U.S. Securities and Exchange Commission
Washington, DC 20549
Form 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to _________
Commission File Number 0-7693
------
INTERNATIONAL MERCANTILE CORPORATION
-----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Missouri 43-0970243
------------------------------------------------------------------------
(State of other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1625 Knecht Avenue, Baltimore, Maryland 21227
---------------------------------------------
(Address of principal executive offices)
(410) 242-5000
---------------------------
(Issuer's telephone number)
-----------------------------------------------------
(Former name, former address, and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes [ X ] No [__]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
As of September 30, 2000, there were outstanding 6,607,606 shares of Class
A Common Stock, $0.01 par value, and 2,000,000 shares of Class B Common
Stock, $0.01 par value.
Transitional Small Business Disclosure Format (check one);
Yes [__] No [ X ]
<PAGE>
INTERNATIONAL MERCANTILE CORPORATION
Form 10-QSB Index
September 30, 2000
Page
----
Part I: Financial Information ..................................... 3
Item 1. Financial Statements ................................ 3
Balance Sheets as of December 31, 1999
and September 30, 2000 (unaudited)........................... 6-7
Statement of Operations for the period
September 2, 1999 (Date of Inception)
through December 31, 1999 and the Nine Months
Ended September 30, 2000..................................... 8
Statement of Changes in Stockholder's Equity
for the period September 2, 1999
(Date of Inception) through December 31, 1999
and the Nine Months Ended September 30, 2000 ................ 9
Statement of Cash Flows for the period
September 2, 1999 (Date of Inception)
through December 31, 1999 and the Nine Months
Ended September 30, 2000 .................................... 10
Notes to Financial Statements................................ 11-21
Item 2. Management's Discussion and Analysis
or Plan of Operation ................................. 22
Part II: Other Information ...................................... 27
Item 1. Legal Proceedings ................................. 27
Item 2. Changes in Securities ............................. 27
Item 3. Defaults Upon Senior Securities ................... 27
Item 4. Submission of Matters to a Vote of
Security Holders .................................. 27
Item 5. Other Information ................................. 27
Item 6. Exhibits and Reports on Form 8-K .................. 28
Signatures ........................................................ 29
<PAGE> 2
INTERNATIONAL MERCANTILE CORPORATION
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheet as of September 30, 2000
Statements of Operations for the Quarter and the Nine Months
Ended September 30, 2000
and
Statements of Changes in Stockholders' Equity and Cash Flows
for the Nine Months Ended September 30, 2000 Unaudited
<PAGE> 3
INTERNATIONAL MERCANTILE CORPORATION
TABLE OF CONTENTS
SEPTEMBER 30, 2000
Page
----
Accountants' Compilation Report F-1
Balance Sheet F-2 - F-3
Statement of Operations F-4
Statement of Changes in Stockholders' Equity F-5
Statement of Cash Flows F-6
Notes to the Financial Statements F-7 - F-17
<PAGE> 4
To the Board of Directors and Stockholders
International Mercantile Corporation, a Missouri corporation
Baltimore, Maryland
We have compiled the accompanying balance sheet of International Mercantile
Corporation as of September 30, 2000, the related statements of operations
for the quarter ended and the nine months ended September 30, 2000, and the
related statements of changes in stockholders' equity, and cash flows for
the nine months ended September 30, 2000 in accordance with Statements on
Standards for Accounting and Review Services issued by the American Institute
of Certified Public Accountants.
A compilation is limited to presenting in the form of financial statements
information that is the representation of management. We have not audited
or reviewed the accompanying September 30, 2000 financial statements and,
accordingly, do not express an opinion or any other form of assurance on
them.
Since inception the Company has experienced operating losses, which it has
financed through related party loans, capital contributions from
stockholders, and third party debt. If the Company should be unable to
generate sufficient capital in the future then the Company's ability to
continue as a going concern would be in doubt.
Caruso & Caruso, CPAs' P.A.
