ITEM 1. BUSINESS
GENERAL
International Mercantile Corporation, a Missouri corporation ("IMC", the "Company" or "Registrant") was incorporated on March 10, 1971, for the purpose of acquiring Frontier Insurance Company ("FIC" or "Frontier") and Universal Life Holding Corporation ("ULHC" or "Universal"). IMC effected these acquisitions on August 31, 1973. IMC subsequently acquired a controlling interest in Sterling Financial Corporation ("SFC"). IMC is a holding company whose principal business as of December 31, 1995 was Home America Mortgage Company ("HAMC"), but which had no principal business as of December 31, 1996.
BUSINESS OVERVIEW - FRONTIER INSURANCE COMPANY
At December 31, 1994 Frontier was no longer issuing new business due to regulatory actions and a voluntary commitment on Frontier's part to the State of Missouri. Additionally, in the fourth quarter of 1994, Frontier entered into an Assumption/ Reinsurance Agreement with Mid-South Insurance Frontier pursuant to which Frontier transferred all policyholder liabilities, effective October 1, 1994. On November 17, 1995, the Company sold Frontier by transferring all of its stock in Frontier for full satisfaction of a note owed to two former officers of the Company, Robert and William Bruce, cancellation of consulting agreements, and cancellation of all intercompany receivables and payables. In addition, the Company transferred its accrued rights to commissions due from the former third party administrator and all of the obligations of Ventana Corporation f/k/a The C. J. Brown Corporation ("CJB") held by the Company. The Company assigned all of its rights regarding litigation against the Ventana Corporation and its officers to Frontier. As a result of this sale, the Company incurred a loss of $1,652,689.
SALE OF INTERNATIONAL FINANCIAL SERVICES LIFE INSURANCE COMPANY
As of January 1, 1994, FIC was the 100% owner of International Financial Services ("IFS").
On April 15, 1994, FIC entered into a Stock Purchase Agreement (the "Agreement") with Franklin American Corporation, a Tennessee corporation ("Franklin"), pursuant to the terms of which Agreement FIC agreed to sell to Franklin,
and Franklin agreed to purchase from FIC, shares (the "Shares") of the common capital stock of IFS, representing all of the issued and outstanding common stock of IFS.
The nature and amount of the consideration to be paid to FIC by Franklin for the purchase of the Shares were as follows: The aggregate purchase price of the Shares equaled the sum of (a) the current market value of IFS' total assets as of the fifth business day prior to the closing date less IFS' total liabilities calculated on a statutory basis as of the closing date, plus (b) $1,155,000, based on FIC's providing valid licenses authorizing IFS to conduct business in 42 states. The purchase price was required to be reduced by $27,500 per state in which a valid license authorizing IFS to transact the business of insurance therein was not delivered by FIC at closing. The purchase price was to be paid by Franklin through a wire transfer from Franklin's bank to FIC's bank, which was to occur and be confirmed to FIC at the closing, subject to any required regulatory approvals.
Payment was required for each state wherein FIC could affirm that IFS' said licenses were outstanding. If such licenses in any of the following states were not outstanding, then there was no obligation for Franklin to proceed with the purchase: North Carolina, New Mexico, Oklahoma, Nevada, Texas, Colorado, California, Pennsylvania, Arizona, Nebraska and Florida.
The consideration paid by Franklin for the Shares was determined through arm's-length negotiations. Neither Franklin, nor any of its officers or directors, is in any way affiliated with, or related to, FIC. The Company had loss on the sale in the amount of $775,508.
BUSINESS OVERVIEW-HOME AMERICA MORTGAGE COMPANY
Home America Mortgage Company ("HAMC") was incorporated in 1986 under the name Realty Mortgage Company and began operations as a residential mortgage brokerage operation. Frontier purchased HAMC from CJB in October, 1992.
HAMC's target markets were traditionally along the "I-10 Corridor" in Louisiana, primarily the cities of Lafayette, Baton Rouge, and New Orleans. Additional offices were acquired from an unrelated mortgage operation in Lake Charles and Monroe, Louisiana and Huntsville and Birmingham, Alabama in July, 1994. Dallas, Texas, was also a major target market due to a corporate affiliation with Murray Realtors of Dallas. However, with the market downturn more fully explained hereafter, the Dallas office was closed in November, 1994.
