEVELOPMENT STAGE
COMPANY





The Company has not begun principal
operations and as is common with a development stage company, the Company has
had recurring losses during its development stage. The Company's financial
statements are prepared using generally accepted accounting principles
applicable to a going concern which contemplates the realization of assets and
liquidation of liabilities in the normal course of business. However, the
Company does not have significant cash or other material assets, nor does it
have an established source of revenues sufficient to cover its operating costs
and to allow it to continue as a going concern. In the interim, shareholders of
the Company have been contributing capital to the Company to meet its ordinary
and normal operating expenses.





NOTE 4 -
COMMITMENTS





As of November 9, 2009 all activities
of the Company are conducted on a rent free basis at the corporate offices of
Diversified Private Equity Corporation (“DPEC”), the major shareholder of the
Company.  Currently, there are no outstanding debts owed by the
Company for the use of these facilities.





NOTE 5 - COMMON STOCK
TRANSACTIONS





On August 3, 2004, the Company
authorized a 900 to 1 reverse stock split of the Company’s common stock. On
May 29, 2008, the Company authorized a 3.5 to 1 reverse stock split of the
Company’s common stock. All references to the Company’s common stock in the
financial statements have been restated to reflect the reverse stock
splits.





- 10
-


MERCARI
COMMUNICATIONS GROUP, LTD.


(A
Development Stage Company)


NOTES
TO FINANCIAL STATEMENTS


(continued)





NOTE 5 - COMMON STOCK
TRANSACTIONS (continued)





On December 17, 2001, the Board of
Directors approved the cancellation of 64,524 shares of common stock. During the
year ended May 31, 2003, these shares were cancelled.





On December 17, 2001, the Board of
Directors authorized the sale of 240,945 restricted common shares at par value
to three directors of the Company. The directors paid $7,590 in cash
consideration for those shares. During the year ended May 31, 2003, these
shares were issued.





On January 19, 2007, the Company issued
two promissory notes for $10,000 each to two nonaffiliated lenders. The notes
were payable by the Company only at the time, and in the event, the Company
became current in reporting obligations under the Securities Exchange Act of
1934, as amended. At the time when the notes became payable, the Company agreed
to issue and deliver to each of the two lenders 285,714 shares of the Company’s
unregistered common stock. On March 9, 2007, the Company issued 571,428
shares of stock as payment for the notes payable.





On June 18, 2007, the Company sold
142,857 shares of its common stock to Kanouff, LLC (“KLLC”), a Colorado limited
liability company, for $5,000 in cash, and sold 142,857 shares of its common
stock to Underwood Family Partners, Ltd. (“Partnership”), a Colorado limited
partnership, for $5,000 in cash. John P. Kanouff, a former officer and director
of the Company, is the sole owner and member of KLLC; and L. Michael Underwood,
a former officer and director of the Company, is the general partner of the
Partnership. The Company sold such shares to KLLC and the Partnership in order
to obtain working capital. The Registrant relied upon Section 4(2) of the
Securities Act of 1933 as providing the exemption from registration under such
Act for such transactions.





On November 27, 2007, the Company
sold 214,286 shares of its common stock to Kanouff, LLC for $7,500 in cash and
sold 214,286 shares of its common stock to Underwood Family Partners, Ltd. for
$7,500 in cash. The Company sold such shares to KLLC and the Partnership in
order to obtain working capital. The Registrant relied upon Section 4(2) of the
Securities Act of 1933 as providing the exemption from registration under such
Act for such transactions.





In connection with the 3.5 to 1 reverse
stock split approved on May 29, 2008, an additional 5,729 shares of common
stock were issued due to rounding provisions included in the terms of the
reverse stock split. On June 4, 2008, the Company cancelled 5,729 of its
outstanding shares of common stock. These shares were surrendered for
cancellation by the then majority shareholders of the Company in order to offset
shares issued by the Company in rounding up transactions in connection with the
3.5 to 1 reverse stock split approved on May 29, 2008.





On November 9, 2009, pursuant to the
Stock Purchase Agreement described under Note 9, Mercari offered and sold
43,822,001 shares of its common stock to DPEC. The offer and sale by the Company
of the common stock to DPEC was exempt from registration under the Securities
Act of 1933, as amended (the "Securities Act"), pursuant to Section 4(2)
thereof. The Company made this determination based on the representations of
DPEC which included, in pertinent part, that DPEC was an "accredited investor"
within the meaning of Rule 501 of Regulation D promulgated under the Securities
Act, that DPEC was acquiring the common stock for investment purposes for its
own account and not as nominee or agent, and not with a view to the resale or
distribution thereof, and that DPEC understood that the common stock may not be
sold or otherwise disposed of without registration under the Securities Act or
an applicable exemption therefrom.