Boca Raton, Florida
November 16, 2000
F-1
<PAGE> 5
INTERNATIONAL MERCANTILE CORPORATION
BALANCE SHEET
AS OF SEPTEMBER 30, 2000
UNAUDITED
ASSETS
Current Assets
--------------
Cash and Cash Equivalents $ 303,733
Accounts Receivable Net of Allowance
for Doubtful Accounts 1,186,793
Inventory 476,712
Prepaids & Other Assets 50,625
------------
Total Current Assets 2,017,863
------------
Investments
-----------
Investment in VLDC Technologies, Inc. Stock 2,725,642
Fixed Assets
------------
Fixed Assets, net of Accumulated Depreciation 226,616
Other Assets
------------
Organization Costs, Net of Amortization 180,168
Deposits 36,042
Capitalized Loan Costs, Net of Amortization 161,007
------------
Total Other Assets 377,217
------------
Total Assets $ 5,347,338
============
See Accountants' Compilation Report and Notes to Financial Statements
F-2
<PAGE> 6
INTERNATIONAL MERCANTILE CORPORATION
BALANCE SHEET
AS OF SEPTEMBER 30, 2000
UNAUDITED
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities
-------------------
Accounts Payable and Accrued Expenses $ 960,213
Accrued Interest Payable 64,968
Warranty Reserve - Current Portion 2,442
Note Payable - Related Parties,
Current Portion 286,183
Line of Credit 595,028
Loans Payable 247,500
Capitalized Lease Payable - Current Portion 10,221
------------
Total Current Liabilities 2,166,555
------------
Long Term Liabilities
---------------------
Committments and Contingencies
Warranty Reserve, Net of Current Portion 15,171
Capitalized Lease Payable Net
of Current Portion 16,249
Note Payable - Related Party
Net of Current Portion 75,000
Convertible Debentures 500,000
------------
Total Long Term Liabilities 606,420
------------
Total Liabilities 2,772,975
------------
Stockholders' Equity
--------------------
Common stock-Class A - $.10 Par,
31,000,000 shares authorized,
6,607,606 shares outstanding 660,760
Common stock-Class B - $.01 Par,
2,000,000 shares authorized,
2,000,000 shares outstanding 20,000
Preferred stock - Series 1 - $1.00 Par,
2,000,000 authorized,
-0- shares outstanding -
Preferred stock - Series 2 - $1.00 Par,
2,000,000 authorized,
285,714 shares outstanding 285,714
Preferred stock - Series 3 - $1.00 Par,
5,000,000 authorized,
-0- shares outstanding -
Additional Paid in Capital 3,351,952
Accumulated Deficit (1,744,063)
-----------
Total Stockholders' Equity 2,574,363
-----------
Total Liabilities & Stockholders' Equity $ 5,347,338
===========
See Accountants' Compilation Report and Notes to Financial Statements
F-3
<PAGE> 7
INTERNATIONAL MERCANTILE CORPORATION
STATEMENT OF OPERATIONS
UNAUDITED
<TABLE>
<CAPTION>
Nine Months
Quarter Ended Ended
Sept 30, 2000 Sept 30, 2000
Unaudited Unaudited
------------- -------------
<S> <C> <C>
Revenues
--------
Sales $ 1,548,935 $ 5,594,849
Cost of Merchandise Sold 1,331,359 4,935,151
------------- -------------
Gross Profit 217,576 659,698
Operating Expenses
------------------
Amortization 38,747 68,714
Auto and Truck Expense 7,107 23,100
Bad Debts 110,539 145,164
Bank Charges & Credit Card Fees 4,647 23,117
Donations 1,817 1,817
Depreciation 11,956 34,450
Interest Expense 76,770 165,224
Marketing & Advertising Expense 8,622 8,622
Office Supplies & Expense 8,664 91,394
Professional Fees 27,356 104,634
Rent 59,153 146,142
Repairs & Maintenance 3,581 12,175
Sales Expense 56,059 281,016
Salaries & Related Costs & Benefits 315,157 834,168
Subcontract Labor & Temporary Help 8,329 8,329
Telephone 13,188 59,772
Travel & Promotion 11,559 74,458
Utilities 13,071 32,659
Warranty Reserve 3,037 10,037
------------- -------------
Total Operating Expenses 779,359 2,124,992
------------- -------------
Net (Loss) From Operations (561,783) (1,465,294)
Other Revenues and (Expenses)
-----------------------------
Finance Charge Income 20,675 20,675
------------- -------------
Net (Loss) From Operations and
Other Revenues (541,108) (1,444,619)
============= =============
Earnings (Loss) per share of common
Stock - Basic $ (0.2365) $ (0.6314)
============= =============
Weighted Average Shares - Basic 2,287,640 2,287,640
============= =============
Earnings (Loss) per share of Common
Stock - Dilutes $ (0.1317) $ (0.3516)
============= =============
Weighted Average Shares - Diluted 4,108,156 4,108,156
============= =============
