U.S. Securities and Exchange Commission
Washington, DC 20549
Form 10-QSB/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
[ ] 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.)
P.O. Box 340, Olney, MD 20830
---------------------------------------------
(Address of principal executive offices)
(301) 774-6913
---------------------------
(Issuer's telephone number)
1625 Knecht Ave, Baltimore, MD 21227
-----------------------------------------------------
(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 June 30, 2001, there were outstanding 1,960,028 shares of Class A Common
Stock, $0.10 par value, and 1,285,714 shares of Class B Common Stock, $0.10 par
value.
Transitional Small Business Disclosure Format (check one);
Yes [__] No [ X ]
INTERNATIONAL MERCANTILE CORPORATION
Form 10-QSB/A Index
June 30, 2001
Page
----
Part I: Financial Information ..................................... 3
Item 1. Financial Statements ................................ 3
Balance Sheets as of June 30, 2000
and June 30, 2001 (unaudited).............................. 6-7
Statement of Operations for the quarters ended
June 30, 2000 and June 30, 2001 .......................... 8
Statement of Changes in Stockholder's Equity
for the quarters ended June 30, 2000 and June 30, 2001.... 9
Statement of Cash Flows for the quarters ended June 30,
2001 and June 30, 2001 .................................... 10
Notes to Financial Statements................................ 11-21
Item 2. Management's Discussion and Analysis
or Plan of Operation ................................. 22
Part II: Other Information ...................................... 24
Item 1. Legal Proceedings ................................. 24
Item 2. Changes in Securities ............................. 24
Item 3. Defaults Upon Senior Securities ................... 25
Item 4. Submission of Matters to a Vote of
Security Holders .................................. 25
Item 5. Other Information ................................. 25
Item 6. Exhibits and Reports on Form 8-K .................. 25
Signatures ........................................................ 27
2
INTERNATIONAL MERCANTILE CORPORATION
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
INTERNATIONAL MERCANTILE CORPORATION
TABLE OF CONTENTS
JUNE 30, 2001
Page
Accountants' Review Report 1
Balance Sheets 2-3
Statements of Operations 4
Statements of Changes in Stockholders' Equity 5
Statements of Cash Flows 6
Notes to the Financial Statements 7-21
To the Board of Directors and Stockholders
International Mercantile Corporation, a Missouri corporation
We have reviewed the accompanying balance sheet of International Mercantile
Corporation (a Missouri Corporation) as of June 30, 2000 and June 30, 2001, and
the related statements of operations, changes in stockholders' equity and cash
flows for the periods then ended. Our review was performed in accordance with
Statements on Standards for Accounting and Review Services issued by the
American Institute of Certified Public Accountants. All the information included
in these financial statements is the representation of the management of
International Mercantile Corporation.
A review consists principally of inquiries of Company personnel and analytical
procedures applied to financial data. It is substantially less in scope than an
audit in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements in order for them to be in
conformity with generally accepted accounting principles.
The financial statements for the year ended December 31, 2000 presented in the
financial statements were audited by Caruso and Caruso of Boca Raton, Florida
and they expressed an unqualified opinion on them in our report dated April,
2001, but we have not performed any auditing procedures on International
Mercantile Corporation.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 12 to the
financial statements, the Company has incurred significant operating losses.
Although the Company is negotiating financing arrangements that will provide
additional working capital until revenues from full scale operations are
sufficient, the Company cannot predict what the outcome of the negotiations will
be. These conditions raise substantial doubt about the Company's ability to
continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Craig W. Conners, C.P.A.