- 11
-


MERCARI
COMMUNICATIONS GROUP, LTD.


(A
Development Stage Company)


NOTES
TO FINANCIAL STATEMENTS


(continued)





NOTE 6 - RELATED PARTY
TRANSACTIONS





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





On May 19, 2008, the Company received a
loan for $5,500 from Kanouff, LLC and a loan for $5,500 from Underwood Family
Partners, Ltd. On November 18, 2008, the Company received a loan for $5,000
from KLLC and a loan for $5,000 from the Partnership. On May 29, 2009, the
Company received a loan for $3,000 from KLLC and a loan for $3,000 from the
Partnership. On October 13, 2009, the Company received a loan for $2,000 from
KLLC and a loan for $2,000 from the Partnership. These loans were due on demand
and carried an interest rate of 5% per annum. On November 9, 2009, in
connection with the Stock Purchase Agreement described in Note 9, the Company,
KLLC and the Partnership entered into Debt Forgiveness Agreements, whereby all
loans mentioned above, including accrued interest, was forgiven and reclassified
as paid-in capital. KLLC and the Partnership did not receive any shares of stock
or other interest in the Company in connection with the foregoing contribution.
As of November 30, 2009, no loans are outstanding.





On November 9, 2009, we entered
into and closed a Stock Purchase Agreement with DPEC, Kanouff, LLC and Underwood
Family Partners, Ltd., the two entities which, immediately prior to closing,
where the majority shareholders of the Company and which are controlled by the
then officers and directors of the Company.  Please refer to Note 9
for additional details regarding the Stock Purchase Agreement and related
transactions.





NOTE 7 - QUASI
REORGANIZATION





On August 3, 2004, the Company approved
and authorized a plan of quasi reorganization and restatement of accounts to
eliminate the accumulated deficit and related capital accounts on the Company’s
balance sheet. The quasi-reorganization became effective March 1, 2004. The
quasi reorganization resulted in the elimination of $919,100 of retained deficit
at the effective date of the reorganization, the elimination of $34,123 of
deficit accumulated since the November 30, 2001 inception of development stage,
and a decrease in additional paid-in capital of $953,223.





NOTE 8 - UNCERTAIN TAX
POSITIONS





Effective June 1, 2007, the company
adopted the provisions of FASB Interpretation No. 48, “Accounting for
Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109” (“FIN
48”). FIN 48 prescribes a recognition threshold and a measurement attribute for
the financial statement recognition and measurement of tax positions taken or
expected to be taken in a tax return. For those benefits to be recognized, a tax
position must be more-likely-than-not to be sustained upon examination by taxing
authorities. The adoption of the provisions of FIN 48 did not have a material
impact on the Company’s condensed consolidated financial position and results of
operations. At June 1, 2007, the Company had no liability for unrecognized tax
benefits and no accrual for the payment of related interest.





Interest costs related to unrecognized
tax benefits are classified as “Interest expense, net” in the accompanying
consolidated statements of operations. Penalties, if any, would be recognized as
a component of “Selling, general and administrative expenses”. The Company
recognized $0 of interest expense related to unrecognized tax benefits for the
year ended May 31, 2009. In many cases the Company’s uncertain tax
positions are related to tax years that remain subject to examination by
relevant tax authorities. With few exceptions, the Company is generally no
longer subject to U.S. federal, state, local or non-U.S. income tax examinations
by tax authorities for years before 2005. The following describes the open tax
years, by major tax jurisdiction, as of May 31, 2009:





United
      States (a)
            2005
      – Present(a)  Includes federal
      as well as state or similar local jurisdictions, as
      applicable.





- 12
-


MERCARI
COMMUNICATIONS GROUP, LTD.


(A
Development Stage Company)


NOTES
TO FINANCIAL STATEMENTS


(continued)