</TABLE>
See Accountants' Compilation Report and Notes to Financial Statements
F-4
<PAGE> 8
INTERNATIONAL MERCANTILE CORPORATION
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
UNAUDITED
<TABLE>
<CAPTION>
COMMON PREFERRED ADDITIONAL
STOCK STOCK PAID IN ACCUMULATED
SHARES AMOUNT AMOUNT CAPITAL DEFICIT
--------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1999, as adjusted for
August 8, 2000 1:7 reverse stock split 1,728,920 $ 82,892 $ 0 $ 2,945,874 $ (299,444)
Issuance of Common Stock of International Mercantile
Corporation a Missouri corp to owners of
Micromatix.com, Inc., a Delaware corporation,
as adjusted for
August 8, 2000 1:7 reverse stock split
Class A Common Stock 214,286 21,428 0 0 0
Class B Common Stock 1,000,000 10,000 0 0 0
Issuance of Common Stock of International Mercantile
Corporation a Missouri corporation, as adjusted for
August 8, 2000 1:7 reverse stock split
Class A Common Stock 5,664,400 566,440 0 406,078 0
Class B Common Stock 0 0 0 0 0
Series 2 Preferred Stock 285,714 0 285,714 0 0
Net (Loss) 0 0 0 0 (1,444,619)
--------- --------- --------- ----------- -----------
Balance, September 30, 2000 8,893,320 $ 680,760 $ 285,714 $ 3,351,952 $(1,744,063)
========= ========= ========= =========== ===========
</TABLE>
See Accountants' Compilation Report and Notes to Financial Statements
F-5
<PAGE> 9
INTERNATIONAL MERCANTILE CORPORATION
STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
UNAUDITED
CASH FLOWS FROM OPERATING ACTIVITIES
------------------------------------
Net (Loss) ($1,444,619)
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities
Bad Debts 145,164
Depreciation & Amortization 103,164
(Increase)Decrease in
Marketable Securities 715,075
Accounts Receivable (482,486)
Inventory (1,086)
Prepaids & Other Assets (36,327)
Deposits (17,712)
Organization Costs (14,967)
Capitalized Loan costs (198,090)
Increase(Decrease)
Accounts Payable & Accrued Expenses 214,995
Due to Related Party (261,322)
Accrued Interest 55,916
Warranty Reserve 10,287
----------
NET CASH USED IN OPERATING ACTIVITIES (1,212,008)
----------
CASH FLOWS FROM INVESTING ACTIVITIES
------------------------------------
Acquisition of Fixed Assets (61,058)
----------
NET CASH USED IN INVESTING ACTIVITIES (61,058)
----------
CASH FLOWS FROM FINANCING ACTIVITIES
------------------------------------
Proceeds from Loans, Notes Payable
and Line of Credit 1,700,000
Payments on Loans, Notes Payable
and Line of Credit (1,443,022)
Payments on Capital Lease (7,538)
Capital Contributions 406,078
Issuance of Capital Stock 883,582
----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,539,100
----------
NET INCREASE (DECREASE) IN CASH 266,034
CASH - BEGINNING 37,699
----------
CASH - ENDING $ 303,733
==========
See Accountants' Compilation Report and Notes to Financial Statements
F-6
<PAGE> 10
INTERNATIONAL MERCANTILE CORPORATION
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 was
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 was,
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.
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 September
30, 2000. 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.
F-7
<PAGE> 11
INTERNATIONAL MERCANTILE CORPORATION
NOTES TO FINANCIAL STATEMENTS
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.
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. In the first quarter of
the year 2000 the Company liquidated its entire marketable trading
securities portfolio.
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 has not established a history of warranty
service, a warranty reserve of one quarter of 1% of sales has been
recorded at September 30, 2000.
F-8
<PAGE> 12
INTERNATIONAL MERCANTILE CORPORATION
NOTES TO FINANCIAL STATEMENTS
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. 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.
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.
In December 1999, the Securities and Exchange Commission staff
released Staff Accounting Bulletin No. 101, Revenue Recognition in
Financial Statements (SAB No. 101), which provides guidance on the
recognition, presentation and disclosure of revenue in financial
statements. SAB No. 101 does not impact the Company's revenue
recognition.