San Diego, CA
August 18, 2001
INTERNATIONAL MERCANTILE CORPORATION
BALANCE SHEETS
ASSETS
Unaudited Unaudited
December 31 June 30, June 30,
2000 2000 2001
----------- ------------ ------------
Current Assets
- --------------
Cash and Cash Equivalents $ 63,157 $ (61,840) $ 1,220
Marketable Securities - Trading - - -
Accounts Receivable Net of
Allowance for Doubtful Accounts 1,036,458 1,306,594 -
Inventory 276,391 565,151 -
Prepaids & Other Assets 64,585 21,418 -
Due From Related Party 51,404 - -
------------ ------------ ------------
Total Current Assets 1,491,995 1,955,003 1,220
Investments
- -----------
Investment in Equity
Securities-Available-For-Sale 80,000 3,000,000 18,000
Fixed Assets
- ------------
Fixed Assets, net of
Accumulated Depreciation 225,967 221,574 -
Other Assets
- ------------
Organization Costs,
Net of Amortization 169,625 191,415 -
Deposits 32,604 36,042 -
Capitalized Loan Costs,
Net of Amortization 130,468 - -
------------ ------------ ------------
Total Other Assets 332,697 227,457 18,000
------------ ------------ ------------
Total Assets 2,130,659 $ 5,404,034 $ 19,200
============ ============ ============
See Accountants' Review Report and Accompanying Notes to Financial Statements
2
INTERNATIONAL MERCANTILE CORPORATION
BALANCE SHEETS
LIABILITIES & STOCKHOLDERS' EQUITY
Unaudited Unaudited
December 31 June 30, June 30,
2000 2000 2001
----------- ------------ ------------
Current Liabilities
- -------------------
Accounts Payable and
Accrued Expenses $ 1,097,194 $ 1,011,136 $ 29,000
Cash Overdraft - - -
Accrued Interest Payable 130,182 47,214 -
Due to Related Party - 39,573 -
Warranty Reserve - Current Portion 12,442 2,442 -
Convertible Debentures -
Current Portion - - -
Note Payable - Related Parties,
Current Portion 455,209 596,609 -
Line of Credit 588,908 698,946 -
Loans Payable 247,500 247,500 -
Capitalized Lease Payable -
Current Portion 13,915 10,221 -
------------ ------------ ------------
Total Current Liabilities 2,545,350 2,653,641 29,000
Long Term Liabilities
- ---------------------
Committments and Contingencies
Warranty Reserve, Net
of Current Portion 5,171 11,884 -
Capitalized Lease Payable Net
of Current Portion 12,126 17,987 -
Note Payable - Related Party
Net of Current Portion 75,000 75,000 9,000
Convertible Debentures 500,000 - -
------------ ------------ ------------
Total Long Term Liabilities 592,297 104,871 38,000
------------ ------------ ------------
Total Liabilities 3,137,647 2,758,512 38,000
------------ ------------ ------------
Stockholders' Equity
- --------------------
Common stock-Class A -
31,000,000 authorized
@ $.10 Par 9,333,536,
@ .01 Par 16,534,847
and @ $.10 Par 11,960,028
shares respectively 933,354 271,902 1,196,003
Common stock-Class B - $.01 Par,
2,000,000 shares authorized,
1,000,000 and 2,000,000
shares outstanding 20,000 20,000 20,000
Preferred stock - Series 1 -
$1.00 Par, 2,000,000
authorized, -0- and -0- shares
outstanding - - -
Preferred stock - Series 2 -
$1.00 Par, 2,000,000 authorized,
-0- and 285,714 shares
outstanding 285,714 200,000 285,714
Preferred stock - Series 3 - $1.00
Par, 5,000,000 authorized, -0-
shares outstanding - - -
Additional Paid in Capital 3,364,530 3,252,577 3,094,732
Accumulated Deficit (5,610,586) (1,373,315) (4,615,249)
-------------- ------------ ------------
Total Stockholders' Equity (1,006,988) 2,645,522 ( 18,800)
-------------- ------------ ------------
Total Liabilities &
Stockholders' Equity $ 2,130,659 $ 5,404,034 $ 19,200
============== ============ ============
See Accountants' Review Report and Accompanying Notes to Financial Statements
3
INTERNATIONAL MERCANTILE CORPORATION
STATEMENTS OF OPERATIONS
For the Year For the Six For the Six
Ended Months Ended Months Ended
December 31, June 30, June 30,
2000 2000 2001
Unaudited Unaudited
---------------- ---------------- --------------
Revenues
Sales $ 7,064,025 $ 4,045,914 $ -
Cost of Merchandise
Sold 6,463,249 3,697,212 -
---------------- ---------------- --------------
Gross Profit 600,776 202,898 -
Operating Expenses
Amortization 109,796 20,384 -
Auto and Truck - 15,993
Bad Debts 410,870 34,625 -
Bank Charges - 18,470
Donations - 1,817
Depreciation 50,713 22,494 -
Interest Expense 249,932 88,454 -
Marketing, Advertising
Expense & Sales Expense 432,765 8,622
Other General &
Administrative Expense 2,057,519 1,204,713 8,363
Warranty Reserve 10,037 7,000 -
---------------- ---------------- --------------
Total Operating
Expenses 3,321,632 1,422,573 8,363
---------------- ---------------- --------------
Net (Loss)
From Operations (2,720,856) (1,073,871) (8,363)
Other Revenues and (Expenses)
Loss on Securities (2,645,642) - -
Finance Charge Income 55,356 - -
---------------- ---------------- --------------
Net (Loss) From
Operations and
Other Revenues $(5,311,142) $ (374,374) $ (8,363)
