UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999.
OR
[ ] 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
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(Name of small business issuer in its charter)
Missouri 43-0970243
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1625 Knecht Avenue, Baltimore, Maryland 21227
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Address of principal executive offices ) (Zip Code)
Issuer's telephone number, including area code (410) 242-5000
Securities registered pursuant to Section 12(b) of the Exchange
Act:
Title of each class Name of exchange
on which registered
- ------------------- -------------------
None None
Securities registered pursuant to Section 12(g) of the Exchange
Act:
Class A Common Stock, $0.01 par value
-------------------------------------
(Title of Class)
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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 __X_ No____
Check if there is no disclosure of delinquent filers in
response to Item 405 of Regulation S-B is not contained in this
form, and no disclosure will be contained, to the best of
registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-K [ ]
State issuer's revenues for its most recent fiscal
year..................$1,465,294
State the aggregate market value of the voting and non-voting
common equity held by non-affiliates computed by reference to the
price at which the common equity was sold, or the average bid and
asked prices of such common equity, as of a specified date within
the past 60 days. (See definition of affiliate in Rule 12b-2 of the
Exchange Act).
As of April 13, 2000, the aggregate market value of common
stock, no par value, held by non-affiliates was approximately
$5,102,099 (7,759,846 shares at $0.6575, which is an average of the
bid and asked price).
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practical
date................
As of March 31, 2000, there were outstanding 14,151,513 shares of
Class A Common Stock, $0.01 par value, and 2,000,000 shares of
Class B Common Stock, $0.01 par value.
Transitimal Small Business Disclosure Format (check one)
Yes ________ No ___X_____
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PART I
Item 1. Description of Business
Forward-Looking Statements
This Report on Form 10K-SB contains statements that plan for
or anticipate the future. Forward-looking statements include
statements about the future of the white-box aspect of the PC
industry, statements about our future business plans and
strategies, and most other statements that are not historical in
nature. In this report, forward-looking statements are generally
identified by the words "anticipate", "plan", "believe", "expect",
"estimate", and the like. Because forward-looking statements
involve future risks and uncertainties, there are factors that
could cause actual results to differ materially from those
expressed or implied. For example, a few of the uncertainties that
could affect the accuracy of forward-looking statements include:
1. changes in general economic and business conditions
affecting the white-box aspect of the PC industry;
2. technical developments that make our products or
inventory obsolete;
3. our costs in the pricing of our products;
4. the level of demand for our products;
5. availability of product; and
6. changes in our business strategies.
The Private Securities Litigation Reform Act of 1995, which
provides a "safe harbor" for similar statements by existing public
companies, does not apply to our Company.
We were organized as International Mercantile Corporation
under the laws of Missouri on March 10, 1971 to operate in the
insurance industry. Since September 2, 1999, we have engaged in
the business of manufacturing competitively priced custom-
configured, build-to-order, unbranded or "white-box" desktop
systems and servers for value added resellers ("VARs"). We are in
our development stage. We presently do business under the
fictitious name of Micromatix.net ("Micromatix"). Unless the
context otherwise requires, all references to the "Company" "we"
"our" and other similar terms means Micromatix, but not Home
America Mortgage Company, our other subsidiary company which is
presently inactive.
(a) Business Development
We were organized as International Mercantile Corporation
under the laws of Missouri on March 10, 1971 for the purpose of
acquiring Frontier Insurance Company ("Frontier") and Universal
Life Holding Corporation ("Universal"). We effected these
acquisitions on August 31, 1973 and subsequently acquired a
controlling interest in Sterling Financial Corporation
("Sterling").
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Our Sale of Sterling - Fall 1993
In the Fall of 1993, in order to minimize our operational
expenses, we sold our interest in Sterling to Mike Polland and
Associates in exchange for stock, debt assumption and cash.
Our Sale of Universal - May 4, 1995
Universal Life Holding Corporation ("Universal") was
incorporated under the laws of Illinois on August 13, 1964.
Historically, the principal business of Universal has been in real
estate development, ownership, and management and the investment in
Frontier Insurance Company.
On May 4, 1995, we exchanged all of our common stock in
Universal with Universal for forgiveness of notes and other
payables owed by us to Universal. We incurred a gain on the sale in
the amount of $751,089.
Our Sale of Frontier's wholly owned subsidiary, IFS - April
1994
On January 1, 1994, Frontier owned 100% of International
Financial Services Life Insurance Company ("IFS"). On April 15,
1994, Frontier entered into a Stock Purchase Agreement (the "IFS
Agreement") with Franklin American Corporation, a Tennessee
corporation ("Franklin"), whereby Frontier sold Franklin all of
Frontier's issued and outstanding common stock of IFS (the "IFS
Shares"). The nature and amount of the consideration to be paid to
Frontier by Franklin for the purchase of the IFS Shares were as
follows: The aggregate purchase price of the IFS Shares equaled the
sum of (a) the current market value of IFS' total assets as of the
fifth business day prior to the closing date less IFS' total
liabilities calculated on a statutory basis as of the closing date,
plus (b) $1,155,000, based on Frontier's providing valid licenses
authorizing IFS to conduct business in 42 states less $27,500 per
state in which a valid license authorizing IFS to transact the
business of insurance was not delivered by Frontier at closing. The
consideration paid by Franklin for the IFS Shares was determined
through arm's-length negotiations, and neither Franklin, nor any of
its officers or directors, was in any way affiliated with, or
related to, Frontier. The Company recognized loss on this sale in
the amount of $775,508.
Our Sale of Frontier - November 1995
By December 31, 1994 Frontier was no longer issuing new
business due to regulatory actions and a voluntary commitment on
Frontier's part to the State of Missouri. Additionally, in the
fourth quarter of 1994, Frontier entered into an
Assumption/Reinsurance Agreement with Mid-South Insurance Frontier
pursuant to which Frontier transferred all policyholder
liabilities, effective October 1, 1994. On November 17, 1995, we
sold Frontier by (i) transferring all of our stock in Frontier for
full satisfaction of a note owed to two of our former officers,
Robert and William Bruce, (ii) canceling consulting agreements
(iii) canceling all inter-company receivables and payables (iv)
transferring our accrued rights to commissions due from the former
third party administrator, (v) transferring all obligations of
Ventana Corporation (f/k/a The C. J. Brown Corporation) which we
held, and (vi) assigning all our rights regarding litigation
against the Ventana Corporation and its officers to Frontier. As a
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result of this sale, the Company incurred a loss of $1,652,689.
Our Purchase, Sale and Reacquisition of Home America Mortgage
Company
Purchase - October 1992
Home America Mortgage Company ("Home America ") was
incorporated in 1986 under the name Realty Mortgage Company and in
October 1992, Frontier purchased Home America from the C. J Brown
Corporation. Home America operated as a provider of first mortgage
residential home loans. Home America originated, processed,
underwrote, closed, funded and delivered qualifying home loans to
established mortgage companies throughout the country. Its target
markets were in Louisiana, Alabama and Texas. Home America
originated over 1,056 loans in 1994 and 1,190 loans in 1993
totaling approximately $90,000,000 and $92,000,000, respectively.
Home America's revenues were derived primarily from origination
fees, servicing- release fees, and discount income.
Home America ceased operations in November 1995.
Pursuant to our Settlement Agreement on November 17, 1995 with
Robert and William Bruce concerning Frontier, we retained 100%
ownership of Home America common stock. Home America received a
mortgage executed by one of our consultants in the approximate
amount of $200,000, and in 1996, said mortgage was offset by fees
incurred, and the remaining asset and related mortgage debt of Home
America were transferred to Robert and William Bruce.
On November 17, 1995 we entered into a Settlement Purchase and
Sale Agreement of Corporate Stock with Continent Finance
Corporation whereby a change in control of our board of directors
occurred. We subsequently entered into a new settlement agreement
with Continent Finance Corporation whereby Continent Finance
Corporation would forgive certain debt and cash owed to them and
assist us in the administration of our affairs in exchange for our
delivery to Continent Finance Corporation 100% of any and all
interest we had in the common stock of Home America Mortgage
Company, which was then a non-operating shell company.
As a non-operating shell, Continent Finance Corporation and
our management were forced to assume all of the operating expenses
of Home America Mortgage Company. The former management of Home
America Mortgage Company abandoned Home America Mortgage Company's
offices and subsequently set up their own mortgage company within
the same building. We are exploring our legal options as a result
of their actions. We subsequently transferred ownership of Home
America Mortgage Company to Continent Finance Corporation.
In July of 1997, we acquired Continent Finance Corporation's
interest in Home America Mortgage Company and its rights to acquire
University Mortgage, Inc., and we acquired 50% of University
Mortgage, Inc. with the right to acquire the balance of ownership
by year's end 1997. The transaction called for us to issue
1,500,000 shares of our common stock to Continent Finance
Corporation and 400,000 shares of our common stock to the sellers
of University Mortgage, Inc., subject to a reverse split of our
outstanding common stock.
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Additionally, Continent Finance Corporation was entitled to
receive additional shares of our Company for work associated with
mergers and acquisitions, assisting in raising capital, obtaining
additional market makers and securing investment banking
relationships. In addition, Continent Finance Corporation had an
option to obtain another 2,000,000 shares of our Company in the
event Home America Mortgage Company and its Balance Sheet could
withstand independent audit review. Management and its auditors
could not verify Home America Mortgage Company's balance sheet and
Continent Finance Corporation's option was canceled. We carried
Home America Mortgage Company at a zero value at year end 1997.
Continent Finance Corporation remained as our administrator and
assisted us in obtaining outside financing and located viable
business opportunities.
On July 7, 1997, our board of directors authorized a 31 to 1
reverse stock split of our $1.00 par value common stock which
reduced the number of our issued and outstanding shares of common
stock to 101,070. This reverse stock split was conditioned upon,
and occurred simultaneously with, Continent Finance Corporation's
transfer to us of (i) 100% of the total issued and outstanding
shares of Home America and all the rights it owned in University
Mortgage Inc.; (ii) and its continued assistance in obtaining
capital and viable business opportunities; in exchange for
1,500,000 shares of our restricted common stock. According to
Continent Finance Corporation's December 31, 1996, Audited Balance
Sheet, Home America was valued at $10,955,315. This transaction
occurred on August 1, 1997 and provided Continent Finance
Corporation with voting control of our Company. Prior to this
transaction, no one person or group possessed voting control of our
Company.
Our Acquisition of University Mortgage - January 1997
In December of 1997, we acquired the balance of University
Mortgage Inc. for 400,000 restricted shares and a note for
$300,000. The Purchase Agreement call for a maintenance value for
the shares transferred to the seller for (1) one year. In the
event that the stock price fell, we were obligated to issue
additional restricted class "A" common stock to maintain the
original value of the transaction, which resulted in the issuance
of 1,100,000 additional shares during 1998.
University Mortgage, Inc. is a mortgage banking company based
in Chevy Chase, Maryland. University Mortgage, Inc.'s principal
business is the origination and sales of purchase, refinance, home
equity, home improvement and debt consolidation loans from
residential customers in Maryland, Virginia, Washington, D.C.,
Pennsylvania and Delaware. The Company does not retain any
servicing rights on loans it originates
In December 1998 we completed restructuring with University
Mortgage and our agreement with Continent Finance Corporation. FSR
Group acquired all debt due and owing to the sellers of University
Mortgage Inc. in exchange for release of FSR Group's obligations to
our Company. In addition, Continent Finance Corporation agreed to
pay obligations on behalf of our Company.
In 1999, prior to the sale of University Mortgage Inc. to
PCLoan.com, University Mortgage Inc. sold a substantial control
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position to one of our affiliates through the purchase of
authorized but unissued shares of University Mortgage Inc., in
exchange for assets and debt assumption.
Dilution of Our University Mortgage Holdings - July 1999
On July 31, 1999, we caused our sole operating subsidiary,
University Mortgage, Inc., to issue a significant amount of new
stock to M. Scott Hess, one our directors, in consideration of his
investment in University Mortgage, Inc. of approximately
$14,000,000 in assets, notes and securities. This action
effectively diluted our holding in University Mortgage, Inc. to
less than 5%. Subsequently, in a stock for stock transaction, we
exchanged our 3,000,000 shares of University Mortgage, Inc. for
3,000,000 of shares of VirtualLender.com, Inc., a publically traded
company controlled by Mr. Hess. As a result, we effectively turned
our Company into a publicly traded "shell" company.
Other than maintaining our good standing status in the State
of Missouri, and seeking prospective businesses or assets to
acquire, from August 1, 1999 to September 2, 1999, we had no
business operations. Our subsidiary company, Home America remained
inactive.
Since September 2, 1999, we have engaged in the business of
manufacturing competitively priced custom-configured, build-to-
order, unbranded or "white-box" desktop systems and servers for
value added resellers ("VARs"). We are in our development stage. We
presently do business under the fictitious name of Micromatix.net
("Micromatix"). Unless the context otherwise requires, all
references to the "Company" "we" "our" and other similar terms
means Micromatix, but not Home America Mortgage Company, our other
subsidiary company which is presently inactive.
Our Recapitalization With Micromatix.com, Inc.
On September 2, 1999, we entered into a transaction with Red
River Trading Company, Inc. ("Red River"), the sole shareholder of
Micromatix.com, Inc., a Delaware corporation, whereby we
recapitalized our Company with Micromatix.com, Inc., in exchange
for consideration payable to Red River equal to $1,375,000, payable
by delivery of (i) one million shares of Class B common stock at a
deemed price of $1.00 per share. Each share of Class B common stock
is entitled to 51 votes; and (ii) 1.5 million shares of Class A
common stock at market value of $.25 per share. We are treating
this transaction as a reverse merger for accounting purposes, even
though we have not yet filed the requisite articles of merger and
other related documents with the applicable state authorities.
Pursuant to this transaction, we have a put option to return
the Micromatix.com, Inc. shares back to Red River if
Micromatix.com, Inc. fails to implement its business plan and
achieve certain performance benchmarks. This put option expires
September 2, 2000. If we exercise our put option, Red River must
return to us all of their shares of Class A and Class B common
stock. Additionally, Red River is required to repay any funds that
we, or any third party, invested into Micromatix.com, Inc. This
obligation is to be evidenced by a promissory note payable in 24
equal monthly installments, guaranteed by Red River and secured by
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all of the capital stock and assets of Micromatix.com, Inc.
Additionally, Red River has a put option to reacquire
Micromatix.com, Inc. and return all of its Class A and Class B
common stock to us if we do not invest, directly or indirectly,
$350,000 in Micromatix.com, Inc. on or before November 30, 1999
(excluding the $150,000 which was invested at closing). If Red
River exercises its put option, Red River must repay all funds we
invested in Micromatix.com, Inc., in the same manner as described
above. This put option expires September 2, 2000.
Our agreement with Red River also provided that we hold our
annual meeting of stockholders and a meeting of our board of
directors no later than 60 days after closing to consider and act
upon the following matters:
(1) a 2 for 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 our chairman, Frederic S. Richardson, 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 our state of domicile to Delaware.
Items 3, as described above was successfully implemented.
Other than with respect to item 5., we intend to implement the
remaining items during 2000.
Additionally, at the closing, we made the following changes in
our management structure:
(1) Michael Scott Hess resigned as our Director and
President.
(2) C. Timothy Jewell, Red River's President, was appointed
as our new President; and
(3) Bernard Cary was appointed as our Vice President and
Chief Operating Officer.
(b) Our Present Business
Since September 2, 1999, we have engaged in the business of
manufacturing competitively priced custom-configured, build-to-
order, unbranded or "white-box" desktop systems and servers for
value added resellers ("VARs"). We are in our development stage. We
presently do business under the fictitious name of Micromatix.net
("Micromatix"). Unless the context otherwise requires, all
references to the "Company" "we" "our" and other similar terms
means Micromatix, but not Home America Mortgage Company, our other
subsidiary company which is presently inactive.
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OUR PRODUCTS
We manufacture competitively priced custom-configured, build-
to-order, unbranded or "white-box" desktop systems and servers for
value added resellers ("VARs"). Our PC systems utilize compatible,
industry standard, branded components as a cost-effective
alternative to branded PC systems. Our goal is to become the
VARs' source-of-choice for build-to-order PC systems. We intend to
do this by:
1. Serving the VARs' integration needs. We intend to
develop an East Coast network of local, high quality
white-box manufacturers supported by an Internet based,
state of the art e-commerce system. Through our network
of local assembly facilities, we expect to be able to
deliver high quality white-box PC systems that use
compatible, industry standard, branded components as a
cost-effective alternative to branded PC systems.
Further, as a large East Coast operator, we expect to
also provide VARs with infrastructure and support which
is typically difficult and costly for a VAR to maintain
itself.
2. Creating a Web-Centric 'Application' for the VAR to
conduct business via our state of the art e-commerce
system. We believe that end-users are increasingly
demanding the ability to customize and purchase computer
products and services online. Therefore, we will provide
solutions designed to provide our customers the ability
to offer online product configuration, pricing,
selection, ordering, tracking, and returns capabilities,
which in turn will provide the VAR with the ability for
end-users to easily order computer products and support
services from their supplier.
3. Maintaining Build-to-Order Customer Focus. We intend to
focus on VARs and Fortune 1000 companies, and to act as
a partner of the VAR rather than its competitor. We
provide "just-in-time," local assembly of PC systems
pursuant to the VAR's customers' specifications upon
receipt of an order by utilizing in stock industry
standard branded components, including Intel
microprocessors and Microsoft operating systems, at the
facility serving the VAR which placed the order. This
enables us to maintain only limited quantities of
components sensitive to technological improvement or
price decreases and insulate us from inventory
obsolescence that otherwise might increase our costs. We
can then pass our cost savings on to the VAR, which, in
turn, can offer a more competitive price to their
customers. As a result, we expect the VARs to outsource
their assembly, logistics and other requirements to us,
allowing them to focus on higher margin businesses such
as providing software, integration and support.
4. Consolidating the fragmented white-box market. We
believe that there are a large number of attractive
acquisition candidates in the highly fragmented white-box
segment of the PC systems market. We intend to actively
seek to acquire companies engaged in the assembly of
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white-box PC systems in targeted geographic markets in
order to establish an East Coast network of local
assembly facilities. We will target companies that have
a strong local market share, are led by an experienced
management team, and that focus on serving VARs.
5. Emphasizing Quality Control as Foundation for Growth.
Since the production of superior quality systems is the
foundation on which we expect our business will prosper,
our strategy is to embrace ISO 9002 as its foundation for
quality since it encompasses all of the operating
departments of our business and is not just one of the
latest 'quality fads' that come and go. When
implemented, and actively worked, ISO provides key
improvements to both the qualities of the product and our
overall business model.
OUR MARKET
According to International Data Corporation:
1. The total U.S. market in 1998 for PC systems, including
desktops, notebooks and servers, was approximately 36
million units, accounting for approximately $75 billion
in revenue.
2. It is estimated that this market will grow at a
compounded annual growth rate of 12.1% over the next
three years.
3. It is estimated that the white-box PC market accounts for
more than 20% of all U.S. PC shipments, which makes the
white-box market the biggest 'brand' of PCs sold in the
United States. In 1998, 8.3 million white-box PC systems
were sold, compared to 3.3 million units sold by Compaq
(the leading PC systems manufacturer), 2.7 million units
sold by Dell, 1.9 million units sold by Hewlett-Packard,
and 1.5 million units sold by IBM.
4. The white-box market expanded at a unit rate of at least
15% in 1998 and it is currently maintaining its share by
growing at least in line with the overall industry
average.
OUR CUSTOMERS RESELLERS/VARs
The white-box market includes:
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1. Small business and small office marketplaces (primary
market);
2. State and local government;
3. Educational institutions;
4. Home offices;
5. Consumer markets;
6. Some medium-sized and large businesses.
We believe the lower cost of a white-box PC compared to a
branded PC is an important factor for small businesses, which makes
up our primary market. In addition, many VARs appear to be more
inclined to recommend white-box PCs to their small business
customers over branded PC's due to:
1. Quality control principles. VARs can easily assemble
desktop PCs, notebooks and servers and perform their own
diagnostic burn-ins, ensuring that each unit meets high
quality standards prior to delivery to the VAR's
customer.
2. Enhanced customer service. Since the same branded
components used by manufacturers of branded PCs are
available to VARs on short notice, VARs can offer their
customers a greater choice in components and can
configure the white-box PC to meet their customers'
requirements.