NOTE 9 – STOCK PURCHASE
AGREEMENT





On November 9, 2009, we entered
into and closed a Stock Purchase Agreement with Diversified Private Equity
Corporation, a privately-held Delaware corporation, and Kanouff, LLC and
Underwood Family Partners, Ltd., the two entities which, immediately prior to
closing, were the majority shareholders of the Company and which are controlled
by the officers and directors of the Company, which resulted in a change in
control of the Company (the “Stock Purchase”).  In connection with the
Stock Purchase, DPEC purchased, and the Company sold, an aggregate of 43,822,001
shares of common stock for a purchase price of $43,822, or $0.001 per
share.  In addition, DPEC purchased 200 shares of common stock from
KLLC and 200 shares of common stock from Partnership for a purchase price of
$180,000 payable to each selling shareholder, of which $105,000 was paid at
closing and $75,000 was previously paid in connection with a letter of intent
and related amendments.  Immediately following the closing of the
Stock Purchase Agreement, there were 45,411,400 shares of common stock issued
and outstanding.  Immediately following the closing of the Stock
Purchase Agreement, DPEC owned an aggregate of 43,822,401 shares of the
Company’s common stock out of the total of 45,411,400 shares of common stock
issued and outstanding at the closing, or approximately 96.5% of the Company’s
issued and outstanding shares.





The Stock Purchase Agreement contains
post-closing covenants whereby Mercari and DPEC agree to utilize their
commercially reasonable efforts to cause Mercari to (i) remain a Section 12(g)
reporting company in compliance with and current in its reporting requirements
under the Exchange Act; and (ii) cause all of the assets and business or equity
interest of DPEC, its subsidiaries and affiliated companies to be transferred to
Mercari and, in connection with such transactions, cause Mercari’s stock to be
distributed by DPEC to DPEC’s stockholders and the holders of equity interests
in the affiliated companies (“Reorganization Transaction”).  In
connection with and contemporaneously with the Reorganization Transaction, it is
anticipated that Mercari and/or DPEC will seek to obtain at least
$10 million in gross proceeds from a financing (the
“Financing”).  If the gross proceeds from the Financing exceed
$15 million at the time of the last closing of such financing, Mercari will
issue additional shares of common stock to DPEC at a purchase price of $.001 per
share as follows:  (i) 18,164,560 additional shares if the amount
of the Financing is at least $15 million and less than $20 million; or
(ii) 34,058,550 additional shares if the amount of the Financing is
$20 million or more.  After consummation of the Financing,
Mercari will seek to register for resale all of the shares issued in the
Financing and shares of common stock issued by Mercari from and after December
1, 2001 and prior to the date of the Stock Purchase
Agreement.  Mercari will use its commercially reasonable efforts to
file the registration statement within 60 days after consummation of the
Reorganization Transaction (“Filing Date”) and to have the registration
statement become effective within 180 days after the Filing Date.  If
the SEC requires Mercari to reduce the number of shares included under such
registration statement, any such reduction will first be made from the shares
issued in the Financing.  The post-closing obligations of DPEC and
Mercari discussed herein are contingent upon DPEC’s good faith determination
that, after taking commercially reasonable efforts, the transactions are
feasible.  Such determination shall take into account all relevant
material factors, including without limitation, then-current economic, financial
and market conditions.





Upon closing of the Stock Purchase,
Mercari experienced a change in control and a change in all the members of the
Board of Directors and executive officers.





Pursuant to the Stock Purchase
Agreement, we made the following changes to our Board of Directors and executive
officers:





·
            Immediately
      prior to the consummation of the Stock Purchase, we increased the size of
      our Board of Directors from two to five, and L. Michael Underwood and John
      P. Kanouff, our current directors, appointed Scott L. Mathis, Julian Beale
      and Peter Lawrence, as directors of the Company, effective at the
      closing.  After such new directors were appointed, Messrs.
      Underwood and Kanouff resigned as members of our Board of
      Directors.


·
            Mr.
      Underwood resigned as President and Mr. Kanouff resigned as Secretary and
      Treasurer, and our Board of Directors appointed Scott L. Mathis as Chief
      Executive Officer and President, Ronald S. Robbins as Executive Vice
      President and Chief Operating Officer, and Tim Holderbaum as Executive
      Vice President, Chief Financial Officer, Treasurer and
      Secretary.


- 13
-


Item
2.  Management's Discussion and Analysis of Financial Condition and
Results of Operations.





General





This discussion should be read in
conjunction with Management's Discussion and Analysis of Financial Condition and
Results of Operations in the Company's annual report on Form 10-K for the year
ended May 31, 2009. Also, persons reading this Report should read and consider
the Risk Factors included in Item 1A of the Company’s annual report on Form 10-K
for the year ended May 31, 2009.





Results
of Operations





The Company is a development stage
business, which intends to acquire a United States or foreign based business
which is privately owned and wishes to become a publicly owned business. The
Company was inactive and did not file reports required under the Exchange Act
from 1990 through 2000, and has not conduced any material business operations
since 1990. The Company was reactivated in 2001 and is now current in its state
and United States internal revenue filing obligations and the Company has filed
all reports required to be filed by it with the SEC under the Securities
Exchange Act, during the past seven years. The Company is now actively seeking
one or more acquisition candidates.