HAMC was organized and, when active, operated as a provider of first mortgage residential home loans. HAMC originated, processed, underwrote, closed, funded and delivered qualifying home loans to established mortgage companies throughout the
country. HAMC released the loan servicing function to these investors in order to generate fee income and to concentrate solely on the production aspect of the lending process.
HAMC offered a full menu of mortgage loan products, including conventional and jumbo fixed rate, balloon and adjustable loan products. Federal Housing Administration (FHA) and Veterans Administration (VA) loans are also available.
HAMC was a full service lender having in-house underwriting capability as well as closing all loans in its own name. HAMC did draw on three "warehouse" bank lines totaling $26, 000,000 to fund loans short term until they could be delivered and purchased by investors as of December 31, 1994.
HAMC originated over 1,056 loans totaling $90,000,000 in 1994 and 1,190 in 1993 totaling over$92,000,000. HAMC earned revenues primarily from three (3) income streams:
(1) Origination fees
(2) Servicing- release fees
(3) Discount income
Origination fees are up-front fees charged to the customer which equal approximately 1% of the anticipated loan amount. This fee is collected at the time of loan closing. HAMC produced $798,149 in fees in 1994 and $784,700 in 1993.
Servicing-release fees are those fees paid to HAMC by its investors in exchange for the release of the "loan servicing rights" on each loan. These fees differ with each loan program and loan size. HAMC sometimes used part of this income stream to offset discount quotes from its investors in order to be competitive with street rate quotes. HAMC's servicing-release fees were $885,237 in 1994 and $1,074,500 for 1993 compared to approximately 360,000 in 1995. HAMC ceased operations in 1995.
Discount income consists of up-front fees (points) charged by the lender, which are designed to increase the overall yield to the lender. Discount income generated in 1994 amounted to $515,252 and $675,300 for 1993 compared to approximately $120,000 in 1995.
HAMC also generated miscellaneous income in 1994, in the form of underwriting fees, which amounted to $92, 798. Miscellaneous income in 1993, in the form of underwriting and processing fees, amounted to $53,800 and $10,000 respectively. There was no miscellaneous income in 1995.
As a result of the Settlement Agreement between Robert and William Bruce and IMC in November of 1995, Robert and William Bruce obtained a controlling interest in FIC, IMC relinquished any and all equity interest it had in FIC, and IMC retained 100% ownership of HAMC common stock. HAMC received a mortgage executed by a consultant to IMC in the approximate amount of $200,000. In 1996, said mortgage was offset by fees incurred, and the remaining asset and related mortgage debt of HAMC were transferred to Robert and William Bruce. HAMC has had no operations since November of 1995. .
UNIVERSAL LIFE HOLDING CORPORATION
Universal Life Holding Corporation ("Universal" or "ULHC") was incorporated under the laws of Illinois on August 13, 1964. Historically, the principal business of Universal has been in real estate development, ownership, and management and the investment in Frontier Insurance Company. On May 4, 1995, the Company exchanged all of the common stock in ULHC owned by the Company for forgiveness of the notes and other payables owed by the Company to ULHC. The Company incurred a gain on the sale in the amount of $751,089.
OTHER EVENTS OCCURRING IN 1996
On August 14, 1996, the Company executed an agreement to purchase 100% of the outstanding capital stock of a corporation that has the rights to develop and operate an ambulatory surgery center in Waldorf, Maryland, for 250,000 shares of the Company's common stock. The seller would retain 70% of the voting rights under a voting trust agreement. The Company agreed to furnish within 15 days a commitment letter to raise equity capital in the amount of $3,000,000. The equity funding was to be provided within 90 days of the execution of the agreement. The Company was unable to raise the equity within the 90 day period, therefore the agreement was canceled.
In November 1996, the Company attempted to acquire 100% of the outstanding capital stock of Great Ape Bike Company for 250,000 shares of company common stock. The seller would retain 70% of the voting rights under a voting trust agreement. The Company agreed to furnish within 15 days a commitment letter to raise equity capital in the amount of $5,000,000. The equity funding was to be provided within 90 days of the execution of the agreement. The company was unable to raise the equity within the 90 day period, therefore the agreement was canceled.
On September 18, 1996, the Company entered into an agreement to purchase 100% of the capital stock of University Consulting, Inc. ("UC") for 387,500 shares of the company's common stock valued at $387,500. UC owns and operates a mortgage company, title company and income tax and accounting service business. This agreement was canceled in December, 1996.
