SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                             ----------------------

                                   FORM 10-KSB
                 Annual Report Pursuant to Section 13 or 15 (d)
                     of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 1998     Commission file number 0-7693
                        --------------------------------

                      INTERNATIONAL MERCANTILE CORPORATION
             (Exact Name of Registrant as Specified in its Charter)

    MISSOURI                           1662                       43-0970243
 (State or other           (Primary Standard Industrial      (I.R.S. Employer
 jurisdiction of           Classification Code Number)       Identification No.)
incorporation or
  organization)

                               1625 KNECHT AVENUE
                            BALTIMORE, MARYLAND 21227
              (Address of principal executive offices and zip code)

                                 (410) 242-5000
            (Name, address, including zip code, and telephone number,
                   including area code, of agent for service)

Securities Registered Pursuant to Section 12(g) of the Act:
         Class A Common Stock, par value $0.01 per share

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such shorter  periods that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes No X

Indicate by check mark if disclosure of delinquent  filers pursuant to Item 405,
of Regulation  S-B is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated  by reference in Part III of this Form 10-KSB or any  amendments to
this Form 10-KSB. [ ]

Transitional Small Business Disclosure Format Yes     No  X

Registrant's total revenues for its most recent fiscal year......$1,339,856.

As of December  31, 1998,  there were  outstanding  3,323,615  shares of Class A
Common Stock,  $0.01 par value,  and  1,000,000  shares of Class B Common Stock,
$0.01 par value.

The  Company's  Class A Common  Stock is  traded on the Over the  Counter  (OTC)
Electronic  Bulletin Board.  The aggregate market value of the Company's Class A
Common Stock held by non-affiliates

<PAGE>

of Registrant was $2,605,615 on December 31, 1998 based upon the average bid and
asked price of the Registrant's Common Stock on that date.


                      INTERNATIONAL MERCANTILE CORPORATION

                                     PART I

Item 1.  Business.

         International Mercantile Corporation, a Missouri corporation ("IMTL" or
the  "Company"),  was founded on March 10,  1971,  for the purpose of  acquiring
Frontier Insurance Company and Universal Life Holding  Corporation.  The Company
effected  these  acquisitions  on August  31,  1973.  The  Company  subsequently
acquired a  controlling  interest in Sterling  Financial  Corporation.  Prior to
1997,  the Company  through  various  transactions  which have  previously  been
reported, divested itself of its entire ownership in these entities.

         In 1997, the Company acquired University Mortgage, Inc. , a diversified
financial services company,  which offers a full spectrum of financial and asset
management  services and products.  The Company  operates  primarily on the East
Coast and provides residential mortgages and equity investment. The Company also
acquired Home American Mortgage Company, which as of December 1998 had no assets
or  operations.  The Company  does not retain any  servicing  rights on loans it
originates.

University Mortgage, Inc.

         University  Mortgage,   Inc.("UMI"),   a  Maryland   corporation,   was
incorporated  in 1994 and  operates as a licensed  mortgage  lender in Maryland,
Virginia,  Washington,  D.C., Delaware and Pennsylvania.  UMI specializes in the
origination of high loan-to-value  "Equity+Plus"  consumer loans for homeowners.
These loans are primarily used for home improvements  and/or debt  consolidation
and are frequently  eligible for HUD insurance under the FHA Title I program, or
are issued under an uninsured  conventional Title I look-alike  program.  UMI is
also an approved  correspondent of several investors to whom its sells its loans
on a non-recourse, servicing-released basis. UMI has originated more than 500 of
these loans and  currently  closes  about 30 loans per month.  The average  loan
amount is  approximately  $42,000  and UMI's  average  fee for closing a loan is
approximately $3,230.

         In an  effort  to  become a leading  consumer  finance  company  in the
Mid-Atlantic  states,  UMI has  chosen  a  low-risk  expansion  plan to  develop
business  from  a loan  origination  network  consisting  of  mortgage  brokers,
financial  planners  and  home-improvement  dealers.  UMI has  also  implemented
direct-mail and telemarketing  campaigns  targeting  homeowners who it feels are
likely candidates for home

<PAGE>

improvement  and  debt  consolidation  financing.  Finally,  UMI is  building  a
wholesale  network by fax  broadcasting  rate sheets and product  information to
over 300 licensed mortgage brokers in the Mid-Atlantic region.

Securitization of Loans

         In the normal course of its business, the Company will sell loans which
it has  made  to  unrelated  third  party  investors  through  the  (i)  sale of
individual loans;  (ii) bulk sale of several loans; and (iii)  securitization of
an  entire  portfolio  of  loans.   Such  sales  may  occur  shortly  after  the
consummation  of a loan out of its  portfolio  or after a portfolio of loans has
been  built.  In all  instances,  loans  are sold to  unrelated  entities  for a
premium,  thereby  generating  income for the  Company.  The Company has not yet
completed a securitization transaction.

         To advance solid  growth,  the Company's  strategy  includes  continued
expansion through  acquisitions of mortgage companies  primarily through the use
of Class A Common Stock. The Company created by such  acquisitions  will promote
continual  development of competitive,  multi-faceted,  cross-selling  financial
services.

         The Company has been  dependent  upon the  financial  resources  of the
Company's  management  for its  continued  existence.  The Company  will also be
dependent upon its ability to raise additional capital to complete its plans for
further  acquisitions and its marketing program,  acquire management talent, and
working capital to engage in profitable business activity.

Competition

         The  Company's   competitors  include  regional  mortgage  brokers  and
regional and national banks.

Marketing

         The Company markets its products and services  through various forms of
advertising  and a direct  sales  force.  The Company  takes  applications  from
potential  borrowers  in person  and  telephonically.  The loan  request is then
processed and closed.  The Company attempts to provide its home equity borrowers
with a loan approval and to close its home equity loans in a timely, competitive
manner.

Lending Policies and Practices

         The  Company  endeavors  at all  times to keep its  interest  and other
charges competitive with the lending rates of other finance companies.

<PAGE>

Regulation

         The consumer home equity lending  business is highly  regulated by both
federal and state laws.  All consumer  loans must meet the  requirements  of the
Federal  Truth-In-Lending  Act, the Real Estate  Settlement  Procedures  Act and
Federal Reserve  Regulations X, Z and B. In addition to the Federal laws, UMI is
licensed  and  regulated by the  Department  of Banking in the  Commonwealth  of
Pennsylvania,  Maryland,  Virginia and Washington,  DC and maintains  compliance
with the various federal and state laws through its in-house and outside counsel
which  continually  review  documentation and procedures and monitor and apprise
the Company on various changes in the laws.

Union Express Mortgage

         Union Express Mortgage  Corporation ("UEMC") is a Florida based private
mortgage  company.  In October 1998,  the Company  entered into a Stock Purchase
Agreement (the  "Agreement") with UEMC, Shahid Quraeshi and Richard J. Jump. Mr.
Quraeshi  and Mr. Jump each have a 50%  interest (or 500 shares) in UEMC and Mr.
Jump is the  President.  Pursuant  to the terms of the  Agreement,  the  Company
bought 100% of the  outstanding  common stock of UEMC (1000  shares) in exchange
for 400,000  shares of Class A Common Stock at a deemed price of 1.00 per share,
or a purchase price of $400,000.  As of December 31, 1998, this  transaction was
rescinded by the parties.

Promissory Note from Oxford International, Inc.

