<PAGE> 1
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[x] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934. For the quarterly period ended September 30, 1998.
[ ] Transition report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934.
For the transition period from to
Commission File Number: 0-7693
INTERNATIONAL MERCANTILE CORPORATION
--------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
<TABLE>
<S> <C>
MISSOURI 43-0970243
-------------------------------------------------------------------
(State or other jurisdiction (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
7979 Old Georgetown Road, Bethesda MD
-------------------------------------------
(Address of principal executive offices)
301-654-1980
---------------------------
(Issuer's telephone number)
(Not Applicable)
--------------------------------------------------------
(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 such shorter period that
the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes [ ] No [x]
State the number of shares outstanding of each of the issuer's classes of
common equity as of the latest practicable date:
4,072,115 Common Shares as of September 30, 1998
Transitional Small Business Disclosure Format Yes [ ] No [X]
<PAGE> 2
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
The condensed financial statements for the period ended September 30,
1998 included herein have been prepared by International Mercantile Corporation,
(the "Company") without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission (the "Commission"). In the opinion of
management, the statements include all adjustments necessary to present fairly
the financial position of the Company as of September 30, 1998, and the results
of operations and cash flows for the nine month periods ended September 30, 1997
and 1998.
<PAGE> 3
INTERNATIONAL MERCANTILE CORPORATION
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
September 30,
December 31, 1998
1997 Unaudited
ASSETS ---- ---------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $290,951 $142,049
Mortgages receivable 687,500 285,300
------- -------
Current assets 978,451 427,349
CAPITAL ASSETS-NET 14,323 14,340
OTHER ASSETS
Excess of purchase price over assets acquired 2,120,186 2,120,186
Notes receivable-affiliated parties 316,850 383,247
Securities-available for sale 367,000 367,000
Intangible assets 49,209 49,209
------ ------
TOTAL OTHER ASSETS 2,853,245 2,919,642
--------- ---------
TOTAL ASSETS $3,846,019 $3,361,330
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $487,699 $605,184
Loan payable 606,494 527,494
Warehouse loan payable 654,805 271,035
Loan payable-related parties 180,263 291,355
Deferred income 32,695 14,265
Corporate income tax payable 12,495
------ ---------
Total current liabilities 1,974,451 1,709,333
CAPITAL STOCK
Preferred stock- Series 1- authorized 10,000,000 shares, $0.10 par value
each, at September 30, 1998, the number of shares outstanding is -0-.
Preferrd stock- Series 2 - authorized 2,000,000 shares, $0.10 par value each,
at September 30, 1998 the number of shares outstanding is -0-.
Preferred stock - Series 3, authorized 5,000,000, $0.10 par value each. At
September 30, 1998, the number of shares outstanding is -0- .