================ ================ ==============
Earnings (Loss)
per share of
common Stock
- Basic $ (1.4461) $ (0.0368) $ (0.0000)
================ ================ ==============
Weighted Average
Shares - Basic 3,672,698 9,190,183 10,470,467
================ ================ ==============
Earnings (Loss)
per share of Common
Stock - Diluted $ (0.9392) $ (0.0368) $ (0.0000)
================ ================ ==============
Weighted Average
Shares - Diluted 5,655,036 9,190,183 20,454,753
================ ================ ==============
See Accountants' Review Report and Accompanying Notes to Financial Statements
4
INTERNATIONAL MERCANTILE CORPORATION
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEAR JANUARY 1, 2000 THROUGH DECEMBER 31, 2000
AND THE SIX MONTHS ENDED JUNE 30, 2001
COMMON STOCK PREFERRED STOCK
SHARES AMOUNT SHARES AMOUNT
------- ------ ------ ------
Balance, Janaury 1, 2000, as adjusted for
August 8, 2000 1:7 reverse stock split 1,728,920 $ 82,892 $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 21,429 - -
Class B Common Stock 1,000,000 10,000 - -
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 8,390,330 839,033 418,656 -
Class B Common Stock
Series 2 Preferred Stock - - 285,714
Balance, December 31, 2000 11,619,250 953,354 285,714 3,364,530
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 2,626,492 262,649 - (269,798)
Class B Common Stock
Series 2 Preferred Stock
--------------------------------------------------------
Balance, June 30, 2001 14,245,742 $ 1,216,003 $ 285,714
See Accountants' Review Report and Accompanying Notes to Financial Statements
5
INTERNATIONAL MERCANTILE CORPORATION
STATEMENTS OF CASH FLOWS
CASH FLOWS FROM OPERATING ACTIVITIES Year Ended For 6 Months
- ------------------------------------ 12/31/01 6/30/01
----------- ------------
Net (Loss) $(5,311,142) $ (8,363)
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities
Bad Debts 410,870
Depreciation & Amortization 160,509
(Increase)Decrease in
Marketable Securities - Trading 715,075
Accounts Receivable (712,457)
Inventory 199,235
Prepaids & Other Assets (50,287)
Deposits (14,274)
Organization Costs & Loan Costs (70,199)
Due From Related Party (51,404)
Increase(Decrease)
Accounts Payable & Accrued Expenses 473,106
Cash Overdraft
Due to Related Party (261,322)
Accrued Interest 121,130
Warranty Reserve 10,287
---------------------------
NET CASH PROV. BY OPERATING ACTIVITIES (4,380,873) (8,363)
CASH FLOWS FROM INVESTING ACTIVITIES
- ------------------------------------
Acquisition of Fixed Assets (87,127)
Permanent Impairment of Equity Securities
Available-for-Sale 2,645,642
---------------------------
NET CASH (USED) IN INVESTING ACTIVITIES 2,558,515
CASH FLOWS FROM FINANCING ACTIVITIES
- ------------------------------------
Proceeds from Loans, Notes Payable, Capital
Leases and Line of Credit 1,695,000 9,000
Payments on Loans, Notes and Line of Credit (1,413,591)
Payments on Capital Lease (8,422)
Issuance of Capital Stock & Capital Contributions Thereon 1,574,829
Reverse Merger of Macromatix per Unwind Provision (31,788)
---------------------------
NET CASH (USED) IN FINANCING ACTIVITIES+B15 1,847,816 (31,788)
---------------------------
NET INCREASE (DECREASE) IN CASH 25,458 31,151
CASH - BEGINNING 37,699 32,371
----------------------------
CASH - ENDING $ 63,157 1,220
============================
See Accountants' Review Report and Accompanying Notes to Financial Statements
6
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. Immediately 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. An unwind provision existed as part of the merger
agreement, whereby the merger agreement could be rendered void. On September 2,
2000 this provision was extended until March 30, 2001. On March 31, 2001 the
Board of Directors elected exercise their put option and unwind the merger with
Micromatix.com. The net effect of this was to return each corporation to their
status pro ante prior to their merger. The unwinding returned all assets and
liabilities to Micromatix so they could continue to operate independently. The
Company has now changed its direction and intends on acquiring a new business in
either the form of a merger, acquisition or some type of pooling of shares. At
this time there are no actual targets and the company is in search of
candidates. The intention is to raise the capital by either a private placement
memorandum or foreign financing. Micromatix has agreed to indemnify the company
for any and all liabilities arising from the merger. The reverse merger has a
potential for liability to the company and accordingly Micromatix has proffered
marketable securities in the name of the company. Accordingly 3 debentures that
were issued pursuant to the merger have been canceled but will be effectuated by
a conversion provision for equity.