ITEM 2.
ITEM 2. PROPERTIES
The Company owned no real properties as of December 31, 1996 and owns none at the time of filing of this report.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
ADMINISTRATIVE ACTIONS TAKEN BY STATE DEPARTMENTS OF INSURANCE On March 15, 1995, the Board of Directors of Frontier adopted a resolution stating that, because of concerns of the Commissioner of Insurance of the State of Texas regarding Frontier's financial condition, Frontier would voluntarily cease writing business in the State of Texas until it notifies the Commission of the intent to write further business and provides the Commission with information establishing that it is in compliance with Texas insurance code. Frontier has no current plans to write further business in the State of Texas.
By letter dated February 10, 1995, Frontier voluntarily agreed with the Missouri Department of Insurance not to write any new business or acquire any policyholder liability without first having discussions with the Missouri Department of Insurance.
The Illinois Department of Insurance, by Order dated January 27, 1994, has rescinded its previous Order suspending Frontier's authority of transact insurance business in the State.
On January 25, 1994, the Commissioner of Insurance of the State of Louisiana issued a Cease and Desist Order to Frontier ordering Frontier to cease and desist from the writing of any and all new and /or renewal polices of insurance coverage in the State of Louisiana.
SEC INVESTIGATION
On May 14, 1993, Registrant's executive officers were advised by officials of the Enforcement Division of the United States Securities and Exchange Commission (the "Commission"), that an informal investigation of Registrant, FIC and ULHC was being conducted by the Commission.
On or about November 22, 1993, Registrant's executive officers were advised by telephone by officials of the Enforcement Division of the Commission that the Commission had ordered that a formal private investigation of Registrant,
FIC and ULHC be conducted pursuant to Section 20 (a) of the Securities Act of 1933 and Section 21 (a) of the Securities Act of 1934.
Registrant's officers, directors, auditors and attorneys have complied with all requests made of them by representatives of the commission in connection with the said investigations, including all requests for the production of documents and information pertaining to Registrant and its affiliates.
Additionally, certain officers, directors and others affiliated with Registrant have given testimony before the Staff of the Commission.
Following extensive testimony, the Commission notified the Registrant by letter dated October 11, 1994 that the staff of the Division of Enforcement intended to recommend filing a civil injunctive action in Federal District Court against Registrant and its affiliates, Frontier Insurance Company and Universal Life Holding Corporation, for violating Section 10 (b), 14 (a), 13 (a), 13 (b) (2) (A) and (B) of the Securities Exchange Act of 1934 and Rules 10b-5, 13a-1, 13a-13, and 12b-20 thereunder. The staff also stated its intention to recommend that Registrant and its affiliates, FIC and Universal Life Holding Corporation, pay penalties arising from the failure of each company to file timely certain periodic reports as required by the federal securities laws.
Through counsel, FIC responded to the Commission on November 30, 1994, agreeing to consent to an injunction against future violations of federal securities regulations and agreeing to pay a $50,000 fine in lieu of any other fines or penalties which could or might be assessed against FIC, Registrant and Universal Life Holding Corporation. This offer for settlement was accepted in August, 1995, and no further investigation of Registrant is pending.
JANET L. MERTZ, EDWIN H. MERTZ, GLENN E. MERTZ, EDNA L. MERTZ, DENNY W. MERTZ AND VALERIE J. MERTZ VS. INTERNATIONAL MERCANTILE CORPORATION.
On June 25, 1993, a Petition on Note was filed against IMC in the Circuit Court of Cole County, Missouri, seeking damages in the amount of $54,294.00, plus interest and attorney's fees, for default on numerous promissory notes. The Petition alleged that there were promissory notes issued by IMC in favor of the plaintiffs which were due in February, 1993, and which IMC had refused to pay. In June, 1994, the plaintiffs' Motion for Summary Judgment was granted and
Judgment entered against IMC in the aggregate amount of $70,819.55. As of December 31, 1996, the judgment had not been satisfied and was still pending.