Common stock-Class A-authorized 31,000,000 common shares, par value $0.01
each, at December 31, 1997 and September 30, 1998, the number of shares
outstanding was 3,177,583 and 4,072,115
respectively 31,776 40,721
Common stock - Class B - authorized 2,000,000,
$0.01 par value each, the number of shares
outstanding at September 30, 1998 is -0-
Additional paid in capital 12,124,269 13,009,856
Retained earnings (9,470,294) (10,584,397)
---------- ----------
Total stockholders' equity 2,685,751 2,466,180
Less treasury stock (814,183) (814,183)
--------- --------
Total stockholders equity 1,871,568 1,651,997
--------- ---------
Total liabilities and stockholders' equity $3,846,019 $3,361,330
========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 4
INTERNATIONAL MERCANTILE CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the nine For the nine
months ended months ended
September 30, September 30,
1997 1998
Unaudited Unaudited
--------- ---------
<S> <C> <C>
Revenue $-0- $749,337
Mortgage related expenses -0- 481,113
--- -------
Gross profit -0- 268,224
Operations:
General and administrative 1,084,500 1,374,938
Depreciation and amortization 2,483
--------- -----
Total expense 1,084,500 1,377,421
Income (loss) from operations (1,084,500) (1,109,197)
Corporate income taxes -0-
Other income
Interest income 3,201
Unrealized loss on valuation of property and
equipment
Gain on sale of asset 250
Interest expense (8,357)
-------
Total other income and expense (4,906)
Net Profit (Loss) $(1,084,500) $(1,114,103)
=========== ============
Net income (loss) per share - basic $(0.35) $(0.32)
========= =======
Number of shares outstanding 3,133,151 3,475,766
========== =========
Net income (loss) per share - diluted $(0.35) $(0.32)
========= =======
Number of shares outstanding 3,133,151 3,475,766
========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 5
INTERNATIONAL MERCANTILE CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the three For the three
months ended months ended
September 30, September 30,
1997 1998
Unaudited Unaudited
--------- ---------
<S> <C> <C>
Revenue $-0- $303,048
Mortgage related expenses -0- 227,407
-------
Gross profit -0- 78,641
Operations:
General and administrative 684,500 348,412
Depreciation and amortization -0- 801
--- ---
Total expense 684,500 349,213
Income from operations (684,500) (270,572)
Corporate income taxes -0-
Other income
Interest income 816
Unrealized loss on valuation of property and
equipment
Gain on sale of asset
Interest expense (3,474)
------
Total other income and expense -0- (2,658)
Net Profit (Loss) $(684,500) $(273,230)
========== =========
Net income (loss) per share - basic $(0.22) $(0.08)
========= ======
Number of shares outstanding 3,133,151 3,475,766
========== =========
Net income (loss) per share - diluted $(0.22) $(0.08)
====== =======
Number of shares outstanding 3,133,151 3,475,766
========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 6
INTERNATIONAL MERCANTILE CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the nine For the nine
months ended months ended
September 30, September 30,
1997 1998
Unaudited Unaudited
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $(1,084,500) $(1,114,103)
Depreciation -0- 2,483
Non cash items 379,500
Adjustments
Accounts payable and accrued expenses 705,000 117,485
Income taxes payable (12,495)
------- -------
TOTAL CASH FLOWS FROM OPERATIONS -0- (1,006,630)
CASH FLOWS FROM INVESTING ACTIVITIES
Mortgages receivable 402,200
Capital assets (2,500)
Notes receivable 66,397
------
TOTAL CASH FLOWS FROM INVESTING ACTIVITIES -0- 333,303
CASH FLOWS FROM FINANCING ACTIVITIES
Sale of capital stock 894,532
Warehouse loan payable (383,770)
Loan payable (79,000)
Loan payable-related parties 111,098
Deferred income (18,430)
--------
TOTAL CASH FLOWS FROM FINANCING ACTIVITIES -0- 524,425
NET INCREASE (DECREASE) IN CASH -0- (148,902)
CASH BALANCE BEGINNING OF PERIOD -0- 290,951
--- -------
CASH BALANCE END OF PERIOD $-0- $142,049
==== ========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 7
INTERNATIONAL MERCANTILE CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
<TABLE>
<CAPTION>
Preferred Preferred Preferred Class A Class A Class B