F-9
<PAGE> 13
INTERNATIONAL MERCANTILE CORPORATION
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. For the nine months ended September 30, 2000 the number
of shares considered to be outstanding is computed as actual number of
shares of the Company outstanding during that period. 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 285,714
shares of Series 2 Preferred stock, 2,000,000 shares of Class B Common
stock, and 178,571 equivalent converted shares represented by the
$500,000 Convertible Debenture.
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 nine months ended September 30,
2000 the Company recognized a Bad Debt Expense of $145,164. In the
nine months ended September 30, 2000 no actual receivables were
directly written off. As a result, the allowance account included on
the balance sheet, as net of account receivables is $162,500 at
September 30, 2000.
F-10
<PAGE> 14
INTERNATIONAL MERCANTILE CORPORATION
NOTES TO FINANCIAL STATEMENTS
3. Related Party Transactions
The Company's financing since inception, throughout its development
stage and during the nine months ended September 30, 2000 has been
provided by interest bearing loans, non-interest bearing loans and
capital contributions to the Company by its shareholders. At
September 30, 2000 the Company had liabilities to a major shareholder
of $100,000 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 January, 2000 the Company paid
the second 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 September 30, 2000 is
$6,002.
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. In April
2000, the Company received an additional 1,000,000 shares of VLDC's
restricted common stock in exchange for the balance of IMTL's equity
interest in UMI. The investment is recorded at the fair market value
of Virtual Lender.com, Inc. stock as of the date of the exchange.
At September 30, 2000 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, the principal
balance of which is $261,183 at September 30, 2000, bears interest at
a rate of 8% per annum, and is unsecured. As of September 30, 2000
interest has accrued in the amount of $19,301.
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 was $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
leased sales offices in New York, NY under a one-year lease agreement,
beginning March 1, 2000. The lease encompassed office facilities of
1,000 square feet. Rent was $1,774 per month. In May 2000 the
Company vacated the New York offices and forfeited the security
deposit as satisfaction to the landlord on the lease.
F-11
<PAGE> 15
INTERNATIONAL MERCANTILE CORPORATION
NOTES TO FINANCIAL STATEMENTS
Commitments cont'd
Future minimum requirements of the Baltimore, Maryland corporate
offices and manufacturing facilities are:
FYE 12/31/00 $ 45,739
FYE 12/31/01 182,371
FYE 12/31/02 187,040
FYE 12/31/03 189,957
FYE 12/31/04 195,790
Thereafter 130,257
--------
$931,154
========
The Company issued 285,714 shares of Preferred, Series 2, $.10 Par
stock to a shareholder for the purpose of securing financing in the
amount of $1,000,000. The stock is being held in escrow pending the
consummation of the financing contract, which as of the date of these
financial statements has not occurred, nor, according to management is
likely to occur.
.
Included in the Company's Trade Accounts Payable is a $140,000 payable
to a vendor, which the Company has secured with 150,000 restricted
shares of Class A common Stock.
In June 2000, the Company issued a private offering of convertible
debt debentures for the purposes of securing capital in the amount of
$3,000,000. The investment was funded by an initial payment of
$500,000 at closing and is to be followed by monthly installments of
$250,000 each for ten months beginning the month after an effective
registration statement is filed with the Securities and Exchange
Commission (SEC). On August 16, 2000 the Company filed a SB-2
registration statement with the SEC pursuant to this contract. The
SEC declined to review the SB-2 statement and notified the Company as
such on September 19, 2000. As a result no funding has been received
as of the date of these financial statements as the Company is
required to make substantive amendments to the registration statement
before the SEC will continue a review of the prospectus. The Company
has the right to prepay the Note at 130% of the principal balance at
the time of prepayment upon 10 days written notice. Interest accrues
on the debenture at 8% per annum payable in restricted Class A common
stock. As of September 30, 2000, the Company has accrued interest in
the amount of $12,889. The equity instrument is convertible, at any
time, into Common Stock at a price equivalent to the lower of 70% of
the lowest closing bid price as reported on the OTC Bulletin Board for
the three days preceding receipt by the Company of a notice of
conversion or $.40. Of the initial $500,000 funding, $150,000 was
distributed in payment of legal, consulting and brokerage fees
incurred to facilitate the contract. The balance of $350,000 was used
to reduce related party debt.