During each of the years since the
Company was reactivated, the Company has had no revenue and has had losses
approximately equal to the expenditures made to reactivate and meet filing and
reporting obligations. We do not expect any revenue unless and until a business
acquisition transaction is completed. Our expenses have been paid from capital
contributions and advances from the directors of the Company.





Liquidity
and Capital Resources





The Company requires working capital
principally to fund its current activities. There are no commitments from banks
or other lending sources for lines of credit or similar short-term borrowing,
but the Company has been able to obtain additional capital required from its
officers, directors and principal shareholders or other related
entities.





In order to complete any acquisition,
the Company may be required to supplement its available cash and other liquid
assets with proceeds from borrowings, the sale of additional securities,
including the private placement of restricted stock and/or a public offering, or
other sources. There can be no assurance that any such required additional
funding will be available or favorable to the Company.





The Company’s business plan requires
substantial funding from a public or private offering of its common stock in
connection with a business acquisition, for which the Company has no
commitments. The Company may actively pursue other financing or funding
opportunities at such time as a business acquisition opportunity becomes
available.





During February of 2008, shares of the
common stock of the Company were cleared for quotation on the OTC Bulletin Board
and the Pink Sheets under the symbol of “MCAR.”





Recent
Developments





On November 9, 2009, we entered
into and closed a Stock Purchase Agreement with Diversified Private Equity
Corporation, a privately-held Delaware corporation, and Kanouff, LLC and
Underwood Family Partners, Ltd., the two entities which, immediately prior to
closing, were the majority shareholders of the Company and which were controlled
by the then officers and directors of the Company, which resulted in a change in
control of the Company (the “Stock Purchase”).  In connection with the
Stock Purchase, DPEC purchased, and the Company sold, an aggregate of 43,822,001
shares of common stock for a purchase price of $43,822, or $0.001 per
share.  In addition, DPEC purchased 200 shares of common stock from
KLLC and 200 shares of common stock from Partnership for a purchase price of
$180,000 payable to each selling shareholder, of which $105,000 was paid at
closing and $75,000 was previously paid in connection with a letter of intent
and related amendments.  Immediately following the closing of the
Stock Purchase Agreement, there were 45,411,400 shares of common stock issued
and outstanding.  Immediately following the closing of the Stock
Purchase Agreement, DPEC owned an aggregate of


- 14
-


43,822,401
shares of the Company’s common stock out of the total of 45,411,400 shares of
common stock issued and outstanding at the closing, or approximately 96.5% of
the Company’s issued and outstanding shares.





The Stock Purchase Agreement contains
post-closing covenants whereby Mercari and DPEC agree to utilize their
commercially reasonable efforts to cause Mercari to (i) remain a Section 12(g)
reporting company in compliance with and current in its reporting requirements
under the Exchange Act; and (ii) cause all of the assets and business or equity
interest of DPEC, its subsidiaries and affiliated companies to be transferred to
Mercari and, in connection with such transactions, cause Mercari’s stock to be
distributed by DPEC to DPEC’s stockholders and the holders of equity interests
in the affiliated companies (“Reorganization Transaction”).  In
connection with and contemporaneously with the Reorganization Transaction, it is
anticipated that Mercari and/or DPEC will seek to obtain at least
$10 million in gross proceeds from a financing (the
“Financing”).  If the gross proceeds from the Financing exceed
$15 million at the time of the last closing of such financing, Mercari will
issue additional shares of common stock to DPEC at a purchase price of $.001 per
share as follows:  (i) 18,164,560 additional shares if the amount
of the Financing is at least $15 million and less than $20 million; or
(ii) 34,058,550 additional shares if the amount of the Financing is
$20 million or more.  After consummation of the Financing,
Mercari will seek to register for resale all of the shares issued in the
Financing and shares of common stock issued by Mercari from and after
December 1, 2001 and prior to the date of the Stock Purchase
Agreement.  Mercari will use its commercially reasonable efforts to
file the registration statement within 60 days after consummation of the
Reorganization Transaction (“Filing Date”) and to have the registration
statement become effective within 180 days after the Filing Date.  If
the SEC requires Mercari to reduce the number of shares included under such
registration statement, any such reduction will first be made from the shares
issued in the Financing.  The post-closing obligations of DPEC and
Mercari discussed herein are contingent upon DPEC’s good faith determination
that, after taking commercially reasonable efforts, the transactions are
feasible.  Such determination shall take into account all relevant
material factors, including without limitation, then-current economic, financial
and market conditions.