REVENUE RECOGNITION
Revenues were 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 primarily of component parts. 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.
7
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. Costs associated with the procurement of
loans and lines of credit are capitalized and reported on the balance sheet as
other assets. The costs are amortized over the term of the related debt
instrument.
INTERIM FINANCIAL STATEMENTS
The accompanying unaudited interim financial statements at June 30, 2000 and
June 30, 2001 and for the quarters then ended do not include all disclosures
provided in the annual financial statements. These interim financial statements
are the representation of management and should be read in conjunction with the
Company's annual audited financial statements and the footnotes thereto.
However, the accompanying interim financial statements reflect all adjustments
which are, in the opinion of management, of a normal and recurring nature
necessary for a fair presentation of the financial position and results of
operations of the Company. Unless otherwise stated, all information other than
that related to December 31, 2000 and the year then ended is unaudited, and no
other form of assurance is provided.
8
INTERNATIONAL MERCANTILE CORPORATION
NOTES TO FINANCIAL STATEMENTS
MARKETABLE SECURITIES AND INVESTMENT IN EQUITIES AVAILABLE-FOR-SALE
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. The Company's Investment in
Equities Available-For-Sale is comprised of securities that management has not
demonstrated are being held for trading. The investment is recorded at fair
market value on the balance sheet with any permanent decline in value recognized
in the statement of operations in accordance with SFAS 115. Currently, the only
securities being held by the company are 200,000 of GLTK and 4,000,000 of PCLO
currently traded on the OTCBB.
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 March 31, 2000, December 31, 2000, and at March
31, 2001. This potential warranty should not affect the company as it would
become the responsibility of Micromatix.
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.
Micromatix will be responsible for the filing of the operations through March
30, 2001. To the extent of the operations for the company's activities from
March 31, 2001 through the end of their fiscal period is what will be reflected
on their tax return.
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.
9
INTERNATIONAL MERCANTILE CORPORATION
NOTES TO FINANCIAL STATEMENTS
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.
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 for the
year ended December 31, 2000 and the quarters ended March 31, 2000 and March 31,
2001, the number of shares considered to be outstanding is computed as the
average actual number of shares of the Company outstanding during the period.
10
INTERNATIONAL MERCANTILE CORPORATION
NOTES TO FINANCIAL STATEMENTS
EARNINGS PER SHARE CONT'D
Other appropriate adjustments have been made to deal with changes in numbers of
shares issued during the period. Diluted EPS for the period ended June 30, 2000
were computed as a result of the Company's complex capital structure including
1,000,000 shares of Class B Common stock (see reverse split) which were
authorized and unissued as of June 30, 2000. These shares were subsequently
issued by April 12, 2000. Diluted EPS for the year 2000 were computed as a
result of the Company's complex capital structure; including 285,714 shares of
Series 2 Preferred stock, 20,000 shares of Class B Common stock, and 1,250,000
equivalent converted shares represented by the $500,000 Convertible Debenture.
Diluted EPS for the quarter ended June 30, 2001 were computed as a result of the
Company's complex capital structure; including 285,714 shares of Series 2
Preferred stock, 20,000 shares of Class B Common stock, and 5,714,286 equivalent
converted shares represented by the $500,000 Convertible Debenture. The actual
conversion may be reduced given the reverse merger and relinquishment of the
debentures.