F-12
<PAGE> 16
INTERNATIONAL MERCANTILE CORPORATION
NOTES TO FINANCIAL STATEMENTS
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 $ 3,705
FYE 12/31/01 14,821
FYE 12/31/02 13,586
--------
32,112
Less Amount representing interest 5,642
26,470
Less current maturities 10,221
-------
Long-term debt, less current maturities $16,249
=======
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. Subsequent to the merger one
of these officer/shareholders is compensated as a consultant through a
wholly owned corporation of the officer/ shareholder and another
officer is being compensated through the Company's payroll.
7. Fixed Assets
Fixed assets for the Company consisted of the following at September
30, 2000:
Accumulated
Fixed Asset Depreciation Balance
----------- ------------ ---------
Website Development $ 9,466 $ 1,232 $ 8,234
Furniture & Fixtures 33,117 4,882 28,235
Manufacturing/Warehouse Equip 38,026 5,366 32,660
Computer Hardware 79,093 12,769 66,324
Transportation Equip 7,000 1,458 5,542
Office Equipment 36,724 7,133 29,591
Software Systems 64,120 9,090 55,030
Leasehold Improvements 4,000 3,000 1,000
--------- --------- ---------
$ 271,546 $ 44,930 $ 226,616
========= ========= =========
F-13
<PAGE> 17
INTERNATIONAL MERCANTILE CORPORATION
NOTES TO FINANCIAL STATEMENTS
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 and Convertible Debentures
Notes Payable consist of the following at September 30, 2000:
Note Payable - related party dated September 6, 1999 $ 100,000
Note Payable - related party dated November 23, 1999 261,183
361,183
Less Current Portion 286,183
---------
Long Term Portion $ 75,000
=========
Loans Payable consist of the following at September 30, 2000:
Loan Payable - Dated November, 1999 $ 7,500
Loan Payable - Dated March, 2000 50,000
Loan Payable - Dated April, 2000 150,000
Loan Payable - Dated May, 2000 40,000
---------
247,500
Less Current Portion (247,500)
Long Term Portion $ -
=========
Convertible Debentures at September 30, 2000 are as follows:
Convertible Debentures dated June 4, 2000 $ 500,000
Less Current Portion 0
---------
Long Term Portion $ 500,000
=========
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 notes and convertible debentures for the nine
months ended September 30, 2000 amounted to $66,072.
F-14
<PAGE> 18
INTERNATIONAL MERCANTILE CORPORATION
NOTES TO FINANCIAL STATEMENTS
10. Line of Credit
On March 22, 2000 the Company entered into a factoring agreement with
an unrelated third party to fund the purchase of inventory to fulfill
purchase orders under an agreement to manufacture approximately 2,000
white-box computer units per month for a national satellite
distributed program network marketing group. The factoring
arrangement is in the form of a one year revolving line of credit,
which allows for the drawing of funds by the Company in an amount
equal to 75% of the purchase orders received from the marketing group.
The line of credit is capped at $750,000 representing up to $1,000,000
of purchase orders. The financing calls for the payment of 3 points
per month on open invoices and is secured by an assignment of the
underlying receivable, acquired inventory related to the contract, and
214,286 restricted shares of the Company's Class A common stock. The
Company issued 650,000 restricted shares to the lender as a fee for
securing the financing. For the nine months ended September 30, 2000
the Company paid $99,152 in financing costs and accrued an additional
$26,766 of interest payable related to the line of credit. As of the
date of these financial statements, the line of credit is in default
as payments of principal and interest are past due. Consequently, the
lender has disallowed further advances on the credit line. Management
and the lender are working jointly with counsel to collect the
underlying receivable. As of the date of these financial statements
legal action has been filed in this regard by the Company to collect
the underlying receivable. The balance of the receivable as of
September 30, 2000, including additional financing charges is
$611,774. The Company has reserved an allowance of approximately
$61,000 against this receivable.
11. Contingencies
The Company's sales during the nine months ended September 30, 2000
include one significant customer that represents 17% of the total
sales. As of the date of these financial statements the Company is no
longer providing products or services to this customer as the customer
is over 120 days past due on outstanding invoices.
In July 1999 Bowne & Co, Inc., a financial corporate printer filed
suit against the Company in New York seeking approximately $18,000 for
claims of outstanding printed invoices. As of September 30, 2000 the
suit is still pending and the outcome is not yet determinable.