3. Greater profit margins. International Data Corporation
research shows that reseller margins are greater for
white-box PCs than for branded PCs. On average, white-
boxes with the same components as a branded system can
return margins as high as 20% to the manufacturer.
OUR VENDOR RELATIONS
We have accounts with numerous suppliers that provide us with
the components required to custom configure systems for our
customers. Our purchasing decisions are primarily governed by
pricing and availability. We currently do not have any guarantees
to purchase from specified vendors for any parts. Conversely, we
also do not have any contracts that require any vendor to segregate
and maintain inventory for our consumption. As a result, we are
dependant upon market conditions to obtain products at reasonable
prices that allow us to operate profitably. Should market
conditions experience any shortages or price hikes, we would be
subject to such conditions and would be unable to compete with
other companies with supplier contracts.
OUR COMPETITION
The PC systems industry is highly competitive and has been
characterized by intense pricing pressure, generally low gross
margin percentages, rapid technological advances in hardware and
software, frequent introduction of new products and rapidly
declining component costs. Our current and potential competitors
can be divided into three primary groups:
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1. Other white-box manufacturers;
2. Distributors; and
3. Branded PC system manufacturers.
Other White-Box Manufacturers.
We compete for market share against other white-box
manufacturers. Competitive factors in the white-box PC systems
market include:
(a) Product quality and availability;
(b) Price;
(c) Brand name components;
(d) Marketing and distribution resources; and
(e) Customer service and support.
We believe that we can strongly compete against other white-
box manufacturers with respect to each of these factors since we
expect to be in the unique position of being the only white-box
manufacturer with a nationwide presence. As a result, we should be
able to negotiate favorable terms with vendors of branded
components and achieve efficiencies and economies of scale not
typically available to white-box manufacturers located in more
remote locations.
Distributors.
We also compete for market share against distributors of PC
systems. Many of these competitors are well-established and possess
greater financial, marketing, technical, personnel and other
resources than we do, and we cannot assure that we will have the
ability to compete successfully. Our financial resources are
relatively limited when contrasted with these competitors.
However, we feel we can compete with these competitors to a
certain degree since we intend to act as a VAR's partner and sell
and distribute our PC systems and components exclusively to VAR's
and not their customers, while PC system distributors market their
products to both VARs and end-users, the VARs' customers. We
believe that acting as a VARs' partner, instead its competitor,
will cause the VAR's to source their PC systems needs from us
rather than from other non-exclusive distributors.
Branded Manufacturers.
We also compete for market share against regional, national
and international manufacturers of branded PC systems, all of which
are well-established and possess significantly greater financial,
marketing, technical, personnel and other resources than we do. We
cannot assure that we will have the ability to compete successfully
against any of these competitors. The dominant companies in the
branded PC system industry are Compaq, Dell, Gateway, IBM, Apple,
and Hewlett-Packard.
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However, although the residual resistance of consumers to
unbranded PC systems remains a challenge to us, we feel we are well
positioned to face challenges from this segment of the PC systems
market due to the growing acceptance of the white-box, as well as
the higher sales and marketing expenses which such manufacturers of
branded systems must internalize and pass on to their customers.
OUR FACILITIES
Our executive and business offices and manufacturing
facilities are located at 1625 Knecht Avenue, Baltimore, Maryland
21227. Our facilities consist of approximately 40,000 square feet
of space. We believe our facilities are adequate for our
reasonably foreseeable needs. See "Description of Property".
OUR EMPLOYEES
We presently employ 40 full time and 8 part time personnel who
work in management, administration, sales, assembly, and
warehousing. We have also contracted with two consulting executives
to advise in our business development, business strategies and
securities and investment banking activities. We consider our
employee relations to be good, and none of our employees are
represented by a labor union. We believe that our future success
will depend in part on our continued ability to attract, integrate,
retain and motivate highly qualified sales, technical, and
managerial personnel, and upon the continued service of our senior
management and key sales and technical personnel.
Our success depends upon our senior management, particularly,
C. Timothy Jewel, our President and Chief Executive Officer and
Bernard C. Cary, our Vice President and Chief Operating Officer.
The loss of any one of their services could have a material affect
on our Company. Although Mr. Jewell and Mr. Cary have entered into
employment arrangements with us, neither the final terms of Mr.
Jewell's nor Mr. Cary's employment agreement with us have been
determined and placed in written form.
Most of our technical personnel are not bound by employment
agreements that prevents such personnel from terminating his or her
relationship with us at any time for any reason. At times we have
experienced difficulties in attracting new personnel. We cannot
assure that we will successfully attract, integrate, retain and
motivate a sufficient number of qualified personnel to conduct our
business in the future.
Item 2. Properties.
Our executive and business offices and manufacturing
facilities are located at 1625 Knecht Avenue, Baltimore, Maryland
21227. Our facilities consist of approximately 40,000 square feet
of space. We believe our facilities are adequate for our
reasonably foreseeable needs.
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Item 3. Legal Proceedings.
In July of 1999, Bowne & Co., Inc., a financial and corporate
printer, filed suit against us in New York, seeking approximately
$18,000 for, among other things, outstanding printing invoices
which we did not pay. As of yet, we have not filed any response to
this law suit, and this suit is still pending.
No other material legal proceedings are pending of which we
are a party.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of our security holders
during the fourth quarter of our fiscal year.
PART II
Item 5. Market for Common Equity and Related Stockholders Matters.
(a) Market Information
Our Class A common stock ("common stock") has been traded on
the over-the-counter market since 1971. The following table sets
forth the range of high and low bid quotations for each quarterly
period in the fiscal year ended December 31, 1999, and 1998 as
reported by over-the-counter market quotations. The quotations
reflect inter-dealer prices, without retail mark-up, mark down or
commission and may not represent actual transactions.
<TABLE>
<CAPTION>
High Low
Bid Asked Bid Asked
<S> <C> <C> <C> <C>
1998
1st Quarter $5.25 $6.25 $0.50 $1.00
2nd Quarter $2.625 $2.75 $0.75 $1.25
3rd Quarter $2.00 $2.125 $0.75 $1.125
4th Quarter $1.25 $1.50 $0.40625 $0.53125
1999
1st Quarter $0.625 $0.8125 $0.1875 $0.125
2nd Quarter $0.34375 $0.375 $0.0625 $0.125
3rd Quarter $0.30 $0.50 $0.03125 $0.09375
4th Quarter $0.8125 $1.00 $0.125 $0.21875
</TABLE>
(b) Holders
As of March 1, 2000, approximately 2,500 holders of record
held our common stock.
Page -14-
<PAGE>
(c) Dividends
No cash dividends were declared or paid on either class of our
common stock for the last two fiscal years. No restrictions limit
our ability to pay dividends on its common stock.
Recent Sales of Unregistered Securities
During the first half of fiscal year 1999, we sold 1,732,333
shares of our common stock at $0.30 per share, $519,700 in the
aggregate, pursuant to a private placement transaction. The
exemptions we relied upon were Sections 4(2), 4(6) and Regulation
D of the Securities Act of 1933, as amended. The stock was sold to
22 individuals and/or entities, all of whom were "accredited"
investors as that term is defined in Regulation D. The net
proceeds to our Company for the sale of the 1,732,333 shares were
approximately $451,700 after offering expenses paid in our common
stock of approximately $16,000 and commissions paid in cash of
approximately $52,000. No underwriting discounts were paid by our
Company in connection with the abovementioned transactions.
On July 31, 1999, we caused our sole operating subsidiary,
University Mortgage, Inc., to issue a significant amount of new
stock to M. Scott Hess, one our directors, in consideration of his
investment in University Mortgage, Inc. of approximately
$14,000,000 in assets, notes and securities. This action
effectively diluted our holding in University Mortgage, Inc. to
less than 5%. Subsequently, in a stock for stock transaction, we
exchanged our 3,000,000 shares of University Mortgage, Inc. for
3,000,000 of shares of VirtualLender.com, Inc., a publically traded
company controlled by Mr. Hess. The exemptions we relied upon were
Sections 4(2), 4(6) and Regulation D of the Securities Act of 1933,
as amended. No commissions or underwriting discounts were paid by
our Company in connection with the abovementioned transaction.
On September 2, 1999, we entered into a transaction with Red
River Trading Company, Inc. ("Red River"), the sole shareholder of
Micromatix.com, Inc., a Delaware corporation, whereby we
recapitalized our Company with Micromatix.com, Inc., in exchange
for consideration payable to Red River equal to $1,375,000, payable
by delivery of (i) one million shares of Class B common stock at a
deemed price of $1.00 per share. Each share of Class B common stock
is entitled to 51 votes; and (ii) 1.5 million shares of Class A
common stock at market value of $.25 per share. At the time of this
transaction, Red River was an unrelated third party and this
transaction was negotiated at arms length. The exemptions we relied
upon were Sections 4(2), 4(6) and Regulation D of the Securities
Act of 1933, as amended. No commissions or underwriting discounts
were paid by our Company in connection with the abovementioned
transaction.
Also, during the second half of fiscal year 1999, we sold
1,434,342 shares of our common stock at various prices ranging from
$0.22 to $0.41 per share (depending upon OTCBB price quotations for
our common stock at the time of sale), $368,905 in the aggregate,
pursuant to a private placement transaction. The exemptions we
relied upon were Sections 4(2), 4(6) and Regulation D of the
Securities Act of 1933, as amended. The stock was sold to 57
individuals and/or entities, all of whom were "accredited"
Page -15-
<PAGE>
investors as that term is defined in Regulation D. The net
proceeds to our Company for the sale of the 1,434,342 shares were
approximately $320,905 after offering expenses paid in our common
stock of approximately $11,000 and commissions paid in cash of
approximately $37,000. No underwriting discounts were paid by our
Company in connection with the abovementioned transactions.
Item 6. Management's Discussion and Analysis or Plan of Operation.
This Annual Report on Form 10-KSB contains forward-looking
statements. For this purpose, any statements contained in it that
are not statements of historical fact should be regarded forward
looking statements. For example, the words "believes,"
"anticipates," "plans," and "expects" are intended to identify
forward-looking statements. There are a number of important
factors that could cause the Company's actual results to differ
materially from those indicated by such forward-looking statements.
These factors include those shown at the end of this section under
the caption "Certain Factors That May Affect Future Results."
Since September 2, 1999, we have engaged in the business of
manufacturing competitively priced custom-configured, build-to-
order, unbranded or "white-box" desktop systems and servers for
value added resellers ("VARs"). We are in our development stage. We
presently do business under the fictitious name of Micromatix.net
("Micromatix"). Unless the context otherwise requires, all
references to the "Company" "we" "our" and other similar terms
means Micromatix, but not Home America Mortgage Company, our other
subsidiary company which is presently inactive.
Since September 2, 1999, our primary efforts have been focused
on our capitalization; the establishment of our website, internal
infrastructure, production lines and development of a marketing
team.
Results of Operations
We began sales operations on October 1, 1999 and for the first
quarter ended December 31, 1999 we posted total sales of
$1,465,294. The ability to realize this level of sales, while a
start up company in a developmental phase, is due to a number of
factors. Our management has a depth of experience within and
related to the computer industry and a history of successful
business ventures. The business plan prepared by these individuals
is based upon their knowledge of the market and its conditions. To
implement and achieve the aggressive but attainable goals outlined
in their plan, management recruited salespersons at the top of
their field; salespersons who have customer bases that reflect our
goals in both our target markets and reseller qualifications. The
hiring of these salespersons resulted in an immediate clientele
with existing purchasing power and ability and allowed us to
achieve the sales results reflected.
By taking advantage of an extraordinary situation resulting
from a competitor going out of business, we were able to establish
our manufacturing and warehouse facility with minimal time, effort
and capital outlay. From our September 2, 1999 date of inception,
our management was able to concentrate on recruiting and hiring the
Page -16-
<PAGE>
personnel necessary to implement our plan in the areas of
accounting, technical support, warehouse and inventory management,
purchasing and customer service. All these important areas have
been fully staffed from the first day of operations to support the
projected volume of sales anticipated in our business plan. As a
reflection of our proactive outlook, our SG&A for the quarter ended
December 31, 1999 is higher than would occur under normal business
conditions given the level of sales generated. The SG&A of
$502,065, as a percentage of sales for the period since inception
of September 2, 1999 was 35%. This is a reflection of the quality
of the personnel and our Company's positioning to allow us to
handle the higher sales volume once it is realized.
Plan of Operation
As reflected above, since inception, our primary efforts have
been focused on our capitalization; the establishment of our
website, internal infrastructure, production lines and development
of a marketing team. Our emphasis during the year 2000 will be to
increase sales by capturing a larger percentage of the growth in
the white box market. Based upon the current SG&A rate, we believe
that sales revenues of $1.5 million per month, at a gross margin of
12%, is our Company's break even level. Management anticipates
that this amount is not only achievable, but conservative. Our
growth is projected to be an increase in sales of equal to or
greater than 50% each quarter, which would annualize to
approximately $18 million in sales. Potentially, should all the
contracts materialize that we are currently negotiating, annual
sales could exceed $40 million for the calendar year 2000. In
addition, future growth strategies may include strategic
acquisitions should opportunities arise which would not jeopardize
current operations. This anticipated growth, along with the growth
already experienced, has and will strain our financial and
operational resources. Additional funding is necessary to achieve
the results projected. Multiple funding avenues are currently
being explored to provide the resources needed to fund this growth
while allowing our Company to maintain our debt at a manageable
level for our cash flow.
Marketing
We currently have a sales force consisting of six account
executives, with varying degrees of experience, but all with a
knowledge of computers essential to assisting customers in
configuring their orders optimally. In addition, we have two
account executives specializing in government sales and marketing,
along with the management of our strategic corporate accounts
(Fortune 500). Our website allows our customers and potential
customers to view our specials and to apply for active account
status. In the year 2000, we have plans to upgrade the site to
allow our customers to custom configure their orders online, with
real-time interaction with our inventory software to allow them to
ascertain availability of product, and an order tracking function
which will allow the customer to monitor their orders progress
through production. We anticipate that this upgrade will cost
approximately $125,000. Our sales department is currently faxing
to all current customers and potential customers in our extensive
database our specials on a weekly basis. We have tele-marketers
calling and updating our database of prospective customers on a
daily basis. We anticipate that the addition of a minimum of 5
Page -17-
<PAGE>
sales persons will be required to attain the sales goals outlined.
Production
Our production department is designed for flexibility and
staffed with skilled assemblers and system integration technicians.
Small to medium quantity orders can be easily produced on our
existing custom configuration line. In addition, we have the
capability, at very short notice, of activating an assembly line of
skilled workers for large production builds. As these contracts
increase in consistency and quantity, these workers will be brought
in on a permanent basis. The facility has the capacity to add
additional assembly lines as the need arises. We have completed
the required independent audit for ISO 9002 certification and we
expect to have our certification on or around April 15, 2000. The
ISO 9002 certification is an internationally accredited standard
which guarantees that our product is processed to the highest
quality standards.
Inventory
We manage the quantity and quality of our component inventory
through our experienced purchasing personnel and warehousing policy
and procedures. We strive to maximize our responsiveness to
customer requirements while optimizing inventory turns. Inventory
management is critical to the success of our business. Our
strategy is to focus on products with high turnover ratios to
reduce exposure to product obsolescence, changing consumer demands
and declines in market prices, while still fulfilling the needs of
our customers. Our software program facilitates the control of
purchasing, inventory, and accounts payable. Each sales
representative has available real-time data with respect to our
inventory levels. We believe that we are able to take advantage of
synergies and efficiencies arising out of the combination of system
assembly and inventory warehousing in a single facility.
Certain Factors That May Affect Future Results
The white box PC industry, as well as the distribution
industry, is highly competitive. Competition is largely based on
price, quality, range of service offered, shipping capabilities,
customer service, and product availability. Many of our
competitors are larger, more established and have greater name
recognition and financial and marketing resources than our Company.
As a result, we could potentially experience downward pricing
pressure and increased competition which would drive down revenues
by either forcing a cut in sales or in prices. There is always the
risk of general market down turn which could impact revenues and
growth.
We are considered a start-up company and have no significant
operating history. We have not generated significant revenue to
date to support operations on an ongoing basis. There can be no
assurance that we will achieve sufficient revenues to offset
anticipated operating costs. Our viability, profitability and
growth depend upon our meeting our sales goals and our attaining
sufficient financing to purchase inventory at competitive prices.
There can be no assurance that we will be able to generate revenues
or ever achieve profitable operations.
Page -18-
<PAGE>
We have no significant capital. We have required significant
capital to develop our business and to date all of our setup costs
have been funded via sales of common stock and related party loans.
We will continue to require significant funds as we grow. We are
currently generating limited revenue from our operations. We have
no current arrangements in place with respect to sources of
additional financing. If we have to arrange for financing to
further the development of our business, there can be no assurances
that such financing will be available on acceptable terms or at
all. The inability to obtain additional financing, when needed,
would have a material adverse effect on us, including possibly
requiring us to curtail or cease our operations.
Demand and market acceptance for white box PC systems are
subject to a high level of uncertainty. There can be no assurance
that widespread acceptance of white box PC systems, or our products
in particular, will occur. We will rely on VAR's who utilize white
box PC systems to purchase our products. In order for us to be
successful, these VAR's must perceive us as their partner, not
their competitor. Further, issues concerning the reliability, cost
and quality of white box PC systems may affect our market. We
cannot assure that VAR's will view us as "partners" and utilize our
products. If our products do not achieve market acceptance, our
business, results of operations and financial condition could be
materially adversely affected.
Year 2000 Issues
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. Many companies' software and computer systems have been
upgraded or replaced in order to correctly process dates beginning
in 2000 and to comply with the "Year 2000" requirements. We have
reviewed our internal programs and have determined that there are
no significant Year 2000 issues within our systems or services. We
have completed modifications to our internal systems to attempt to
ensure Year 2000 compliance. The costs of these modifications was
not material and involved a reallocation of internal resources
rather than incremental expenditure. In addition, we utilize third
party hardware, software and services that may not be Year 2000
compliant. Although we believe that our software and the hardware
and software provided by third parties is Year 2000 compliant and
no year 2000 complications have been noted as of the date of this
report; we may be wrong. If complications do arise, we could face
unexpected expenses to resolve any related issues and any
unexpected interruptions could be harmful to our business.
Item 7. Financial Statements
Our Financial Statements of are attached as Appendix A
(following Exhibits) and included as part of this Form 10-KSB
Report. A list of our Financial Statements is provided in response
to Item 13 of this Form 10-KSB Report.
Page -19-
<PAGE>
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.
Not Applicable
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange Act.
(a) Identity of directors and executive officers.
<TABLE>
<CAPTION>
Name Age Position Director Since
- ---- --- -------- --------------
<S> <C> <C> <C>
Maxwell Apple 61 Director, Chairman of the
Board, Secretary 1991
C. Timothy Jewel 43 Director, Chief Exec.
Officer, President 1999
Bernard C. Cary 35 Chief Operating Officer *
Frederic Richardson 40 Director, Treasurer, 1997
Executive V.P., Ass't
Secretary, Chmn. Emeritus
Edward A. Hutya 56 Director 1997
</TABLE>
Each director is elected until the next Annual Meeting of
shareholders and until his successor is qualified.
(b) Business experience of directors and executive officers.
Mr. Maxwell W. Apple has been one of our directors since 1991,
and has also served as our Secretary since 1995. Mr Apple is a
former judge and currently a member of the Indiana Bar. He has been
involved in various business ventures which include owning Nunur
Corporation, a company which owned commercial and residential
properties, being a partner in French Lick Springs Golf and Tennis
Resort, L.P., and being the sole shareholder of The Paoli
Corporation, a company specializing in the manufacturing of wood
products and operating lumber dry kilns. He received his Juris
Doctor Degree from the Indiana University School of Law and also
attended the National College of the State Judiciary and Indiana
Judicial College during.
Mr. C. Timothy Jewell has been our President and Chief
Executive Officer since September 1999. From 1997 to 1999, Mr.
Jewel served as general manager of Arbor Computer Company, a
computer manufacturing company. Prior to that time, Mr. Jewell
served as a consultant with CTJ Enterprises, Inc., a computer
systems integration consulting firm. Mr. Jewell received a
Page -20-
<PAGE>
Bachelor of Science degree in accounting from the University of
Tennessee in 1976 and an MBA in Finance from Southeastern
University in 1980.