DOWNARD / WEGMAN LITIGATION
On December 21, 1993, a Petition (the "Petition") was filed in the Circuit Court of Cole County, Missouri, by Lloyd Downard and Ken Wegman, as Plaintiffs (the "Plaintiffs"), against the Registrant, FIC, and certain other defendants. In the Petition, the Plaintiffs alleged that the Registrant had defaulted in payments due each of the Plaintiffs under agreements entered into between each of the Plaintiffs and the Registrant, FIC, and The C. J. Brown Corporation, a Louisiana corporation, dated November 19, 1991, said defaults being in the amounts of (i) $77,336 under the said Downard agreement, and (ii) $24,268 under the said Wegman agreement said defaults consisting only of the amounts not paid when due and not the amounts in total due under said agreements.
The Petition further alleged that certain of the defendants, including the Registrant, "conspired to intentionally and improperly interfere with the contractual relationship between (the Plaintiffs) and defendant, International Mercantile Corporation, by causing (the Plaintiffs) not to be paid." For this, the Plaintiffs each sought punitive damages from the defendants, jointly and severally, in the amount of $250,000 on each of several counts.
By Mutual Release and Settlement Agreement dated August 23, 1994, Registrant and its affiliate, FIC, were released from all of its claims with regard to said Petition. Under the terms of the settlement, Registrant paid Downard the sum of $268,000 and Wegman the sum of $132,000 in full satisfaction of all claims against Registrant and FIC. Registrant and FIC were subsequently released, with prejudice, from said litigation.
BRUCE AND BRUCE V. THE C. J. BROWN CORPORATION, ET AL
On March 2, 1995, Robert E. Bruce and William D. Bruce filed a Complaint in the United States District Court, Western District of Missouri, Western Division, seeking a declaratory judgment releasing them of any liabilities which they may have under a certain Stock Purchase Agreement dated August 25, 1994, entered into by CJB, Life America Corporation ("LAC"), Ronald T. Benitez, 1122 Corporation and the plaintiffs. That agreement, to which neither Registrant nor any of its affiliates was a party, set forth a series of transactions by which the said plaintiffs would acquire a controlling interest in Registrant and its affiliates. Settlement was reached in 1996 between the parties.
THE VENTANA CORPORATION, ET AL. V. WILLIAMS D. BRUCE, ET AL.
In a Petition for Breach of Contract, Damages and Specific Performance filed in the 19th Judicial Circuit for the Parish of East Baton Rouge, Louisiana, on March 10, 1995, the Ventana Corporation (formerly The C. J. Brown Corporation) filed an action against William D. Bruce, Robert E. Bruce and IMC seeking damages for a breach of the Stock Purchase Agreement (See Bruce and Bruce v. The C. J. Brown Corporation, et al., above) and specific performance of the related Stock Redemption Agreement. This suit was also settled in 1996.
IN RE: THE VENTANA CORPORATION A/K/A THE C. J. BROWN CORPORATION.
On March 17, 1995, IMC and Home America Mortgage Company, a subsidiary of IMC, filed an involuntary bankruptcy petition against the Ventana Corporation. Ronald Brignac, a former director of Registrant, was the third creditor bringing the involuntary bankruptcy action. Settlement of this action was also reached in 1996.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5.
ITEM 5. MARKET FOR COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
There is no principal market for IMC stock. The value of the stock would be determined by negotiation between the trading parties. A cash dividend has never been paid on the common stock.
Transfer Agent and Registrar:
Curt Hughe Interwest Transfer Agent 1981 East 4800 South, Suite 100 Salt Lake City, Utah 84117 (801) 272-9294
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
See attached financial statements.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MDA)
The Company has suffered severe losses for the past six years. Management has not been able to secure working capital for the Company from outside debt or equity funding sources.
Management has spent considerable time and effort to bring the Company's public securities filings current to allow it to merge with, acquire or be acquired by another company. At this point in time management has several such business combination candidates and plans to work aggressively in the area when its filings are current.
There is no cash flow from operations and unless the Company can successfully develop relationships with financial sources and acquire an operating company which can immediately generate cash flow from operations, no cash flow is anticipated.
HAMC ceased operations in 1995 and is currently inactive.
To bring operational capability and positive cash flow to IMC, management will seek to acquire assets that will improve the overall financial picture of the Company. Management plans to restructure the capital stock of the Company by reducing the total number of outstanding common shares and introducing new classes of stock.
This plan of acquisition and reorganization should put the Company in a better position to attract working capital from debt and equity sources. There is absolutely no assurance that any or all of these steps can be successfully completed. In the event that management fails to meet its goals, the Company will not be a viable going concern and may face bankruptcy or liquidation.