         On December 2, 1998,  the Company  approved  the  issuance of 3,000,000
shares of Series 2 Preferred  Stock,  $0.10 par value, to Oxford  International,
Inc.  ("Oxford") in exchange for a note in the principal  amount of  $3,000,000,
bearing  interest at 8% per annum (the "Note").  The Note was secured by certain
assets of Oxford.  Oxford is owned by Greg  Dutcher,  a former  Director  of the
Company. As of December 31, 1998, this transaction was rescinded by the parties.

Employees

         As of December 31, 1998, the Company had three  employees,  all of whom
were full time, and UMI had 15 full time employees.

Item 2.           Properties.

         UMI has entered into a sublease  agreement with W-C Consultants for the
lease of  approximately  1,322 feet of office and storage space for the premises
located at 5480 Wisconsin Avenue, Suite LL- 4, Chevy Chase, Maryland. On October
1, 1997, the lease  agreement was extended until September 30, 2000 at a monthly
rental of $1,766.  During 1998, the Company's  principal  executive offices were
located at this address.

Item 3.           Legal Proceedings.

         On June 25, 1993, a Petition on Note was filed against the

<PAGE>

Company in the Circuit of Cole County,  Missouri,  seeking damages in the amount
of $54,294 plus interest and attorney's fees, for default on numerous promissory
notes.  The  Petition  alleged  that there were  promissory  notes issued by the
Company in favor of Plaintiffs,  Janet L. Mertz, Edwin H. Mertz, Glenn E. Mertz,
Edna L. Mertz,  Danny W. Mertz and Valerie J. Mertz which were due in  February,
1993,  and which the Company has refused to pay. In June,  1994,  the Plaintiffs
Motin for Summary  Judgment  was granted and  Judgment  was entered  against the
Company in the  aggregate  amount of  $70,820.  As of  December  31,  1998,  the
judgment was not satisfied and is still pending.

         During 1998,  two actions were filed  against the Company in connection
with the alleged breach by the Company of certain acquisition agreements. During
1998,  each of these actions was settled and were not outstanding as of December
31, 1998. In full settlement thereof,  the Company transferred to the plaintiffs
an  aggregate  of 123,000  shares of Class A Common  Stock.  These  shares  were
restricted securities as defined in Rule 144 promulgated under the Act.

Item 4.           Submission of Matters to a Vote of Security Holders.

         (a)      The Annual Meeting of Shareholders was held on
                  September 11, 1998.
         (b)      Election of Directors

                  Each of the following individuals was elected as a director at
the Annual Meeting:

                                              For                       Withhold
                                              ---                       --------
         Frederic S. Richardson             2,323,000                       0
         M. Scott Hess                      2,323,000                       0
         Max W. Apple                       2,323,000                       0
         Walter DeRonde                     2,323,000                       0
         Ed Hutya                           2,323,000                       0

         (c)      In  addition  to the  election  of  directors,  the  following
                  matters were also voted on and approved at the Annual Meeting:

                  (i)      A proposal  to ratify a 31 to 1
                           reverse  stock  split effectuated in
                           1997.

                           Affirmative Votes   -      2,323,000

                           Negative Votes      -              0

                           Abstaining Votes    -              0

                  (ii)     A proposal to ratify Thomas P.  Monahan,
                           CPA, as the Company's

<PAGE>

                           independent auditor.

                           Affirmative Votes   -     2,323,000

                           Negative Votes      -             0

                           Abstaining Votes    -             0

            (iii)          A  proposal  to amend the  Company's
                           Articles of  Incorporation  to allow
                           the   number   of   the    Company's
                           Directors to be set by the Bylaws.

                           Affirmative Votes   -      2,323,000

                           Negative Votes      -              0

                           Abstaining Votes    -              0

            (iv)           A  proposal  to amend the  Company's
                           Articles of  Incorporation to reduce
                           the par  value of its  common  stock
                           from  $1.00  per  share  to $.01 per
                           share.

                           Affirmative Votes   -      2,323,000

                           Negative Votes      -              0

                           Abstaining Votes    -              0

            (v)            A proposal to authorize an amendment
                           to   the   Company's   Articles   of
                           Incorporation to increase the number
                           of authorized shares of any class of
                           stock from  10,000,000 to 50,000,000
                           shares.

                           Affirmative Votes   -      2,323,000

                           Negative Votes      -              0

                           Abstaining Votes    -              0


            (vi)           A  proposal  to amend the  Company's
                           Articles of Incorporation to provide
                           for up to three classes of preferred
                           stock, with rights regarding voting,
                           par value,  liquidation,  conversion
                           and dividends to be set by the Board
                           of Directors and one new class "B"

<PAGE>



                           stock,  having  voting  rights of 51
                           votes for each  share,  be  created,
                           with the  current  class  of  common
                           stock being designated class "A".

                           Affirmative Votes   -      2,323,000

                           Negative Votes      -              0

                           Abstaining Votes    -              0


                                     PART II

Item 5.           Market for Registrant's Common Equity and
                  Related Stockholder Matters.

         The Class A Common  Stock is  currently  traded  on the OTC  Electronic
Bulletin Board under the symbol  "IMTL." There is no established  trading market
for the Class A Common Stock.  The high and low bid prices on the OTC Electronic
Bulletin Board for the Class A Common Stock were as follows:

Fiscal Quarter                                     High                   Low
--------------                                     ----                   ---

1997
First Quarter (through March 31, 1997)             27  1/8               3  7/8
Second Quarter (through June 30, 1997)              3  7/8               3  7/8
Third Quarter (through September 30, 1997)         21 21/64            13 17/32
Fourth Quarter (through December 31, 1997)          6  1/2               4

1998
First Quarter (through March 31, 1998)              4  1/8                  1/2
Second Quarter (through June 30, 1998)              2  3/4                  1
Third Quarter (through September 30, 1998)          2 1/16                13/16
Fourth Quarter (through December 31, 1998)          1  3/8                 7/16

         Such quotations reflect  inter-dealer  prices,  without retail mark-up,
mark-down or commission and may not represent actual transactions.

         On December  31, 1998,  there were 2,481 record  holders of the Class A
Common Stock.

         The holders of the Common Stock are entitled to receive such  dividends
as the Board of  Directors  of the Company may from time to time  declare out of
funds legally  available for payment of dividends.  Through the date hereof,  no
cash dividends have been declared on the Company's securities.

         During the fourth  quarter of 1997 and the first  quarter of 1998,  the
Company engaged in a private placement offering pursuant

<PAGE>

to Rule 506 of  Regulation  D of the  Securities  Act of 1933,  as  amended,  to
accredited investors.  The Company offered 75 Units, with 25 Units offered on an
"all-or-none"  basis and the  remaining  50 Units  offered  on a "best  efforts"
basis.  Each Unit  consisted of 10,000  shares of the  Company's  Class A Common
Stock at $1.00 per  share.  The  Offering  was  amended  to reduce  the  minimum
offering to 20 Units.  As of December  31,  1997,  the Company sold 22 Units for
$220,000 and as of December 31, 1998,  the Company sold 42 additional  Units for
$420,000.  The Company  agreed to use its best  efforts to  register  the Common
Stock for resale  under the Act.  As of the date  hereof,  the  Company  has not
registered the shares of Common Stock. In connection with the sale of the Units,
the Company paid a  broker-dealer  compensation  of 10% of all Units sold, or an
aggregate of $66,000.

         In October 1998,  the Company  commenced a private  placement  offering
pursuant to Rule 506 of Regulation D of the  Securities Act of 1933, as amended.
The Company  offered for sale on a "best efforts" basis a minimum of 4 Units and
a maximum of 80 Units at a unit price of $25,000.  Each Unit consisted of 20,833
shares of Common Stock and 20,833 shares of Convertible  Preferred Stock,  which
are convertible  into 20,833 shares of Common Stock. As of December 31, 1998, no
Units were sold.