In August 2000 Interim Atlantic Enterprises, LLC filed suit against
IMTL for $11,038. This suit concerns a claim that an employee did not
work the minimum number of days required under the terms of a contract
between IMTL and Interim Atlantic Enterprises, LLC. As of September
30, 2000 the suit is still pending and the outcome is not yet
determinable.
F-15
<PAGE> 19
INTERNATIONAL MERCANTILE CORPORATION
NOTES TO FINANCIAL STATEMENTS
12. Going Concern
The Company's financing has been provided by related party loans,
capital contributions from shareholders and third party loans. The
Company anticipates that through the rest of the current fiscal year
and following years, sales will continue to increase as a result of
its operations and capital will be increased by continued sales of the
Company's Common Stock. If either or both of these sources fail to
meet the Company's capital requirements, the Company's ability to
continue as a going concern would be in doubt. The financial
statements do not include any adjustments regarding the going concern
and have been prepared with the assumption that the Company will
continue perpetually.
13. 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 September 30, 2000:
<TABLE>
<CAPTION>
System Component
Sales Sales Other Total
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales $ 3,754,103 $ 1,826,614 $ 14,132 $ 5,594,849
Gross Profit 402,434 243,132 14,132 659,698
Operating Income (Loss) 201,683 86,921 (1,733,223) (1,444,619)
Assets 1,697,442 548,902 3,100,994 5,347,338
Capital Expenditures 3,380 1,646 56,032 61,058
Depreciation Expense 2,684 1,307 30,459 34,450
</TABLE>
14. Reverse Stock Split
On August 8, 2000 the Company, through a Board action, authorized a
1:7 reverse split of the Company's outstanding Class A Common Stock,
and outstanding Series 1, Series 2 and Series 3 Preferred Stock. The
Board approved the rounding up of every fractional shareholder to a
full share, with all shareholders equally affected. Coinciding with
the reverse split, the Company increased the par value of its Class A
Common Stock from $.01 to $.10 per share, and increased the par value
of its Preferred Stock from $.10 to $1.00 per share. The purpose of
the reverse split was to facilitate raising additional capital for the
Company and allow management to find possible merger and acquisition
candidates.
15. Subsequent Events
An unwind provision existed as part of the merger agreement, whereby
the merger agreement could be rendered void. As of September 2, 2000
this provision of the merger agreement expired.
F-16
<PAGE> 20
INTERNATIONAL MERCANTILE CORPORATION
NOTES TO FINANCIAL STATEMENTS
Subsequent Events cont'd
On November 11, 2000 the Company signed a contract to acquire a
privately held developer (proposed acquired company) of embedded Linux
thin client systems as a wholly owned subsidiary of the Company. The
agreement is subject to due diligence, including independent valuation
of the proposed acquired company, which if satisfactory to the
Company's management, will result in the consummation of the merger.
The terms of the merger call for each issued common share, $.001 par
value, of the proposed acquired company as of the closing shall be
converted into and exchanged for .85 shares of fully paid and non
assessable IMTL Class A common stock.
F-17
<PAGE> 21
Item 2. Management's Discussion and Analysis or Plan of
Financial Condition and Results of Operations.
CAUTIONARY STATEMENT FOR PURPOSE OF THE "SAFE HORBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The following discussion regarding International Mercantile Corp
("the Company" or "IMTE") and its business and operations contains
"forward-looking" statements within the meaning of Private Securities
Litigation Reform Act of 1995. These statements consist of any statement
other than a recitation of historical fact and can be identified by
the use of forward-looking terminology such as "may," "except,"
"anticipate," "estimate," or "continue" or the negative or other variations
thereof or comparable terminology. The reader is cautioned that all forward-
looking statements are necessarily speculative and there are risks and
uncertainties that could cause actual events or results to differ materially
from those referred to in such forward-looking statements, including no
history of profitable operations, competition, risks related to acquisitions,
difficulties in managing growth, dependence on key personnel and other
factors discussed under the section titled "Management's Discussion and
Analysis or plan of Operations-Factors That May Affect Future Results"
in the Company's quarterly report on the form 10-QSB for the quarter ended
September 30, 2000. The Company does not have a policy of updating or
revising forward-looking statements and thus it should not be assumed that
silence of management over time means that actual events are occurring as
estimated in such forward-looking statements.
