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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Report of Foreign Issuer
PURSUANT TO RULE 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported)
September 15, 1999 (September 2, 1999)
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International Mercantile Corporation
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(Exact Name of Registrant as Specified in Charter)
Missouri 0-7693 430970243
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(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation File Number) Identification No.)
1625 Knecht Avenue, Baltimore, Maryland 21227
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(Address of Principal Executive Offices)
Registrant's telephone number, including area code (410)242-5000
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P.O. Box 340, Olney, MD 20830
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(Former Name or Former Address, if Changed Since Last Report)
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ITEM 1. CHANGES IN CONTROL OF REGISTRANT.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On September 2, 1999, the registrant acquired all of the issued and
outstanding shares of Micromarix.com Incorporated, a Delaware corporation, for
$1,375,000, payable by delivery of one million shares of Class B common stock
at a deemed price of $1.00 per share and 1.5 million shares of Class A common
stock at market value of $.25 per share. Micromatix, founded in 1987, engages
in the business of manufacturing build-to-order, unbranded or "white box" PC
systems for delivery to resellers.
The registrant has a put option for 12 months from closing to return
the Micromatix shares to Red River Trading Company, Inc., the seller, if
Micromatix fails to implement its business plan and achieve certain performance
benchmarks. If the registrant exercises the put option, the seller must return
the shares of Class A and Class B common stock and also must repay all funds
invested by the registrant or by third parties secured by the registrant, to be
evidenced by a promissory note payable in 24 equal monthly installments,
guaranteed by the seller and secured by all of the capital stock and assets of
Microratix.
The seller also has a put option to return all of the registrant's
securities if the registrant does not invest, directly or indirectly, $350,000
in Micromatix on or before November 30, 1999, in addition to the $150,000 to
be invested at closing, but the seller must repay all funds invested, as above.
The Stock Purchase Agreement also provides that the registrant shall
hold its annual meeting of stockholders and a meeting of its board of directors
no later than 60 days after closing to consider and act upon the following
matters: (1) a 2/1 reverse stock split of the Class B common stock; (2) payment
of a dividend consisting of the issued and outstanding common shares of
University Mortgage, Inc., the registrant's wholly-owned subsidiary; (3) the
issuance to Frederic S. Richardson, chairman of the registrant, of 1.5 million
shares of Class A common stock, or options to purchase such shares, in
consideration of services rendered; (4) an employee stock ownership or option
plan to attract and retain key employees; (5) an agreement with Swartz
Institutional Finance for the purchase and sale of shares of Class A common
stock for $5 million; (6) amendment of the certificate of incorporation to
change the registrant's name to Micromatix or a derivative thereof; and (7)
changing the domicile of the registrant to Delaware.
At closing, C. Timothy Jewell, the sole stockholder of Red River
Trading Company, Inc., was appointed President of the registrant and Bernard
Cary was appointed Vice President and Chief Operating Officer; Michael Scott
Hess resigned as President of the registrant, but continues as Chairman and
Chief Executive Officer of University Mortgage, Inc.
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ITEM 5. OTHER EVENTS.
The registrant has changed its tax and fiscal year end to December 31
from July 31. A transition report on Form 10-QSB will be filed for the four
month period ended October 31, 1999, within 45 days of that date.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements of Business Acquired
(b) Pro Forma Financial Statements.
The Form 8-K dated September 16, 1999 indicated that the financial
statements and the pro forma financial information required by Item 7 will be
filed by amendment not later than 60 days after September 17, 1999. Such
financial information is filed herewith.
(c) Exhibits.
Exhibit 10 Stock Purchase Agreement by and between International
Mercantile Corporation and Micromatix.com Incorporated*
Exhibit 20 Financial Information
* Previously Filed
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 hereunto duly authorized.