Item 6.           Management's Discussion and Analysis of
                  Financial Conditions and Results of
                  Operations.


Cautionary Statement Regarding Forward-Looking Statements

         This Form 10-KSB contains certain forward-looking statements regarding,
among other things,  the  anticipated  financial  and  operating  results of the
Company.  For  this  purpose,  forward  looking  statements  are any  statements
contained herein that are not statements of historical fact and include, but are
not  limited  to,  those  preceded  by or that  include  the words,  "believes,"
"expects,"  "anticipates," or similar expressions.  In connection with the "safe
harbor" provisions in the Private Securities  Litigation Reform Act of 1995, the
Company is including this Cautionary  Statement  identifying  important  factors
that could cause the Company's  actual results to differ  materially  from those
projected in forward  looking  statements made by, or on behalf of, the Company.
These factors, many of which are beyond the control of the Company,  include the
Company's  ability  to (i)  identify  and  capitalize  on  possible  acquisition
opportunities,  (ii) obtain suitable financing to support its operations,  (iii)
manage its growth,  (iv)  achieve  operating  efficiencies  associated  with the
acquisitions  of separate  businesses,  (v)  integrate the operation of separate
businesses  hereinafter acquired, and (vi) anticipate and adjust to fluctuations
in economic  variables  affecting  the  mortgage  market.  Although  the Company
believes that the forward looking statements contained herein are reasonable, it
can give no

<PAGE>

assurance  that the  Company's  expectations  will be met.  All forward  looking
statements  are  expressly  qualified  in  their  entirety  by  this  Cautionary
Statement.

Introduction

         International Mercantile Corporation, a Missouri corporation ("IMTL" or
the  "Company"),  was founded on March 10,  1971,  for the purpose of  acquiring
Frontier Insurance Company and Universal Life Holding  Corporation.  The Company
effected  these  acquisitions  on August  31,  1973.  The  Company  subsequently
acquired a  controlling  interest in Sterling  Financial  Corporation.  Prior to
1997,  the Company  through  various  transactions  which have  previously  been
reported, divested itself of its entire ownership in these entities.

         During 1997, the Company  entered into a series of  transactions  which
resulted in the Company acquiring  University  Mortgage,  Inc., ("UMI") and Home
America Mortgage Company ("HAMC").  UMI's principal  business is the origination
and  sale of  purchase,  refinance,  home  equity,  home  improvement  and  debt
consolidation   loans  from   residential   customers  in  Maryland,   Virginia,
Washington,  D.C.,  Pennsylvania and Delaware.  HAMC presently holds an inactive
license  to do  business  in  the  state  of  Louisiana  and  has no  assets  or
liabilities. The Company carries HAMC in its financial statements for no value.

         The  Company  does  not  retain  any  servicing   rights  on  loans  it
originates.  The Company is actively  seeking to grow through the acquisition of
other active mortgage banking and mortgage brokering  business.  The Company has
positioned  itself to entertain new  acquisitions  by having  available  various
sources  for  mortgage  funding and having  acquired a warehouse  line of credit
through UMI and an unsecured line of credit.

         The Company  anticipates  that its results of operations  may fluctuate
for the foreseeable  future due to several factors,  including  whether and when
new mortgage products are successfully  developed and introduced by the Company,
market  acceptance  of  current or new  mortgage  products,  regulatory  delays,
competitive  pressures on average  interest rate pricing,  changes in the mix of
and mortgage products sold.  Operating results would also be adversely  affected
by a downturn  in the  market  for the  Company's  current  and future  mortgage
products, change in interest rates, changes in the availability of end purchases
of  mortgages.  Because the Company is  continuing  to  increase  its  operating
expenses for  personnel,  the  Company's  operating  results  would be adversely
affected  if its  mortgage  production  did not  correspondingly  increase.  The
Company's  limited  operating  history  makes  accurate   prediction  of  future
operating results difficult or impossible.  Although the Company has experienced
growth in recent  years,  there can be no  assurance  that,  in the future,  the
Company  will  sustain  revenue  growth or remain  profitable  on a quarterly or
annual basis

<PAGE>

or that its growth will be consistent.  The Company's computer and other systems
will not be adversely affected by the year 2000.

         The Company's independent auditor had included an explanatory paragraph
in his  report  on the  Company's  December  31,  1998,  consolidated  financial
statements  discussing  issues which raise substantial doubt about the Company's
ability to continue as a going  concern.  The  Company  believes  that the funds
available at December 31, 1998 combined with the revenues to be generated during
fiscal  year  1999,  together  with  cash  contributed  by  management,  and the
potential capital to be raised from private placement activities and the ability
to reduce anticipated expenditures, if required, will provide for the Company to
continue as a going concern.

Results of Operations

For the Year Ended  December 31, 1998 as Compared to the Year Ended December 31,
1997.

         Revenues  from any source  were $-0- for the year ending  December  31,
1997 and increased to $1,339,856  for the year ended December 31, 1998 as result
of the  consolidated  operations of University  Mortgage,  Inc. Costs processing
mortgages  were $-0- for the year  ending  December  31, 1997 and  increased  to
$779,640 for the year ended  December  31,  1998.  Gross profit was $-0- for the
year ended  December  31,  1997 and  increased  to  $560,216  for the year ended
December 31, 1998.

         General and  administrative  costs for the year ended December 31, 1998
were  $2,351,893,  an increase of $840,360 over  expenses of $1,511,538  for the
year ended December 31, 1997. The increased costs were the result of the Company
incurring  $482,706 in consulting fees,  $779,640 in mortgage related  expenses,
$524,187 in corporate  administrative  expenses,  $584,308 in operating expenses
for mortgage support  services,  $15,000 in corporate  office rent,  $295,625 in
legal  fees,  and  $410,000  in the  recognition  of a loss on the  "keep  well"
agreement with UMI.

For the Year Ended  December 31, 1997 as Compared to the Year Ended December 31,
1996.

         Revenues  from any source were $-0- for the years  ending  December 31,
1996 and  1997.  Costs  processing  mortgages  were  $-0- for the  years  ending
December 31, 1996 and 1997.

         General and  administrative  costs for the year ended December 31, 1997
were  $1,511,538,  an increase of $1,511,538  over expenses of $-0- for the year
ended  December 31,  1996.  The  increased  costs were the result of the Company
issuing an aggregate  of 946,500  shares of Common  Stock in  consideration  for
$956,500 in consulting fees, reimbursement for expenses paid for by the officers
and Directors on behalf of the Company and in settlement of litigation.

<PAGE>

The  Company  also  accrued  $360,000  in  back  salaries  pursuant  to  various
employment agreements and has paid additional expenses of $205,038.

Liquidity  and Capital Resources

As of the end of fiscal year, December 31, 1998.

         At December  31,  1998,  the Company has cash and cash  equivalents  of
approximately  $205,022 and  negative  working  capital of  $131,831.  Mortgages
receivables  decreased  $578,700 or 84.2%  primarily  as result of closing  more
loans on a table  funding  basis  instead of closing  loans using the  Company's
warehousing line as was the procedure for the year ended December 31, 1997.

         The Company financed its operations through the sale of shares of Class
A Common  Stock  aggregating  $420,000,  a  reduction  in  mortgages  receivable
aggregating  $578,700,  and a  reduction  in  notes  receivable-related  parties
aggregating $84,259.

         The Company expended cash to purchase capital assets  aggregating $745,
reducing the loans  payable on the warehouse  line  payable,  and a reduction in
loans payable-related parties aggregating $529,263.