Mr. Bernard C. Cary has been our Chief Operating Officer since
September 1999. From October 1997 to June 1999 he served as a Vice
President of Arbor Computer Company, a computer manufacturing
company. From 1991 to October 1997, Mr. Cary served as the managing
partner of Micromatix Distribution, a computer distribution
company. Mr. Cary received a Bachelor of Science Degree in
Engineering from the University of Maryland in 1984.
Mr. Frederic S. Richardson has been our director since
September 1998. He also served as our Chief Financial Officer
during 1998 and part of 1999. Mr Richardson is experienced in
insurance, mortgage and financial services transactions. He focuses
on structuring transactions for private and public entities,
raising capital, and identifying acquisition targets. Since 1994,
Mr. Richardson has been the President of Maccabean Industries,
Inc., a consulting firm specializing in raising capital for
companies in the financial services industry and real estate
market. Mr. Richardson received a degree in Economics from the
University of Maryland in 1983 and a Masters in Business
Administration from American University in 1996.
From 1991 until its liquidation in February 1994, Mr.
Richardson was a director and officer of Corporate Life Insurance
Company ("CLIC"), a stock life insurance company from 1991 until
its liquidation in February 1994. He was the controlling
stockholder of the corporate parent and controlling stockholder of
CLIC. In June 1995, Linda L. Kaiser, the Insurance Commissioner of
Pennsylvania and CLIC's Statutory Liquidator, filed a complaint
against Mr. Richardson (and others) alleging, among other things,
that he engaged in fraudulent and negligent conduct in his
operation of CLIC causing the company to lose millions of dollars
and finally collapse. CLIC was liquidated and dissolved by the
Insurance Commissioner. In October 1997, Mr. Richardson entered
into a Settlement Agreement with the Insurance Commissioner
pursuant to which he was released from the lawsuit and from any
further liability. Pursuant to the terms of the Settlement
Agreement, the policy limits of Mr. Richardson's insurance policy
were paid to the Statutory Liquidator. In addition, he agreed not
to accept any position of executive authority with any Pennsylvania
domiciled insurance company without the consent of the Commissioner
and agreed not to accept any position of executive authority with
any other insurance company for a period of ten years.
Mr. Edward A. Hutya has been one of our directors since 1997.
He also served as our vice president until September 1999. He is
currently the president of the Center of Independent Living and a
consultant to Riverside Healthcare foundation, two not-for-profit
organizations. Mr. Hutya has many years of experience in the
operations and acquisitions of health care properties. During his
tenure as president of several not-for-profit corporations, Mr.
Hutya directed corporate development for the acquisition of housing
and nursing facilities for the elderly and special populations. Mr.
Hutya also selected and hired management companies which operated
nursing homes. Prior to his involvement with not-for-profit
organizations, Mr. Hutya specialized in financing, including
equipment, vehicles, real estate and governmental leasing and
financing. Mr. Hutya received a degree in Economics from the
University of Connecticut in 1965, and participated in graduate
Page -21-
<PAGE>
work in Urban Economics at American University.
Officer and Director Resignations
In September 1999, Walter DeRonde and M. Scott Hess resigned
as directors and officers of our Company. In September 1999, Mr.
Hutya resigned as our vice president.
Section 16(a) Beneficial Ownership Reporting Compliance.
To the best of our knowledge, based solely on reports
furnished to us, none of our officers, directors and/or beneficial
owners of more than 10% of our common stock, filed any reports as
required by Section 16(a) of the Exchange Act during the most
recent fiscal year.
Item 10. Executive Compensation.
<TABLE>
<CAPTION>
Long Term Compensation
----------------------
Annual Compensation Awards Payouts
------------------- ------ --------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other All
Name & Annual Restricted Securities Other
Position Year Salary ($) Bonus($) Compen- Stock Underlying LTIP Compen-
sation Award(s) Options/ Payouts sation
($) ($) Sars(#) ($) ($)
_______________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Frederic S. 1999 -0- -0- -0- $375,000(2) -0- -0- $120,000 (3)
Richardson
Director,
former Chmn.
of the Board
(1)
Timothy 1999 -0- -0- -0- -0- -0- -0- $35,773 (4)
Jewel,
Director,
Chief Exec.
Officer,
President
</TABLE>
Notes to table:
(1) Mr. Richardson now serves as our director, treasurer,
executive vice president, and assistant secretary.
(2) In September 1999, Mr. Richardson was issued 1.5 million
shares of our Class A common stock, valued at $375,000
Page -22-
<PAGE>
($0.25 per share), in consideration for services he
rendered to us. He subsequently transferred ownership in
such shares to the Sarah Saul Simon Trust, the
beneficiaries of which are Frederic Richardson's children
and the trustees of which are Mr. Richardson's mother and
sister-in-law.
(3) On May 1, 1995, we entered into a compensation plan
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. The agreement was
assigned to FSR Group, Inc. ("FSR") a company owned by
the Sarah Saul Simon Trust, in October 1997. Commencing
January 1, 1999, the agreement was reassigned by FSR to
Mr. Richardson.
(4) In September 1999, Mr Jewel, through Red River Trading
Company, Inc. entered into employment arrangements with
our Company whereby in exchange for Mr. Jewell serving as
our director, chief executive officer and president, Red
River Trading Company, Inc. would be compensated $10,000
per month. The exact terms of this employment
arrangement with our Company has not been determined, and
no written employment arrangement with our Company has
yet been entered into.
Employee Stock Option Plan
Our board of directors has authorized our officers to offer
certain employees, including non-management employees, certain
employee benefits under an unqualified employee stock option plan.
To date, we have do not have a written plan in place. The terms of
the options we grant to our employees are contracted between each
employee and our Company on a case by case basis. No options have
vested to date.
Item 11. Security Ownership of Certain Beneficial Owners and
Management.
(a) The names, addresses, amount and nature of beneficial
ownership and percent of such ownership of persons known to us to
be beneficial owner of more than five percent (5%) of any class of
our voting securities as of March 31, 2000 are as follows:
<TABLE>
<CAPTION>
Class A Common Stock
Number of shares of
Name and Address of Class A Common Stock Percent
Beneficial Owner (1) Beneficially Owned (2) Of Class
- ---------------------- --------------------- --------
<S> <C> <C>
Sarah Saul Simon Trust(3) 1,523,667 (D) 10.8%
C. Timothy Jewell (4) 1,500,000 (I) 10.6%
VirtualLender.com, Inc. 3,000,000 (D) 21.2%
__________________________________
</TABLE>
(1) In care of our Company's address at 1625 Knecht Avenue,
Baltimore, Maryland 21227.
Page -23-
<PAGE>
(2) To our best knowledge, as of March 31, such holders had the
sole voting and investment power with respect to the voting
securities of the Company beneficially owned by them, unless
otherwise indicated herein.
(3) Includes 1,500,000 shares of Class A Common Stock owned by the
Sarah Saul Simon Trust, the beneficiaries of which are Mr.
Richardson's children, and the trustees of which are Mr.
Richardson's mother and sister-in-law; and 23,667 shares of
Class A Common Stock owned by Continent Finance Corporation
which is owned by the Sarah Saul Simon Trust. Mr. Richardson
disclaims beneficial ownership of these shares.
(4) All of these shares are held indirectly by Mr. Jewell through
Red River Trading Company. Mr. Jewell is the president of Red
River Trading Company, Inc., and his wife, Mrs. Shannon C.
Jewell, is its sole owner.
<TABLE>
<CAPTION>
Class B Common Stock (1)
Number of shares of
Name and Address of Class A Common Stock Percent
Beneficial Owner (1) Beneficially Owned (2) Of Class
- ---------------------- --------------------- --------
<S> <C> <C>
Sarah Saul Simon Trust (4) 1,000,000 (D) 50%
C. Timothy Jewell (5) 500,000 (I) 25%
Bernard C. Cary 500,000 (D) 25%
___________________________________
(1) Each share of Class B common stock is entitled to 51 votes.
(2) In care of our Company's address at 1625 Knecht Avenue,
Baltimore, Maryland 21227.
(3) To our best knowledge, as of the date hereof, such holders had
the sole voting and investment power with respect to the
voting securities of the Company beneficially owned by them,
unless otherwise indicated herein.
(4) The beneficiaries of the Sarah Saul Simon Trust are Frederic
Richardson's children. The current trustees are Mr.
Richardson's mother and sister-in-law.
(5) All of these shares are held indirectly by Mr. Jewell through
Red River Trading Company. Mr. Jewell is the president of Red
River Trading Company, Inc., and his wife, Mrs. Shannon C.
Jewell, is its sole owner.
(b) The names, addresses, amount and nature of beneficial
ownership and percent of such ownership of our officers and
directors who are the beneficial owner of our voting securities as
of March 31, 2000, are as follows:
Class A Common Stock
Number of shares of
Name and Address of Class A Common Stock Percent
Beneficial Owner (1) Beneficially Owned (2) Of Class
- ---------------------- --------------------- --------
<S> <C> <C>
Frederic S. Richardson(3)(4) 48,000 (D) *
</TABLE>
Page -24-
<PAGE>
Class A Common Stock
Number of shares of
Name and Address of Class A Common Stock Percent
Beneficial Owner (1) Beneficially Owned (2) Of Class
- ---------------------- --------------------- --------
[S] [C] [C]
C. Timothy Jewell (5) 1,500,000 (I) 10.6%
Bernard C. Cary -0- -0-
Maxwell W. Apple (6) 380,000 (D) 2.7%
Edward A. Hutya (7) 180,000 (D) 1.3%
All officers and directors
as a group (5 persons)(8) 2,108,000 14.9%
___________________________________
* Less than 1%.
(1) In care of our Company's address at 1625 Knecht Avenue,
Baltimore, Maryland 21227.
(2) To our best knowledge, as of December 31, 1999, such holders
had the sole voting and investment power with respect to the
voting securities of the Company beneficially owned by them,
unless otherwise indicated herein.
(3) Does not include 1,500,000 shares of Class A Common Stock
owned by the Sarah Saul Simon Trust, the beneficiaries of
which are Mr. Richardson's children, and the trustees of which
are Mr. Richardson's mother and sister-in-law. Mr. Richardson
disclaims beneficial ownership of these shares.
(4) Does not include 23,667 shares of Class A Common Stock owned
by Continent Finance Corporation which is owned by the Sarah
Saul Simon Trust, the beneficiaries of which are Mr.
Richardson's children, and the trustees of which are Mr.
Richardson's mother and sister-in-law. Mr. Richardson
disclaims beneficial ownership of these shares.
(5) All of these shares are held indirectly by Mr. Jewell through
Red River Trading Company. Mr. Jewell is the president of Red
River Trading Company, Inc., and his wife, Mrs. Shannon C.
Jewell is its sole owner.
(6) Includes (i) 260,000 shares of which are owned directly by Mr.
Apple, and (ii) the right to acquire 120,000 shares within 60
days.
(7) Includes 60,000 shares of which are owned directly by Mr.
Hutya, and (ii) the right to acquire 120,000 shares within 60
days.
(8) Includes (i) 1,868,000 shares owned directly or indirectly by
such officers and directors, and (ii) the right of certain of
such persons to acquire 240,000 shares within 60 days.
Class B Common Stock (1)
<TABLE>
<CAPTION>
Number of shares of
Name and Address of Class A Common Stock Percent
Beneficial Owner (1) Beneficially Owned (2) Of Class
- ---------------------- --------------------- --------
<S> <C> <C>
C. Timothy Jewell (5) 500,000 (I) 25%
Bernard C. Cary 500,000 (D) 25%
_____________________________
</TABLE>
Page -25-
<PAGE>
(1) Each share of Class B common stock is entitled to 51 votes.
(2) In care of our Company's address at 1625 Knecht Avenue,
Baltimore, Maryland 21227.
(3) To our best knowledge, as of March 31, 2000, such holders had
the sole voting and investment power with respect to the
voting securities of the Company beneficially owned by them,
unless otherwise indicated herein.
(4) All of these shares are held indirectly by Mr. Jewell through
Red River Trading Company. Mr. Jewell is the president of Red
River Trading Company, Inc., and his wife, Mrs. Shannon C.
Jewell, is its sole owner.
Item 12. Certain Relationships and Related Transactions.
On July 31, 1999, we caused our sole operating subsidiary,
University Mortgage, Inc., to issue a significant amount of new
stock to M. Scott Hess, one our directors, in consideration of his
investment in University Mortgage, Inc. of approximately
$14,000,000 in assets, notes and securities. This action
effectively diluted our holding in University Mortgage, Inc. to
less than 5%. Subsequently, in a stock for stock transaction, we
exchanged our 3,000,000 shares of University Mortgage, Inc. for
3,000,000 of shares of VirtualLender.com, Inc., a publically traded
company controlled by Mr. Hess. As a result, we effectively turned
our Company into a publicly traded "shell" company.
On September 2, 1999, we entered into a transaction with Red
River Trading Company, Inc. ("Red River") whereby we acquired 100%
of the issued and outstanding shares of Micromatix.com, Inc., a
Delaware corporation ("Micromatix"), in exchange for $1,375,000,
payable by delivery of (i) one million shares of Class B common
stock at a deemed price of $1.00 per share. Each share of Class B
common stock is entitled to 51 votes; and (ii) 1.5 million shares
of Class A common stock at market value of $.25 per share. At the
time of this transaction, Red River was an unrelated third party
and this transaction was negotiated at arms length. The president
of Red River is C. Timothy Jewell.
Pursuant to this transaction, we have a put option to return
the Micromatix shares back to Red River if Micromatix fails to
implement its business plan and achieve certain performance
benchmarks. This put option expires September 2, 2000. If we
exercise our put option, Red River must return to us all of their
shares of Class A and Class B common stock. Additionally, Red
River is required to repay any funds that we, or any third party,
invested into Micromatix . This obligation is to be evidenced by
a promissory note payable in 24 equal monthly installments,
guaranteed by Red River and secured by all of the capital stock and
assets of Micrormatix.
Additionally, Red River has a put option to reacquire
Micromatix and return all of its Class A and Class B common stock
to us if we do not invest, directly or indirectly, $350,000 in
Micromatix on or before November 30, 1999 (excluding $150,000 which
was invested at closing), If Red River exercises its put option,
Red River must repay all funds we invested in Micromatix, in the
same manner as described above. This put option expires September
2, 2000.
Page -26-
<PAGE>
Our agreement with Red River also provides that we shall hold
our annual meeting of stockholders and a meeting of our board of
directors no later than 60 days after closing to consider and act
upon the following matters:
(1) a 2 for 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 our chairman, Frederic S. Richardson, 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.
Item 3, as described above was successfully implemented.
Other than with respect to item 5., we intend to implement the
remaining items during 2000.
Additionally, at the closing, we made the following changes in
our management structure:
(1) Michael Scott Hess resigned as our Director and
President.
(2) C. Timothy Jewell, Red River's President, was appointed
as our new President; and
(3) Bernard Cary was appointed as our Vice President and
Chief Operating Officer.
On September 7, 1999, we purchased fixed assets in the amount
of $150,000 from Red River Trading for which we made an unsecured
note payable to Red River in the amount of $150,000, bearing
interest at 8% per annum. The note calls for six annual principle
payments of $25,000 plus accrued interest.
On November 23, 1999, we borrowed $571,609.40 from the Sarah
Saul Simon Trust for which we made an unsecured note payable to the
Sarah Saul Simon Trust in the amount of $571,609.40, bearing
interest at 8% per annum until the note payable is paid in full.
The note payable calls for a lump sum principle payment of
$571,609.40 plus accrued interest, all of which is due on November
23, 2000.
During the fourth quarter of 1999, Frederic Richardson
advanced us $261,322 on his personal credit card so that we could
purchase inventory. We are making payments on Mr. Richardson's
credit card for this purchase. The credit card interest rate is
14% per annum.
On May 1, 1995, the Company entered into a compensation plan
consulting agreement with Frederic Richardson for a monthly fee of
Page -27-
<PAGE>
$10,000 per month and reimbursement of all "out-of-pocket"
expenses. The term of this agreement is 10 years and is renewable.
The agreement was assigned to FSR Group, Inc. ("FSR"), a company
owned by the Sarah Saul Simon Trust, in October 1997. Commencing
January 1, 1999, the agreement was reassigned by FSR to Mr.
Richardson.
Item 13. Exhibits and Reports on Form 8-K.
(a) Exhibits.
(3)(i) (a) Articles of Incorporation (incorporated by
reference to our Report on Form 10-K for the
year ended December 31, 1981).
(b) Articles of Amendment (incorporated by reference to
our Report on Form 10-K for the year ended December
31, 1981).
(c) Articles of Amendment (incorporated by reference to
our Report on Form 10-K for the year ended December
31, 1998).
(d) Articles of Amendment (incorporated by reference to
our Report on Form 10-K for the year ended December
31, 1998).
(3)(ii) Bylaws (incorporated by reference to the
Company's Report on Form 10-K for the year
ended December 31, 1987).
(4) Instruments defining the rights of holders
(incorporated by reference to Exhibit (3) herein).
(10)
(1) Our Acquisition Agreement with Red River Trading
Company, Inc. and Micromatix.com, Inc. and Addendum
thereto.
(2) Our compensation plan agreement with Frederic
Richardson.
(3) Our Lease Agreement.
(4) Our Note Payable to Sarah Saul Simon Trust.
(5) Our Note Payable to Red River Trading.
(11) Earnings per share (See Appendix A)
(21) Our Subsidiaries
(27) Financial Data Schedule
Page -28-
<PAGE>
(b) Reports on Form 8-K.
During the last quarter of the year ended December 31, 1999,
the following reports on Form 8-K were filed by registrant.
Type Date Filed Reporting Purpose
- ---- ---------- -----------------
Item 1,2 December 3, 1999 To report our change in control
and acquisition of Micromatix.
Item 1,2 September 17, 1999 To report our change in control
and acquisition of Micromatix.
(c) Financial Data Schedule.
Appendix A
Financial Statements.
The following Audited Financial Statements of Registrant are
filed as part of this Form 10-KSB Report:
1. Balance Sheet as of December 31, 1999.
2. Statement of Operations for the period September 2,
1999 (Date of Inception) through December 31, 1999.
3. Statement of Changes in Stockholder's Equity for the
period September 2, 1999 (Date of Inception) through December 31,
1999.
4. Statement of Cash Flows for the period September 2,
1999 (Date of Inception) through December 31, 1999.
5. Notes to Financial Statements
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act,
the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized:
INTERNATIONAL MERCANTILE CORPORATION
By:/s/C. Timothy Jewell
C. Timothy Jewell,
Chief Exec. Officer
President, Director
Date: April 14, 2000
Page -29-
<PAGE>
In accordance with the Exchange Act, this report has been
signed below by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
By:/s/C. Timothy Jewell
C. Timothy Jewell,
Chief Exec. Officer
President, Director
By:/s/ Frederic S. Richardson
Frederic S. Richardson,
Director
By:/s/ Max W. Apple
Max W. Apple,
Director
Date: April 14, 2000
<PAGE>
INTERNATIONAL MERCANTILE CORPORATION
(A COMPANY IN THE DEVELOPMENT STAGE)
Balance Sheet as of December 31, 1999
Statements of Operations, Changes in Stockholders' Equity
and Cash Flows for the Period September 2, 1999 (Date of
Inception) Through December 31, 1999
<PAGE>
INTERNATIONAL MERCANTILE CORPORATION
(A COMPANY IN THE DEVELOPMENT STAGE)
TABLE OF CONTENTS
DECEMBER 31, 1999
Page
Auditors' 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 6-14
<PAGE>
To the Board of Directors and Stockholders
International Mercantile Corporation
Baltimore, Maryland
We have audited the accompanying balance sheet of
International Mercantile Corporation (a Company in the
Development Stage) as of December 31, 1999, and the related
statements of income, changes in stockholders' equity, and
cash flows for the period beginning September 2, 1999 (Date
of Inception) through December 31, 1999. These financial
statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also
includes assessing the accounting principles used and
significant estimates made by management, as well as
evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial
position of International Mercantile Corporation (a Company
in the Development Stage) as of December 31, 1999 and the
results of its operations and its cash flows for the period
beginning September 2, 1999 (Date of Inception) through
December 31, 1999 in conformity with generally accepted
accounting principles.
Caruso & Caruso C.P.A.s', P.A.