Stock Stock Stock Common Common Stock Common
Date Series 1 Series 2 Series 3 Stock ----- Stock
---- -------- -------- -------- ------ -----
<S> <C> <C> <C> <C> <C> <C>
12-31-1995 3,133,151 $3,133,151
12-31-1996 Net loss
-------- ----------
12-31-1996 3,133,151 3,133,151
06-01-1997(1) 101,083 101,083
12-31-1997(2) 946,500 946,500
12-31-1997(3) 1,500,000 1,500,000
12-31-1997(3) 100,000 100,000
12-31-1997(3) 135,000 135,000
12-31-1997(3) 175,000 175,000
12-31-1997(4) 220,000 220,000
12-31-1997 Net loss
----------
12-31-1997 3,177,583 3,177,583
Unaudited
06-30-1998(4) 420,000 420,000
06-30-1998(5) 378,699 378,699
09-30-1998(6) 95,833 95,833
09-30-1998 Net loss
-------- ----------- ---
09-30-1998(7) -0- -0- -0- 4,072,115 4,072,115 -0-
=== === === ========= =========== ===
09-30-1998(7) -0- -0- -0- 4,072,115 $ 40,721 -0-
=== === === ========= =========== ===
</TABLE>
<TABLE>
<CAPTION>
Additional
paid in capital Treasury Retained
Date -------------- Stock Earnings Total
---- ----- -------- -----
<S> <C> <C> <C> <C>
12-31-1995 $5,326,395 $(814,183) $(7,958,757) $(313,395)
12-31-1996 -0- -0-
---------- ---------- ----------- --------
12-31-1996 5,326,395 $(814,183) $(7,958,757) $(313,395)
06-01-1997(1) 8,358,463 (814,183) $(7,958,757) (313,395)
12-31-1997(2) 10,000 956,500
12-31-1997(3) 1,500,000
12-31-1997(3) 400,000 500,000
12-31-1997(3) 135,000
12-31-1997(3) 210,000 385,000
12-31-1997(4) 220,000
12-31-1997 (1,511,538) (1,511,546)
--------- --------- --------- ---------
12-31-1997 8,978,463 (814,183) (9,470,295) 1,871,568
Unaudited
06-30-1998(4) 420,000
06-30-1998(5) 378,699
09-30-1998(6) 95,833
09-30-1998 (1,114,103) (1,114,103)
--------- --------- ---------- ---------
09-30-1998(7) 8,978,463 $(814,183) $(10,584,397) $1,651,997
========= ========= ============ ==========
09-30-1998(7) $13,009,856 $(814,183) $(10,584,397) $1,651,997
========== ========= ============ ==========
</TABLE>
See accompanying notes to financial statements.
(1) Reverse split of shares in a ratio of 31-1
<PAGE> 8
(2) Shares issued for consulting fees at an average value of $1.01 per share.
(3) Shares issued for the acquisition of HAMC and UMI from CFC and AB
Securities valued at an aggregate of $2,520,000 or $1.32 per share.
(4) Shares issued pursuant to the private placement at $1.00 per share.
(5)
(6) Shares issued in consideration of consulting services valued at $1.00
per share. (7) Restatement of stockholders' equity reflecting the change
in par value of common stock from $1.00 per share to $0.01 per share.
See accompanying notes to financial statements.
<PAGE> 9
INTERNATIONAL MERCANTILE CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements of International
Mercantile Corporation, (the "Company"), reflect all adjustments which are, in
the opinion of management, necessary to a fair statement of the results of the
interim periods presented. All such adjustments are of a normal recurring
nature. The financial statements should be read in conjunction with the notes to
financial statements contained in the Company's Annual Report on Form 10-K for
the year ended December 31, 1997.
2. NET INCOME PER SHARE
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, EARNINGS PER SHARE
("Statement No. 128"). Statement No. 128 applies to entities with publicly held
common stock or potential common stock and is effective for financial statements
issued for periods ending after December 15, 1997. Statement No. 128 replaces
APB Opinion 15, Earnings per Share ("EPS"). Statement No. 128 requires dual
presentation of basic and diluted earnings per share by entities with complex
capital structures. Basic EPS includes no dilution and is computed by dividing
net income by the total number of common shares outstanding for the period.
Diluted EPS reflects the potential dilution of securities that could dilute the
shares in computing the earnings of the Company such as common stock which may
be issuable upon exercise of outstanding common stock options or the conversion
of debt into common stock. Pursuant to the requirements of the Securities and
Exchange Commission, the calculation of the shares used in computing basic and
diluted EPS include the shares of common stock issued for the acquisition of
HAMC and UMI.