         As of  December  31,  1999,  UMI had  become  delinquent  in payment of
payroll taxes (including penalties and interest) in the amount of $74,263.

         Income  tax:  As of  December  31,  1998,  the  Company  had a tax loss
carry-forward  of $11,265,312.  The Company's  ability to utilize its tax credit
carry-forwards in future years will be subject to an annual limitation  pursuant
to the "Change in  Ownership  Rules" under  Section 382 of the Internal  Revenue
Code of 1986, as amended. However, any annual limitation is not expected to have
a material  adverse  effect on the  Company's  ability to utilize its tax credit
carry-forwards.

         The Company expects its capital  requirements to increase over the next
several  years as it  continues  to develop its  mortgage  business and seek new
mortgage company related acquisitions, or other business acquisitions, increases
sales and  administration  infrastructure  and  embarks on  developing  in-house
business capabilities and facilities. The Company's future liquidity and capital
funding  requirements will depend on numerous  factors,  including the extent to
which  the  Company's   present   management  can  fund  the  continued  capital
requirements, the timing of regulatory actions regarding the Company's potential
acquisitions,  the costs and timing of expansion of sales, marketing activities,
facilities  expansion  needs,  and competition in the mortgage  business entered
into.

         The Company believes that its available cash and cash from

<PAGE>

management contributions will be sufficient to satisfy its funding needs for the
day to day  mortgage  banking  activities  for at  least  the  next  12  months.
Thereafter,  if cash  generated  from any newly  acquired or developed  business
operations is insufficient to satisfy the Company's  working capital and capital
expenditure requirements,  the Company may be required to sell additional equity
or debt  securities  or obtain  additional  credit  facilities.  There can be no
assurance that such  financing,  if required,  will be available on satisfactory
terms, if at all.

As of the end of fiscal year, December 31, 1997.

         The  Company  increased  its cash  balance  to  $290,951  and  incurred
negative  working  capital of  $996,000 as of the end of fiscal year 1997 as the
result of the sale in the  aggregate  of  $220,000  in  shares  of common  stock
through the  Company's  private  placement and the  consolidation  of UMI's cash
position.

Year 2000 Compliance

         During 1998,  the Company  implemented a Year 2000 plan to minimize the
possibility  of a serious  interruption  of its  business  operations.  In 1998,
specifications  were  developed for new business  systems to include  compliance
with Year 2000  issues.  Based upon the  specifications,  in 1998,  the  Company
significantly upgraded its business systems, including all computer hardware and
software used in business operations, including management,  administration, and
financial  systems.  As of December  31,  1998,  the Company  believes  that its
products are Year 2000 compliant.

         The Company's Year 2000 program is designed to minimize the possibility
of serious  Year 2000  interruption.  Possible  Year 2000  worst case  scenarios
include the  interruptions of significant  parts of the Company's  business as a
result of internal  business  system  failure,  or the  failure of the  business
systems of its suppliers,  distributors or customers.  Any such interruption may
have a material adverse impact on the future results of the Company.

Item 7.           Consolidated Financial Statements.

                                                                            Page
                                                                            ----

Report of Independent Auditors                                              F-1

Consolidated Balance Sheets                                                 F-2

Consolidated Statements of Operations                                       F-4

Consolidated Statement of Shareholders' Equity                              F-6

Consolidated Statements of Cash Flows                                       F-8

Notes to Consolidated Financial Statements                                  F-9



<PAGE>

                                THOMAS P. MONAHAN
                          CERTIFIED PUBLIC ACCOUNTANT
                              208 LEXINGTON AVENUE
                           PATERSON, NEW JERSEY 07502
                                 (973) 790-8775

To  The  Board  of  Directors  and   Shareholders of   International  Mercantile
Corporation

       I  have  audited  the   accompanying   consolidated   balance   sheet  of
International  Mercantile  Corporation  as of December 31, 1997 and 1998 and the
related  consolidated  statements of  operations,  cash flows and  shareholders'
equity  for the year  ended  December  31,  1997 and  1998.  I did not audit the
financial  statements  as of  December  31,  1996 and the  related  consolidated
statements of operations, cash flows and shareholders' equity for the year ended
December 31, 1996.  Those statements were audited by other auditors whose report
has been  furnished to me, and my opinion,  insofar as it relates to the amounts
included for  financial  statements  as of December 31, 1996 are based solely on
the report of the other auditors.

       I conducted  my audit in  accordance  with  generally  accepted  auditing
standards.  Those standards  require that I 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  and   significant   estimates  made  by
management,  as well as evaluating the overall financial statement presentation.
I believe that my audit provides a reasonable basis for my opinion.

       In my opinion, the financial statements referred to above present fairly,
in all material respects,  the consolidated  financial position of International
Mercantile  Corporation  as of  December  31,  1997  and  1998  and the  related
consolidated  statements of operations,  cash flows and shareholders' equity for
the year ended December 31, 1997 and 1998 in conformity with generally  accepted
accounting principles.

       The  accompanying  consolidated  financial  statements have been prepared
assuming  that  International  Mercantile  Corporation  will continue as a going
concern.  As more fully described in Note 2, the Company has incurred  operating
losses since inception and requires  additional capital to continue  operations.
These conditions raise substantial doubt about the Company's ability to continue
as a going concern.

       Management's  plans  as to these  matters  are  described  in Note 2. The
financial  statements  do not include any  adjustments  to reflect the  possible
effects on the  recoverability  and  classification of assets or the amounts and
classifications  of liabilities  that may result from the possible  inability of
International Mercantile Corporation to continue as a going concern.

/s/ Thomas Monahan
-------------------
Thomas P. Monahan, CPA
August 5, 1999
Paterson, New Jersey

                                      F-1

<PAGE>

                      INTERNATIONAL MERCANTILE CORPORATION
                           CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>
                                                                                   December 31,      December 31,
                                                                                      1997              1998
                                                                                      ----              ----
<S>                                                                            <C>               <C>
                                  Assets
Current assets

  Cash and cash equivalents                                                        $  290,951       $  205,022

  Mortgages  receivable                                                               687,500          108,800
                                                                                   ----------        ---------
  Current assets                                                                      978,451          313,822

Capital assets-net                                                                     14,323            6,328

Other assets

  Excess of purchase price over assets acquired                                     1,120,186        1,120,186

  Notes receivable-affiliated parties                                                 316,850          232,591

  Securities-available for sale                                                       367,000          481,872

  Security deposit                                                                                       5,488

  Intangible assets                                                                    49,209           32,241
                                                                                   ----------       ----------
  Total other assets                                                                1,853,245        1,872,378
                                                                                   ----------       ----------
Total assets                                                                       $2,846,019       $2,192,528
                                                                                  ===========       ==========

                      Liabilities and Stockholders' Equity

Current liabilities

  Accounts payable and accrued expenses                                            $  487,699       $    4,397

  Payroll taxes                                                                                         74,263

  Notes payable                                                                        57,494           57,494

  Loan payable-related parties                                                        529,263

  Warehouse loan payable                                                              654,805          103,360

  Bank line of credit                                                                 200,000          200,700

  Deferred income                                                                      32,695            5,440

  Corporate income tax payable                                                         12,495
                                                                                   ----------        ---------
Total current liabilities                                                           1,974,451          445,653

Capital stock

  Preferred stock- Series 1- authorized 10,000,000 shares, $0.10 par value each,
at December 31, 1998, the number of shares outstanding is -0-.
  Preferred stock- Series 2 - authorized 2,000,000 shares, $0.10 par value each,
at December 31, 1998 the number of shares outstanding is -0-.
  Preferred  stock - Series 3,  authorized  5,000,000,  $0.10 par value each. At
December 3, 1998, the number of shares outstanding is -0- .
  Common  stock-Class  A-authorized  31,000,000  common shares,  par value $0.01
each, at December 31, 1998, the number of shares outstanding was
2,177,583 and 3,323,615 respectively.                                                  21,776           33,236
</TABLE>

                See accompanying notes to financial statements.

