AiXin Life International, Inc. - Quarter Report: 2009 February (Form 10-Q)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended February 28, 2009

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

For the transition period from _______________ to ______________.

Commission File Number 0-17284

MERCARI COMMUNICATIONS GROUP, LTD.
(Exact name of registrant as specified in its charter)

2525 East Cedar Avenue, Denver, Colorado, 80209
(Address of principal executive offices)

(303) 623-0203
(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 is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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

APPLICABLE ONLY TO CORPORATE ISSUERS

PART I - FINANCIAL INFORMATION

Item 1.   Financial Statements

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

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

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

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

3

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

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

 SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

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. On March 9, 2007 when the notes became payable, the Company issued and delivered to each of the two lenders 285,714 shares of the Company’s unregistered common stock as payment for the notes.

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

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

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

Interim Reporting

     The unaudited financial statements as of February 28, 2009 and for the nine 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 nine 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. (hereto referred to as the “Company”) will continue in operation for at least one year and will be able to realize its assets and discharge its liabilities in the normal course of operations.

     Several conditions and events cast doubt about the Company’s ability to continue as a “going concern.” The Company has incurred net losses of approximately $102,868 for the period from March 1, 2004 (inception of development stage) to February 28, 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.

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

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

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 February 28, 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.

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

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

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 February 28, 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 February 28, 2009 and May 31, 2008 approximates their fair values due to the short-term nature of these financial instruments.

NOTE 2 - INCOME TAXES

     As of May 31, 2008, the Company had a net operating loss carry forward for income tax reporting purposes of approximately $84,339 that may be offset against future taxable income through 2027. 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.

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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:

     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 February 28, 2009 all activities of the Company have been conducted by corporate officers from either their homes or business offices. Currently, there are no outstanding debts owed by the company for the use of these facilities and there are no commitments for future use of the facilities.

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.

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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 by the three current Directors. 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 are payable by the Company only at the time, and in the event, the Company becomes current in reporting obligations under the Securities Exchange Act of 1934, as amended. At the time when the notes become payable, the Company agreed to issue and deliver to each of the two lenders 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 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, an officer and director of the Company, is the sole owner and member of KLLC; and L. Michael Underwood, an officer and director of the Company, is the general partner of the Partnership. The Company sold such shares to KLLC and the Partnership in order to obtain working capital. The Registrant relied upon Section 4(2) of the Securities Act of 1933 as providing the exemption from registration under such Act for such transactions.

     On November 27, 2007, the Company sold 214,286 shares of its common stock to Kanouff, LLC (“KLLC”), a Colorado limited liability company, for $7,500 in cash and 214,286 shares of its common stock to Underwood Family Partners, Ltd. (“Partnership”), a Colorado limited partnership, for $7,500 in cash. John P. Kanouff, an officer and director of the Company, is the sole owner and member of KLLC; and L. Michael Underwood, an officer and director of the Company, is the general partner of the Partnership. The Company sold such shares to KLLC and the Partnership in order to obtain working capital. The Registrant relied upon Section 4(2) of the Securities Act of 1933 as providing the exemption from registration under such Act for such transactions.

     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 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.

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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 (“KLLC”), a Colorado limited liability company, and a loan for $5,500 from Underwood Family Partners, Ltd. (“Partnership”), a Colorado limited partnership. John P. Kanouff, an officer and director of the Company, is the sole owner and member of KLLC; and L. Michael Underwood, an officer and director of the Company, is the general partner of the Partnership. On November 18, 2008, the Company received a loan for $5,000 from KLLC and a loan for $5,000 from the Partnership. These loans are due on demand and carry an interest rate of 5% per annum. At February 28, 2009, principal and accrual interest totaling $21,575 was due on these loans.

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, 2008. 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 2004. The following describes the open tax years, by major tax jurisdiction, as of May 31, 2008:

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

     On November 30, 2008, the Company entered into a nonbinding letter of intent (“Letter of Intent”) with Diversified Private Equity Corporation (“DPEC”) and its wholly owned subsidiaries and affiliated companies (collectively referred to as “DPEC”). DPEC is headquartered in New York, NY, and is a vertically integrated company that creates, develops, markets, sells and manages private equity investment opportunities principally in the biotechnology industry and in non-leveraged global real estate assets. Also parties to the Letter of Intent are Kanouff, LLC (“KLLC”) and Underwood Family Partners, Ltd. (“Partnership”), the two entities which are the majority shareholders of the Company and which are controlled by the officers and directors of the Company. The Letter of Intent sets forth the general terms upon which DPEC and or its investors would acquire, by way of a merger with a to be formed wholly owned subsidiary of the Company, between approximately 96.5% and 97% of the total issued and outstanding common stock of the Company. Following the merger, the Letter of Intent provides that the existing shareholders of the Company would retain between approximately 3.5% and 3% of the total issued and outstanding common stock of the Company. Under the Letter of Intent, all of these percentages are subject to dilution based upon any additional financing contemplated under the Letter of Intent. Additionally, it was contemplated under the Letter of Intent that KLLC and the Partnership would sell to DPEC a total of 400 shares of common stock of the Company which they currently own in exchange for the payment by DPEC of $350,000; $50,000 of which was paid as a deposit. Pursuant to the Letter of Intent, the Company and DPEC agree to negotiate a definitive merger agreement under which the merger would be consummated as a tax free reorganization. The entry into a merger agreement is subject to the completion of due diligence and the satisfaction of certain terms and conditions by all parties. The Letter of Intent provides that it would terminate if a merger does not occur by April 6, 2009, which date may be extended for 30 days by either the Company or DPEC. The proposed reorganization will provide DPEC with a public company platform to facilitate its future growth and development. On February 25, 2009, the parties to the Letter of Intent entered into a Modification and Amendment of the Letter of Intent (“Amended LOI”). The Amended LOI did not become legally effective until March 27, 2009. Under the Amended LOI, the termination date is changed to August 14, 2009, unless extended for an additional 30 days by either DPEC or the Company; the post merger percentage ownership ranges are changed to between approximately 96.5% and 98% for DPEC shareholders and 2% to 3.5% for shareholders of the Company; the purchase price of the 400 shares by DPEC from KLLC and the Partnership is changed to $360,000; and the deposit paid to KLLC and the Partnership is changed to $100,000.

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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-KSB for the year ended May 31, 2008. Also, persons reading this Report should read and consider the Risk Factors included in Item 1 of the Company’s annual report on Form 10-KSB for the year ended May 31, 2008.

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 had no operations from 1990 through 2008. 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. The Company has entered into a non binding letter of intent to engage in a reorganization as described in this Report.

     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 directors. From time to time in the past, required short-term borrowing have been obtained from a principal shareholder or other related entities.

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

     The Company’s business plan requires substantial funding from a public or private offering of its common stock in connection with a business acquisition, for which the Company has no commitments. The Company 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”.

Off Balance Sheet Arrangements

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

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Item 3.     Quantitative and Qualitative Disclosures About Market Risk.

This item is not applicable to the Company.

Item 4T.     Controls and Procedures.

     We have established disclosure controls and procedures to ensure that material information relating to the Company is made known to the officers who certify the Company’s financial reports and to the Board of Directors. As of the end of the period covered by this Report, the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's President (the Chief Executive Officer) and the Treasurer (the Chief Financial Officer), of the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Based upon the evaluation, such officers concluded that, as of the end of the period, the Company's disclosure controls and procedures were effective in timely alerting such officers to material information relating to the Company required to be included in the reports that the Company files and submits pursuant to the Exchange Act and that the information is recorded, processed, summarized, and reported within the time periods specified in the applicable rules and forms.

     Our management, consisting of our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will necessarily prevent all errors and all fraud, if any. A control system, no matter how well conceived and operated, can only provide reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and benefits of controls must be considered relative to their costs. Because of inherent limitations in control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company would be detected.

     (b)      Management’s Report on Internal Control Over Financial Reporting

     Our management, consisting of our Chief Executive Officer and our Chief Financial Officer, are responsible for establishing and maintaining disclosure controls and procedures for the Company. These officers assessed the effectiveness of our internal control over financial reporting as of February 28, 2009. In making this assessment the officers concluded that, as of that date, the Company’s internal control over financial reporting is effective based on reasonable criteria for very small issuers such as the Company and in accordance with the interpretive guidance included in Release 34-55929.

     (c)      Changes in Internal Controls

     Based on their evaluation as of February 28, 2009, management of the Company concluded that there were no significant changes in the Company's internal controls over financial reporting or in any other areas that could significantly affect the Company's internal controls subsequent to the date of their most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

PART II – OTHER INFORMATION

     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.

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

None.

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.

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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.

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