Boca Raton, Florida
April 12, 2000
<PAGE>
INTERNATIONAL MERCANTILE CORPORATION
(A COMPANY IN THE DEVELOPMENT STAGE)
BALANCE SHEET
AS OF DECEMBER 31, 1999
ASSETS
Current Assets
- --------------
Cash and Cash Equivalents $ 37,699
Marketable Securities 715,075
Accounts Receivable Net of Allowance for
Doubtful Accounts of $17,336 849,471
Inventory 475,626
Prepaids and Other Assets 14,298
----------
Total Current Assets 2,092,169
Investments
- -----------
Investment in Virtual Lender.com, Inc. Stock 2,725,642
Fixed Assets
- ------------
Fixed Assets, net of Accumulated Depreciation 200,008
Other Assets
- ------------
Organization Costs, Net of Amortization 196,832
Deposits 18,330
----------
Total Other Assets 215,162
----------
Total Assets $5,232,981
==========
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities
- -------------------
Accounts Payable and Accrued Expenses 745,218
Accrued Interest Payable 9,052
Due to Related Party 261,322
Warranty Reserve - Current Portion 2,442
Note Payable - Related Parties, Current Portion 596,609
Loans Payable 750,124
Capitalized Lease Payable - Current Portion 10,221
----------
Total Current Liabilities 2,374,988
Long Term Liabilities
- ---------------------
Committments and Contingencies
Warranty Reserve Net of Current Portion 4,884
Capitalized Lease Payable Net of Current Portion 23,787
Note Payable - Related Party Net of Current Portion 100,000
----------
Total Long Term Liabilities 128,671
----------
Total Liabilities 2,503,659
Stockholders' Equity
- --------------------
Common stock-Class A - $.01 Par, 31,000,000 shares
authorized, 5,102,441 shares outstanding 51,024
Common stock-Class B - $.01 Par, 2,000,000 shares
authorized, 1,000,000 shares outstanding 10,000
Preferred stock - Series 1 - $.10 Par, 10,000,000
shares authorized, -0- shares outstanding
Preferred stock - Series 2 - $.10 Par, 2,000,000
shares authorized, -0- shares outstanding
Preferred stock - Series 3 - $.10 Par, 5,000,000
shares authorized, -0- shares outstanding
Additional paid in capital 2,967,742
Deficit Accumulated During the Development Stage (299,444)
----------
Total Stockholders' Equity 2,729,322
----------
Total Liabilities & Stockholders' Equity $5,232,981
==========
See Notes to Financial Statements
2
<PAGE>
INTERNATIONAL MERCANTILE CORPORATION
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENT OF OPERATIONS
FOR THE PERIOD SEPTEMBER 2, 1999 (Date of Inception)
THROUGH DECEMBER 31, 1999
Revenues
Sales $ 1,465,294
Cost of Merchandise Sold 1,262,396
-----------
Gross Profit 202,898
-----------
Operating Expenses
Amortization 12,390
Bad Debts 17,336
Bank Charges & Credit Card Fees 4,718
Depreciation 10,480
Interest Expense 11,436
Marketing & Advertising Expense 55,074
Office Supplies & Expense 32,021
Professional Fees 18,476
Rent 42,823
Repairs & Maintenance 5,168
Sales Expense 61,848
Salaries & Related Costs & Benefits 188,706
Subcontract Labor & Temporary Help 9,725
Telephone 16,559
Travel & Promotion 3,267
Utilities 4,989
Warranty Reserve 7,326
-----------
Total Operating Expenses 502,342
Net (Loss) ($299,444)
===========
Earnings (Loss) per share of Common
Stock - Basic (Note 1) ($0.0513)
==========
Weighted Average Shares - Basic 5,835,166
==========
Earnings (Loss) per share of Common
Stock - Diluted (Note1) ($0.0308)
==========
Weighted Average Shares - Diluted 9,726,833
==========
See Notes to Financial Statements
3
<PAGE>
INTERNATIONAL MERCANTILE CORPORATION
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD SEPTEMBER 2, 1999 (Date of Inception)
THROUGH DECEMBER 31, 1999
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
COMMON STOCK ADDITIONAL DURING THE
PAID IN DEVELOPMENT
SHARES AMOUNT CAPITAL STAGE
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, September 2, 1999 (Date of Inception) 1,000 $ 10 $ 490 $ 0
Reverse acquisition, September 6, 1999
Exchange of Micromatix.com, Inc., a Delaware corp
Common Stock (1,000) (10) (490) 0
Authorization of Common Stock of International Mercantile
Corporation a Missouri corp to owners of
Micromatix.com, Inc., a Delaware corporation
Class B Common Stock, issued and outstanding 0 0 0 0
Outstanding Common Stock of International Mercantile
Corporation, a Missouri corp.,
Class A Common Stock 5,102,441 51,024 2,967,742 0
Class B Common Stock 1,000,000 10,000 0 0
Net (Loss) 0 0 0 (299,444)
-------------------------------------------------------------
Balance, December 31, 1999 6,102,441 $ 61,024 $2,967,742 ($299,444)
=============================================================
</TABLE>
See Notes to Financial Statements
4
<PAGE>
INTERNATIONAL MERCANTILE CORPORATION
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENT OF CASH FLOWS
FOR THE PERIOD SEPTEMBER 2, 1999 (Date of Inception)
THROUGH DECEMBER 31, 1999
CASH FLOWS FROM OPERATING ACTIVITIES
- ------------------------------------
Net Loss ($299,444)
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities
Bad Debts 17,336
Depreciation & Amortization 22,870
(Increase)Decrease In
Marketable Securities (715,075)
Accounts Receivable (866,807)
Investment in Virtual Lender.com, Inc. Stock (2,725,642)
Inventory (475,626)
Prepaids & Other Assets (14,298)
Deposits (18,330)
Organization Costs (209,222)
Increase(Decrease)
Accounts Payable & Accrued Expenses 745,218
Due to Related Party 261,322
Accrued Interest 9,052
Warranty Reserve 7,326
-----------
NET CASH USED IN OPERATING ACTIVITIES (4,261,320)
CASH FLOWS FROM INVESTING ACTIVITIES
- ------------------------------------
Acquisition of Fixed Assets (210,488)
------------
NET CASH USED IN INVESTING ACTIVITIES (210,488)
CASH FLOWS FROM FINANCING ACTIVITIES
- ------------------------------------
Proceeds from Capitalized Leases 34,008
Proceeds from Loans 775,124
Payments on Loans (25,000)
Capital Contributions 2,967,742
Issuance of Capital Stock 61,024
Proceeds from Note Payable - related parties 696,609
------------
NET CASH PROVIDED BY IN FINANCING ACTIVITIES 4,509,507
------------
NET INCREASE IN CASH 37,699
------------
CASH - BEGINNING September 2, 1999
(Date of Inception) 0
------------
CASH - ENDING December 31, 1999 $ 37,699
------------
See Notes to Financial Statements
5
<PAGE>
INTERNATIONAL MERCANTILE CORPORATION
(A Company in the Development Stage)
NOTES TO FINANCIAL STATEMENTS
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' majority interest holdings in its'
subsidiary, University Mortgage, Inc., which represented
the Company's operations, through a new issuance of
University Mortgage, Inc. stock to a related third party
investor in consideration of their capital investment in
University Mortgage, Inc. 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. The
Company, however, has not completed the requisite articles
of merger and related documents which are required to be
filed with the applicable state authorities. Subsequent to
the transaction, the owners of the predecessor company
assumed the management of the Company doing business as
Micromatix.net 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 December 31,
1999. Although some sales, manufacturing and distribution
of personal computers and related PC hardware have
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.
6
<PAGE>
INTERNATIONAL MERCANTILE CORPORATION
(A Company in the Development Stage)
NOTES TO FINANCIAL STATEMENTS
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 component parts as there was no work
in process at year-end and all finished products were
shipped prior to December 31, 1999. The Company maintains
a perpetual inventory system and determines quantities by
the average cost method. Inventory is valued at the lower
of actual cost or market, net of inventory allowance.
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 are being amortized over three years.
INTANGIBLE ASSETS
Costs incurred to organize the Company are capitalized and
reported on the balance sheet as other assets. The costs
are being amortized over a period of 5 years using the
straight-line method.
7
<PAGE>
INTERNATIONAL MERCANTILE CORPORATION
(A Company in the Development Stage)
NOTES TO FINANCIAL STATEMENTS
MARKETABLE SECURITIES
The Company's marketable securities are comprised of equity
and debt securities and are classified as trading
securities. Trading securities are recorded at fair value,
with the change in fair value during the period included in
net earnings. There were no unrealized holding gains or
losses at December 31, 1999.
WARRANTY RESERVE
The Company maintains a depot warranty on components sold
and manufactured systems for three years; the equivalent
period of time that substantially all components from
supplier manufacturers are warranted. As the Company is in
the Development Stage and has not established a history of
warranty service, a warranty reserve of 1/2 of 1% of sales
has been recorded at December 31, 1999.
INCOME TAXES
The Company files its tax return with the Internal Revenue
Service as a C Corporation. Applying statutory tax rates
to future year's differences between the tax bases and
financial reporting amounts of assets and liabilities
recognizes deferred income taxes. Due to the fact that
the Company is in the development stage, no deferred 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,
cash equivalents and marketable securities. 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.
8
<PAGE>
INTERNATIONAL MERCANTILE CORPORATION
(A Company in the Development Stage)
NOTES TO FINANCIAL STATEMENTS
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. 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 December 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 computed as a result of the
Company's complex capital structure; including 6,000,000
shares of Class A Common stock and 1,000,000 shares of
Class B Common stock which were authorized and unissued as
of December 31, 1999. These shares were subsequently
issued by April 12, 2000.
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. Further, the Company does not believe that any
recently issued, but not yet effective accounting standards
will have a material effect on the Company's financial
position, results of operations or cash flows.
2. Allowance for Doubtful Accounts
In accordance with Generally Accepted Accounting Principles
the Company records anticipated uncollectible amounts by
creating an allowance account. Bad Debt Expense is
recognized using the Percentage of Sales method. For the
year ended December 31, 1999 the Company recognized a Bad
Debt Expense of $17,336 or approximately 1% of the gross
sales. In 1999 no actual receivables were directly written
off. As a result, the allowance account included on the
balance sheet as net of accounts receivables is equal to
the recognized Bad Debt Expense of $17,336.
9
<PAGE>
INTERNATIONAL MERCANTILE CORPORATION
(A Company in the Development Stage)
NOTES TO FINANCIAL STATEMENTS
3. Related Party Transactions
The Company's financing during its development stage has
been provided by interest bearing loans, non-interest
bearing loans and capital contributions to the Company by
its shareholders. At December 31, 1999 the Company had
liabilities to a major shareholder of $125,000 in the form
of an unsecured note payable bearing interest at 8% per
annum. The note calls for six annual principal
installments of $25,000 plus accrued interest. In
December, 1999 the Company paid the first annual principal
installment of $25,000. The note was issued for the
purchase of machinery, office equipment and furniture from
the shareholder. Accrued interest through December 31,
1999 was $3,775.
A B securities, a shareholder of IMTL, acquired
authorized, but unissued, shares of University Mortgage,
Inc. (UMI) diluting the voting and equity interest of IMTL
in UMI to less than 5%. The shares of UMI remaining after
the dilution were then exchanged in a stock for stock
transaction for registered shares of Virtual Lender.com,
Inc. (VLDC), a publicly traded company. The investment is
recorded at cost. On December 31, 1999 IMTL acquired
3,000,000 authorized but unissued shares of VLDC's
restricted common stock in exchange for 3,000,000 shares of
IMTL restricted Class A common stock. The investment is
recorded at the fair market value of Virtual Lender.com,
Inc. stock as of the date of the exchange.
At December 31, 1999 the Company had outstanding a note
payable to a major stockholder due in one lump sum payment
of principal and interest on or before November 23, 2000.
The note bears interest at a rate of 8% per annum, and is
unsecured.
In addition, shareholders' contribution amounts
totaling $3,028,766 as of December 31, 1999 are recorded as
par value class A and class B common stock and as
additional paid in capital.
The Company owed $261,322 to an officer/director for
monies advanced as of December 31, 1999. The advance
includes interest at 14% per annum and is due on demand.
4. 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. An additional
security deposit of $14,274 was paid to the landlord on
February 21, 2000. The Company leases sales offices in New
York, NY under a one year lease agreement, beginning March
1, 2000. The lease encompasses office facilities of 1,000
square feet. Rent is $1,774 per month.
10
<PAGE>
INTERNATIONAL MERCANTILE CORPORATION
(A Company in the Development Stage)
NOTES TO FINANCIAL STATEMENTS
Commitments cont'd
Future minimum requirements are:
Baltimore New York Total
FYE 12/31/00 $ 174,205 $ 17,744 $ 191,949
FYE 12/31/01 182,371 3,549 185,920
FYE 12/31/02 187,040 -0- 187,040
FYE 12/31/03 189,957 -0- 189,957
FYE 12/31/04 195,790 -0- 195,790
Thereafter 130,257 -0- 130,257
---------- -------- ----------
$1,059,890 $ 21,293 $1,081,183
========== ======== ==========
5. Capital Lease Obligations
The Company leases its operational and accounting software
under a capital lease, which expires in December, 2002.
The lease requires monthly payments of principal and
interest of $1,235 plus applicable sales tax. Interest is
imputed at 13.25% per annum. The lease agreement concludes
with a $1 buy option at the end of the lease term.
Approximate future lease payments under the capital lease
is as follows:
FYE 12/31/00 $ 14,821
FYE 12/31/01 14,821
FYE 12/31/02 13,586
--------
43,228
Less Amount representing interest 9,220
--------
34,008
Less current maturities 10,221
Long-term debt, less current --------
maturities $ 23,787
========
6. 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. One of these
officer/shareholders is compensated as a consultant through
a wholly owned corporation of the officer/shareholder.
This individual, and thirty nine other employees are
currently employed by the Company at their administrative
and operating facilities in Baltimore, Maryland, and sales
office in New York, New York.
11
<PAGE>
INTERNATIONAL MERCANTILE CORPORATION
(A Company in the Development Stage)
NOTES TO FINANCIAL STATEMENTS
7. Fixed Assets
Fixed assets for the Company consisted of the following at
December 31, 1999:
<TABLE>
<CAPTION>
Accumulated
Fixed Asset Depreciation Balance
----------- ------------ -------
<S> <C> <C> <C>
Website Development $ 3,017 $ 176 $ 2,841
Furniture & Fixtures 32,000 1,333 30,667
Manufacturing/Warehouse Equip 33,000 1,375 31,625
Computer Hardware 61,163 3,231 57,932
Transportation Equip 7,000 408 6,592
Office Equipment 30,959 1,806 29,153
Software Systems 39,349 2,151 37,198
Leasehold Improvements 4,000 - 4,000
--------- ---------- ---------
$ 210,488 $ 10,480 $ 200,008
========= ========== =========
</TABLE>
8. Employee Stock Option Plan
The Company's Board of Directors has authorized officers of
the Company to offer certain employees benefits under an
unqualified Employee Stock Option Plan which, as of the
date of these financial statements, has not been
consummated. 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.
9. Notes Payable
Notes Payable consist of the following at December 31,
1999:
Note Payable - related party dated
September 6, 1999 $ 125,000
Note Payable - related party dated
November 23, 1999 571,609
----------
696,609
Less Current Portion 596,609
----------
Long Term Portion $ 100,000
==========
Based on the borrowing rates currently available to the
Company for loans with similar terms and average
maturities, the fair value of the Company's long term debt
approximates the carrying amount. Interest expense on the
above note and the related third party note described in
foot note 3 amounted to $5,277 and $3,775 respectively.
12
<PAGE>
INTERNATIONAL MERCANTILE CORPORATION
(A Company in the Development Stage)
NOTES TO FINANCIAL STATEMENTS
10. 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.
11. 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 have
been 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 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 and no
year 2000 complications have been noted as of the date of
these financial statements; the Company may be wrong. If
complications do arise, the Company could face unexpected
expenses to resolve any related issues and any unexpected
interruptions could be harmful to its business.
13
<PAGE>
INTERNATIONAL MERCANTILE CORPORATION
(A Company in the Development Stage)
NOTES TO FINANCIAL STATEMENTS
12. Segment Information
The Company operates primarily in two industry segments:
(1) whitebox system sales and (2) computer component sales.
The accounting policies of the segments and the products
and services provided by the operating segments are
described in Note 1. The table below presents information
about reported segments at December 31, 1999:
<TABLE>
<CAPTION>
System Component
Sales Sales Other Total
-------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Sales $547,955 $917,339 $ - $1,465,294
Gross Profit 74,464 128,434 - 202,898
Operating Income (Loss) 18,160 47,272 (364,876) (299,444)
Assets 510,410 844,207 3,878,364 5,232,981
Capital Expenditures 14,956 25,044 170,788 210,488
Depreciation Expense 667 1,116 8,697 10,480
</TABLE>
13. Subsequent Events
Subsequent to December 31, 1999 and through the date of the
Auditors' Report, the Company sold to unrelated private
investors 524,175 shares of Class A Common stock for a
total of $283,649.
On September 7, 1999 the Company entered into a one year
consulting agreement with two individuals and a third party
company for securities consulting and corporate investment
banking services. On January 28, 2000 the Company
terminated the agreement and issued 250,000 shares of
restricted Class A Common Stock as settlement for all past
services rendered and a release of any future obligations.
In February 2000, the Company entered into an agreement to
manufacture approximately 2,000 white-box computer units
per month beginning March, 2000 with a national satellite
distributed program network marketing group. The agreement
is open-ended and has no minimum purchase requirements. To
fund the acquisition of inventory to fulfill the purchase
orders under the agreement, the Company entered into a
factoring arrangement in March 2000 with an unrelated third
party. The financing calls for the payment of 3 points per
month on open invoices, and an initial payment of 650,000
restricted shares of the Company's Class A common stock.
The financing is secured by the underlying receivables,
acquired inventory related to the contract, and 1,500,000
shares of the Company's Class A common stock.
On March 31, 2000 the Company completed its ISO9002
certification audit which, upon receipt of it's
certificate, will allow the Company to perform under future
federal and state government contracts.
14
<PAGE>
STOCK PURCHASE AGREEMENT
By and between
International Mercantile Corporation
and
Micromatix.com Incorporated
This Stock Purchase Agreement (the "Agreement") is effective
this 6th day of September, 1999, by and between International
Mercantile Corporation, a Missouri corporation (the "Buyer"), Red
River Trading Company, Inc., a Maryland corporation (the "Seller"),
and Micromatix.com Incorporated, a Delaware corporation
("Micromatix" or the "Company." International Mercantile
Corporation is a publicly-traded corporation (symbol OTCBB: IMTL).
WHEREAS, Seller owns, free and clear of all adverse claims,
all of the issued and outstanding capital shares of Micromatix; and
WHEREAS, Seller desires to sell, and Buyer desires to
purchase, all of the issued and outstanding capital shares of
Micromatix in a tax-free reorganization, for the consideration and
upon the terms and subject to the conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises, the
provisions and the respective agreements hereinafter set forth, the
parties hereto hereby agree as follows:
1. Purchase and Sale of Stock.
1.1 Agreement to Purchase and Sell. Upon the terms and
subject to the conditions set forth in this Agreement and in
reliance upon the representations, warranties, covenants, and
agreements contained herein, on the Closing Date (as hereinafter
defined), Seller shall sell, grant, convey, assign, transfer, and
deliver to Buyer, and Buyer shall purchase and acquire from Seller,
all of the issued and outstanding shares of capital stock of the
Company (collectively, the "Micromatix Shares"). The exact number
of Micromatix Shares to be sold by Seller hereunder is as follows:
100 shares of common stock, $.01 par value.
1.2 Purchase Price. At Closing (as hereinafter defined), the
Company will be purchased by Buyer and held as a wholly-owned
subsidiary. The Buyer and Seller agree that the aggregate Purchase
Price is the sum of one million three hundred seventy-five thousand
Dollars ($1,375,000.00) U.S. (the "Purchase Price").
1.3 Terms of Payment. The Purchase price will be paid by
the buyer as follows:
1.3.1 The Purchase Price will be paid by the Buyer
through the delivery of one million (1,000,000)
shares of Class B common stock of International
Mercantile Corporation (the "IMTL Stock"), at a
deemed price of U.S. $1.00 per share and one
million five hundred thousand (1,500,000) shares of
Class A common stock of International Mercantile
Corporation, at a present market value of twenty-
five cents ($0.25) U. S. per share (collectively,
the IMTL stock).