The Company has ongoing cash demands that are not being met. Management has agreed to be paid in stock to minimize the cash burden to the Company. There are several advisors, consultants and professionals who are due fees, and management plans to fulfill these responsibilities first since these advisors, professionals and consultants are necessary to bring the Company's public filings current and inject working capital and operational assets into the Company.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See attached Financial Statements.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICER OF COMPANY
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
No cash compensation, including bonuses and deferred compensation, was paid during 1996 by IMC to any of its executive officers. No fees were paid to Board members for attending Board meetings during 1996. Shares of the Company's common stock may be issued to its officers representing the fair market value of services actually rendered by them without pay and as reimbursement for expenses actually incurred by them in the performance of their duties as officers of the Company.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of December 31, 1996, the only persons known to the Company to be the beneficial owners of more than five percent (5%) of the outstanding number of Shares in IMC:
- ---------------------------------------- (1) To the best knowledge of the Company, as of December 31, 1996, such holders had the sole voting and investment power with respect to the voting securities of IMC beneficially owned by them, unless otherwise indicated by footnote.
(2) Of the shares owned by William and Robert Bruce, 1,500,000 shares are non-voting as of December 31, 1994. These shares became non-voting in November, 1994 as a result of the former owner of these shares, Life America's failure to honor the IMC shareholders' option to cause Life America Corporation to purchase any and all outstanding shares of International Mercantile Corporation, which option was part of the original Purchase and Sale Agreement of Corporate Stock dated July 29, 1991 pursuant to which Life America acquired a controlling interest in IMC.
(3) Under FIC's Employee Stock Ownership Plan and Agreement ("ESOP"), employees have the right to vote shares of such stock allocated to their account. The ESOP's Administrative Committee, which was appointed by the FIC Board, may be deemed to share investment power with the ESOP Trustee, Boatmen's First National Bank of Kansas City, Kansas City, Missouri, over all shares held in the ESOP, in that the Committee may give investment instructions to the Trustee, and also may be deemed to share voting power with the Trustee over shares not allocated to participant accounts in that it may direct the Trustee as to the voting of such shares.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In 1994, the Company paid $400,000 to settle consulting and non-competitive agreements with two former members of the Board of Directors. See Item 3, above.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT, SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements - International Mercantile Corporation
Independent Auditors' Report
Balance Sheets as of December 31, 1996 and 1995
Statements of Operations for the Years ended December 31, 1996, 1995 and 1994
Statements of Changes in Stockholders' Equity (Deficiency) for the Years Ended December 31, 1996, 1995 and 1994
Statements of Cash Flows for the Years Ended December 31, 1996, 1995 and 1994
Notes to Financial Statements as of December 31, 1996 and 1995
(b) Reports on Form 8-K
(c) Exhibits:
3(a) Articles of Incorporation of the Company*
3(b) Articles of Amendment of the Company*
3(c) Bylaws of Company**** 4(a) Note dated December, 1985, from Company to Frontier **
4(b) Note dated December, 1985, from Company to Universal**
4(c) Noted dated December, 1985, from Company to Sterling**
4(d) Note dated December, 1982, from Universal to Community Federal Savings and Loan**
4(e) Note dated December, 1982, from Shepherd Hills Manor, Ltd. to Universal **
4 (f) Note dated September, 1985, from Company to BMA, secured by a deed of trust on the Company's office facility**
4 (g) Note dated May, 1986, from Company Merchants Bank, secured by capital stock of Frontier and Sterling**
4 (h) Notes dated February, 1983, from Company to former shareholders of SFC**
4 (I) Contributions Agreement of Frontier dated June 1985, relating to annual contribution to Frontier ESOP**
4 (j) Note dated February, 1988, from Company to Universal ****
4 (k) Note dated May 24, 1988, from Company to Frontier *****
10 (a) Incentive Stock Option Plan*
10 (b) Agreement between Company and Lloyd R. Downard and Kenneth Wegman (change in control agreements with management).