                                      F-2

<PAGE>

<TABLE>
<S>                                                                            <C>               <C>
  Common stock - Class B - authorized 2,000,000, $0.01 par value each, the
number of shares outstanding at December 31, 1998 is 1,000,000.                                          10,000

  Additional paid in capital                                                       11,134,270        13,783,133

  Retained earnings                                                               (9,470,294)      (11,265,312)
                                                                                  ----------       ------------

Total stockholders' equity                                                          2,685,751         2,561,058

Less treasury stock                                                                 (814,183)         (814,183)
                                                                                  -----------      ------------

Total stockholders equity                                                            871,568         1,746,875
                                                                                  -----------      ------------

Total liabilities and stockholders' equity                                        $2,846,019        $2,192,528
                                                                                  ===========      ============
</TABLE>

                See accompanying notes to financial statements.

                                       F-3

<PAGE>


                      INTERNATIONAL MERCANTILE CORPORATION
                      CONSOLIDATED STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
                                                  For the year      For the year     For the year
                                                     ended             ended            ended
                                                  December 31,      December 31,     December 31,
                                                      1996              1997             1998
                                                      ----              ----             ----
<S>                                               <C>             <C>              <C>
Revenue                                           $        -0-     $         -0-     $  1,339,856

Mortgage related expenses                                  -0-               -0-          779,640
                                                  ------------        ----------        ---------
Gross profit                                               -0-               -0-          560,216

Operations:

  General and administrative                               -0-         1,511,538        2,351,893

  Depreciation and  amortization                           -0-                              8,739
                                                  ------------        ----------        ---------
  Total expense                                            -0-         1,511,538        2,360,632

Income from operations                                                (1,511,538)      (1,800,416)

Corporate income taxes                                                       -0-

Other income

  Interest income                                                                          45,062

  Gain on sale of asset                                                                       250

  Interest expense                                                                        (39,913)

  Total other income and expense                           -0-                              5,399

Net Profit (Loss)                                 $        -0-     $  (1,511,538)    $ (1,795,017)
                                                   ===========      ============     ============

Net income (loss)  per share - basic              $        -0-     $       (0.53)          $(0.43)
                                                   ===========      ============     ============

Number of shares outstanding                           101,083         2,877,583        4,191,282
                                                   ===========      ============     ============
</TABLE>

                 See accompanying notes to financial statements

                                       F-4


<PAGE>

                      INTERNATIONAL MERCANTILE CORPORATION
                      CONSOLIDATED STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
                                                                  For the three      For the three     For the three
                                                                  months ended       months ended      months ended
                                                                   December 31,      September 30,     September 30,
                                                                      1996               1997              1998
                                                                   Unaudited          Unaudited         Unaudited
                                                                   ---------          ---------         ---------
<S>                                                                <C>              <C>              <C>
Revenue                                                            $     -0-          $     -0-        $  590,519

Mortgage related expenses                                                -0-                -0-           298,527
                                                                   ---------          ---------        ----------
Gross profit                                                             -0-                -0-           291,992

Operations:

  General and administrative                                             -0-            427,038           976,955

  Depreciation and  amortization                                         -0-                -0-             6,256
                                                                   ---------          ---------        ----------

  Total expense                                                          -0-            427,038           983,211

Income from operations                                                                 (427,038)         (691,219)

Corporate income taxes

Other income

  Interest income                                                                                         41,861

  Interest expense                                                       -0-                             (31,556)

  Total other income and expense                                                                          10,305

Net Profit (Loss)                                                  $     -0-           (427,038)       $(680,914)
                                                                   =========          =========        ==========
Net income (loss)  per share - basic                               $     -0-          $   (0.15)       $   (0.16)
                                                                   =========          =========        ==========
Number of shares outstanding                                         101,083          2,877,583        4,191,282
                                                                   =========          =========        ==========
</TABLE>


                 See accompanying notes to financial statements.


                                      F-5
<PAGE>

                                       INTERNATIONAL MERCANTILE CORPORATION
                                   CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY

<TABLE>
<CAPTION>
                              Preferred  Preferred  Preferred        Class A          Class A        Class B       Class B
                                Stock      Stock      Stock           Common           Common         Common        Common
Date                          Series 1    Series 2   Series 3          Stock            Stock          Stock         Stock
----                          --------    --------   --------        --------         --------       --------      --------
<S>                         <C>         <C>        <C>             <C>             <C>              <C>           <C>
12-31-1995                                                          3,133,151       $3,133,151

Net loss
                                                                    ---------       ----------
12-31-1996                                                          3,133,151        3,133,151

Reflects 31 to 1 reverse                                              101,083            1,011
split

Shares issued for                                                     946,500            9,465
consulting fees

Shares issued for                                                   1,910,000           19,100
acquisitions

Sale of shares through                                                220,000            2,200
private placement at $1.00
per share

Prior period correction-                                           (1,000,000)         (10,000)
Cancellation of shares

Net loss
                                                                    ---------       ----------
December 31, 1997                                                   2,177,583           21,776

Sale of shares                                                        420,000            4,200

Issuance of shares as non                                           1,093,699           10,937
cash compensation

Issuance of shares for                                                125,000            1,250
legal expenses

Issuance of shares Pursant                                            507,333            5,073
to S-8 options  valued at
$1.74

Exchange of shares                                                 (1,000,000)         (10,000)    1,000,000        10,000

Net loss
                                                                    ---------       ----------   ----------      ---------
December 31, 1998                    -0-        -0-        -0-      3,323,615       $   33,236    1,000,000       $ 10,000
                                  ======     ======     ======     ==========         ========   ==========      =========
</TABLE>

                See accompanying notes to financial statements.


                                       F-6
<PAGE>

<TABLE>
<CAPTION>
                                Additional
                                 paid in        Treasury          Retained
Date                             capital          Stock          Earnings          Total
----                             -------          -----          --------          -----
<S>                             <C>             <C>             <C>               <C>
12-31-1995                        $5,326,395      $(814,183)      $(7,958,757)      $(313,395)

Net loss                                                             -0-             -0-
                                  ----------      ---------       -----------       ---------
12-31-1996                         5,326,395      $(814,183)      $(7,958,757)      $(313,395)

Reflects 31 to 1 reverse           8,458,535       (814,183)       (7,958,757)       (313,395)
split

Shares issued for                    947,035                                           956,500
consulting fees

Shares issued for                  2,500,900                                         2,520,000
acquisitions

Sale of shares through               217,800                                           220,000
private placement at $1.00
per share

Prior period correction-           (990,000)                                       (1,000,000)
Cancellation of shares

Net loss                                                           (1,511,538)     (1,511,546)
                                                                   -----------     -----------
December 31, 1997                 11,134,270       (814,183)       (9,470,295)         871,568

Sale of shares                       415,800                                           420,000

Issuance of shares as non          1,100,762                                         1,111,699
cash compensation

Issuance of shares for               254,375                                           255,625
legal expenses

Issuance of shares Pursant           877,927                                           883,000
to S-8 options  valued at
$1.74

Exchange of shares                                                                         -0-

Net loss                                                           (1,795,017)     (1,795,017)
                                ------------      ----------     -------------     -----------
December 31, 1998               $13,783,134       $(814,183)     $(11,265,312)     $1,746,875
                                ============      ==========     =============     ===========
</TABLE>