Shares used in calculating basic and diluted net income per share were as
follows:
<TABLE>
<CAPTION>
For the nine months For the nine months
months ended months ended
September 30, September 30,
1997 1998
------------- --------------
<S> <C> <C>
Total number common
shares outstanding 101,083(1) 3,475,766
======= =========
</TABLE>
(1) Pre split shares were 3,133,151
3. ACCOUNTING FOR INCOME TAXES
The Company follows Statement of Financial Accounting Standards ("SFAS")
No. 109, "Accounting for Income Taxes," which requires an asset and liability
approach of accounting for income taxes. Deferred tax assets and liabilities are
computed annually for differences between financial statement basis and tax
basis of assets, liabilities and available general business tax credit
carry-forwards. A valuation allowance is established when necessary to reduce
deferred tax assets to the amount expected to be realized.
<PAGE> 10
4. MARKETABLE SECURITIES
The Company adopted Financial Accounting Standards Board ("FASB")
Statement No. 115, "Accounting for Certain Investments in Debt and Equity
Securities", which requires that investments in equity securities that have
readily determinable fair values and investments in debt securities be
classified in three categories: held-to-maturity, trading and
available-for-sale. Based on the nature of the assets held by the Company and
Management's investment strategy, the Company's investments have been classified
as available-for-sale. Management determines the appropriate classification of
debt securities at the time of purchase and reevaluates such designation as of
each balance sheet date. Securities classified as available-for-sale are carried
at estimated fair value, as determined by quoted market prices, with unrealized
gains and losses, net of tax, reported in a separate component of stockholders'
equity. At December 31, 1997 and September 30, 1998, the Company had no
investments that were classified as trading or held-to-maturity as defined by
the Statement.
The following is a summary of cash, cash equivalents and available-for-sale
securities by balance sheet classification at December 31, 1997:
<TABLE>
<CAPTION>
Estimated
Gross Gross Fair
Unrealized Unrealized Market
Cost Gains Losses Value
----- -------- --------- -----
<S> <C> <C> <C> <C>
Cash $ 290,951 $-0- $ -0- $ 290,951
------- ------ ------- ---------
Total cash and cash
equivalents $ 290,951 $-0- $ -0- $ 290,951
Securities-available for
sale $ 580,000 $213,000 $ 367,000
-------- ------- -------
Total cash, cash
equivalents and
securities available
for sale $ 870,951 $213,000 $ 657,951
======= ======= =======
</TABLE>
The following is a summary of cash, cash equivalents and
available-for-sale securities by balance sheet classification at September 30,
1998:
<TABLE>
<CAPTION>
Estimated
Gross Gross Fair
Unrealized Unrealized Market
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Cash $ 142,049 $-0- $ -0- $ 142,049
------- ---- ------ -------
Total cash and cash
equivalents $ 142,049 $-0- $ -0- $ 142,049
Securities-available for
sale $ 580,000 $213,000 $ 367,000
-------- ------- -------
Total cash, cash
equivalents and
securities available
for sale $ 722,049 $213,000 $509,049
</TABLE>
<PAGE> 11
5. Commitments and Contingencies
a. Employment Agreement with Mr. Walter Deronde
On January 1, 1997, the Company entered into an employment agreement with
Mr. Walter Deronde as Treasure and Vice President for an annual salary of
$120,000. In addition Mr. Deronde is responsible for evaluating merger and
acquisition candidates in the mortgage banking industry.
For the nine months ended September 30, 1998, the Company has accrued
$60,000 in salary.
b. Employment Agreement with Mr. Max Apple
On May 1, 1995, the Company entered into an employment agreement for an
annual salary of $120,000 per annum and reimbursement of all "out-of-pocket
expenses.
For the nine months ended September 30, 1998, the Company has accrued
$60,000 in salary.
c. Financial Consulting Agreement
On May 1, 1995, the Company entered into a financial consulting agreement
with Frederic Richardson for a monthly fee of $10,000 per month and
reimbursement of all "out-of-pocket expenses". The term of this agreement is 10
years and is renewable. For the nine months ended September 30, 1998, the
Company has accrued $60,000.