INTERNATIONAL MERCANTILE CORPORATION
By /s/ Frederic S. Richardson
---------------------------------------------
Date: December 2, 1999 Frederic S. Richardson, Chairman
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INTERNATIONAL MERCANTILE CORPORATION
(A COMPANY IN THE DEVELOPMENT STAGE)
UNAUDITED
BALANCE SHEET AS OF OCTOBER 31, 1999
STATEMENTS OF OPERATIONS, CHANGES IN STOCKHOLDERS' EQUITY
AND CASH FLOWS FOR THE PERIOD SEPTEMBER 2, 1999 (DATE OF
INCEPTION) THROUGH OCTOBER 31, 1999
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INTERNATIONAL MERCANTILE CORPORATION
(A COMPANY IN THE DEVELOPMENT STAGE)
TABLE OF CONTENTS
OCTOBER 31,1999
<TABLE>
<CAPTION>
PAGE
<S> <C>
Accountants' Compilation Report 1
Balance Sheet 2
Statement of Operations 3
Statement of Changes in Stockholders' Equity 4
Statement of Cash Flows 5
Notes to the Financial Statements 6-13
</TABLE>
<PAGE> 3
[CARUSO & CARUSO LETTERHEAD]
To the Board of Directors and Stockholders
International Mercantile Corporation, a Missouri corporation
Baltimore, Maryland
We have compiled the accompanying balance sheet of International Mercantile
Corporation (a company in the development stage) as of October 31, 1999, and
the related statements of operations, changes in stockholders' equity, and cash
flows for the period September 2, 1999 (Date of Inception) through October 31,
1999 in accordance with Statements on Standards for Accounting and Review
Services issued by the American Institute of Certified Public Accountants. All
the information included in these financial statements is the representation of
the management of International Mercantile Corporation.
A compilation is limited to presenting in the form of financial statements,
information that is the representation of management. We have not audited or
reviewed the accompanying financial statements and, accordingly, do not express
an opinion or any other form of assurance on them.
/s/ CARUSO & CARUSO, CPA's, P.A.
Caruso & Caruso, CPAs', P.A.
Boca Raton, Florida
December 1, 1999
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INTERNATIONAL MERCANTILE CORPORATION
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
UNAUDITED
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
International Mercantile Corporation (The Company) is a profit corporation
organized under the laws of the State of Missouri on March 10, 1971 as
International Mercantile Corporation (IMTL). On July 31, 1999, the Company
liquidated its' holdings in its' subsidiary, University Mortgage, Inc., which
represented the Company's operations, through a dividend of University
Mortgage, Inc. stock to the existing shareholders of the Company. The result of
this action left an OTC Bulletin Board publicly traded company with no
substantial assets or liabilities. On September 6,1999, the Company merged with
Micromatix.com, Inc. (the predecessor company), a newly formed Delaware
corporation which maintained an internet based personal computer manufacturing
business that sells build-to-order unbranded or "white box" PC systems and PC
related hardware throughout the United States to value added retailers and
other marketers of micro computer systems. Shareholders of the predecessor
company received 2,500 shares of the Company's stock for each share of the
predecessor company; a total of 2,500,000 shares issued, in exchange for 100%
of the outstanding stock of the predecessor company. The merger is being
accounted for as a capital transaction with no recognition of goodwill or other
intangible assets. Subsequent to the merger, the owners of the predecessor
company assumed the management of the Company and owned approximately 26.92% of
the outstanding stock of the Company representing 48.32% of the voting rights.
Since this transaction is, in substance, a recapitalization of Micromatix.com,
Inc. (the predecessor company) and not a business combination, pro forma
information is not presented. Accordingly, the historical data contained in
the financial statements is that of the predecessor company.
DEVELOPMENT STAGE
The Company's principal operations, comprised of sales of build-to-order
unbranded or "white box" PC systems and PC related hardware are in a start up
phase as of October 31, 1999. Although some sales, manufacturing and
distribution of personal computers and related PC hardware has commenced as of
the date of these financial statements, there has been no significant revenue
generated therefrom. Substantially all the efforts of the Company have been
focused on capitalization of the Company, the establishment of its' website,
internal infrastructure, production lines and development of a marketing team.
Accordingly, the Company is in the Development Stage.
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INTERNATIONAL MERCANTILE CORPORATION
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
UNAUDITED
REVENUE RECOGNITION
Revenues are derived primarily from sales of build-to-order personal computers
and related PC hardware via the Company's business to business e:commerce.