DEVELOPMENT STAGE
The Company's prior principal operations when operating as Micromatix, comprised
of sales of build-to-order unbranded or "white box" PC systems and PC related
hardware were in a start up phase through December 31, 1999. Although some
sales, manufacturing and distribution of personal computers and related PC
hardware had commenced, as of December 31, 1999 there had been no significant
revenue generated therefrom.
Substantially all the efforts of the Company were focused on capitalization of
the Company, the establishment of its' website, internal infrastructure,
production lines and development of a marketing team. Accordingly, financial
statements of the Company as of December 31, 1999 and for the period September
2, 1999 (Date of Inception) through December 31, 1999 reflect the Company as in
the Development Stage. Subsequently, thereto, the Company entered into normal
operations.
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, 2000 and the quarters ended June 30, 2000 and June 30, 2001 the
Company recognized a bad debt expense of $410,870, $34,625, and $0.00
respectively. This issue related primarily to operations as Micromatix which has
no longer affects the company. In the year ended December 31, 2000 and the
quarters ended June 30, 2000, and 2001 no actual receivables were directly
written off. As a result, the allowance account included on the balance sheet,
as net of account receivables is $542,806 at December 31, 2000, $21,961 at June
30, 2000, and $0.00 at June 30, 2001.
11
INTERNATIONAL MERCANTILE CORPORATION
NOTES TO FINANCIAL STATEMENTS
3. Related Party Transactions
The Company's financing since inception, throughout its development stage and
during the year ended December 31, 2000 and the quarters ended June 30, 2000 and
2001 has been provided by interest bearing loans, non-interest bearing loans and
capital contributions to the Company by its shareholders. All Notes due Red
River as a result of the 1999 reverse acquisition have been cancelled pursuant
to the terms of the agreement. As of June 30, 2001, the Company is no longer
intending on paying the notes as the company is insolvent to the extent of the
ability to repay these notes. The shareholders have agreed to exchange their
debt for additional shares in the company and consequently the amount shown on
the balance sheet has been eliminated, however the dilution factor has not been
determined as of June 30, 2001.
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 was
originally recorded at cost. On December 31, 1999 IMTL acquired 3,000,000 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 defined as an
investment in securities - available for sale, in accordance with Statement of
Financial Accounting Standards (SFAS 115) and is reported on the balance sheet
at its fair market value. During the year ended December 31, 2000 the fair
market value declined significantly. Since no conditions presently exist that
would demonstrate that the decline in value of this investment is other than
temporary, the loss is recognized in the statement of operations in the year
2000, the period of fair market value decline As of the date of these financial
statements the value of this investment remains unchanged from December 31,
2000.
At December 31, 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 $571,609,
$430,209 and $343,929 at March 31, 2000, December 31, 2000 and March 31, 2001
respectively, bears interest at a rate of 8% per annum, and is unsecured. As of
March 31, 2000, December 31, 2000 and March 31, 2001 unpaid interest has accrued
in the amount of $11,432, $19,791 and $0 on the liability respectively. As a
result of a separate transaction the Company had a receivable from the same
related party in the amount of $51,404 at December 31, 2000. This receivable was
offset against the above referenced note at March 31, 2001.
12
INTERNATIONAL MERCANTILE CORPORATION
NOTES TO FINANCIAL STATEMENTS
4. Commitments
The Company formerly leased 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 increases
approximately 5% in each of the succeeding five years. An additional security
deposit of $14,274, as required under the lease agreement, was paid to the
landlord on February 21, 2000. During the periods ended March 31, 2000, December
31, 2000, and March 31, 2001, the Company paid $44,009, $174,205 and $15,303 in
lease payments. At June 30, 2001, the Company is no longer liable for the lease
payments as this is the responsibility of Micromatix.
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. The Company has applied to
their loan an additional 750,000 shares as a total payoff of this 1,000,000 line
of credit.
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.
13
INTERNATIONAL MERCANTILE CORPORATION
NOTES TO FINANCIAL STATEMENTS
Commitments cont'd
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 additional 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. To date these substantive amendments have not been made. 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
December 31, 2000 and March 31, 2001, the Company has accrued interest in the
amount of $22,889 and $32,889 respectively. 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.