                 See accompanying notes to financial statements


                                      F-7
<PAGE>

                      INTERNATIONAL MERCANTILE CORPORATION
                      CONSOLIDATED STATEMENT OF CASH FLOWS


<TABLE>
<CAPTION>
                                                                   For the year      For the year      For the year
                                                                      ended             ended            ended
                                                                   December 31,      December 31,      December 31,
                                                                      1996               1997              1998
                                                                      ----               ----              ----
<S>                                                                <C>              <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES

  Net income                                                       $        -0-     $ (1,511,537)     $ (1,795,017)

  Depreciation                                                                                               8,739

  Non cash compensation                                                                  956,500         2,250,324

  Non cash items                                                                         399,814

Adjustments

  Accounts payable and accrued expenses                                                  412,061          (483,302)

  Payroll taxes                                                                                              74,263

  Corporate income taxes payable                                                          12,495            (12,495)
                                                                                     -----------         ----------
TOTAL CASH FLOWS FROM OPERATIONS                                            -0-          269,333             42,512

CASH FLOWS FROM INVESTING ACTIVITIES

  Mortgages receivable                                                                 (687,500)            578,700

  Capital assets                                                                        (14,323)               (745)

  Notes receivable-related parties                                                     (316,850)             84,259

  Securities available for sale                                                        (367,000)           (114,872)

  Security deposit                                                                                           (5,488)

  Intangible asset                                                                      (49,209)             16,968
                                                                                                         ----------
TOTAL CASH FLOWS FROM INVESTING ACTIVITIES                                  -0-      (1,434,882)            558,822

CASH FLOWS FROM FINANCING ACTIVITIES

  Sale of capital  stock                                                                 220,000            420,000

  Warehouse loan payable                                                                 654,805           (551,445)

  Additional paid in capital

  Loan payable- related parties                                                          549,000           (529,263)

  Line of credit

  Deferred income                                                                         32,695            (27,255)
                                                                                     -----------         ----------
TOTAL CASH FLOWS FROM FINANCING ACTIVITIES                                             1,456,500           (687,263)

NET INCREASE (DECREASE) IN CASH                                             -0-          290,951            (85,929)

CASH BALANCE BEGINNING OF PERIOD                                            -0-              -0-            290,951
                                                                        ------       -----------         ----------
CASH BALANCE END OF PERIOD                                         $        -0-     $    290,951      $     205,022
                                                                        ======       ===========         ==========
</TABLE>

                 See accompanying notes to financial statements


                                      F-8

<PAGE>

                      INTERNATIONAL MERCANTILE CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 1997 and 1998


       NOTE 1 -  ORGANIZATION OF COMPANY AND ISSUANCE OF COMMON STOCK

       a. Creation of the Company

       International  Mercantile  Corporation  (the  "Company") was first formed
under the laws of Missouri on March 10, 1971 with an  authorized  capitalization
of  2,000,000  common  shares,  $1.00  par  value  each.  On July  30,  1987 the
certificate  of  incorporation  was  amended as to the  number of common  shares
authorized to issue to 5,000,000, $1.00 par value.

       b. Description of the Company

       The Company has two wholly owned subsidiaries, University Mortgage, Inc.,
("UMI") and Home America Mortgage  Company,  ("HAMC").  The Company's  principal
business is the origination and sale of purchase,  refinance,  home equity, home
improvement and debt consolidation loans from residential customers in Maryland,
Virginia,  Washington,  D.C. , Pennsylvania  and Delaware.  The Company does not
retain any servicing rights on loans it originates.

       c. Issuance of Capital Stock

       In July,  1997 , the Company reverse split the number of shares of common
stock  outstanding  in a ratio of 31 to restating the number of shares of common
stock outstanding to 101,083.

       As of December 31,  1997,  the Company has issued an aggregate of 946,500
shares of  common  stock in  consideration  for  $956,500  in  consulting  fees,
reimbursement  for expenses paid by the officer's and Directors on behalf of the
Company, and in settlement of litigation at a value of $1.00 per share.

       As of December 31, 1997, the Company has issued an aggregate of 1,910,000
shares of common stock and recorded a Note  Payable in the  principle  amount of
$300,000 in  consideration  for the  acquisition of HAMC and UMI from CFC and AB
Securities, Inc.


                                      F-9

<PAGE>

                      INTERNATIONAL MERCANTILE CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 1997 and 1998

       The Company sold, pursuant to a private placement under "Rule 506" of the
Securities  Act of 1933,  as amended,  an aggregate of 420,000  shares of common
stock at $1.00 per share for an aggregate consideration of $420,000.

       The Company  issued an aggregate  of 1,113,699  shares of common stock in
consideration for $1,113,699 in consulting fees valued at $1.00 per share.

       The Company issued to Filmore and Griffth, attorneys at law, an aggregate
of 125,000  shares in  consideration  for legal  services  valued at $255,625 or
$2.05 per share.

       The Company  issued an aggregate of 507,333 shares in  consideration  for
consulting services valued at $883,000 or $1.74 per share.

       The  Company  received  1,000,000  shares  of common  stock  from CFC for
cancellation reducing the number of shares of common stock issued to CFC for the
acquisitions  in 1997. The Company had issued and aggregate of 1,910,000  shares
of common  stock with a value in the  aggregate  of  $2,520,000.  The  financial
statements as of December 31, 1997 and for the year ended December 31, 1997 have
been  restated  correcting  the number of shares of common  stock issued for the
various acquisitions to be an aggregate of 910,000 and reducing the value of the
stock issued to an aggregate of $1,520,000 or $1.65 per share.

       The Company has  approved  the  issuance of  1,000,000  shares of Class B
Common stock to Mr. Frederic Richardson in consideration for the cancellation of
1,000,000 shares of his Class A Common Stock.

       NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

       a. Basis of Financial Statement Presentation

       The  accompanying  financial  statements  have been  prepared  on a going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. The Company incurred net losses
of  $11,934,304  for the period from  inception  March 10, 1971 to December  31,
1998. These factors indicate that the Company's  continuation as a going concern
is  dependent  upon its  ability to obtain  adequate  financing.  The Company is
anticipating  that with the  completion  of its private  placement  and with the
increase  in  working  capital  provided  by the  profitable  operations  of the
Company's subsidiary,  University Mortgage, Inc. , the Company will complete its
plans for


                                      F-10

<PAGE>

                      INTERNATIONAL MERCANTILE CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 1997 and 1998

expansion into the mortgage  business and experience an increase in income.  The
Company  will  require  substantial  additional  funds to finance  its  business
activities  on an ongoing  basis and will have a  continuing  long-term  need to
obtain  additional  financing.  The Company's future capital  requirements  will
depend on numerous factors  including,  but not limited to,  continued  progress
developing  its  source  of  mortgage  funding  sources,   initiating  marketing
penetration and opening  regional  offices.  The Company plans to engage in such
ongoing financing efforts on a continuing basis.