Revenues related to these sales are recognized when a computer product is
shipped and invoiced.
INVENTORY
Inventory consists of parts, work in process and finished products and is
valued at the lower of actual cost or market. The Company maintains a perpetual
inventory system and determines quantities by the average cost method.
ADVERTISING EXPENSE
The Company recognizes advertising expenses in accordance with Statement of
Position ("SOP") 93-7 "Reporting on Advertising Costs." As such, the Company
expenses the costs of producing advertisements at the time production occurs,
and expenses the cost of communicating advertising in the period in which the
advertising space or airtime is used.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is computed using the
straight-line method based on the estimated useful lives of the assets which
range from three to five years. Costs for routine repairs and maintenance are
expensed as incurred and gains and losses on the disposal of assets are
recognized in the period such disposals occur.
SOFTWARE DEVELOPMENT COSTS
Internal and external costs incurred to develop internal-use software are
capitalized during the application development stage and will be amortized over
three years once operations begin.
INTANGIBLE ASSETS
Costs incurred to organize the Company are capitalized and reported on the
balance sheet as other assets. The costs will be amortized over a period of 5
years using the straight line method.
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INTERNATIONAL MERCANTILE CORPORATION
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
UNAUDITED
INCOME TAXES
The Company files its tax return with the Internal Revenue Service as a C
Corporation. Deferred income taxes are recognized by applying statutory tax
rates to future years differences between the tax bases and financial reporting
amounts of assets and liabilities. Due to the fact that the Company is in the
development stage, no defined tax asset/valuation allowance has been recognized
for the losses incurred to date, as it is not determinable that the Company
will realize any tax benefit from such losses. Loss carryforwards, if any,
expire fifteen years following the tax year end in which they occur.
USE OF ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with generally accepted
accounting principles requires that management 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 respective reporting
period. Actual results could vary from these estimates and assumptions.
CONCENTRATIONS OF RISK
Financial instruments that potentially subject the Company to concentrations of
credit risk consist primarily of cash and cash equivalents. The Company
maintains its cash and cash equivalents in bank deposit accounts, the balances
of which, at times, may exceed federally insured limits. Additionally, the
Company assumes that computer chip and memory availability will remain
constant. This assumption subjects the Company to concentrations of risk should
the availability of these items become uncertain in the future.
EARNINGS PER SHARE
As per Financial Accounting Standards Board Statement of Financial Accounting
Standards No. 128 (SFAS 128), Earnings Per Share, standards for computing and
presenting earnings per share (EPS) applies to publicly held common stock or
potential common stock. It requires dual presentation of basic and diluted EPS
on the face of the income statement for all entities with complex capital
structures. Basic EPS excludes dilution and is computed by dividing income
available to common stockholders by the weighted average number of common
shares outstanding for the period. Diluted EPS reflects the potential dilution
that could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the entity.
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INTERNATIONAL MERCANTILE CORPORATION
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
UNAUDITED
EARNINGS PER SHARE cont'd
In computing EPS as a result of the reverse acquisition, the number of shares
outstanding for the period from September 2, 1999 until the date of the reverse
acquisition, September 6, 1999, is the number of shares issued by the Company
to the shareholders of the predecessor company. For the period September 6, 1999
to October 31, 1999 the number of shares considered to be outstanding is
computed as actual number of shares of the Company outstanding during that
period. The average number of shares outstanding for the full period being
reported upon has been computed by averaging these two amounts. Other
appropriate adjustments have been made to deal with changes in numbers of
shares issued during the period. Diluted EPS were not computed as the Company's
capital structure is not complex, having no dilutive instruments outstanding as
of the date of the financial statements.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board issued SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities effective for all fiscal quarters
of fiscal years beginning after June 15, 1999. The Company does not anticipate
the impact of this pronouncement will be material.