10 (c) Lease Agreement between Company and Frontier**
10 (d) From of sublease agreements between Frontier and Company, Universal and Sterling**
10 (e) Settlement Agreement ***
10 (f) Extension and Modification Agreement ***
10 (g) Assumption of Consulting Agreement **** 10 (h) Deferred Compensation Agreement *****
10 (i) Exchange Agreement between International Mercantile Corporation and Sterling Financial Corporation dated December 7, 1992******
10 (j) Amendment to Exchange Agreement between International Mercantile Corporation and Sterling Financial Corporation dated December 7, 1992, such Amendment dated December 18, 1992*******
10 (k) Reinsurance Agreement between Frontier Insurance Company and Central Security Life Insurance Company, dated August 3, 1993 ********
10(1) Contract for Home Office Administrative and Data Processing Services between Frontier Insurance Company and Central Security Life Insurance Company dated September 23, 1993*********
10(m) Stock Redemption Agreement, dated December 10, 1993, between International Mercantile Corporation and Frontier Insurance Company**********
10(n) First Amendment to Exchange Agreement dated February 17, 1994, between International Mercantile Corporation and Sterling Financial Corporation***********
10(o) Agreement, dated August 29, 1994, between The C. J. Brown Corporation, Life America Corporation, Ronald T. Benitez, 1122 Corporation and Robert E. Bruce and William D. Bruce, along with the various exhibits thereto, including Stock Purchase Agreement and Stock Redemption Agreement.************
11(a) Letter addressed to the Commission from FIC's former independent certifying accounts, Grant Thornton, dated May 7, 1993, in response to FIC's request that Grant Thornton furnish it with a letter addressed to the Commission stating whether it agreed with the statements made by the FIC in its initial Form 8-K, dated April 29, 1993, pursuant to Item 304 (a) of Regulation S-K*******
* These items were filed in the Company's Annual Report on Form 10-K dated December 31, 1981 File No. 0-7693), and are incorporated herein by reference.
** These items were filed in the Company's Annual Report on Form 10-K dated December 31, 1986 (File No. 0-7693), and are incorporated herein by reference.
*** These items were filed on the Form 8-K dated May 22, 1987 (File No. 0-7693), and are incorporated herein by reference.
**** These items were filed in the Company's Annual Report on Form 10-K dated December 31, 1987 (File NO. 0-7693), and are incorporated herein by reference.
***** These items were filed in the Company's Annual Report on Form 10-K dated December 31, 1988 (File No. 0-7693), and are incorporated herein by reference.
****** These items were filed on the Form 8-K dated December 9, 1992 (File No. 0-7693), and are incorporated herein by reference.
******* These items were filed on the Form 8-K dated May 10, 1993 (File No. 0-2650), and are incorporated herein by reference.
******** These items were filed on the Form 8-K dated August 18,1993 (File No. 0-7693), and are incorporated herein by reference.
********* These items were filed on the Form 8-K dated September 23, 1993 (File No. 0-2650), and are incorporated herein by reference.
**********This item was filed on the Form 8-K dated January 4, 1994 (File No. 0-7693) and is incorporated herein by reference.
***********This item was filed on the Form 8-K dated February 17, 1994 (File No. 0-7693) and is incorporated herein by reference.
************These items were filed on the Form 8-K dated September 12, 1994 (File No. 0-7693) and are incorporated herein by reference.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
INTERNATIONAL MERCANTILE CORPORATION
DATE: 7/7/97 BY: /s/ MAX APPLE ------------- --------------------------------- MAX APPLE, CHAIRMAN AND DIRECTOR
DATE: 7/8/97 BY: /s/ ERIC ATTIA ------------- --------------------------------- ERIC ATTIA, PRESIDENT, PRINCIPAL FINANCIAL OFFICER, PRINCIPAL ACCOUNTING OFFICER AND DIRECTOR
DATE: 7 July 97 BY: /s/ EHUD LISSAUER ------------- --------------------------------- EHUD LISSAUER, SECRETARY AND DIRECTOR
DATE: 7/8/97 BY: /s/ GREGORY DUTCHER ------------- --------------------------------- GREGORY DUTCHER, SECRETARY AND DIRECTOR
INTERNATIONAL MERCANTILE CORPORATION
REPORT
AS OF DECEMBER 31, 1996 [WEINBERG, PERSHES & COMPANY, P.A. LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of: International Mercantile Corporation
We have audited the accompanying balance sheets of International Mercantile Corporation as of December 31, 1996 and 1995 and the related statements of operations, changes in stockholders' equity and cash flows for the three years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of International Mercantile Corporation as of December 31, 1996 and 1995, and the results of their operations and cash flows for the three years then ended in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that International Mercantile Corporation will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has no current operations, no current assets and has a substantial deficit, which raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to this matter are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Weinberg, Pershes & Company, P.A.