The following discussion and analysis should be read in conjunction
with the financial statements appearing as Item {1} to this Report. These
financial statements reflect the operations of the Company for the nine
months ended September 30, 2000 and year ended December 31, 1999.
(a) Results of Operations
For the period of operations since inception on 9/2/99 and ending
12/31/99, our Company posted total sales of $1,465,294. Total sales for
the nine months ended 9/30/00 were $5,594,849. While sales for the first
quarter were strong, sales for the second quarter were subject to
a flattening due to market conditions that were reflected throughout
the technology industry as a whole. Average monthly sales for the nine
months ended 9/30/00 increased 27% over the average monthly sales for the
fourth quarter of 1999. We were able to realize this degree of growth due to
the groundwork we established during the first quarter of our operations.
Our management recruited top sales personnel, with significant customer
bases, which reflect our goals in both our target markets and reseller
qualifications. As a result of hiring these salespersons, we obtained an
immediate clientele with existing purchasing power, and increased sales
began to materialize. Since our manufacturing, warehouse facility,
administration, technical support and purchasing departments are fully
staffed with quality personnel, we were able to respond and fulfill the
needs of our customers. As a result of our proactive outlook, our SG&A
for the quarter ended 12/31/99 is higher than would occur under normal
business conditions given the level of sales generated. The SG&A of
$512,065 as a percentage of sales for the period since inception on
9/2/99 and ending 12/31/99 was 35%. This is a reflection of the
quality of the personnel and our Company's positioning to allow it to
handle the higher sales volume once it is realized. For the nine months
ended September 30, 2000, SG&A is $2,124,992 or again, 38% of sales.
In the third quarter of 2000, management began taking measures to
reduce the SG&A as a pro-active correction should the market conditions
continue for any length of time.
The industry trends which effected the Company's sales also effects our
customer's ability to pay their balances to us in a timely manner. While
the majority of our customers are current and paying timely, our largest
<PAGE> 22
customer has slowed its payment commitments to us, which affects our
ability to provide inventory to support current sales volumes. Management
is actively working with this customer to bring them more in line with the
terms of our arrangement with them, and believes that the account will be
rectified shortly.
(b) Plan of Operation
Our primary emphasis through December 31, 1999 was placed upon our
capitalization, the establishment of our website, our internal
infrastructure, our production lines and the development of our marketing
team. During the nine months ended September 30, 2000, this emphasis,
while continuing to be of importance to the growth of the Company, shifted
more to sales and production, which we expect to continue to be our
emphasis throughout the remainder of the year 2000. We will endeavor to
increase sales by capturing a larger percentage of the growth in the
white box market. Based upon our current SG&A rate, we believe that sales
revenue of $2.0 million per month, at a gross margin of 12%, is our Company's
break even level.
Management believes that this sales revenue is achievable. Our growth
is projected to result from an increase in sales equal to or greater than
50% each quarter, which would annualize to approximately $18 million
in sales, if adequate capitalization is achieved. Potentially, should all
of the contracts that we are currently negotiating materialize, annual sales
could exceed $40 million for the calendar year 2001. Coinciding with this
anticipated growth is the anticipated need for additional financing. The
Company currently has utilized a majority of a $750,000 line of credit to
the Company in the form of a factoring arrangement, secured by (i) an
assignment of the underlying receivable, (ii) acquired inventory related to
the receivable, and (iii) 1,500,000 shares of the Company's Class "A" common
stock. For the quarter ended June 30, 2000, sales and production were in
line with our capital limitations. With our projected increase in capital
described below, the company believes that it will attain the goals
established.
The Company has also entered into a funding arrangement, which would
provide $3,000,000 in operating capital over the course of the next year in
exchange for class A common stock as outlined in the financial
statements. This arrangement is subject to an SB-2 registration which the
SEC has notified the Company that a substantive amendment is required prior
to review by the SEC.
In addition, future growth strategies may include strategic acquisitions
should opportunities arise which would not jeopardize current operations.
The Company has signed a Stock Exchange Agreement to acquire LINUX One,
inc, a privately held developer of embedded LINUX thin client systems. Final
terms and conditions must be agreed to by both parties in order to consummate
the agreement. 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 the growth while allowing our Company to maintain 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 knowledge of computers
essential to assisting customers in configuring their orders optimally.