Pursuant to the Stock Purchase
Agreement, we made the following changes to our Board of Directors and executive
officers:





·
            Immediately
      prior to the consummation of the Stock Purchase, we increased the size of
      our Board of Directors from two to five, and L. Michael Underwood and John
      P. Kanouff, our current directors, appointed Scott L. Mathis, Julian Beale
      and Peter Lawrence, as directors of the Company, effective at the
      closing.  After such new directors were appointed, Messrs.
      Underwood and Kanouff resigned as members of our Board of
      Directors.


·
            Mr.
      Underwood resigned as President and Mr. Kanouff resigned as Secretary and
      Treasurer, and our Board of Directors appointed Scott L. Mathis as Chief
      Executive Officer and President, Ronald S. Robbins as Executive Vice
      President and Chief Operating Officer, and Tim Holderbaum as Executive
      Vice President, Chief Financial Officer, Treasurer and
      Secretary.





Off
Balance Sheet Arrangements





We have no off balance sheet financing
or similar arrangements and we do not expect to initiate any such
arrangement.


- 15
-


Item 3.  Quantitative and Qualitative Disclosures About
Market Risk.





As a smaller reporting company, the
Company is not required to provide the information required by this
Item.





Item 4T.   Controls and Procedures.





Disclosure
Controls and Procedures





We maintain disclosure controls and
procedures that are designed to ensure that information required to be disclosed
in our Exchange Act reports is recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange Commission’s
rules and forms, and that such information is accumulated and communicated
to management, including the Chief Executive Officer and Chief Financial
Officer, as appropriate, to allow timely decisions regarding required
disclosure.  Management necessarily applied its judgment in assessing
the costs and benefits of such controls and procedures, which, by their nature,
can provide only reasonable assurance regarding management’s control
objectives.





Our management, with the participation
of our Chief Executive Officer and Chief Financial Officer, has evaluated the
effectiveness of our disclosure controls and procedures (as defined in Rule
13a-15(e) under the Securities Exchange Act of 1934) as of the end of the period
covered by this report.  Based on this evaluation, our Chief Executive
Officer and Chief Financial Officer have concluded that the design and operation
of our disclosure controls and procedures were effective as of such date to
provide assurance that information required to be disclosed by us in the reports
that we file or submit under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in the
rules and forms of the Securities and Exchange Commission, and that such
information is accumulated and communicated to management as appropriate to
allow timely decisions regarding disclosure.





Changes
in Internal Control over Financial Reporting





There
have been no changes in internal controls over financial reporting during the
Company’s last fiscal quarter that have materially affected, or are reasonably
likely to materially affect, the Company’s internal controls over financial
reporting.





- 16
-


PART II – OTHER INFORMATION





Item 1.  Legal Proceedings





There is no pending litigation to which
the Company is presently a party or to which the Company’s property is subject
and management is not aware of any litigation which may arise in the
future.





Item 1A.  Risk Factors





As a smaller reporting company, the
Company is not required to provide the information required by this
Item.





Item 2.   Unregistered Sales of Equity Securities and
Use of Proceeds





During the quarter ended
November 30, 2009, we did not have any sales of securities in transactions
that were not registered under the Securities Act of 1933, as amended, that have
not been previously reported in a Form 8-K.





Item 3.   Defaults Upon Senior Securities





None.





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





None.





Item 5.  Other Information





None.





Item 6.   Exhibits





Exhibits.





10.1
            Stock
      Purchase Agreement by and among Diversified Private Equity Corporation and
      Mercari Communications Group, Ltd. and Kanouff, LLC and Underwood Family
      Partners, Ltd. dated November 9, 2009 (incorporated by reference to
      Exhibit 10.1 to our Form 8-K filed on November 10,
    2009).31.1
            Certification
      of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities
      Exchange Act of 1934, as amended*31.2
            Certification
      of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities
      Exchange Act of 1934, as amended*32.1
            Certification
      of Chief Executive Officer pursuant to 18 U. S. C. Section 1350, as
      adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002*32.2
            Certification
      of Chief Financial Officer pursuant to 18 U. S. C. Section 1350, as
      adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002*____________________
              *
      Filed herewith





- 17
-





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 thereunto duly
authorized.





MERCARI
      COMMUNICATIONS GROUP, LTD.DATE:
            December
      30, 2009
            
            By:/s/ Scott L.
      MathisScot L. Mathis, Chief Executive OfficerDATE:
            December
      30, 2009
            
            By:/s/
      Tim F. HolderbaumTim F. Holderbaum, Chief Financial Officer