       The financial  statements  presented consist of the consolidated  balance
sheet  of the  Company  as at  December  31,  1997  and  1998  and  the  related
consolidated  statements of operations,  stockholders  equity and cash flows for
the years ended December 31, 1996, 1997 and 1998.

       b. Cash and cash equivalents

       The Company  treats  temporary  investments  with a maturity of less than
three months as cash.

       c. Property and Equipment

       Property and equipment are stated at cost less accumulated  depreciation.
Depreciation is computed over the estimated useful lives using the straight line
methods over a period of five years. Maintenance and repairs are charged against
income and betterment's are capitalized.

       d. Earnings per share

       In  February  1997,  the  Financial  Accounting  Standards  Board  issued
Statement  of  Financial  Accounting  Standards  No.  128,  EARNINGS  PER  SHARE
("Statement No. 128").  Statement No. 128 applies to entities with publicly held
common stock or potential common stock and is effective for financial statements
issued for periods  ending after  December 15, 1997.  Statement No. 128 replaces
APB Opinion 15,  Earnings per Share  ("EPS").  Statement  No. 128 requires  dual
presentation  of basic and diluted  earnings per share by entities  with complex
capital  structures.  Basic EPS includes no dilution and is computed by dividing
net income by the total  number of common  shares  outstanding  for the  period.
Diluted EPS reflects the potential  dilution of securities that could dilute the
shares in  computing  the earnings of the

                                      F-11

<PAGE>

                      INTERNATIONAL MERCANTILE CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 1997 and 1998


Company such as common stock which may be issuable upon exercise of  outstanding
common stock options or the conversion of debt into common stock.

       Pursuant to the  requirements of the Securities and Exchange  Commission,
the  calculation  of the shares used in computing  basic and diluted EPS include
the shares of common stock issued for the  acquisition  of HAMC and UMI.

       Shares used in calculating basic and diluted net income per share were as
follows:




<TABLE>
<CAPTION>
                                                                Year ended    Year ended     Year ended
                                                                December 31,  December 31,   December 31,
                                                                    1996          1997           1998
                                                                    ----          ----           ----
<S>                                                            <C>           <C>            <C>
 Total number common
    shares outstanding                                            101,083(1)  2,177,583(2)      3,323,615

Shares due ABS on "keep well"
provision of acquisition agreement                                                                700,000

Shares reserved pursuant to Stock
option plan                                                                        800,000        167,667
                                                                    -------      ---------      ---------
Total                                                               101,083      2,877,583      4,191,282
                                                                    =======      =========      =========
</TABLE>


     (1) Pre split shares were 3,133,151
     (2) Restated reflecting 1,000,000 shares returned for cancellation in 1998.

       e. Revenue recognition

       Revenue is recognized when mortgages are closed.

       f. Use of Estimates

       The  preparation  of financial  statements in conformity  with  generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that  effect the  reported  amounts

                                      F-12

<PAGE>

                      INTERNATIONAL MERCANTILE CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 1997 and 1998

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 reporting  period.  Actual  results could differ from those
estimates.

       g. Significant Concentration of Credit Risk

       At December 31, 1997 and 1998,  the Company has  concentrated  its credit
risk by maintaining  deposits in several banks. The maximum loss that could have
resulted from this risk totaled $-0- and -0- which  represents the excess of the
deposit liabilities  reported by the banks over the amounts that would have been
covered by the federal insurance.

       h. Mortgage Inventory

       The UMI presents  its  mortgage  inventory as discussed in "Fair Value of
Financial Instruments".  As of the date of this report, substantially all of the
December 31, 1997 and 1998 mortgage inventory has been sold.
Mortgage inventory secures the related warehouse lines of credit

       i. Asset Impairment

       The Company  adopted the  provisions of SFAS No. 121,  Accounting for the
impairment  of long lived  assets and for  long-lived  assets to be  disposed of
effective  January  1,  1996.  SFAS No.  121  requires  impairment  losses to be
recorded on long-lived  assets used in operations  when indicators of impairment
are present and the estimated  undiscounted  cash flows to be generated by those
assets are less than the assets'  carrying  amount.  SFAS No. 121 also addresses
the accounting for long-lived  assets that are expected to be disposed of. There
was no effect of such adoption on the Company's financial position or results of
operations.

       j.  Income Taxes

       The Company utilizes the liability method of accounting for income taxes.
Under this method,  deferred taxes arise from temporary  differences between the
financial  statement and tax bases of

                                      F-13

<PAGE>

                      INTERNATIONAL MERCANTILE CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 1997 and 1998


assets and  liabilities  using enacted tax rates in effect in the years in which
the differences are expected to reverse.  A valuation  allowance is provided for
net deferred tax assets if, based on the weighted available evidence, it is more
likely  than  not  that  some or all of the  deferred  tax  assets  will  not be
realized. Tax credits are recognized when realized using the flow through method
of accounting.

    k. Recent Accounting Standards

       Accounting for Derivative Instruments and Hedging Activities Statement of
Financial Accounting  Standards No. 133, "Accounting for Derivative  Instruments
and Hedging  Activities" (SFAS 133) was issued in June 1998. It is effective for
all fiscal  years  beginning  after June 15,  1999.  The new  standard  requires
companies to record  derivatives on the balance sheet as assets or  liabilities,
measured at fair value.  Gains or losses resulting from changes in the values of
those derivatives would be accounted for depending on the use of the derivatives
and whether  they  qualify for hedge  accounting.  The key  criterion  for hedge
accounting  is that  the  hedging  relationship  must  be  highly  effective  in
achieving  offsetting  changes in fair value or cash flows. The Company does not
currently engage in derivative trading or hedging activity.

       The Company  will adopt SFAS 133 in the fiscal year ending  December  31,
2000, although no impact on operating results or financial position is expected.

       Accounting for the Costs of Computer  Software  Developed or Obtained for
Internal Use

       In March of 1998, the American  Institute of Certified Public Accountants
issued  Statement  of  Position  98-1,  "Accounting  for the  Costs of  Computer
Software  Developed or Obtained for Internal  Use".  SOP 98-1 requires  computer
software costs associated with internal use software to be charged to operations
as incurred until certain capitalization criteria are met. SOP 98-1 is effective
beginning  January 1, 1999.  The Company is currently  assessing the impact that
adoption of this  statement  will have on  consolidated  financial  position and
results of operations.

       NOTE 3 - ACQUISITIONS

                                      F-14

<PAGE>

                      INTERNATIONAL MERCANTILE CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 1997 and 1998


       As of December 31, 1997, the Company  completed a series of  transactions
between the Company,  UMI, CFC and ABS for the acquisitions of HAMC and UMI. The
Company  initially issued and aggregate of 1,910,000 shares of common stock with
a value in the aggregate of $2,520,000.  In 1998, the Company received 1,000,000
shares of common stock from CFC for  cancellation  reducing the number of shares
of  common  stock  issued to CFC for the  acquisitions  in 1997.  The  financial
statements as of December 31, 1997 and for the year ended December 31, 1997 have
been  restated  correcting  the number of shares of common  stock issued for the
various acquisitions to be an aggregate of 910,000 and reducing the value of the
stock issued to an aggregate of $1,520,000.

       As part of the  assets  acquired  in this  series  of  transactions,  the
company  acquired  200,000  shares of preferred  stock,  par value  $100.00,  of
Mortgage Bankers Holding Corp. for 500,000 shares of the company's common stock,
with rights to 2,000,000  additional  shares  subject to terms and conditions of
the  agreement.  Pursuant  to the  agreement,  the  transaction  was  subject to
confirmation  of value as part of the  Company's  due  diligence  process on the
assets.  The Company  concluded its due diligence process and concluded that the
value of the assets could not be confirmed. As of December 31, 1997, this aspect
of the transaction was rescinded.

       The share issuance's are as follows:

       In January,  1997,  an agreement by and between the UMI and CFC,  whereby
CFC caused to be issued  100,000 shares of common stock of the Company valued at
$5.00 per share in consideration  for all of the issued and outstanding  capital
stock of HAMC with a book value of $471,637. The recording of the transaction on
UMI's books realized a gain of $28,363 for UMI.