/s/ WEINBERG, PERSHES & COMPANY, P.A.
Boca Raton, Florida May 16, 1997
INTERNATIONAL MERCANTILE CORPORATION BALANCE SHEETS AS OF DECEMBER 31, 1996 AND 1995
Read accompanying notes to financial statements.
INTERNATIONAL MERCANTILE CORPORATION STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Read accompanying notes to financial statements.
INTERNATIONAL MERCANTILE CORPORATION STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Read accompanying notes to financial statements.
INTERNATIONAL MERCANTILE CORPORATION STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Read accompanying notes to financial statements.
INTERNATIONAL MERCANTILE CORPORATION STATEMENTS OF CASH FLOWS AS OF DECEMBER 31, 1996, 1995 AND 1994
SUPPLEMENTAL SCHEDULE OF NON CASH INVESTING AND FINANCING ACTIVITIES:
On February 17, 1994, the Company issued 205,000 common shares of the Company, transferred $1,000,000 of the Ventana Corporation a/k/a The C.J. Brown Corporation preferred stock, and all of the Sterling Financial Corporation's common stock held by the Company to Sterling Financial Corporation in exchange for 246,088 shares of Frontier Insurance Company, and the forgiveness of a note due to Sterling Financial Corporation in the amount of $472,000.
On May 4, 1995, the Company exchanged all of the common stock owned by the Company in Universal Life Holding Company ("ULHC") for forgiveness of the notes and other payables owed by the Company to ULHC. The Company had a gain on the sale in the amount of $751,089.
On November 17, 1995, the Company sold its insurance subsidiary, Washington Security Life Insurance Company f/k/a Frontier Insurance Company ("Washington") by transferring all of its stock in Washington for full satisfaction of a note owed to two former officers, cancellation of consulting agreements, and cancellation of all intercompany receivables and payables. In addition, the Company transferred its accrued rights to commissions due from the former third party administrator and all of the obligations of Ventana Corporation f/k/a C.J. Brown ("Ventana") held by the Company. The Company also received a mortgage executed by one of the Company's consultants in the amount of approximately $200,000. This amount was offset by a commission due the consultant as part of the purchase of the Company. The Company assigned all rights to Washington regarding litigation against Ventana and its officers. As a result of this sale, the Company incurred a loss of $1,652,689.
Read accompanying notes to financial statements
INTERNATIONAL MERCANTILE CORPORATION NOTES TO FINANCIAL STATEMENTS AS OF DECEMBER 31, 1996 AND 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A Organization International Mercantile Corporation ("IMC" or "the Company") is a corporation organized in Missouri on March 10, 1971. The Company was a stock life insurance holding company. Through the date of sale of the Company's subsidiaries in 1995, the Company operated a life insurance company, a mortgage origination business, a residential rental property management business and other real estate and investment activities.
The Company currently has no operations. There were no material transactions or activity during 1996. All expenses of the Company were paid by the officers of the Company. The officers have waived reimbursement of these expenses for 1996.
B Income Taxes The Company has adopted the liability method of accounting for income taxes pursuant to Statement of Financial Accounting Standards No. 109. Under this method, deferred income taxes are recorded to reflect the tax consequences in future years of temporary differences between the tax basis of the assets and liabilities and their financial amounts at year-end. The Company has a deferred tax asset of approximately $2,500,000 at December 31, 1996. A valuation allowance has been recognized for the full amount of the deferred tax asset since there is no assurance of future taxable income.
C Income (Loss) per Common Share Income (Loss) per common share of common stock are based on the weighted average number of shares outstanding.
D Goodwill Goodwill represented the cost in excess of the fair value of net assets acquired and was amortized on a straight-line basis over 20 to 40 years. During 1995, the Company disposed of its subsidiaries and expensed any remaining goodwill.
E Statement of Cash Flows For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents.
F Use of Estimates in the Preparation of Financial Statements The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as the date of the financial statements and revenues and expenses during the reporting period. Actual results could differ from those estimates.