5. Capital Lease Obligations
The Company had formely leased its operational and accounting software under a
capital lease, which expires in December, 2002. This is now requires monthly
payments of principal and interest of $1,235 plus applicable sales tax from
Micromatix. Interest is imputed at 13.25% per annum. The lease agreement
concludes with a $1 buy option at the end of the lease term. As of March 31,
2001, the Company is three months in arrears of its lease obligation.
Approximate future lease payments under the capital lease is as follows:
FYE 12/31/01 $17,651
FYE 12/31/02 9,414
-----
$27,065
Less Amount representing interest 3,278
-----
23,787
Less current maturities 14,824
------
Long-term debt, less current maturities $ 8,963
======
14
INTERNATIONAL MERCANTILE CORPORATION
NOTES TO FINANCIAL STATEMENTS
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. Given there are no current operations other than the acquisition of a
new company and the financing thereof there are currently no officer salaries.
7. Fixed Assets
There are currently no fixed assets for the Company. Micromatix fixed assets
consisted of the following at June 30, 2000:
Accumulated
Fixed Asset Depreciation Balance
----------- ------------ --------
Website Development $ 5,637 $ 414 $ 5,226
Furniture & Fixtures 33,717 2,516 31,201
Manufacturing/Warehouse Equip 37,499 2,643 34,856
Computer Hardware 71,214 6,549 64,665
Transportation Equip 7,000 758 6,242
Office Equipment 36,577 3,385 33,192
Software Systems 44,133 4,265 39,868
Leasehold Improvements 4,000 1,000 3,000
----------------------------------------------
$ 239,777 $ 21,530 $ 218,247
==============================================
Fixed assets for the Company consisted of the following at December 31, 2000:
Accumulated
Fixed Asset Depreciation Balance
----------- ------------ --------
Website Development $ 9,641 $ 1,712 $ 7,929
Furniture & Fixtures 33,142 6,064 27,078
Manufacturing/Warehouse Equip 38,026 6,724 31,302
Computer Hardware 90,511 18,554 71,957
Transportation Equip 7,000 1,808 5,192
Office Equipment 36,909 8,972 27,937
Software Systems 67,931 13,359 54,572
Leasehold Improvements 4,000 4,000 0
----------------------------------------------
$ 287,160 $ 61,193 $225,967
==============================================
15
INTERNATIONAL MERCANTILE CORPORATION
NOTES TO FINANCIAL STATEMENTS
Fixed Assets cont'd
Fixed assets for the Company consisted of the following at March 31, 2001:
Accumulated
Fixed Asset Depreciation Balance
----------- ------------ --------
Website Development $ 15,246 $ 2,474 $ 12,772
Furniture & Fixtures 33,117 7,247 25,870
Manufacturing/Warehouse Equip 38,026 8,082 29,944
Computer Hardware 134,398 25,274 109,124
Transportation Equip 7,000 2,158 4,842
Office Equipment 36,909 10,448 26,461
Software Systems 70,631 16,891 53,740
Leasehold Improvements 4,000 4,000 0
----------------------------------------------
$ 339,327 $ 76,574 $262,753
==============================================
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 consisted of the following at June 30, 2000:
Note Payable - related party dated September 6, 1999 $100,000
Note Payable - related party dated November 23, 1999 571,609
-------
671,609
Less Current Portion 596,609
-------
Long Term Portion $ 75,000
========
16
INTERNATIONAL MERCANTILE CORPORATION
NOTES TO FINANCIAL STATEMENTS
Notes Payable and convertible Debentures, cont'd
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
loans amounted to $14,294 for the quarter ended March 31, 2000.
Notes Payable consisted of the following at December 31, 2000:
Note Payable - related party dated September 6, 1999 $ 9,000
Note Payable - related party dated November 23, 1999 430,209
-------
530,209
Less Current Portion 455,209
-------
Long Term Portion $ 75,000
=========
Loans Payable consisted of the following at December 31, 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 December 31, 2000 are as follows:
Convertible Debentures dated March 30, 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 year ended December 31, 2000 amounted to $73,395.
Notes Payable consist of the following at March 31, 2001:
Note Payable - related party dated September 6, 1999 $100,000
Note Payable - related party dated November 23, 1999 343,929
-------
443,929
Less Current Portion 393,929
-------
Long Term Portion $ 50,000
=========
For June 30, 2001 there is a shareholder loan to maintain the fundamental
operations for the acquisition and financing of a new company.