1.3.2 All of the issued and outstanding Micromatix Shares
shall be exchanged for the IMTL Stock. As a class,
the International Mercantile Corporation Class B
1
<PAGE> EX-10.1
common stock, including without limitation the IMTL
Stock, carries a voting preference of 51 votes per
share, but has no other preference rights or
obligations, including those with respect to
payment of dividends, conversion, redemption, and
liquidation value, over and above the rights and
obligations afforded the International Mercantile
Corporation Class A common shareholders.
1.3.3 Upon the expiration of Buyer's Put Option as
defined hereinbelow, Seller shall have the option
to purchase, for the aggregate sum of one dollar
($1.00) U. S., thirty percent (30.0%) of the IMTL
Class B common shares then held by FSR, consisting
of three hundred thousand (300,000) IMTL Class B
common shares as of the date of Closing, subject to
adjustment for stock splits or other share
issuances subsequent to Closing.
1.4 Post Closing Adjustments to Purchase Price. Not
Applicable.
1.5 Buyer's Put Option on Micromatix Shares.
1.5.1 If, in Buyer's sole and exclusive opinion,
within 12 months of the Date of Closing, and given the
financial resources that (a) Buyer has committed to provide
the Company in accordance with this Agreement; and (b) the
Company has committed to raise on its own, the Company has
materially failed to implement its business plan (attached as
Exhibit 1.5 hereto), including without limitation failure to
achieve such performance benchmarks as assets, stockholder's
equity, revenues, earnings, market capitalization, and/or
stock price, then, at Buyer's sole and exclusive option, and
upon Buyer's written notice to Seller, Buyer may put all of
Buyer's Micromatix Shares back from Seller, and Seller shall,
within 10 days of receipt of such notice, return to Buyer all
of the IMTL Shares received by Seller pursuant to this
Agreement.
1.5.2 In the event that Buyer elects to exercise its
put option (the "Buyer's Put Option"), then the fair value of
any and all assets invested into the Company by the Buyer or
by third-parties secured by the Buyer's efforts, shall be
evidenced by a promissory note (the "Promissory Note") payable
from the Company to the Buyer. The Promissory Note shall bear
interest at the Wall Street Journal prime rate of interest
plus one percent (1.0%), fixed as of the last business day
prior to Buyer's notice to Seller of Buyer's intention to
exercise its put option. The Promissory Note shall be and
guaranteed by the Seller and secured by all of the capital
stock and assets of the Company, and both Seller and the
Company hereby grant to Buyer a security interest in such
capital stock and assets. The Promissory Note shall be fully
amortized and payable in 24 equal monthly installments
beginning 30 day's from the date of Buyer's notice to Seller.
Buyer agrees to subordinate to the note to the any bona fide
debt financing secured by the Company subsequent to the
exercise of the Buyer's Put Option. All non-cash assets
invested into the Company shall be returned to the Buyer or
Buyer's designee concurrently with the execution of the
Promissory Note and the exercise of Buyer's Put Option. Until
the expiration of Buyer's Put Option, all assets invested in
the Company (whether cash or other assets) shall be itemized
by Buyer to Seller from time-to time and shall be subject to
seller's approval prior to investment.
1.5.3 If, within 12 months of Closing, in Buyer's
sole and exclusive opinion, the Company has materially
satisfied its performance obligations with respect to
implementing the business plan, then Buyer's Put Option shall
expire unexercised.
2
<PAGE> EX-10.1
1.6 Seller's Put Option on IMTL Stock.
1.6.1 If Buyer fails to invest, or cause to be
invested, an additional $350,000 in equity into the Company on
or before November 30, 1999, then Seller shall have the
unilateral right to put all of Seller's IMTL Stock back to
Buyer, and Buyer shall, within 10 days of receipt of such
notice, return to Seller all of the Micromatix Shares received
by Buyer pursuant to this Agreement.
1.6.2 In the event that Seller elects to exercise its
put option (the "Seller's Put Option"), then the fair value of
any and all assets invested into the Company by the Buyer or
by third-parties secured by the Buyer's efforts, shall be
evidenced by a promissory note in accordance with the same
terms and conditions stated in Section 1.5.2. All non-cash
assets shall be returned to Buyer or Buyer's designee in
accordance with the terms of Section 1.5.2.
1.6.3 If Buyer has invested, or caused to be
invested, an additional $350,000 into the Company on or before
November 30, 1999, then Seller's Put Option shall expire
unexercised.
1.7 Closing. The closing of the purchase and sale of the
Micromatix Shares provided herein (the "Closing") will be at the
offices of the Buyer at 10:00 a.m., local time, on September 2,
1999, or at such other place or at such other date and time as
Seller and Buyer may mutually agree. Such date and time of Closing
is herein referred to as the "Closing Date".
1.8 Company Acquisitions Prior and Subsequent to Closing.
Not Applicable.
1.9 Additional Terms and Conditions.
1.9.1 Subsequent to Closing, but prior to the
expiration of Buyer's Put Option as described in Section 1.5
herein, Seller agrees that
(a) any merger, consolidation, reorganization,
dissolution, liquidation, winding up, or sale of all or
substantially all of the Company's assets shall require
the approval of Buyer's board of directors; and
(b) Seller shall not sell, encumber, liquidate, or
otherwise dispose of the IMTL Shares without the approval
of the Buyer's board of directors.
(c) The rights of approval granted in this section
1.8.1 shall expire with the expiration of Buyer's Put
Option as described in Section 1.5 herein.
1.9.2 As soon as possible, but in no event later than
60 days subsequent to Closing, Buyer shall conduct its annual
stockholder and board of director's meeting. At such meeting,
Seller agrees to vote to support resolutions calling for the
following:
(a) the 2 to 1 reverse split of the International
Mercantile Corporation Class B common stock, such that
subsequent to such split there shall be only one million
(1,000,000) shares of Class B common stock issued and
3
<PAGE> EX-10.1
outstanding;
(b) the payment of a stock dividend to the Buyer's
shareholders consisting of the 11,000 issued and
outstanding common shares of University Mortgage, Inc.
("UMI") owned by Buyer as of the date of such dividend
declaration;
(c) The issuance to Frederic Richardson of one
million five hundred thousand (1,500,000) shares or, at
the election of the board of directors, options for
shares of International Mercantile Corporation Class A
common stock in consideration for services rendered as
chairman of the corporation;
(d) the creation by Buyer of an employee stock
ownership plan and/or employee stock option plan to
facilitate the hiring and retention of key employees;
(e) the execution of an irrevocable investment
agreement with Swartz Institutional Finance providing for
the sale of five million dollars ($5,000,000) of
International Mercantile Corporation Class A common
stock;
(f) the ratification of all actions taken by the
Buyer's officers and directors since September 1998
through the date of Closing.
(g) The change of International Mercantile
Corporation's name to Micromatix.com, Inc., or
a derivative thereof.
(h) The redomestication of International
Mercantile Corporation to the State of Delaware.
1.9.3 At Closing, Timothy Jewell and Bernard Cary
shall be elected to the Buyer's board to directors to fill
vacancies created by the resignations of Ed Hutya and Walt De
Ronde. Until the sooner of the expiration of Buyer's Put
Option, or the resignation of one or more of the following
named individuals, the board of directors of International
Mercantile Corporation shall consist of Frederic Richardson
(Chairman), Max Apple (Chairman Emeritus), Timothy Jewell,
Bernard Cary, George Weast and Michael Scott Hess, unless
otherwise approved by the unanimous consent of the holders of
International Mercantile Corporation Class B common stock; and
1.9.4 At Closing, Timothy Jewell shall be elected to
serve as President/CEO of Buyer, filling the vacancy caused by
the resignation of Michael Scott Hess. Bernard Cary shall be
elected to serve as Vice President and Chief Operating
Officer, a newly created position. Within five business days
subsequent to Closing, the company shall enter into mutually
agreeable employment contracts with Timothy Jewell, Bernard
Cary, Frederic Richardson, and Michael Scott Hess.
1.9.5 At Closing, unless otherwise agreed between the
parties, Buyer shall invest, or cause to be invested, $150,000
into the Company as equity capital.
1.9.6 As soon as possible after Closing, but in no
event later than December 31, 1999, unless otherwise agreed
between the parties, Buyer shall invest, or cause to be
invested, an additional $350,000 in equity into the Company
4
<PAGE> EX-10.1
2. Representations and Warranties of Seller.
Each Seller, as to itself only, represents and warrants to
Buyer as follows:
2.1 Subsidiaries; Existence; Good Standing; Corporate
Authority; Compliance With Law.
2.1.1 The Company has no subsidiaries.
2.1.2 The Company is a private corporation duly
incorporated, validly existing and in good standing under the
laws of the State of Delaware. The Company has all requisite
corporate power and authority to own its properties and carry
on its business as now conducted. The Company is not in
default with respect to any order of any court, governmental
authority, or arbitration board or tribunal to which the
Company is a party or is subject, and the Company is not in
violation of any laws, ordinances, governmental rules, or
regulations to which it is subject. The Company has obtained
all licenses, permits, and other authorizations and has taken
all actions required by applicable laws or governmental
regulations in connection with its business as now conducted.
2.2 Validity and Effect of Agreements. This Agreement
constitutes, and all agreements and documents contemplated hereby
when executed and delivered pursuant hereto for value received will
constitute, the valid and legally binding obligations of Seller
enforceable in accordance with their terms, and the Buyer hereby is
granted the right of specific performance. The execution and
delivery of this Agreement does not and the consummation of the
transactions contemplated hereby will not (a) require the consent
of any third party (except as set forth in Section 5.1 of this
Agreement), (b) result in the breach of any term or provision of,
or constitute a default under, or result in the acceleration of or
entitle any party to accelerate (whether after the giving of notice
or the lapse of time or both) any obligation under, or result in
the creation or imposition of any lien, charge, pledge, security
interest or other encumbrance upon any part of the property of the
Company pursuant to any provision of, any order, judgment,
arbitration award, injunction, decree, indenture, mortgage, lease,
license, lien, or other agreement or instrument to which Seller or
the company is a party or by which any of them is bound, or violate
or conflict with any provision of the Bylaws or Articles/
Certificate of Incorporation of the Company as amended to the date
of this Agreement.
2.3 Capitalization. The Company has the following capital
structures:
Authorized Capital Issued Capital
------------------ --------------
Micromatix.com Incorporated 1,000 Common Shares 100 Common Shares
No shares other than listed herein will be presently issued and
outstanding as of the Closing Date. Except for rights granted
pursuant to this Agreement and as described in Schedule 2.3.3
attached hereto, there are no outstanding rights, warrants,
options, subscriptions, agreements or commitments giving anyone any
right to require the Company to sell or issue, or the Seller to
sell, any capital stock or other securities.
2.4 Records. The corporate minute books of the Company to be
delivered to Buyer at the Closing shall contain true and complete
copies of the Articles of Incorporation, as amended to the Closing
Date, bylaws, as amended to the Closing Date, and the minutes of
5
<PAGE> EX-10.1
all meetings of directors and shareholders and certificates
reflecting all actions taken by the directors or shareholders
without a meeting, from the date of incorporation of the Company to
the Closing Date.
2.5 Officers and Directors; Bank Accounts; Powers of
Attorney; Insurance. The officers and directors of the Company are
as set forth in Schedule 2.5. Schedule 2.5 also sets forth (a) the
name of each bank, savings institution or other person with which
the Company has an account or safe deposit box and the names and
identifications of all persons authorized to draw thereon or have
access thereto, (b) the names of all persons, if any, holding
powers of attorney from the Company and a summary statement of the
terms thereof, and (c) a list of all insurance policies owned by
the Company (other than those required to be listed in Schedule
2.14 hereof), together with a brief statement of the coverage
thereof.
2.6 Financial Statements. Seller has furnished to Buyer (a)
an unaudited balance sheet of the Company as of September 2, 1999
(the "Unaudited Balance Sheet"), and (b) an unaudited income
statement of the Company for the eight months ending August 31,
1999 (the "Unaudited Income Statement "). The Unaudited Balance
Sheet and Unaudited Income Statement referred to above are
hereinafter collectively referred to as the "Financial Statements".
The Financial Statements fully and fairly set forth the financial
condition of the Company as of the dates indicated, and the results
of its operations for the periods indicated, in accordance with
generally accepted accounting principles consistently applied,
except as otherwise stated therein and in the related reports of
independent accountants and other data, copies of which are
attached hereto as Exhibit 2.6.
2.7 Undisclosed Liabilities. The Company has no liabilities
or obligations whatsoever, either accrued, absolute, contingent, or
otherwise, which are not reflected or provided for in the Financial
Statements except (a) those arising after the date of the Unaudited
Balance Sheet which are in the ordinary course of business, in each
case in normal amounts and none of which is materially adverse, and
(b) as and to the extent specifically described in the Schedules
hereto.
2.8 Absence of Certain Changes or Events Since the Date of
the Unaudited Balance Sheet. Since the date of the Unaudited
Balance Sheet, the Company has not, with the exception of those
items enumerated on Schedule 2.8 which is attached hereto and made
a part hereof:
2.8.1 incurred any obligation or liability (fixed or
contingent), except normal trade or business obligations
incurred in the ordinary course of business and consistent
with past practice, none of which is materially adverse, and
except in connection with this Agreement and the transactions
contemplated hereby;
2.8.2 discharged or satisfied any lien, security
interest or encumbrance or paid any obligation or liability
(fixed or contingent), other than in the ordinary course of
business and consistent with past practice;
2.8.3 mortgaged, pledged or subjected to any lien,
security interest or other encumbrance any of its assets or
properties (other than mechanic's, materialman's, and similar
statutory liens arising in the ordinary course of business and
purchase money security interests arising as a matter of law
between the date of delivery and payment);
6
<PAGE> EX-10.1
2.8.4 transferred, leased or otherwise disposed of any
of its assets or properties except for a fair consideration in
the ordinary course of business and consistent with past
practice or, except in the ordinary course of business and
consistent with past practice, acquired any assets or
properties;
2.8.5 canceled or compromised any debt or claim, except
in the ordinary course of business and consistent with past
practice;
2.8.6 waived or released any rights of material value;
2.8.7 transferred or granted any rights under any
concessions, leases, licenses, agreements, patents,
inventions, trademarks, trade names, service marks or
copyrights or with respect to any know-how;
2.8.8 made or granted any wage or salary increase
applicable to any group or classification of employees
generally entered into any employment contract with, or made
any loan to, or entered into any material transaction of any
other nature with any officer or employee of the Company;
2.8.9 entered into any transaction, contract or
commitment, except in the ordinary course of business;
2.8.10 suffered any casualty loss or damage (whether or
not such loss or damage shall have been covered by insurance)
which affects in any material respect its ability to conduct
business; or
2.8.11 declared any dividends or bonuses, or authorized
or affected any amendment or restatement of the Article of
Incorporation or bylaws of the Company or taken any steps
looking toward the dissolution or liquidation of the Company.
Between the date of this Agreement and the Closing hereunder,
the Company will not, without the prior written consent of
Buyer, do any of the things listed in Sections 2.8.1 through
2.8.11 above.
2.9 Taxes. The Company (a) has duly and timely filed or
caused to be filed all federal, state, local, and foreign tax
returns (including, without limitation, consolidated and/or
combined tax returns) required to be filed by it prior to the date
of this Agreement which relate to the Company or with respect to
which the Company or the Assets or properties of the Company are
liable or otherwise in any way subject, (b) has paid or fully
accrued for all taxes shown to be due and payable on such returns
(which taxes are all the taxes due and payable under the laws and
regulations pursuant to which such returns were filed), and (c) has
properly accrued for all such taxes accrued in respect of the
Company or the assets and properties of the Company for periods
subsequent to the periods covered by such returns. No deficiency in
payment of taxes for any period has been asserted by any taxing
body and remains unsettled at the date of this Agreement. Copies of
all federal, state, local, and foreign tax returns of the Company
have been made available for inspection by Buyer.
2.10 Title To Micromatix Shares. The Micromatix Shares are
duly authorized, validly issued, fully paid and nonassessable and
are owned by Seller free and clear of all liens, encumbrances,
charges, assessments and adverse claims. The Micromatix Shares are
subject to no restrictions with respect to transferability to Buyer
in accordance with the terms of this Agreement. Upon transfer of
7
<PAGE> EX-10.1
the Micromatix Shares by Seller, Buyer will, as a result, receive
good and marketable title to all 100 percent of the Micromatix
Shares, free and clear of all security interests, liens,
encumbrances, charges, assessments, restrictions, and adverse
claims.
2.11 Title to Property and Assets. The Company has good and
marketable title to all of the properties and assets used by it in
the conduct of its business (including, without limitation, the
properties and assets reflected in the Balance Sheets except any
thereof since disposed of for value in the ordinary course of
business) and none of such properties or assets is, except as
disclosed in said Balance Sheets or the Schedules hereto, subject
to a contract of sale not in the ordinary course of business, or
subject to security interests, mortgages, encumbrances, liens, or
charges of any kind or character.
2.12 Condition of Personal Property. All tangible personal
property, equipment, fixtures and inventories included within the
assets of the Company or required to be used in the ordinary course
of business are in good, merchantable, or in reasonable repairable
condition and are suitable for the purposes for which they are
used. No value in excess of applicable reserves has been given to
any inventory with respect to obsolete or discontinued products.
All of the inventories and equipment, including equipment leased to
others, are well maintained and in good operating condition.
2.13 Real Estate. Schedule 2.13 contains a list of all real
property owned by the Company or in which the Company has a
leasehold or other interest and of any lien, charge, or encumbrance
thereupon. Such Schedule also contains a substantially accurate
description identifying all such real property and the significant
rental terms (including rents, termination dates, and renewal
conditions). The improvements upon such properties and use thereof
by the Company conforms to all applicable lease restrictions,
zoning, and other local ordinances. To the best of Seller's
knowledge, the Company's real property (the "Property") does not
contain any hazardous substance; the Seller has not conducted or
authorized the generation, transportation, storage, treatment or
disposal at the Property of any hazardous substance; that the
Seller has not received any notice of and has no knowledge that any
government authority or any employee or agent thereof, or any
private citizen, has determined, or threatens to determine, or made
any claim in any form, that there is a presence, release, threat of
release, placement on or in the Property, or the generation,
transportation, storage, treatment or disposal at the Property, of
any hazardous substance. For purposes of this paragraph,
"hazardous substance" means any matter giving rise to liability
under any local, state or federal law, ordinance or regulation or
any common law theory based on nuisance or strict liability; does
not contain unacceptable levels of natural asbestos; has not been
used as a grave site, fill or borrow area; does not contain
underground storage tanks on the Property;
2.14 List of Contracts and Other Data. Schedule 2.14 sets for
the following:
2.14.1 all collective bargaining agreements, employment
and consulting agreements, executive compensation plans, bonus
plans, profit-sharing plans, deferred compensation agreements,
employee pension or retirement plans, employee stock purchase
and stock option plans, group life insurance, hospitalization
insurance or other plans or arrangements providing for
benefits to employees of the Company.
8
<PAGE> EX-10.1
2.14.2 all contracts, understandings, and commitments,
(including, without limitation, mortgages, indentures, and
loan agreements) to which the Company is a party, or to which
it or any of its assets or properties are subject and which
are not specifically referred to herein.
2.14.3 the names and current annual compensation rates
of all employees of the Company; and
True and complete copies of all documents and complete
descriptions of all oral understandings, if any, referred to in
Schedules 2.13 and 2.14 have been provided or made available to
Buyer and its counsel.
2.15 No Breach or Default. The Company is not in default
under any contract to which it is a party or by which it is bound,
nor has any event occurred which, after the giving of notice or the
passage of time or both, would constitute a default under any such
contract. Seller have no reason to believe that the parties to such
contracts will not fulfill their obligations under such contracts
in all material respects or are threatened with insolvency.
2.16 Litigation. Except as set forth in Schedule 2.16, there
are no actions, suits or proceedings with respect to the Company
involving claims by or against Seller or the Company which are
pending or threatened against Seller or the Company, at law or in
equity, or before or by any federal, state, municipal or other
governmental department, commission, board, bureau, agency, or
instrumentality. No basis for any action, suit, or proceeding
exists, and there are no orders, judgments, injunctions, or decrees
of any court or governmental agency with respect to which Seller or
the company has been named or to which Seller or the Company is a
party, which apply, in whole or in part, to the business of the
Company, or to any of the assets or properties of the Company or
the Micromatix Shares or which would result in any material adverse
change in the business or prospects of the Company.