In addition, we have an account executive 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 our website 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
<PAGE> 23
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.
Additionally, we have tele-marketers calling and updating our database of
prospective customers on a daily basis. We expect that we will need to
hire a minimum of 5 additional sales persons in order for us to attain
our projected sales goals.
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 additional
workers will be utilized on a permanent basis. Our production facility has
the capacity to add additional assembly lines on an as needed basis. We have
completed the required independentaudit for ISO 9002 certification and we
were certified on April 26, 2000. The ISO 9002 certification is an
internationally accredited standard, which guarantees that our product
is processed to the highest quality standard. In addition, it allows our
Company to participate in and be awarded state and federal government
contracts.
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 turnovers. 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.
Vendor Relations
Our Company has accounts with numerous suppliers that provide us with
the components required to custom configure systems for our customers.
Pricing and availability primarily govern our purchasing decisions. 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 at the mercy of 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.
In the second quarter we were extended additional credit by many of
our vendors, or have made arrangements to repay debts in installments
until such time as the Company can complete it's arrangements for additional
funding.
Certain Factors That May Affect Future Results
The white box PC industry is highly competitive. Competition is largely
based on price, quality, range of service offered, shipping capabilities,
<PAGE> 24
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 our revenues by either forcing a cut in our sales or
in our prices. There is always the risk of general market down turn, which
could adversely impact our revenues and our growth.
We are considered a start-up company and have no significant operating
history as Micromatix.net. We have not generated significant revenue to
date to support operations on an ongoing basis. We cannot assure that we
will achieve sufficient revenues to offset our 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. We cannot assure that we will be able to generate
revenues or ever achieve profitable operations.
We have limited capital. We require significant capital to developed
our business and acquisition program. To date all of our costs have been
funded via sales of common stock and loans. We will continue to require
significant funds as we grow.
We are currently generating limited revenue from our operations. Other
than as discussed elsewhere herein, 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, we cannot assure
that such financing will be available on acceptable terms or at all. Our
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. We cannot assure that widespread acceptance of
white box PC systems, or our products in particular, will occur. We will
rely on Value Added Retailers {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.
<PAGE> 26
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
Not Applicable
Item 2. Change in Securities
During April 2000, we sold 135,400 shares of our common stock at various
prices ranging from $0.30 to $0.50 per share (depending upon OTCBB
price quotations for our common stock at the time of sale), $67,200 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
135,400 shares were approximately $37,789 after offering expenses and
commissions of approximately $29,411. No underwriting discounts
were paid by our Company in connection with the abovementioned
transactions.
During May 2000, we sold 161,500 shares of our common stock at various
prices ranging from $0.30 to $.50 per share (depending upon OTCBB
price quotations for our common stock at the time of sale), $80,000 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 13 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 161,500 shares were approximately $53,287 after offering
expenses and commissions of approximately $26,713. No underwriting discounts
were paid by our Company in connection with the abovementioned transactions.
During June 2000, we sold 187,500 shares of our common stock at
various prices ranging from $0.25 to $0.35 per share (depending upon
OTCBB price quotations for our common stock at the time of sale), $45,000
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 12
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 421,268 shares were approximately $29,877 after offering
expenses and commissions of approximately $15,123. No underwriting
discounts were paid by our Company in connection with the
abovementioned transactions.
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5. Other Information
Not Applicable
<PAGE> 27
Item 6. 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 (incorporated by reference to our Report
on Form 10-K for the year ended December 31, 1999).
(2) Our compensation plan agreement with
Frederic Richardson (incorporated by reference to our
Report on Form 10-K for the year ended December 31, 1999).
(3) Our Lease Agreement (incorporated by
reference to our Report on Form 10-K for the year ended
December 31, 1999).
(4) Our Note Payable to Sarah Saul Simon
Trust (incorporated by reference to our Report on Form
10-K for the year ended December 31, 1999).
(5) Our Note Payable to Red River Trading
(incorporated by reference to our Report on Form 10-K for
the year ended December 31, 1999).
(6) Our Stock Exchange agreement with LinuxOne,Inc. (to be filed
by later amendment to this Form 10-QSB).
(11) Earnings per share (See Financial Statements).
(27) Financial Data Schedule.
<PAGE> 28
SIGNATURES
In accordance with the requirements 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: November 20, 2000
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: November 20, 2000
<PAGE> 29