17
INTERNATIONAL MERCANTILE CORPORATION
NOTES TO FINANCIAL STATEMENTS
Notes Payable and convertible Debentures, cont'd
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 quarter ended March 31, 2001 amounted to $20,604.
This liability now lies with Micromatix.
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 year ended December 31, 2000 the Company
paid $93,032 in financing costs and accrued an additional $79,502 of interest
payable related to the line of credit. The company further issued an additional
50,000 shares to lender and converted the debt to equity. No payments were made
during the quarter ended March 31, 2001, however an additional $53,002 of
interest payable was accrued for the quarter 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
18
INTERNATIONAL MERCANTILE CORPORATION
NOTES TO FINANCIAL STATEMENTS
Line of Credit cont'd
further advances on the credit line. As of December 31, 2000 and June 30, 2001
the Company was indebted on the line of credit including accrued interest
thereon for $668,410 and $0.00 respectively. 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 December 31, 2000 and June 30, 2001, including additional financing
charges, is $628,745 and $0.00 respectively. The Company has reserved an
allowance of approximately $378,000, against this receivable at December 31,
2000 and March 31, 2001. As of June 30, 2001 this is the liability of
Micromatix.
11. Contingencies
The Company's sales during the year ended December 31, 2000 include one
significant customer that represents approximately 14% 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 350 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 March 31, 2001 the suit is still pending and the outcome
is not yet determinable. This is a liability of the Company as well as
Micromatix as a judgment has been procured.
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 June 30, 2001 the is a default judgment against
the company as well as Micromatix. This liability is still shown on the
Company's balance sheet. On March 28, 2000, Microsoft Corporation filed a
complaint against the Company and an employee for alleged copyright and
trademark infringement and related causes of action. On November 7, 2000 the
Company filed an answer denying all of Microsoft's claims. As of the date of
these financial statements the suit is still pending and the outcome is not yet
determinable however it would be a liability of Micromatix.
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 year ended December 31, 2001 the Company will be
able to locate, finance and acquire a new viable business. Currently, the
Company is merely a shell for a new viable business opportunity. There are no
operations and accordingly the losses are considerably less. The company has
much less capital requirements as the operations have changed from manufacturing
of computers to the acquisition of a new business.
19
INTERNATIONAL MERCANTILE CORPORATION
NOTES TO FINANCIAL STATEMENTS
13. Segment Information
The Company formerly operated 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 March 31, 2000:
System Component
Sales Sales Other Total
Sales $1,427,999 $ 768,115 $ 14,132 $2,210,246
Gross Profit 170,429 56,537 14,132 241,098
Operating Income (Loss) 80,167 26,450 (480,991) (374,374)
Assets 1,633,742 544,581 3,303,066 5,481,389
Capital Expenditures 3,374 1,125 24,790 29,289
Depreciation Expense 723 1,208 9,119 11,050
The table below presents information about reported segments at December 31,
2000:
System Component
Sales Sales Other Total
Sales $4,395,261 $2,607,430 $ 61,334 $7,064,025
Gross Profit 338,582 200,860 61,334 600,776
Operating Income (Loss) 72,367 42,932 (2,836,155) (2,720,856)
Assets 1,078,284 639,678 412,697 2,130,659
Capital Expenditures 3,155 1,871 82,101 87,127
Depreciation Expense 4,236 2,513 43,964 50,713
The table below presents information about reported segments at March 31, 2001:
System Component
Sales Sales Other Total
Sales $612,242 $ 403,413 $ 0 $1,015,655
Gross Profit 63,326 46,349 0 109,675
Operating Income (Loss) 11,520 9,070 (996,992) (976,402)
Assets 526,312 223,927 732,310 1,482,549
Capital Expenditures 0 0 52,167 52,167
Depreciation Expense 2,110 2,210 11,061 15,381
20
INTERNATIONAL MERCANTILE CORPORATION
NOTES TO FINANCIAL STATEMENTS
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. Because of
the Linuxone deal and the need to find another acquisition candidate the Board
approved another reverse stock split of 11 to 1. The Board and Management
believe this is one of several necessary steps that must be taken to insure the
viability of the Company.
Subsequent Events
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. On April 5, 2001 the original contract dated November
11, 2000 was amended to change the transaction from a merger agreement to an
asset acquisition agreement by the Company of selected assets of the proposed
acquired company.