2.17 No Brokers. Neither Seller nor the Company has entered
into any contract, arrangement or understanding with any person or
firm which may result in the obligation of Buyer or the Company to
pay any finder's fees, brokerage or agent's commissions, or other
like payments in connection with the negotiations leading to this
Agreement or the consummation of the transactions contemplated
hereby, and neither Seller nor the Company is aware of any claim or
basis for any claim for payment of any finder's fees, brokerage or
agent's commissions, or other like payments in connection with the
negotiations leading to this Agreement or the consummation of the
transactions contemplated hereby.
2.18 Investment Representation. The Seller represents that it
understands that (a) the Micromatix Shares being acquired by Buyer
pursuant to this Agreement have not been registered under the
Securities Act of 1933, as amended, and are being issued in
reliance upon an exemption afforded by Section 4(2) thereof for a
transaction by an issuer not involving any public offering, (b)
such Micromatix Shares must be held indefinitely unless a
subsequent disposition thereof is registered under the Securities
Act of 1933, as amended, or is exempt from such registration, (c)
such Micromatix Shares will bear a legend to such effect, and (d)
Seller will make a notation on its transfer books to such effect.
Each Buyer further represents that (i) such Micromatix Shares are
being acquired for investment and without any present view toward
distribution thereof to any other person, (ii) it will not sell or
otherwise dispose of such Micromatix Shares except in compliance
with the registration requirements or exemption provisions under
the Securities Act of 1933, as amended, the rules and regulations
thereunder, and as otherwise set forth by the Securities and
9
<PAGE> EX-10.1
Exchange Commission, (iii) it has knowledge and experience in
financial and business matters and that he is capable of evaluating
the risks and merits of an investment in Micromatix Shares, (iv) it
has consulted with counsel to the extent deemed necessary, as to
all matters covered by this Agreement and has not relied upon
Seller for any explanation of the application of the various
federal or state securities laws with regard to the acquisition of
such Micromatix Shares, (v) it has investigated and is familiar
with the affairs, financial condition, and prospects of the
Company, and has been given sufficient access to and has acquired
sufficient information about the Company to reach an informed and
knowledgeable decision to acquire such Micromatix Shares, and (vi)
it is able to bear the economic risks of such an investment.
2.19 Independent Legal Advice. The Company and the Seller
have sought and will continue to seek independent legal advice in
this transaction.
2.20 No Misrepresentations or Omissions. No representation or
warranty by Seller in this Article 2 or in any other Article or
Section of this Agreement, or in any certificate or other document
furnished or to be furnished by Seller pursuant hereto, contains or
will contain any untrue statement of a material fact or omits or
will omit to state a material fact necessary in order to provide
Buyer with accurate information as to the Company.
3. Representations and Warranties of Buyer. Buyer represents and
warrants to Seller as follows:
3.1 Existence; Good Standing; Corporate Authority; Compliance
with Law. Buyer is a publicly-traded corporation. Buyer is duly
incorporated, validly existing, and in good standing under the laws
of the State of Missouri. Buyer is duly licensed or qualified to
do business as a foreign corporation and is in good standing under
the laws of all other jurisdictions in which the character of the
properties owned or leased by it therein or in which the
transaction of its business makes such qualification necessary.
Buyer has all requisite corporate power and authority to own its
properties and carry on its business as now conducted. Buyer is not
in default with respect to any order of any court, governmental
authority, or arbitration board or tribunal to which Buyer is a
party or is subject, and Buyer is not in violation of any laws,
ordinances, governmental rules or regulations to which it is
subject. Buyer has obtained all licenses, permits, or other
authorizations and has taken all actions required by applicable
laws or governmental regulations in connection with its business as
now conducted.
3.2 Authorization; Validity and Effect of Agreements. The
execution and delivery of this Agreement and all agreements and
documents contemplated hereby by Buyer, and the consummation by it
of the transactions contemplated hereby, have been duly authorized
by all requisite corporate action. This Agreement constitutes, and
all agreements and documents contemplated hereby when executed and
delivered pursuant hereto for value received will constitute, the
valid and legally binding obligations of Buyer enforceable in
accordance with their terms. The execution and delivery of this
Agreement does not and the consummation of the transactions
contemplated hereby will not (a) require the consent of any third
party (except as set forth in Section 5.2 of this Agreement), (b)
result in the breach of any term or provision of, or constitute a
default under, or result in the acceleration of, or entitle any
party to accelerate (whether after the giving of notice or the
lapse of time or both) any obligation under, or result in the
creation or imposition of any lien, charge, pledge, security
interest or other encumbrance upon any part of the property of the
Company pursuant to any provision of, any order, judgment,
arbitration award, injunction, decree, indenture, mortgage, lease,
10
<PAGE> EX-10.1
license, lien, or other agreement or instrument to which Buyer is a
party or by which it is bound, and (c) violate or conflict with any
provision of the bylaws or Articles of Incorporation of Buyer as
amended to the date of this Agreement.
4. Other Covenants and Agreements.
4.1 Indemnification by Seller. Upon the terms and subject to
the conditions set forth in Section 4.1, Seller agrees to indemnify
and hold Buyer harmless from and against, and will reimburse Buyer
on demand for, any payment, loss, cost, or expense (including
reasonable attorney's fees and reasonable costs of investigation
incurred in defending against any such payment, loss, cost, or
expense, or claim therefor) made or incurred by Buyer at any time
after the Closing Date in respect of:
4.1.1 any and all losses, damage, costs or deficiencies
directly or indirectly resulting from any misrepresentation,
breach of warranty or non-fulfillment of any covenant on the
part of such Seller under this Agreement or from any
misrepresentation in or omission from any certificate or other
instrument furnished or to be furnished to Buyer hereunder;
and
4.1.2 any and all actions, suits, proceedings, demands,
assessments, judgements, costs and legal and other expenses
incidental to the foregoing, and Buyer is hereby authorized,
at its option, to settle such claims and make any payment in
relation thereto as may be reasonable in the circumstances.
4.2 Indemnification by Buyer. Upon the terms and subject to
the conditions set forth in Section 4.2, Buyer agrees to indemnify
and hold Seller harmless from and against, and will reimburse
Seller on demand for, any payment, loss, cost, or expense
(including reasonable attorney's fees and reasonable costs of
investigation incurred in defending against any such payment, loss,
cost, or expense, or claim therefor) made or incurred by Seller at
any time after the Closing Date in respect of:
4.2.1 any and all losses, damage, costs or deficiencies
directly or indirectly resulting from any misrepresentation,
breach of warranty or non-fulfillment of any covenant on the
part of such Seller under this Agreement or from any
misrepresentation in or omission from any certificate or other
instrument furnished or to be furnished to Seller hereunder;
and
4.2.2 any and all actions, suits, proceedings, demands,
assessments, judgements, costs and legal and other expenses
incidental to the foregoing, and Seller is hereby authorized,
at its option, to settle such claims and make any payment in
relation thereto as may be reasonable in the circumstances.
4.3 Tax Indemnity. Upon the terms and subject to the
conditions set forth in Section 4.3, Seller agrees to indemnify and
hold Buyer and the Company harmless against, and will reimburse
Buyer (or the Company if Buyer so requests) on demand for:
4.3.1 any and all tax deficiencies in respect of
federal, state, local, and foreign sales, use, income, or
franchise tax or taxes based on or measured by income,
including any interest or penalties thereon and legal fees and
expenses incurred by Buyer and the Company with respect to the
taxable year ended December 31, 1998, and all prior taxable
years; and
11
<PAGE> EX-10.1
4.3.2 any and all such taxes, interest, penalties, and
legal fees and expenses in respect of the period from January
1, 1999 up to and including the Closing Date, but only to the
extent that such deficiencies, taxes, interest, penalties, and
legal fees and expenses exceed, in the aggregate, the amount
of the aggregate reserves for such taxes, if any, shown as
liabilities on the Unaudited Balance Sheet.
The indemnity provided for in this Section 4.3 shall be
independent of and in addition to any other indemnity provision of
this Agreement and, anything in this Agreement to the contrary
notwithstanding, shall survive until the expiration of the
applicable statutes of limitation for the taxes referred to herein.
5. Conditions of Closing.
5.1 Buyer's Conditions of Closing. The obligation of Buyer
to purchase and pay for the Micromatix Shares shall be subject to
and conditioned upon the satisfaction at the Closing of each of the
following conditions:
5.1.1 All representations and warranties of Seller
contained in this Agreement and the Schedules hereto shall be
true and correct at and as of the Closing Date, Seller shall
have performed all agreements and covenants and satisfied all
conditions on their part to be performed or satisfied by the
Closing Date pursuant to the terms of this Agreement, and
Buyer shall have received a certificate of the Seller dated
the Closing Date to such effect.
5.1.2 There shall have been no material adverse change
since the date of the Unaudited Balance Sheet in the financial
condition, business or affairs of the Company or any
affiliate, and the Company or any affiliate shall not have
suffered any material loss (whether or not insured) by reason
of physical damage caused by fire, earthquake, accident, or
other calamity which substantially affects the value of its
assets, properties or business, and Buyer shall have received
a certificate of the Seller dated the Closing Date to such
effect.
5.1.3 Seller shall have delivered to Buyer a Certificate
of the Secretary of State (or other authorized officer) of the
Company's and each Affiliate's respective jurisdiction of
incorporation certifying as of a date reasonably close to the
Closing Date that the Company or such Affiliate, as the case
may be, has filed all required reports, paid all required fees
and taxes, and is, as of such date, in good standing and
authorized to transact business as a domestic corporation.
5.1.4 Seller shall have delivered to Buyer certificates
and other instruments representing all of the Micromatix
Shares, duly endorsed for transfer or accompanied by
appropriate stock powers (in either case executed in blank or
in favor of Buyer with the execution thereof guaranteed by a
bank or trust company), together with all other documents
necessary or appropriate to validly transfer the Micromatix
Shares to Buyer free and clear of all security interests,
liens, encumbrances, and adverse claims.
5.1.5 Neither any investigation of the Company by Buyer,
nor the Schedules attached hereto or any supplement thereto
nor any other document delivered to Buyer as contemplated by
this Agreement, shall have revealed any facts or circumstances
12
<PAGE> EX-10.1
which, in the sole and exclusive judgment of Buyer and
regardless of the cause thereof, reflect in an adverse way on
the Company or its financial condition, assets, liabilities
(absolute, accrued, contingent, or otherwise), reserves,
business, operations, or prospects.
5.1.6 No suit, action, investigation, inquiry, or other
proceeding by any governmental body or other person or legal
or administrative proceeding shall have been instituted or
threatened which questions the validity or legality of the
transactions contemplated hereby.
5.1.7 As of the Closing, there shall be no effective
injunction, writ, preliminary restraining order, or any order
of any nature issued by a court of competent jurisdiction
directing that the transactions provided for herein or any of
them not be consummated as so provided or imposing any
conditions on the consummation of the transactions
contemplated hereby, which is unduly burdensome on Buyer.
5.2 Seller's Conditions of Closing. The obligation of Seller
to sell the Micromatix Shares shall be subject to and conditioned
upon the satisfaction at the Closing of each of the following
conditions:
5.2.1 All representations and warranties of Buyer
contained in this Agreement shall be true and correct at and
as of the Closing Date and Buyer shall have performed all
agreements and covenants and satisfied all conditions on its
part to be performed or satisfied by the Closing Date pursuant
to the terms of this Agreement; and Seller shall have received
a certificate of Buyer dated the Closing Date to such effect.
5.2.2 Buyer shall have effected payment of the Purchase
Price in accordance with this Agreement.
5.2.3 Buyer shall have delivered to Seller certificates
representing the IMTL Stock to be issued pursuant to Section
1.3 of this Agreement.
5.2.4 Buyer shall have delivered to Seller a certificate
of its corporate secretary certifying:
(a) Resolutions of its Board of Directors
authorizing execution of this Agreement and the
execution, performance, and delivery of all agreements,
documents, and transactions contemplated hereby; and
(b) The incumbency of its officers executing this
Agreement and all agreements and documents contemplated
hereby.
5.2.5 As of the Closing, there shall be no effective
injunction, writ, preliminary restraining order, or any order
of any nature issued by court of competent jurisdiction
directing that the transactions provided for herein or any of
them not be consummated as so provided or imposing any
conditions on the consummation of the transactions
contemplated hereby, which is unduly burdensome on Seller.
13
<PAGE> EX-10.1
6. Termination and Abandonment; Arbitration.
6.1 Methods of Termination. The transactions contemplated
herein may be terminated and/or abandoned at any time before or
after approval thereof by Seller and Buyer, in accordance with the
following:
6.1.1 not later than Closing, by mutual consent of Buyer
and Seller;
6.1.2 not later than Closing, by Buyer if any of the
conditions provided for in Section 5.1 hereof shall not have
been met or waived in writing by Buyer prior to such date.
6.2 Procedure Upon Termination. In the event of termination
and/or abandonment by Buyer, pursuant to Section 6.1 or 6.2 hereof,
written notice thereof shall forthwith be given to the other party
and the transactions contemplated by this Agreement shall be
terminated and/or abandoned, without further action by Buyer or
Seller. If the transactions contemplated by this Agreement are
terminated and/or abandoned as provided herein:
6.2.1 Each party will redeliver all documents, work
papers, and other material of any other party relating to the
transactions contemplated hereby, whether so obtained before
or after the execution of this Agreement, to the party
furnishing the same; and
6.2.2 No party hereto shall have any liability or
further obligation to any other party to this Agreement except
as stated in this Section 6.2, as the case may be; provided,
however, that: (a) if such termination and/or abandonment is a
result of the failure of any condition set forth in Section
5.1 hereof, then Buyer shall be entitled to recover from
Seller all out-of-pocket costs which Buyer has incurred
(including reasonable attorney's fees, accounting fees, and
expenses); and (b) if such termination and/or abandonment is a
result of the failure of any condition set forth in Section
5.2 hereof, then Seller shall be entitled to recover from
Buyer all out-of-pocket costs which Seller has incurred
(including reasonable attorney's fees, accounting fees, and
expenses).
6.3 Arbitration. In the event of any dispute arising out of
this Section 6 only, the parties shall then submit the dispute to
binding arbitration in accordance with the Rules of the American
Arbitration Association, the parties agreeing to each pay one-half
of the costs of the arbitration and to pay its own expenses
including its own legal fees. The parties agree that the
arbitrator shall be an independent certified public accountant or
attorney with experience in public merger transactions.
7. Miscellaneous.
7.1 Notices. Any notice required or permitted hereunder
shall be in writing and shall be sufficiently given if personally
delivered or mailed by certified or registered mail, return receipt
requested, addressed as follows:
If to Buyer:
International Mercantile Corporation
P.O. Box 1810
Brookville, MD 20832
Attention: Frederic Richardson, Chairman
14
<PAGE> EX-10.1
With Copies to:
Art Fillmore 816-571-1700
David Levenson 202-857-1757
Doug Luizio 215-665-9300
If to Seller:
Red River Trading Company, Inc.
P.O. Box 359
Crownsville, MD 21032
Attention: Timothy Jewell, President
With Copies to:
John Harman, Coggins Harman & Hewitt
8905 Fairview Road, Suite 600
Silver Spring, MD 20910
7.2 Execution of Additional Documents. The parties hereto
will at any time, and from time to time after the Closing Date,
upon request of the other party, execute, acknowledge and deliver
all such further acts, deeds, assignments, transfers, conveyances,
powers of attorney, and assurances as may be required to carry out
the intent of this Agreement, and to transfer and vest title to any
Micromatix Shares being transferred hereunder, and to protect the
right, title, and interest in and enjoyment of all of the
Micromatix Shares sold, granted, assigned, transferred, delivered,
and conveyed pursuant to this Agreement; provided, however, that
this Agreement shall be effective regardless of whether any such
additional documents are executed.
7.3 Binding Effect, Benefits. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto
and their respective heirs, successors, executors, administrators,
and assigns. Notwithstanding anything contained in this Agreement
to the contrary, nothing in this Agreement, expressed or implied,
is intended to confer on any person other than the parties hereto
or their respective heirs, successors, executors, administrators,
and assigns any rights, remedies, obligations or liabilities under
or by reason of this Agreement.
7.4 Entire Agreement. This Agreement, together with the
Exhibits, Schedules, and other documents contemplated hereby,
constitute the final written expression of all of the agreements
between the parties, and is a complete and exclusive statement of
those terms. It supersedes all understandings and negotiations
concerning the matters specified herein. Any representations,
promises, warranties, or statements made by either party that
differ in any way from the terms of this written Agreement and the
Exhibits, Schedules, and other documents contemplated hereby, shall
be given no force or effect. The parties specifically represent,
each to the other, that there are no additional or supplemental
agreements between them related in any way to the matters herein
contained unless specifically included or referred to herein. No
addition to or modification of any provision of this Agreement
shall be binding upon any party unless made in writing and signed
by all parties.
15
<PAGE> EX-10.1
7.5 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Maryland
exclusive of the conflict of law provisions thereof.
7.6 Survival. All of the terms, conditions, warranties, and
representations contained in this Agreement shall survive, in
accordance with their terms, delivery by Buyer of the consideration
to be given by him hereunder and delivery by Seller of the
consideration to be given by them hereunder, and shall survive the
execution hereof and the Closing hereunder.
7.7 Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original
but all of which shall constitute one and the same instrument.
Until manually signed counterparts have been exchanged between the
parties, the parties agree to be bound by counterparts delivered by
facsimile containing facsimile representations of actual signatures
affixed by the parties.
7.8 Headings. Headings of the Articles and Sections of this
Agreement are for the convenience of the parties only, and shall be
given no substantive or interpretive effect whatsoever.
7.9 Waivers. Either Buyer or Seller may, by written notice
to the other; (a) extend the time for the performance of any of the
obligations or other actions of the other under this Agreement; (b)
waive any inaccuracies in the representations or warranties of the
other contained in this Agreement or in any document delivered
pursuant to this Agreement; (c) waive compliance with any of the
conditions or covenants of the other contained in this Agreement;
or (d) waive performance of any of the obligations of the other
under this Agreement. Except as provided in the preceding sentence,
no action taken pursuant to this Agreement, including without
limitation any investigation by or on behalf of any party, shall be
deemed to constitute a waiver by the party taking such action of
compliance with any representations, warranties, covenants, or
agreements contained in this Agreement. The waiver by any party
hereto of a breach of any provision hereunder shall not operate or
be construed as a waiver of any prior or subsequent breach of the
same or any other provision hereunder.
7.10 Merger of Documents. This Agreement and all agreements
and documents contemplated hereby constitute one agreement and are
interdependent upon each other in all respects.
7.11 Incorporation of Exhibits and Schedules. All Exhibits
and Schedules attached hereto are by this reference incorporated
herein and made a part hereof for all purposes as if fully set
forth herein.
7.12 Severability. If for any reason whatsoever, any one or
more of the provisions of this Agreement shall be held or deemed to
be inoperative, unenforceable, or invalid as applied to any
particular case or in all cases, such circumstances shall not have
the effect of rendering such provision invalid in any other case or
of rendering any of the other provisions of this Agreement
inoperative, unenforceable, or invalid.
7.13 Assignability. Neither this Agreement nor any of the
parties' rights hereunder shall be assignable to any party hereto
without the prior written consent of the other parties hereto.
16
<PAGE> EX-10.1
IN WITNESS WHEREOF the respective parties hereto have hereunto
affixed their respective hands and/or seals on the day, month, and
year first above written.
FOR: INTERNATIONAL MERCANTILE CORPORATION ("BUYER")
/s/Frederic Richardson 9/6/99
by: Frederic Richardson, Chairman Date
FOR: RED RIVER TRADING COMPANY, INC. ("SELLER")
/s/Timothy Jewell 9/6/99
by: Timothy Jewell, President Date
FOR: MICROMATIX.COM INCORPORATED ("COMPANY")
/s/Timothy Jewell 9/6/99
by: Timothy Jewell, President Date
17
<PAGE> EX-10.1
STOCK PURCHASE AGREEMENT
By and between
International Mercantile Corporation
and
Micromatix.com Incorporated
ADENDUM
It is hereby agreed that the transaction referenced in the Stock
Purchase Agreement dated September 6, 1999 shall be accounted for
as a capital transaction with no recognition of goodwill or other
intangible assets. This transaction is a recapitalization of
Micromatix.com, Inc. (the predecessor company) and not a business
combination. As such, all historical data shall be that of
Micromatix.com, Inc. A Reverse Merger.