6. Amendment to the Certificate of Incorporation
The Company has amended its certificate of incorporation as follows:
The Company is authroized to issue an aggregate pf 50,000,000 shares of
stock as follows:
31,000,000 shares of Class A Common Stock, par value $0.01 per share.
2,000,000 shares of Class B Common Stock, $0.01 per share.
10,000,000 shares of Preferred Stock, Series 1, $0.10 per share.
2,000,000 shares of Preferred Stock, Series 2, $0.10 per share.
5,000,000 shares of Preferred Stock, Series 2, $0.10 per share.
Class A Common Stock.
The holders of shares of Class A Common Stock are entitled to 1 vote per
share and do not have cumulative voting rights on the election of directors.
Upon any liquidation, dissolution or winding up of the Company, holders of
shares of Class A Common Stock are entitled to receive pro rata all of the
assets of the Company available for distribution to holders of shares of the
Company's Class A Common Stock. Shareholders of the Company do not have any
preemptive rights to subscribe for or purchase any stock, obligations, warrants
or other securities of the Company.
Class B Common Stock
The holders of shares of Class B Common Stock are entitled to 51 votes
per share and do not have cumulative voting rights on the election of directors.
Upon any liquidation, dissolution or winding up of the Company, holders of
shares of Class B Common Stock are entitled to receive pro rata all of the
assets of the Company available for distribution to holders of shares of the
Company's Class B Common Stock. Shareholders of the Company do not have any
preemptive rights to subscribe for or purchase any stock, obligations, warrants
or other securities of the Company.
Series 1 Convertible Preferred Stock
<PAGE> 12
Each share of Series 1 Preferred Stock is convertible into one (1) share
of Class A Common Stock at any time for 3 years following issuance, at a price
of two dollars ($2.00) per share. The Series 1 Preferred Stock does not carry
any voting rights. In the event the Company declares a dividend, the Series 1
Preferred Stock has a dividend preference to that of the Class A Common Stock.
The Series 1 Preferred Stock is redeemable by the Company for $.10 per
share at any time after the first annual anniversary of issuance, if the average
closing bid price of the Class A Common Stock for 10 business days immediately
preceding the date of such redemption notice is at least 125% of the exercise
price of the Series 1 Preferred Stock. Following any such redemption notice, the
holder of the Series 1 Preferred Stock shall have the opportunity to convert the
Series 1 Preferred Stock for a period of 20 days following such notice.
As of September 30, 1998, although shareholders of the Company have
approved the issuance of 1,000,000 shares of Class B Common stock to Mr.
Frederic Richardson in consideration for the cancellation of 1,000,000 shares of
his Class A Common Stock the transaction has not taken place.
7. Private Placement
Pursuant to a private placement under Rule 506 of the Securities Act of
1933, the Company is offering a minimum of 4 Units and a maximum of 80 Units of
its securities. Each Unit is being sold at $25,000 per Unit and consists of
20,833 shares of Class A Common Stock and 20,833 shares of Convertible Series 1
Preferred Stock, which are convertible into 20,833 shares of Class A Common
Stock. The Units are being offered on a "best-efforts" basis. The Minimum Amount
of securities offered shall be 4 Units. The Units must be purchased for
investment purposes only and the free transferability of the securities is
restricted.
This Offering will terminate on the earlier of receipt and acceptance of
subscriptions for all 80 Units or December 24, 1998, unless extended in the
sole discretion of the Company for an additional period of up to 90 days,
subject to termination at any time prior thereto by the Company.
As of September 30, 1888, the Company has not sold any Units. The Company
has reserved 1,666,640 shares of Class Common stock pending the exercise of
Preferred Series 1 sharesholders converting their shares into shares of Common
stock.