2. RELATED PARTY TRANSACTIONS
The Company's financing during its development stage has been provided by
non-interest bearing loans and capital contributions to the Company by its
shareholders. At October 31, 1999 the Company had liabilities to a major
shareholder of $150,000 in the form of an unsecured note payable bearing
interest at 8% per annum. The note calls for six annual principle installments
of $25,000 plus accrued interest. The note was issued for the purchase of
machinery, office equipment and furniture from the shareholder. Accrued
interest through October 31, 1999 was $1,775. In addition, shareholders'
contribution amounts totaling $381,698 as of October 31, 1999 are recorded as
par value class A and class B common stock and as additional paid in capital.
3. COMMITMENTS
The Company leases its corporate offices and manufacturing facilities in
Baltimore, Maryland under a six year lease agreement, which began on October 1,
1999. The lease encompasses commercial facilities of approximately 40,000
square feet. Rent for the first year is $14,274 per month plus applicable
sales tax, utilities, maintenance and property tax reimbursement and will
increase approximately 5% in each of the succeeding five years.
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INTERNATIONAL MERCANTILE CORPORATION
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
UNAUDITED
COMMITMENTS CONT'D
Future minimum requirements are:
<TABLE>
<S> <C>
FYE 7/31/00 $128,468
FYE 7/31/01 179,307
FYE 7/31/02 186,456
FYE 7/31/03 187,040
FYE 7/31/04 195,061
Thereafter 212,142
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$1,088,474
==========
</TABLE>
On October 15, 1999 the Company entered into a three year irrevocable
investment agreement with an unrelated third party (Private Equity Company) for
a private equity line of common stock totaling an aggregate $5 million. The
agreement calls for the Company to put up to $1 million of common stock to the
Private Equity Company at a purchase price equal to 91% of the Company's per
share "Market Price." Market price is defined as the lowest closing bid of the
Company's common stock during the 20 business days following each "Put Date."
Although the Company, at its option, may select a floor price, each "Put Date"
has the following conditions:
a) The Company's common stock shall be trading on the New York Stock Exchange,
American Stock Exchange, or NASDAQ Market System (including NASDAQ small cap or
Bulletin board Systems).
b) Five business days shall have passed since the Pricing Period End Date of
the prior Put.
c) The Company shall have given the Private Equity Company a minimum of 10
business days notice prior to each Put.
d) A Registration Statement is effective for the resale of the common stock
issued pursuant to each Put.
e) The Company shall file a Registration Statement within 45 days of closing
for the resale of the common stock purchased under the Equity Line.
As compensation to enter into this agreement, the Private Equity Company
received a warrant to purchase 150,000 shares of the Company's common stock
(the Commitment Warrants). Of the Commitment Warrants received, 50,000 shares
shall be exercisable upon the execution of all "Closing Documents" and 50,000
shares shall be exercisable the
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INTERNATIONAL MERCANTILE CORPORATION
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
UNAUDITED
COMMITMENTS CONT'D
sooner of 6 months from the date of the agreement or upon registration
effectiveness. The Commitment Warrants' exercise price shall equal the lesser
of the lowest closing bid price for the 5 days prior to the Company's execution
of the agreement or the lowest closing bid price for 5 days prior to the date
of execution of all Closing Documents. The Private Equity Company shall also
receive an amount of Warrants equal to 10% of the number of shares purchased
under each Put, exercisable at a price equal to 110% of the market price of
each Put. The agreement further calls for a $25,000 due diligence fee and a
$100,000 non usage fee (less 10% of the dollar amount Put during the 6 month
period) in the event the Company fails to Put $1 million of common stock each 6
month period during the agreement's 3 year term.
On October 15, 1999 the Company entered into a $1 million private placement
agreement with an unrelated third party. The placement will be sold on a best
efforts basis to qualified institutional investors. The placement fee is a
dollar amount equal to 8% of the aggregate purchase price of securities placed
plus an expense re-allowance equal to 2% of the aggregate purchase price of the
securities placed. In addition, a warrant to purchase a number of shares of
common stock equal to 10% of the amount placed divided by the 5 day average
closing bid price prior to closing, exercisable at an exercise price equal to
the 5 day average closing bid price prior to closing. There is no guarantee
that any sales of securities under this agreement will, in fact, occur.