FOR: INTERNATIONAL MERCANTILE CORPORATION ("BUYER")
/s/Frederic Richardson /s/
by: Frederic Richardson, Chairman Witness
Date 9/6/99 Date 9/6/99
FOR: MICROMATIX.COM INCORPORATED ("COMPANY")
/s/ Timothy Jewell /s/
by: Timothy Jewell, President Witness
Date 9/6/99 Date 9/6/99
COMPENSATION PLAN AGREEMENT
THIS Agreement is made effective as of this 10th day of
June, 1995 by and between International Mercantile Corporation
(IMTL), whose address is P.O. Box 340, Olney, Maryland 20830
referred to as the "Company", and Frederic Richardson, whose
address is 1801 Goldmine Road, Brookeville, Maryland 20830,
referred to as the "Employee".
1. Employment: The Company hereby employs the
Employee as a Sales and Business Development Manager and the
Employee hereby accepts such employment in accordance with the
terms and conditions of this Contract.
2. Duties of Employee:
a. The duties of the Employee are generally
described as follows: to oversee telecommunications and mortgage
development and product and business development for IMTL and
any of its subsidiaries.
b. The Company's Rules and Regulations. The
Employee shall strictly adhere to all the rules and regulations
of the Company which are presently in force or which may be
established hereafter with respect to the conduct of Employees.
The Employee shall also strictly follow the directions of the
Company with respect to the methods to be used in performing his
or her duties. The Employee is responsible to continue and
maintain the Company's standards of uniformity, purity and
quality with respect to all services performed by the Company.
c. Employee agrees that he/she has not been employed
for any of the following activities and/or purposes:
1. for capital raising or for promotional
activities regarding the Company's securities.
2. to directly or indirectly promote or
maintain a market for the Company's securities.
3. to act as a conduit to distribute S-8
Securities 144 securities to the general public.
4. to render investor relations services or
shareholder communications services to the Company.
5. to render advice to the Company regarding
the arrangement or effecting of mergers involving the Company
that have the effect of taking a private company public.
3. Power of Employee to Bind Company: The Employee may
enter into any contract or otherwise bind the Company in any way
<PAGE> EX-10.2, Pg. 1
he/she sees fit. Any contracts which the Employee enters into
shall receive authorization from IMTL or it will not be binding
upon the company.
4. Other Employment: It is the Company's intention
that the Employee devote at least 20 hours per week of the
Employee's work effort towards the fulfillment of the Employee's
obligation under this contract. However during the Employment
period and any subsequent period during which he is employed
hereunder; it is understood that ownership of less than 10% of
the issued and outstanding capital stock of a corporation, the
securities of which are listed on a national securities exchange
or regularly included in the national list of over-the-counter
securities as it may from time to time be published in a
newspaper of general circulation, shall not be deemed to
constitute such a business activity as contemplated hereunder.
5. Compensation of Employee:
During the Employment Period:
a. As compensation for his services hereunder
Company shall pay Employee, $10,000 per month and 10,000 shares
of restricted stock (as S-8 where available).
b. In addition to his salary, Employee shall
entitled to all perquisites which Company makes available to
employees of similar class and station, and be included, to the
extent eligible, under any and all present plans of Company
providing benefits for its employees including, but not limited
to, retirement benefits, thrift plan, group life insurance,
hospitalization, medical, accidental death and dismemberment,
and any and all other similar or comparable benefits made
available to employees of similar class and station: provided,
however, that in no event shall employee have perquisites or
benefits less favorable than favorable than the comparable
perquisites or benefits he is presently receiving from the
Company.
6. Employee Expenses: Employee shall be authorized,
to incur reasonable and necessary expenses(such as travel and
telephone). Company will reimburse Employee for all such
expenses authorized by Company upon the presentation by Employee
to Company. Employee is required to submit an itemized request
for reimbursement of such expenditures supported by sufficient
documentation of the expenditures and explanation of their
purpose.
7. Term: The term of this Agreement shall
commence on the date hereof and shall continue for ten (10)
years, with rights to renew.
8. Termination of Employment: Either party may
terminate this contract in the employment hereunder, without
cause and at any time, upon thirty days notice by Certified or
Registered Mail, or facsimile to the other party at the
addresses set forth above.
9. Remedies for Breach of Contract:
a. In the event the breach or threatened breach of
any provision of the contract of the Employee, the Company shall
be entitled to injunctions, both preliminary and final, and join
in or understanding such breach or threatened breach. Such
remedies shall be in addition to all other remedies available at
<PAGE> EX-10.2, Pg. 2
law or in equity including the Company's right to recover from
the Employee any damages that may be sustained as a result of
the Employee's breach of contract.
b. In addition to any other remedies the Company may
have available to it under the terms of this contract, the
Company shall be entitled to stop Employee, by means of
injunction, from violating any part of this Agreement, and to
recover by means of an accounting, any profits the Employee may
have obtained in violation of this contract. The Company shall
be entitled to recover its attorneys fees and expenses in any
successful action by the Company to enforce this Agreement.
10. Affiliates: The term "affiliate" as used herein
shall mean any corporation controlling, controlled by or under
common control with Company. The term "control" shall mean the
ownership, directly or indirectly, of a sufficient number of
shares of voting stock of any corporation to elect a majority of
the Board of Directors of that corporation.
11. Complete Agreement: This Contract supersedes all prior
contracts and understandings between the Employee and the
Company may not be modified, changed or altered by any promise
or statement by whomever made; nor shall any modification of it
be binding upon the Company until such written modification
shall have been approved in writing by an officer of the
Company.
12. Waiver of Breach: The waiver by the Company of any
breach of any provision of this Contract by the Employee shall
not operate or be construed as a wavier of any subsequent breach
by the Employee.
IN WITNESS WHEREOF, the undersigned has executed this
Agreement the day and year first above written.
WITNESS: IMTL,
/s/Edward Hutya
Edward Hutya
Executive Vice President
Director
/s/Frederic Richardson
Frederic Richardson
<PAGE> EX-10.2, Pg. 3
1
W-1/99
THIS LEASE, Made this ___7th_ day of _September_____, 1999, by and
between MIE Properties, Inc., as agent for owner, herein called
"Landlord", and Micromatix. Com, Inc., a Delaware Corporation, herein
called "Tenant".
WITNESSETH, that in consideration of the rental hereinafter agreed
upon and the performance of all the conditions and convenants hereinafter
set forth on the part of Tenant to be performed, Landlord does hereby
lease unto said Tenant, and the latter does lease from the former
approximately 35,000 square feet at the following premises: 1625 Knecht
Avenue, Baltimore, Maryland 21227 for the term of 71 months beginning on
the 1st day of October, 1999, and ending on the 31st day of August, 2005,
at and for the annual rental of See Rent Schedule Below* payable in
advance on the first day of each and every month during the term of this
lease in equal monthly installments of See Rent Schedule Below*. Said
rental shall be paid to MIE Properties, Inc., 5720 Executive Drive,
Baltimore, Maryland 21228-1757 or at such other place or to such
appointee of Landlord, as Landlord may from time to time designate in
writing.
THE TENANT COVENANTS AND AGREES WITH THE LANDLORD AS FOLLOWS:
1. To pay said rent and each installment thereof as and when due,
without setoff or deduction.
USE
2. To use and occupy the leased premises solely for the following
purposes: Office and warehouse for sales service, storage and
distribution of computers and related items.
ADDITIONAL RENT
3. A. UTILITIES
Tenant shall apply for and pay all costs of electricity,
gas, telephone and other utilities used or consumed on the premises,
together with all taxes, levies or other charges on such utilities.
Tenant agrees to pay as additional rent, Tenant's prorata share of the
water and sewer service charges, or when applicable, the cost of
maintaining and operating the well water and/or septic system chargeable
to the total building in which the premises are located. However, if in
Landlord's sole judgement, the water and sewer charges for the premises
are substantially higher than normal due to Tenant's water usage, then
Tenant agrees that it will, upon written notice from Landlord, install a
water meter at Tenant's expense and thereafter pay all water charges for
the premises based on such meter readings.
<TABLE>
<CAPTION>
*RENT SCHEDULE
--------------
Annual Monthly
------ -------
<S> <C> <C>
October 1, 1999 - August 31, 2000 $171,290.00 $14,274.17
September 1, 2000 - August 31, 2001 $180,036.00 $15,003.00
September 1, 2001 - August 31, 2003 $187,040.00 $15,586.67
September 1, 2003 - August 31, 2005 $195,790.00 $16,315.83
</TABLE>
<PAGE> EX-10.3
2
B. TAXES
Tenant shall pay to Landlord, as additional rent,
Tenant's pro-rata share of the taxes in excess of those assessed against
the building or group of buildings in which the leased premises is
situated, together with all parking and other common areas adjacent
thereto (collectively, the "Property") during the fiscal year commencing
July 1, 1999 and ending June 30, 2000, whether the taxes are payable to
the State of Maryland and/or Baltimore County. If this lease shall be in
effect for less than a full fiscal year, Tenant shall pay a pro-rata
share of the increased taxes based upon the number of months that this
lease is in effect. Said taxes shall include Metropolitan District
Charges, sewer service charges and CPRA charges, if any, and any and all
benefits or assessments which may be levied on the premises hereby leased
but shall not include the United States Income Tax, or any State or other
income tax upon the income or rent payable hereunder.
C. COMMON AREA
Tenant shall pay to Landlord as additional rent, Tenant's
pro-rata share of the following Common Area Expenses:
* Snow Removal
* Grounds Maintenance
* Security (when Landlord, in its reasonable judgement deems
necessary).
* Trash Removal (when supplied by Landlord).
Tenant's pro-rata share is equal to 54.64 percent.
"Tenant's Pro-rata Share" shall mean the same percentage that the gross
square foot area of Tenant's leased premises bears to the gross square
foot area of all leasable floor area within the property. Landlord shall
notify Tenant of any change in "Tenant's Pro-rata Share".
Landlord shall notify Tenant from time to time of the
amounts which Landlord estimates will be payable by Tenant for Tenant's
Pro-rata Share of Utilities, Taxes and Common Area expenses and Tenant
shall pay such amounts to Landlord in equal monthly installments in
advance on or before the first day of each month. Within a reasonable
period of time following the end of each calendar year, or fiscal year
(with regard to taxes) Landlord shall submit to Tenant a statement
showing the Utilities, Taxes and Common Area expenses to be paid by
Tenant with respect to such year, the amount paid by Tenant, and the
amount of the resulting balance due or overpayment. Each such statement
shall be final and conclusive if no objection is raised within ninety
(90) days after submission of each such statement.
Notwithstanding the forgoing provisions of the above
paragraph, Landlord may require Tenant to pay in arrears Tenant's pro-
rata share of Utilities, Taxes and Common Area expenses in quarterly or
semi-annual payments rather than on a monthly basis as provided above.
<PAGE> EX-10.3
3
MUNICIPAL REGULATING
4. To observe, comply with and execute at its expense, all laws,
orders, rules, requirements, and regulations of the United States, State,
City or County of the said State, in which the leased premises are
located, and of any and all governmental authorities or agencies and of
any board of fire underwriters or other similar organization, respecting
the premises hereby leased and the manner in which said premises are or
should be used by Tenant.
ASSIGNMENT AND SUBLET
5. Not to assign this lease, in whole or in part, or sublet the
leased premises, or any part or portion thereof, or grant any license or
concession for any part of the premises, without the prior written
consent of Landlord, said permission shall not be unreasonably withheld,
conditioned or delayed. If such assignment or subletting is permitted,
Tenant shall not be relieved from any liability whatsoever under this
lease. Landlord shall be entitled to any additional considerations over
and above those stated in this lease, which are obtained in or for the
sublease and/or assignment. No option rights can be assigned or
transferred by Tenant to an assignee or subtenant without the prior
written consent of Landlord.
INSURANCE
6. That Tenant will not do anything in or about said premises that
will contravene or affect any policy of insurance against loss by fire or
other hazards, including, but not limited to, public liability now
existing or which Landlord may hereafter place thereon, or that will
prevent Landlord from procuring such policies in companies acceptable to
Landlord. Tenant will do everything reasonably possible, and consistent
with the conduct of Tenant's business to obtain the greatest possible
reduction in the insurance rates on the Property, including the building
in which the premises is situated. Tenant further agrees to pay, as
additional rent, any increase in the premium of any insurance carried by
Landlord caused by Tenant's occupancy, the nature of its business, any
alterations or installations made by Tenant, or otherwise resulting from
any act of Tenant, its agents, employees or customers.
ALTERATIONS
7. (a) That Tenant will not make any alterations in addition to
original improvements to the premises without the prior written consent
of Landlord, which consent will not be unreasonably withheld, conditioned
or delayed. If Tenant shall desire to make any such alterations, plans
for the same shall first be submitted to Landlord for approval, and the
same shall be performed by Tenant at its own expense, Tenant agrees that
all such work shall be done in a good and workmanlike manner, that the
structural integrity of the building shall not be impaired, that no liens
shall attach to the building by reason thereof, and that all alterations
shall be in accordance with all applicable building codes.
<PAGE> EX-10.3
4
(b) Tenant agrees to obtain at Tenant's expense all permits
pertaining to the alterations. Tenant also agrees to obtain, prior to
commencing to make such alterations, and to keep in full force and effect
at all time while such alterations are being made, all at Tenant's sole
cost and expense, such policies of insurance pertaining to such
alterations and/or to the making thereof as Landlord reasonably may
request or require Tenant to obtain, including, but not limited to,
public liability and property damage insurance, and to furnish Landlord
evidence satisfactory to Landlord of the existence of such insurance
prior to Tenant's beginning to make such alterations.
(c) Any such alterations shall become the property of
Landlord as soon as they are affixed to the premises and all rights, title and
interest therein of Tenant shall immediately cease, unless otherwise
agreed to by Landlord in writing. Landlord shall have the sole right to
collect any insurance for any damage of any kind caused by any
alterations or improvements placed upon the premises by Tenant. If the
making of any such alterations, or the obtaining of any permits therefore
shall directly or indirectly result in a franchise, minor privilege or
any other tax or increase in tax, assessment or increase in assessment,
such tax or assessment shall be paid, immediately upon its levy and
subsequent levy, by Tenant.
(d) Unless Landlord shall elect in writing that all or
part of any alterations installed by Tenant shall remain, the premises shall
be restored to their original condition by Tenant, at its own expense,
before the expiration of its tenancy.
MAINTENANCE
8. Tenant will, during the term of this lease, keep said demised
premises and appurtenances (including but not limited to interior and
exterior windows, interior and exterior doors, interior plumbing,
heating, air conditioning, and ventilating (HVAC), interior electrical or
replacement works thereof) in good order and condition and will make all
necessary repairs or replacement thereof at its own expense. Landlord
does, however, give a 90 day warranty on all of the above mentioned
items. This warranty does not include the required annual maintenance
contract on the HVAC unit(s) as described below. Tenant will be
responsible for all exterminating services, except termites, required in
premises. If Tenant does not make necessary repairs 15 days after
receiving written notice from Landlord of the need to make a repair, the
Landlord may proceed to make said repair and the cost of said repair will
become part of and in addition to the next due monthly rental. The
Tenant agrees to furnish to the Landlord, at the expense of the Tenant,
prior to occupancy, a copy of an executed and paid for annual maintenance
contract on all heating and air conditioning equipment with a reputable
company acceptable to the Landlord and said contract will be kept in
effect during the term of the lease at the expense of the Tenant.
<PAGE> EX-10.3
5
Should Tenant not provide a satisfactory HVAC maintenance contract to
Landlord prior to occupancy, Tenant shall be provided a contract through
MIE Properties, Inc. Billings for this contract shall become due and
payable upon receipt of invoice and shall be considered additional rent.
The Landlord will make all necessary structural repairs to the exterior
masonry walls and roof of the demised premises, after being notified in
writing of the need for such repairs, provided the necessity for such
repairs was not caused by the negligence or misuse of Tenant, its
employees, agents or customers. The Tenant will, at the expiration of
the term or at the sooner termination thereof by forfeiture or otherwise,
deliver up the demised premises in the same good order and condition as
they were at the beginning of the tenancy, reasonable wear and tear
excepted.
DEFAULT
9. If Tenant shall fail to pay said rental or any other sum
required by this lease to be paid by Tenant and such failure shall
continue for 5 days after written notice thereof to Tenant, Landlord
shall have along with any and all other legal remedies the immediate
right to make distress therefore, and upon such distress, in Landlord's
discretion, this tenancy shall terminate. In case Tenant shall fail to
comply with any of the other provisions, convenants, or conditions of
this lease, on its part to be kept and performed, and such default shall
continue for a period of ten days after written notice thereof shall have
been given to Tenant by Landlord, and/or if Tenant shall fail to pay said
rental or any other sum required by the terms of this lease to be paid by
Tenant, then, upon the happening of any such event, and in addition to
any and all other remedies that may thereby accrue to Landlord, Landlord
may do the following:
1. Landlord's Election to Retake possession without
Termination of Lease. Landlord may retake possession of the leased
premises and shall have the right, but not the obligation, without being
deemed to have accepted a surrender thereof, and without terminating this
Lease, to relet the same for the remainder of the lease term upon terms
and conditions satisfactory to Landlord; and if the rent received from
such reletting does not at least equal the rent and other sums payable by
Tenant hereunder, Tenant shall pay and satisfy the deficiency between the
amount of rent and other sums so provided in this Lease and the rent
received through reletting the leased premises; and, in addition, Tenant
shall pay reasonable expenses in connection with any such reletting,
including, but not limited to, the cost of renovating, altering, and
decorating for any occupant, leasing commissions paid to any real estate
broker or agent, and attorney's fees incurred.
2. Landlord's Election to Terminate Lease. Landlord may
terminate the Lease and forthwith repossess the leased premises and be
entitled to recover as damages a sum of money equal to the total of the
following amounts:
<PAGE> EX-10.3
6
a. any unpaid rent or any other outstanding monetary
obligation of Tenant to Landlord under the Lease;
b. the balance of the rent and other sums payable by
Tenant for the remainder of the lease term to be determined as of the
date of Landlord's re-entry;
c. damages for the wrongful withholding of the leased
premises by Tenant;
d. all legal expenses, including attorney's fees, expert
and witness fees, court costs and other costs incurred in exercising its
rights under the Lease;
e. all costs incurred in recovering the leased premises,
restoring the leased premises to good order and condition, and all
commissions incurred by Landlord in reletting the leased premises; and
f. any other reasonable amount necessary to compensate
Landlord for all detriment caused by Tenant's default.
DAMAGE
10. In the case of the total destruction of said leased premises
by fire, other casualties, the elements or other cause, or of such damage
thereto as shall render the same totally unfit for occupancy by Tenant
for more than 60 days, this lease, upon surrender and delivery to
Landlord of said leased premises, together with the payment of the rent
to the date of such occurrence and a proportionate part thereof to the
date of surrender, shall terminate and be at an end. If the leased
premises are rendered partly untenantable by any cause mentioned in the
preceding sentence, Landlord shall, at its own expense, restore said
leased premises with all reasonable diligence, and the rent shall be
abated proportionately for the period of said partial untenantability and
until the leased premises shall have been fully restored by Landlord.
BANKRUPTCY
11. In the event of the appointment of a receiver or trustee for
Tenant by any court, Federal and State, in any legal proceedings under
any provisions of the Bankruptcy Act, if the appointment of such receiver
or such trustee is not vacated within sixty (60) days, or if said Tenant
be adjudicated bankrupt or insolvent, or shall make an assignment for the
benefit of its creditors, then and in any of said events, the Landlord
may, at its option, terminate this tenancy, and re-enter upon said
premises.
POSSESSION/BENEFICIAL OCCUPANCY
12. Landlord covenants and agrees that possession of said premises
shall be given to Tenant as soon as said premises are ready for
occupancy. In case possession, in whole or in part, cannot be given to
Tenant on or before the commencement date of this lease, Landlord agrees
to abate the rent proportionately until possession is given to said
Tenant and Tenant agrees to accept such pro rata abatement as liquidated
damages for the failure to obtain possession.