Item 2. Management's Discussion and Analysis or Plan of Operation
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
for the nine months ended September 30, 1997 and 1998
------------------------------------------------
Except for the description of historical facts contained herein, this
Form 10Q contains certain forward looking statements that involve risks and
uncertainties as detailed herein and from time to time in the Company's filings
with the Securities and Exchange Commission and elsewhere. Such statements are
based on management's current expectations and are subject to a number of
factors and uncertainties which could cause actual results to differ materially
from those described in the forward-looking statements. These factors include,
among others, the Company's fluctuations in sales and operating results, risks
associated with international operations and regulatory, competitive and
contractual risks and product development.
Results of operations for the nine months ended September 30, 1998 as
compared to the nine months ended September 30, 1997.
- --------------------------------------------------------------------------------
Revenues were $749,337 for the nine months ended September 30, 1998 as
compared to $-0- for the nine months ended September 30, 1997. Mortgages and
related expenses for the nine months ended September 30, 1998, were $481,113 as
compared to $0 for
<PAGE> 13
the nine months ended September 30, 1997 representing a cost of mortgages
related expenses of 64.2% for the nine months ended September 30, 1998 as
compared to 0% for the nine months ended September 30, 1997.
General and administrative costs for the nine months ended September 30,
1998 were $1,374,938, an increase of 380.0% over expenses of $1,084,500 for the
nine months ended September 30, 1997.
Results of operations for the three months ended September 30, 1998 as
compared to the three months ended September 30, 1997. - -
- -------------------------------------------------------------------------------
Revenues were $303,048 for the three months ended September 30, 1998 as
compared to $-0- for the three months ended September 30, 1997. Mortgages and
related expenses for the three months ended September 30, 1998, were $227,407 as
compared to $-0- for the three months ended September 30, 1997 representing a
cost of mortgages related expenses of 75.0% for the three months ended September
30, 1998 as compared to -0-% for the three months ended September 30, 1997.
General and administrative costs for the three months ended September 30,
1998 were $349,213, an decrease of 51.0% over expenses of $684,500 for the three
months ended September 30, 1997.
Liquidity and capital resources as of the end of the nine months ended September
30, 1998.
- --------------------------------------------------------------------------------
The Company's cash balance was $142,049 and working capital was a
negative $1,281,984 as at September 30, 1998.
The Company's primary short-term needs for capital, which are subject to
change, are for the search for acquisitions, operation of the Company's mortgage
business payment of the day to day operating expenses.
Income tax: As of September 30, 1998, the Company has a tax loss
carry-forward of $10,584,397. The Company's ability to utilize its tax credit
carry-forwards in future years will be subject to an annual limitation pursuant
to the "Change in Ownership Rules" under Section 382 of the Internal Revenue
Code of 1986, as amended. However, any annual limitation is not expected to have
a material adverse effect on the Company's ability to utilize its tax credit
carry-forwards.
The Company expects its capital requirements to increase over the next
several years as it continues to develop its mortgage business and seek new
mortgage company related acquisitions, increases sales and administration
infrastructure and embarks on developing in-house business capabilities and
facilities. The Company's future liquidity and capital funding requirements will
depend on numerous factors, including the extent to which the Company's present
management can fund the continued capital requirements, the timing of regulatory
actions regarding the Company's potential acquisitions, the costs and timing of
expansion of sales, marketing activities, facilities expansion needs, and
competition in the mortgage business entered into.
The Company believes that its available cash and cash from management
contributions will be sufficient to satisfy its funding needs for the day to day
mortgage banking activities for at least the next 12 months. Thereafter, if cash
generated from any newly acquired or developed business operations is
insufficient to satisfy the Company's working capital and capital expenditure
requirements, the Company may be required to sell additional equity or debt
securities or obtain additional credit facilities. There can be no assurance
that such financing, if required, will be available on satisfactory terms, if at
all.