On March 16, 2001, Micromatix, at the direction of the courts, entered into
mediation with management of a customer that, the Company has ascertained, owes
the Company $654,202. The mediation was unsuccessful and a hearing date is
expected to be set by the courts in the near future. The customer, on April 5,
2001, declared Chapter 11 Bankruptcy, and as a result the Company has reserved
approximately $378,000 against this receivable at March 31, 2001.
In April 2001, Micromatix received formal notice from its landlord that it was
delinquent on its lease payments for February, March and April of 2001.
On January 4, 2001 the Company's Board of Directors approved a plan to transfer
the Company's assets into Micromatix.com, a wholly owned subsidiary. The
transfer of the Company's assets and operations will occur upon completion of
all of the appropriate documents. As of the date of these financial statements
this has not yet occurred.
On March 30, 2001 the Company elected to reverse the merger with Micromatix and
return all assets and liabilities. Micromatix has agreed to indemnify and hold
harmless the Company from all current and future liabilities.
21
Item 2. Management's Discussion and Analysis or Plan of Operation.
CAUTIONARY STATEMENT FOR PURPOSE OF THE "SAFE HARBOR" 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-Q for the quarter ended June 30, 2001. 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 quarters ended June 30,
2001 and June 30, 2000.
(a) Results of Operations
As a result of the reverse merger operations in the computer industry no
longer affect the Company however for the purpose of analyzing prior operations
the following information is provided:
For the quarter of operations ending 3/31/2000, our Company posted total
sales of $2,210,246. Total sales for the three months ended 3/31/01 were
$1,015,655. While sales for the first quarter of 2000 were strong, sales for the
first quarter of 2001 were subject to a flattening due to market conditions that
were reflected throughout the technology industry as a whole. Management
22
anticipates increasing sales volume in the last half of 2001 as a result of the
commencement of a purchase order program which could result in a long term
relationship with a major defense contractor. Financing is required to fulfill
these orders; management has begun negotiations to satisfy this requirement.
Capital is now required in order to have the inventory necessary to increase
sale volume that can be created by our sales team.
In the third quarter of 2000, management began reducing the SG&A to
compensate for the lack of funding and the change in market conditions that
slowed down demand for product throughout the industry.
The same market conditions currently exist in the financial market, where
NASDAQ stocks have plummeted in value and have brought a dramatic decline in the
value of our stock position in VLDC. This decline is shown as a non-operating
loss in our year ended December 31, 2000 statement. Additionally, this slow down
has caused delays in our ability to raise additional capital necessary to expand
our business.
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 on a timely basis.
Our largest receivable refused to pay and we were forced to file suit on
September 28, 2000. This receivable totals $628,745. We have increased our
reserve for doubtful accounts to $410,870 in order to compensate for our
evaluation of this receivable. Efforts to settle this case have failed to date.
On April 7, 2001, this customer filed for relief under Chapter 11 Bankruptcy in
Federal Court in PA.
(b) Plan of Operation
The Company now intends to search for a acquisition candidate to merge into
it's existing shell. The financing of the new candidate will likely be through
private placement memorandum or existing companies willing to pay for the
corporate shell because it is a fully reporting company. There are no guarantees
this will occur and the Company is current in all it's filing's with the SEC.
23
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
There are two default judgments against the Company for a total of $29,000.
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.
24
From the period August 28, 2000 to November 26, 2000 the Company sold a
private placement memo under an exemption from registration as set forth in
Section 4(2) of the Act and Regulation D. The Company offered 286 units
consisting of 10,000 shares of Restricted Class A Common Stock plus 10,000
warrants to purchase one share of Restricted Class A Common Stock shares at $
0.10 per share. Warrants expire on August 31, 2001. The purchase price of each
unit was $10,000. The Company raised $1,169,025 in capital and issued 3,828,682
shares and warrants in the offering.
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
Item 6. Exhibits and Reports
Previously file 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).
25
(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.
26
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. Fredric Richardson
--------------------------
C. Frederic Richardson
Chief Exec. Officer
President, Director
Date: August 19, 2001
By: /s/ C. Fredric Richardson
--------------------------
C. Timothy Jewell,
Chief Exec. Officer
President, Director
By: /s/ Edward Hutya
--------------------------
Edward Hutya,
Director
By: /s/ Max W. Apple
--------------------------
Max W. Apple,
Chairman
Date: August 19, 2001
__________________________________________________________________
27