INTERNATIONAL MERCANTILE CORPORATION NOTES TO FINANCIAL STATEMENTS AS OF DECEMBER 31, 1996 AND 1995
NOTE 2 - GOING CONCERN
The accompanying financial statements have been prepared in conformity with generally accepted accounting principles which contemplate continuation of the Company as a going concern. The Company presently has no operations, no current assets and has incurred a substantial deficit. The Company's continued existence is dependent on its ability to obtain funding to acquire or start up an operating business. The accompanying financial statements do not reflect any adjustments relating to the amounts and classification of liabilities that might be necessary in the event the Company cannot continue in existence.
NOTE 3 - SALE AND PURCHASE OF SUBSIDIARIES
On April 15, 1994, Washington Security Life Insurance Company f/k/a Frontier Insurance ("Washington") entered into a stock purchase agreement to sell 100% of the common stock of International Financial Services Life Insurance Company ("IFSLIC"). The consideration received was based on the current market value of IFSLIC's total assets less the liabilities calculated on the statutory basis as of the closing date plus $1,155,000 in cash. The purchase price was based on the purchaser receiving valid licenses for the purchaser to transact business in 42 states. The Company had a loss on the sale in the amount of $775,508.
On May 4, 1995, the Company exchanged all of the common stock owned by the Company in Universal Life Holding Corporation ("ULHC") for forgiveness of the notes and other payables owed by the Company to ULHC. The Company had a gain on the sale in the amount of $751,089.
On November 17, 1995, the Company sold its insurance subsidiary (Washington) by transferring all of its stock in Washington for full satisfaction of a note owed to two former officers, cancellation of consulting agreements, and cancellation of all intercompany receivables and payables. In addition, the Company transferred its accrued rights to commissions due from the former third party administrator and all of the obligations of Ventana Corporation f/k/a C.J. Brown ("Ventana") held by the Company. The Company also received a mortgage executed by one of the Company's consultants in the amount of approximately $200,000. The $200,000 mortgage was offset by a commission due the consultant regarding the purchase of the Company. The Company assigned all rights to Washington regarding litigation against Ventana and its officers. As a result of this sale, the Company incurred a loss of $1,652,689.
INTERNATIONAL MERCANTILE CORPORATION NOTES TO FINANCIAL STATEMENTS AS OF DECEMBER 31, 1996 AND 1995
NOTE 4 - SALE AND PURCHASE OF SUBSIDIARIES (CONTINUED)
Operating results of IMC's Discontinued operations for the years ended December 31, 1996, 1995, and 1994 are:
NOTE 5 - DUE TO RELATED PARTIES
Certain officers and consultants of the Company paid expenses in the amount of $180,263 on behalf of the Company during 1995. The amount is due on demand and bears no interest. All expenses incurred during 1996 were paid by the officers of the Company and waived reimbursement.
NOTE 6 - MORTGAGE AND NOTES PAYABLE
Mortgage and notes payable at December 31, 1996 and 1995 are as follows:
NOTE 6 - LITIGATION
As part of the sale of Washington, the Company transferred all of its rights to litigation against Ventana to Washington (See Note 3).
The Company is a defendant from time to time in claims and lawsuits arising and of the normal course of business, none of which are expected to have a material adverse effect on the financial statements.
INTERNATIONAL MERCANTILE CORPORATION NOTES TO FINANCIAL STATEMENTS AS OF DECEMBER 31, 1996 AND 1995
NOTE 7 - ACQUISITIONS
On August 14, 1996, the Company executed an agreement to purchase 100% of the outstanding capital stock of a corporation that has the rights to develop and operate an ambulatory surgery center in Waldorf, Maryland, for 250,000 shares of the Company's common stock. The seller would retain 70% of the voting rights under a voting trust agreement. The Company agreed to furnish within 15 days a commitment letter to raise equity capital in the amount of $3,000,000. The equity funding was to be provided within 90 days of the execution of the agreement. The Company was unable to raise the equity within the 90 day period, therefore the agreement was cancelled.
On September 18, 1996, the Company entered into an agreement to purchase 100% of the capital stock of University Consulting, Inc. ("UC") for 387,500 shares of the company's common stock valued at $387,500. UC owns and operates a mortgage company, title company and income tax and accounting service business. This agreement was cancelled in December 1996.
On December 23, 1996, the Company entered into a stock purchase agreement with University Mortgage, Inc. to purchase 40,000 shares of its non-voting Redeemable Class A Preferred Stock for $400,000 which was subsequently cancelled.