<PAGE> 14
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
No legal proceedings were brought, are pending or are threatened during
the quarter.
Item 2. Changes in Securities
Amendment to the Certificate of Incorporation
The Company has amended its certificate of incorporation as follows:
The Company is authroized to issue an aggregate pf 50,000,000 shares of
stock as follows:
31,000,000 shares of Class A Common Stock, par value $0.01 per share.
2,000,000 shares of Class B Common Stock, $0.01 per share.
10,000,000 shares of Preferred Stock, Series 1, $0.10 per share.
2,000,000 shares of Preferred Stock, Series 2, $0.10 per share.
5,000,000 shares of Preferred Stock, Series 2, $0.10 per share.
Class A Common Stock.
The holders of shares of Class A Common Stock are entitled to 1 vote per
share and do not have cumulative voting rights on the election of directors.
Upon any liquidation, dissolution or winding up of the Company, holders of
shares of Class A Common Stock are entitled to receive pro rata all of the
assets of the Company available for distribution to holders of shares of the
Company's Class A Common Stock. Shareholders of the Company do not have any
preemptive rights to subscribe for or purchase any stock, obligations, warrants
or other securities of the Company.
Class B Common Stock
The holders of shares of Class B Common Stock are entitled to 51 votes
per share and do not have cumulative voting rights on the election of directors.
Upon any liquidation, dissolution or winding up of the Company, holders of
shares of Class B Common Stock are entitled to receive pro rata all of the
assets of the Company available for distribution to holders of shares of the
Company's Class B Common Stock. Shareholders of the Company do not have any
preemptive rights to subscribe for or purchase any stock, obligations, warrants
or other securities of the Company.
Series 1 Convertible Preferred Stock
Each share of Series 1 Preferred Stock is convertible into one (1) share
of Class A Common Stock at any time for 3 years following issuance, at a price
of two dollars ($2.00) per share. The Series 1 Preferred Stock does not carry
any voting rights. In the event the Company declares a dividend, the Series 1
Preferred Stock has a dividend preference to that of the Class A Common Stock.
The Series 1 Preferred Stock is redeemable by the Company for $.10 per
share at any time after the first annual anniversary of issuance, if the average
closing bid price of the Class A Common Stock for 10 business days immediately
preceding the date of such redemption notice is at least 125% of the exercise
price of the Series 1 Preferred Stock. Following any such redemption notice, the
holder of the Series 1 Preferred Stock shall have the opportunity to convert the
Series 1 Preferred Stock for a period of 20 days following such notice.
As of September 30, 1998, although shareholders of the Company have
approved the issuance of 1,000,000 shares of Class B Common stock to Mr.
Frederic Richardson in consideration for the cancellation of 1,000,000 shares of
his Class A Common Stock the transaction has not taken place.
<PAGE> 15
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security-Holders
None.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the registrant has caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INTERNATIONAL MERCANTILE CORPORATION
(Registrant)
By: /s/ Scot Hess
------------------
SCOT HESS
PRESIDENT
Dated: November 17, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from financial
statements for the nine month period ended September 30, 1998 and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1998
<CASH> 142,049
<SECURITIES> 367,000
<RECEIVABLES> 385,300
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 427,349
<PP&E> 142,084
<DEPRECIATION> 127,744
<TOTAL-ASSETS> 3,361,330
<CURRENT-LIABILITIES> 1,565,106
<BONDS> 0
0
0
<COMMON> 40,721
<OTHER-SE> 2,425,459
<TOTAL-LIABILITY-AND-EQUITY> 3,361,330
<SALES> 749,337
<TOTAL-REVENUES> 749,337
<CGS> 481,113
<TOTAL-COSTS> 1,377,421
<OTHER-EXPENSES> (4,906)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,357
<INCOME-PRETAX> (1,109,197)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,109,197)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,114,103)
<EPS-PRIMARY> (0.32)
<EPS-DILUTED> (0.32)
</TABLE>