<PAGE> EX-10.3
7
If Tenant occupies any portion of the premises prior to tender
of possession thereof by Landlord, such partial occupancy shall be deemed
to be beneficial occupancy and a pro rata rent shall be due and payable
as to that portion of the premises so occupied, immediately upon Tenant's
occupancy. Such occupancy by Tenant and rent thereby due shall not
depend on official governmental approval of such occupancy, state of
completion of building, availability or connection of utilities and
services as but not limited to sewer, water, gas, oil, or electric. No
rent credit shall be given because of lack of utilities or services
unless caused by the gross negligence of Landlord.
SIGNS, ETC.
13. Tenant covenants and agrees that:
a. It will not place or permit any signs, lights, awnings
or poles on or about the exterior of said premises without the prior
permission, in writing, of Landlord and in the event such consent is
given, Tenant agrees to pay any minor privileges or other tax therefore;
b. Landlord is to immediately remove and dispose of any of
the unauthorized aforementioned items at the expense of Tenant and said
cost shall become part of and in addition to the next due monthly rental.
Tenant further covenants and agrees that it will not paint or make any
changes in or on the outside of said premises without permission of
Landlord in writing. Tenant agrees that it will not do anything on the
outside of said premises to change the uniform architecture, paint or
appearance of said building, without the consent of the Landlord in
writing.
c. Landlord shall have the right to place a "For Rent" sign
on any portion of said premises for ninety (90) days prior to termination
of this lease and to place a "For Sale" sign thereon at any time.
EXTERIOR OF PREMISES
14. Tenant further convenants and agrees not to put any items on
the sidewalk or parking lot in the front, rear, or sides of said building
or block said sidewalk, and not to do anything that directly or
indirectly will take away any of the rights of ingress or egress or of
light from any other tenant of Landlord or do anything which will, in any
way, change the uniform and general design of any property of Landlord of
which the premises hereby leased shall constitute a part of unit. Tenant
will also keep steps free and clear of ice, snow and debris.
WATER DAMAGE
15. Tenant covenants and agrees that Landlord shall not be held
responsible for and Landlord is hereby released and relieved from any
liability by reason of or resulting from damage or injury to person or
property of Tenant or of anyone else, directly or indirectly caused by
(a) dampness or water in any part of said premises or in any part of any
other property of Landlord or of others and/or (b) any leak or break in
<PAGE> EX-10.3
8
any part of said premises or in any part of any other property of
Landlord or of others or in the pipes of the plumbing or heating works
thereof, no matter how caused, unless damage is due to Landlord's
negligence.
LIABILITY
16. Landlord shall not be liable to Tenant for any loss or damage
to Tenant or to any other person or to the property of Tenant or of any
other person unless such loss or damage shall be caused by or result from
negligent act of omission or commission on the part of Landlord or any of
its agents, servants, or employees. Said Tenant shall indemnify and save
harmless Landlord, its successors or assigns, from all claims and demands
of every kind, that may be brought against it, them or any of them for or
on account of any damage, loss or injury to persons or property in or
about the leased premises during the continuance of this tenancy, or
during the time of any alterations, repairs, improvements or restorations
to said property by Tenant and arising in connection therewith, and from
any and all costs, expenses and other charges including reasonable
attorney's fees, which may be imposed upon the Landlord, its successors
or assigns, or which it or they may be obligated to incur in consequence
thereof. Tenant shall also carry and pay for a general liability policy
naming Landlord as an additional insured, with combined single limits of
not less than $2,000,000.00, and will furnish Landlord with certificate
of same showing a 30 day notice of cancellation clause.
RIGHTS OF ENTRY
17. It is understood and agreed that Landlord, and its agents,
servants, and employees, including any builder or contractor employed by
Landlord, shall have, and Tenant hereby gives them and each of them, the
absolute, and unconditional right, license and permission, at any and all
reasonable times, and for any reasonable purpose whatsoever, to enter
through, across or upon the premises hereby leased or any part thereof,
and, at the option of Landlord, to make such reasonable repairs to or
changes in said premises as Landlord may deem necessary or proper.
EXPIRATION
18. It is agreed that the term of this lease expires on August 31,
2005 without the necessity of any notice by or to any of the parties
hereto. If Tenant shall occupy said premises after such expiration, it
is understood that, in the absence of any written agreement to the
contrary, said Tenant shall hold premises as a Tenant from month-to-
month, subject to all the other terms and conditions of this lease, at
double the highest monthly rental installments reserved in this lease;
provided that Landlord shall, upon such expiration, be entitled to the
benefit of all public general or public local laws relating to the speedy
recovery of the possession of lands and tenements held over by Tenant
that may be now in force or may hereafter be enacted.
<PAGE> EX-10.3
9
Prior to lease expiration, Tenant agrees to schedule an
inspection with Landlord to confirm that the leased premises will be in
proper order at expiration, including but not limited to lighting,
mechanical, electrical and plumbing systems.
CONDEMNATION
19. It is agreed that in the event condemnation proceedings are
instituted against the demised premises and possession taken by the
condemning authority, then this lease shall terminate at the date
possession is taken and Tenant shall not be entitled to recover any part
of the award.
SUBORDINATION
20. It is agreed that Landlord shall have the right to place a
mortgage or deed of trust on the premises and this lease shall be
subordinate to any such mortgage, deed of trust whether presently
existing or hereafter placed on the premises, Tenant agrees to execute
any and all documents assisting the effectuating of said subordination.
Furthermore, if any person or entity shall succeed to all or part of
Landlord's interest in the leased premises, whether by purchase,
foreclosure, deed in lieu of foreclosure, power of sale, termination of
lease, or otherwise, Tenant shall automatically attorn to such successor
in interest, which attornment shall be self operative and effective upon
the signing of this lease, and Tenant shall execute such other agreement
in confirmation of such attornment as such successor in interest shall
reasonably request.
NOTICES
21. Any written notices required by this lease shall be deemed
sufficiently given, if hand delivered, or sent via first class U.S. mail
or by nationally recognized overnight courier service.
Any notice required by this lease is to be sent to Landlord at:
5720 Executive Drive
Baltimore, Maryland 21228-1789
Any notice required by this is to be sent to the Tenant at:
P.O. Box 359
Crownsville, Maryland 21032
REMEDIES NOT EXCLUSIVE
22. No remedy conferred upon Landlord shall be considered
exclusive of any other remedy, but shall be in addition to every other remedy
available to Landlord under this lease or as a matter of law. Every
remedy available to Landlord may be exercised concurrently or from time
to time, as often as the occasion may arise. Tenant hereby waives any
and all rights which it may have to request a jury trial in any
proceeding at law or in equity in any court of competent jurisdiction.
<PAGE> EX-10.3
10
SECURITY DEPOSIT AND FINANCIAL STATEMENTS
23. A security deposit of $28,548.34 is required to accompany
this lease, when submitted for approval by Landlord, subject to all the
conditions of the Security Deposit Agreement attached. If this lease is
not approved by Landlord within 30 days of its submission to Landlord,
the security deposit will be refunded in full. If requested by
Landlord's mortagee, Landlord shall have the right to require annual
financial statements for Tenant and/or any Guarantor of this lease.
Landlord agrees to return $14,274.17 to Tenant within 30 days of October
1, 2002 provided Tenant has fulfilled the obligation of this lease
through September 30, 2002.
FINAL AGREEMENT
24. This lease contains the final and entire agreement between
the parties hereto, and neither they nor their agents shall be bound by any
terms, conditions or representations not herein written.
LEGAL EXPENSE
25. In the event, to enforce the terms of this lease, either party
files legal action against the other, and is successful in said action,
the losing party agrees to pay all reasonable expenses to the prevailing
party, including the attorney's fee incident to said legal action. In
the event that Landlord is successful in any legal action filed against
Tenant, Landlord's attorney fees incident to said legal action shall
become part of and in addition to the then due monthly rent.
LAND
26. It is agreed that the demised premises is the building area
occupied by Tenant and only the land under that area.
RELOCATION
27. Landlord shall have the right at any time during the lease
term, upon not less than thirty (30) days written notice to Tenant, to
relocate Tenant to another location within the Property, provided: (1)
the new location is reasonably similar to size, utility and appearance to
the premises hereby demised and (2) Landlord pays all reasonable moving
costs incurred by Tenant in connection with such move. The parties shall
upon Landlord's request, execute an amendment to this lease which will
specify the change in premises, but this lease shall in no other respect
be amended.
ENVIRONMENTAL REQUIREMENTS
28. Tenant hereby covenants and agrees that at any time it is
determined that there are materials placed on the premises which, under
any Environmental Requirements, require special handling in collection,
storage, treatment, or disposal, Tenant shall, within thirty (30) days
after written notice thereof, take or cause to be taken, at its sole
expense, such actions as may be necessary to comply with all
Environmental Requirements. If Tenant shall fail to take such action,
Landlord may make advances or payments towards performance or
<PAGE> EX-10.3
11
satisfaction of the same but shall be under no obligation to do so; and
all sums so advanced or paid, including all sums advanced or paid in
connection with any judicial or administrative investigation or
proceeding relating thereto, including, without limitation, reasonable
attorney's fees, fines, or other penalty payments, shall be at once
repayable by Tenant and shall bear interest at the rate of four percent
(4%) per annum above the Prime rate from time to time as published by The
Wall Street Journal, from the date the same shall become due and payable
until the date paid. Failure of Tenant to comply with all Environmental
Requirements shall constitute and be a default under this Lease
Agreement.
Tenant will remain totally liable hereunder regardless of any
other provisions which may limit recourse.
SEVERABILITY
29. In case any one or more the provisions contained in this lease
shall for any reason be held to be invalid, illegal or unenforceable in
any respect, such invalidity, illegality or unenforceability shall not
affect any other provisions of this lease, but this lease shall be
construed as if such invalid, illegal or unenforceable provision had
never been contained herein.
LATE CHARGE
30. If Tenant shall fail to pay when due, the said rental or any
other sum required by the terms of this lease to be paid by Tenant, then,
upon the happening of any such event, and in addition to any and all
other remedies that may thereby accrue to Landlord, Tenant agrees to pay
to Landlord a late charge of 5% of the monthly account balance. The late
charge on the base rent accrues after 10 days of the due date and said
late charges shall be collectible as additional rent.
In the event Tenant's rent is received fifteen days after due
date, Landlord shall have option to require the rental payment be made
with a certified or cashier's check.
QUIET ENJOYMENT
31. Tenant, upon paying the minimum rent, additional rent and
other charges herein provided and observing and keeping all of its covenants,
agreements and conditions in this lease, shall quietly have and enjoy the
Premises during the term of this lease without hindrance or molestation
by anyone claiming by or through Landlord; subject, however, to all
exceptions, reservations and conditions of this lease.
LANDLORD'S WORK
32. The leased premises shall contain only the following items at
the expense of Landlord: AS IS.
WINDOW COVERINGS
33. Tenant covenants and agrees not to install any window covering
other than a one-inch horizontal mini-blind of an off-white color unless
approved in writing by Landlord.
<PAGE> EX-10.3
12
RULES AND REGULATIONS
34. Tenant shall at all times comply with the Rules and
Regulations attached hereto. Landlord shall make a reasonable effort to
enforce the Rules and Regulations equitably against all tenants of the
Property.
ESTOPPEL CERTIFICATE
35. Tenant shall, at any time during the term of this lease or any
renewal thereof, upon request of Landlord, execute, acknowledge, and
deliver to Landlord or its designee, a statement in writing, certifying
that this lease is unmodified and in full force and effect if such is the
fact that the same is in full force.
ADDITIONAL RENT
36. All sums of money required to be paid by Tenant to Landlord
pursuant to the terms of this lease, unless otherwise specified herein,
shall be considered additional rent and shall be collectible by Landlord
as additional rent, in accordance with the terms of this lease.
EXCULPATION CLAUSE
37. Neither Landlord nor any principal, partner, member, officer,
director, trustee or affiliate of Landlord (collectively, "Landlord
Affiliates") shall have any personal liability under any provision of
this lease.
AS WITNESS THE HANDS AND SEALS OF THE PARTIES HERETO THE DAY AND YEAR
FIRST ABOVE WRITTEN:
Micromatix.Com, Inc., a Delaware Corporation
____________________________ By:_______/s/Tim Jewell___________________
(Witness) (Tenant)
Printed Name: Tim Jewell
Title: President
MIE Properties, Inc.
____________________________ By:_______/s/Robert C. Becker_____________
(Witness) (Landlord)
Printed Name: Robert C. Becker
Title: Vice President
<PAGE> EX-10.3
13
SECURITY DEPOSIT AGREEMENT
This is NOT a rent receipt.
Date:_________9/7/99_______________________
Received from Micromatix.Com, Inc., a Delaware Corporation the
amount of $28,548.34,* as security deposit for premises 1625 Knecht
Avenue, Baltimore, Maryland 21227.
Landlord agrees that, subject to the conditions listed below, this
security deposit will be returned in full within thirty (30) days of
vacancy.
Tenant agrees that this security deposit may not be applied by
Tenant as rent and that the full monthly rent will be paid on or before
the first day of every month, including the last month of occupancy.
Tenant further agrees that a mortgagee of the property demised by the
lease to which this Security Deposit Agreement is appended and/or a
mortgagee thereof in possession of said property and/or a purchaser of
said property at a foreclosure sale shall not have any liability to
Tenant for this security deposit.
SECURITY DEPOSIT RELEASE PREREQUISITES:
---------------------------------------
1. Full term of lease has expired.
2. No damage to property beyond fair wear and tear.
3. Entire leased premises clean and in order.
4. No unpaid late charges or delinquent rents, or other delinquent
sums payable by Tenant.
5. All keys returned.
6. All debris and rubbish and discards placed in proper rubbish
containers.
7. Forwarding address left with Landlord.
AS WITNESS THE HANDS AND SEALS OF THE PARTIES HERETO THE DAY AND YEAR
FIRST ABOVE WRITTEN:
Micromatix.Com, Inc., a Delaware
Corporation
____________________________ By:_______________________________
(Witness) (Tenant)
MIE Properties, Inc.
____________________________ By:_______________________________
(Witness) (Landlord)
* Landlord agrees to return $14,274.17 to Tenant within 30 days of
October 1, 2002 provided Tenant has fulfilled the obligation of this lease
through September 30, 2002.
<PAGE> EX-10.3
14
RULES AND REGULATIONS
1625 Knecht Avenue, Baltimore, Maryland 21227
1. The Common Facilities, and the sidewalks, driveways, and other
public portion of the Property (herein
"Public Areas") shall not be obstructed or encumbered by Tenant or
used for any purpose other than ingress or egress to and from its
premises, and Tenant shall not permit any of its employees, agents,
licensees or invitees to congregate or loiter in any of the Public
Area. Tenant shall not invite to, or permit to visit its premises,
persons in such numbers or under such conditions as may interfere
with the use and enjoyment by others of the Public Areas. Landlord
reserves the right to control and operate, and to restrict and
regulate the use of, the Public Areas and the public facilities, as
well as facilities furnished for the common use of the tenants, in
such manner as it deems best for the benefit of the tenants
generally.
2. No bicycles, animals (except seeing eye dogs) fish or birds of any
kind shall be brought into, or kept in or about any premises within
the Building.
3. No noise, including, but not limited to, music, the playing of
musical instruments, recordings, radio or television, which, in the
judgment of Landlord, might disturb other tenants in the Building, shall
be made or permitted by any tenant.
4. Tenant's premises shall not be used for lodging or sleeping or for
any immoral or illegal purpose.
5. Tenant shall not cause or permit any odors of cooking or other
processes, or any unusual or objectionable odors, to
emanate from its premises which would annoy other tenants or create
a public or private nuisance.
6. Plumbing facilities shall not be used for any purpose other than
those for which they were constructed; and no sweepings, rubbish,
ashes, newspapers or other substances of any kind shall be thrown into
them.
7. Tenant agrees to keep the Leased Premises in a neat, good and
sanitary condition and to place garbage, trash, rubbish and all other
disposables only where Landlord directs.
8. Landlord reserves the right to rescind, alter, waive or add, any
Rule or Regulation at any time prescribed for the Building when, in
the reasonable judgement of Landlord, Landlord deems it necessary or
desirable for the reputation, safety, character, security, care,
appearance or interests of the Building, or the preservation of good
order therein, or the operation or maintenance of the Building, or
the equipment thereof, or the comfort of tenants or others in the
Building. No recission, alteration, waiver or addition of any Rule
or Regulation in respect of one tenant shall operate as a
recission, alteration or waiver in respect of any other tenant.
9. Tenant shall have the non-exclusive right to park in parking spaces
in front of and behind tenant's leased premises. This area shall be
defined by two imaginary lines extending out from tenant's demising
walls.
10. Tenant shall not place any storage trailers or other storage
containers of any type outside Tenant's premises.
11. Tenant shall not park on a permanent or semi-permanent basis, any
trailers behind dock doors or in any other location outside Tenant's
premises, for the purpose of storage.
12. Non-compliance with any of the above rules and regulations may, in
Landlord's sole judgement, result in a monetary fine not to exceed
$25 per day. Landlord will notify Tenant of such violations and
Tenant will have five (5) days to rectify, after which, daily fine
will be applied.
Non-Negotiable Promissory Note
$571,609.40 November 23, 1999
To be paid within one (1) year, for value received, International Mercantile
Corporation promises to pay to the Sarah Saul Simon Trust the sum of five
hundred seventy-one thousand six hundred nine 40/00 dollars ($571,609.40), at
Baltimore, Maryland, with interest at the rate of eight percent (8%) per
annum until balance is paid in full.
Maker:
International Mercantile Corporation
By:/s/Frederic Richardson
Frederic Richardson, Chairman
Address: 1625 Knecht Ave.
Baltimore, MD 21227
Due: November 23, 2000
NOTE PAYABLE
By and between
International Mercantile Corporation
And
Red River Trading Company
This note payable is effective this 7th day of September, 1999, by and
between International Mercantile Corporation, a Missouri corporation
(the Buyer) and Red River Trading Company, Inc., a Maryland corporation
(the Seller).
Red River Trading Company has entered into a sales agreement with
International Mercantile Corporation for tangible personal property as
reflected in the attached bill of sale. The total purchase price of
said property being $150,000. Both parties agree to the following
payment terms:
Annual Payment: $25,000 plus accrued interest
Interest Rate: 8.0% compounded annually
Payment Dates: January of each year, beginning January 2000.
Term: Six (6 ) years
All property is sold in as is condition.
For: Red River Trading Company, Inc. (Seller)
/s/Timothy Jewell ----------
By: Timothy Jewell, President Date
For: International Mercantile Corporation (Buyer)
/s/Frederic Richardson ---------
By: Frederic Richardson, Chairman Date
<PAGE> EX-10.5
EXHIBIT 21.
Our Subsidiaries
The table below sets forth all of our subsidiaries, all of
which are non-operating and inactive, as to State or Jurisdiction
of Organization and Percentage of Voting Securities Owned.
Percentage
State or Jurisdiction of Voting
Subsidiary of Organization Shares Owned
- ---------- --------------------- ------------
Home America
Mortgage Company Louisiana 100%
(Inactive)
Page -30-
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Balance
Sheet, Statement of Operations, Statement of Cash Flows and Notes thereto
incorporated in this Form 10-K and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 37,699
<SECURITIES> 715,075
<RECEIVABLES> 866,807
<ALLOWANCES> (17,336)
<INVENTORY> 475,626
<CURRENT-ASSETS> 2,092,169
<PP&E> 210,488
<DEPRECIATION> (10,480)
<TOTAL-ASSETS> 5,232,981
<CURRENT-LIABILITIES> 2,374,988
<BONDS> 0
0
0
<COMMON> 61,024
<OTHER-SE> 2,967,742
<TOTAL-LIABILITY-AND-EQUITY> 5,232,981
<SALES> 1,465,294
<TOTAL-REVENUES> 1,465,294
<CGS> 1,262,396
<TOTAL-COSTS> 1,262,396
<OTHER-EXPENSES> 502,342
<LOSS-PROVISION> (299,444)
<INTEREST-EXPENSE> 11,436
<INCOME-PRETAX> (299,444)
<INCOME-TAX> 0
<INCOME-CONTINUING> (299,444)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (299,444)
<EPS-BASIC> (0.051)
<EPS-DILUTED> (0.030)
</TABLE>