4. OFFICERS' COMPENSATION
Prior to the reverse acquisition, the Company's day to day activities were
managed by certain officer/shareholders, who contributed their time on the
Company's behalf without compensation in either cash or stock. No value for
these services has been determined or recorded on the accompanying financial
statements. The Company currently employs these two individuals and fourteen
other employees at their administrative and operating facilities in Baltimore,
Maryland.
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INTERNATIONAL MERCANTILE CORPORATION
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
UNAUDITED
5. FIXED ASSETS
Fixed assets for the Company consisted of the following at October 31, 1999:
<TABLE>
<CAPTION>
Accumulated
Fixed Asset Depreciation Balance
----------- ------------ -------
<S> <C> <C> <C>
Website Development $ 3,018 $ 50 $ 2,968
Furniture & Fixtures 32,000 381 31,619
Manufacturing/Warehouse Equip 33,000 393 32,607
Computer Hardware 54,305 905 53,400
Transportation Equip 7,000 117 6,883
Office Equipment 28,000 467 27,533
Software Systems 32,921 548 32,373
------ --- ------
$190,244 $ 2,861 $187,383
======== ======== =======
</TABLE>
6. EMPLOYEE STOCK OPTION PLAN
The Company has an unqualified employee stock option plan. The terms of such
options are contracted between each eligible employee and the Company on a case
by case basis. As of the date of these financial statements, 7 such plans are
either active, pending the start of employment or under negotiation; none are
vested.
7. CONTINGENCIES
The Company's management has confirmed that as of the date of the financial
statements the Company is not involved in any lawsuits nor is there any pending
litigation.
An unwind provision exists as part of the merger agreement, whereby the merger
agreement could be rendered void. Management, however, believes that the
provision will not be exercised as all other provisions of the merger agreement
have been fulfilled.
8. YEAR 2000
Many currently installed computer systems and software products are coded to
accept only two-digit entries in the date code field and cannot reliably
distinguish dates beginning January 1, 2000 from dates prior to the year 2000.
Many companies' software and computer systems may need to be upgraded or
replaced in order to correctly process dates beginning in 2000 and to comply
with the "Year 2000" requirements. The Company has reviewed its' internal
programs and has determined that there are no significant Year 2000 issues
within the Company's systems or services. The Company has completed
modifications to its internal systems to attempt to ensure Year 2000
compliance. The costs of these modifications was not material and involved a
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INTERNATIONAL MERCANTILE CORPORATION
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
UNAUDITED
YEAR 2000, CONT'D
reallocation of internal resources rather than incremental expenditures. In
addition, the Company utilizes third party hardware, software and services that
may not be Year 2000 compliant. Although the Company believes that its'
software and the hardware and software provided by third parties is Year 2000
compliant, the Company may be wrong. If the Company is wrong, it could face
unexpected expenses to resolve any related issues and any unexpected
interruptions could be harmful to its business.
9. SUBSEQUENT EVENTS
Subsequent to October 31, 1999 and through the date of the Accountants'
Compilation Report, the Company sold to unrelated private investors 698,495
shares of Class A Common stock for a total of $196,000.
On November 1, 1999 the Company entered into four month consulting agreements
with two individuals for securities consulting and corporate investment banking
services. Monthly compensation for each of these individuals is to be at the
Company's option, either in the form of a total of 25,000 shares of Class A
common stock or $8,000. On November 3, 1999 each individual was issued 25,000
shares of Class A common stock of the Company as their first month's
compensation.
On November 15, 1999 the Company entered into a capital lease transaction with
an unrelated third party for the purpose of financing the Company's operational
and accounting software systems. The lease is for a term of three years
including monthly payments of $1,235 plus applicable sales tax and concludes
with a $1 buy out option at the end of the lease term.
On November 23, 1999 the Company entered into an agreement to manufacture 3,000
whitebox computer units per month beginning December of 1999 with a national
satellite distributed program network marketing group. The agreement is open
ended and has no minimum purchase requirements.
On November 23, 1999, a director/shareholder contributed $425,000 as additional
paid in capital to fund operations.
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