       On August 1, 1997, the Company  issued to CFC 1,500,000  shares of common
stock valued at $1.00 per share or $1,500,000 for all the issued and outstanding
stock  of HAMC  and as a  finders  fee for the  acquisition  of UMI.  HAMC is an
inactive  mortgage banking company with a license to originate  mortgages in the
state of Louisiana.

                                      F-15


<PAGE>

                      INTERNATIONAL MERCANTILE CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 1997 and 1998


       In August, 1997, the Company issued 100,000 shares of common stock to UMI
as part  consideration for the anticipated  acquisition.  These shares of common
stock were valued at the then market price of $5.00.

       On December 31, 1997, the Company issued to AB Securities,  Inc. ("ABS"),
175,000  shares  of  common  stock  valued  at  $385,000  or $2.20  per share to
representing one half of the market price of the Company on December 31, 1997 in
consideration of the risk of the holding period.

       In December 31, 1997,  the Company  issued 135,000 shares of common stock
to ABS as collateral in consideration of the purchase of 6,000 shares of Class A
preferred  stock of ABS and a Note Payable in the  principle  amount of $300,000
due on or before  March 31, 1998 with  interest at 10%.  These  shares of common
stock were part of the  consideration  for the  purchase of UMI. The shares were
valued at $135,000 or $1.00 per share.

       As of  December  31,  1998,  FSR and ABS  agreed to permit  the offset of
approximately $280,000 plus accrued interest in moneys borrowed from the Company
by FSR with approximately $270,000 plus accrued interest aggregating $300,413 in
moneys due ABS at December 31, 1998 pursuant to this  agreement.  As of December
31, 1998, the note payable due ABS was canceled.

       The  number  of  shares of common  stock  issued  to UMI was  subject  to
adjustment  if as of December  31, 1998 or 14 days after the date of the release
of any restrictions on the further transfer of the shares of common stock if the
then current  market price of the shares of common stock is less then the market
price of the shares of common  stock then the number of shares will be increased
to equal the market price on that date.

       As of December 31, 1998, the Company has reserved  approximately  700,000
shares of common  stock  pending  resolution  as the  number of shares of common
stock payable under this provision.

       The  transaction  for the  acquisitions  of HAMC and UMI,  culminating on
December 31, 1997,  have been accounted for as a reverse  acquisition  and using
the  purchase  method  of  accounting  with  historic  costs  being the basis of
valuation,  and accordingly,  the accompanying  financial statements include the
results  of  operations  of  the  consolidated   operations  from  the  date  of
acquisition beginning December 31, 1997.

                                      F-16

<PAGE>

                      INTERNATIONAL MERCANTILE CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 1997 and 1998

       The  Company  received  1,000,000  shares  of common  stock  from CFC for
cancellation reducing the number of shares of common stock issued to CFC for the
acquisitions  in 1997. The Company had issued and aggregate of 1,910,000  shares
of common  stock with a value in the  aggregate  of  $2,520,000.  The  financial
statements as of December 31, 1997 and for the year ended December 31, 1997 have
been  restated  correcting  the number of shares of common  stock issued for the
various acquisitions to be an aggregate of 910,000 and reducing the value of the
stock issued to an aggregate of $1,520,000 or $1.65 per share.

       a.  Acquisition of Home America Mortgage Company



       HAMC was  incorporated  in the state of Louisiana on July 21, 1986 and is
licensed  by that  state to  operate  as a  mortgage  originator  and  broker of
conventional  mortgages. As of December 31, 1997 and 1998, HAMC had no assets or
liabilities.  as of December 31, 1998, the mortgage banking license in Louisiana
is inactive.

       HAMC was a former  subsidiary  of the  Company's  through  having  been a
subsidiary of Frontier Life Insurance  Company,  ("FLI").  On November 17, 1995,
the Company sold FLI and retained  its  interest in HAMC.  In 1996,  the Company
sold HAMC to CFC in consideration for the forgiveness of certain debts and cash.
On December  25,  1996,  HAMC was sold by CFC to UMI and in January,  1997,  the
transaction  with UMI was  rescinded  with HAMC being  returned  back to CFC. On
August 1, 1997, the Company reacquired HAMC from CFC.

       b. Acquisition of University Mortgage, Inc.

       UMI  is a  mortgage  banking  company  in  Chevy  Chase  Maryland.  UMI's
principal  business is the  origination  and sale of purchase,  refinance,  home
equity, home improvement and debt consolidation loans from residential customers
in Maryland, Virginia, Washington, D.C. , Pennsylvania and Delaware. The Company
does not retain any servicing rights on loans it originates.

       NOTE 4 -  MARKETABLE SECURITIES, AVAILABLE FOR SALE

                                      F-17

<PAGE>

                      INTERNATIONAL MERCANTILE CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 1997 and 1998

       The  Company  adopted  Financial   Accounting  Standards  Board  ("FASB")
Statement  No.  115,  "Accounting  for  Certain  Investments  in Debt and Equity
Securities",  which  requires that  investments in equity  securities  that have
readily   determinable  fair  values  and  investments  in  debt  securities  be
classified    in    three    categories:    held-to-maturity,     trading    and
available-for-sale.  Based on the nature of the assets  held by the  Company and
Management's investment strategy, the Company's investments have been classified
as available-for-sale.  Management determines the appropriate  classification of
debt securities at the time of purchase and reevaluates  such  designation as of
each balance sheet date.

       Securities classified as available-for-sale are carried at estimated fair
value, as determined by quoted market prices,  with unrealized gains and losses,
net of tax,  reported  in a  separate  component  of  stockholders'  equity.  At
December  31,  1997,  the Company had no  investments  that were  classified  as
trading or held-to-maturity as defined by the Statement.

       The   following   is  a   summary   of   cash,   cash   equivalents   and
available-for-sale  securities by balance sheet  classification  at December 31,
1997:

<TABLE>
<CAPTION>
                                                                                                        Estimated
                                                                      Gross         Gross                Fair
                                                                   Unrealized     Unrealized             Market
                                                    Cost              Gains         Losses               Value
                                                    ----              -----         ------               -----
<S>                                          <C>                     <C>         <C>                 <C>
Cash                                           $   290,951             $-0-        $    -0-            $ 290,951
                                                   -------             ----         -------            ---------
Total cash and cash
   equivalents                                 $   290,951             $-0-        $    -0-            $ 290,951

Securities-available for
     sale                                      $   580,000                         $213,000            $ 367,000
                                                   -------                          -------            ---------
Total cash, cash
  equivalents and securities
  available for sale                           $   870,951                         $213,000            $ 657,951
                                                   =======                          =======            =========
</TABLE>

                                      F-18

<PAGE>

                      INTERNATIONAL MERCANTILE CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 1997 and 1998


     The following is a summary of cash, cash equivalents and available-for-sale
securities by balance sheet classification at December 31, 1998:

<TABLE>
<CAPTION>
                                                                                                        Estimated
                                                                       Gross         Gross                Fair
                                                                     Unrealized   Unrealized             Market
                                                       Cost            Gains        Losses               Value
                                                       ----            -----        ------               -----
<S>                                          <C>                     <C>         <C>                 <C>

Cash                                             $   205,022            $-0-        $   -0-            $ 205,022
                                                     -------            ----        -------            ---------
Total cash and cash
   equivalents                                   $   205,022            $-0-        $   -0-            $ 205,022

Securities-available for
     sale                                        $   580,000                        $98,128            $ 481,872
                                                     -------                        -------            ---------
Total cash, cash
  equivalents and
  securities available
  for sale                                       $   785,022                        $98,128            $ 686,894
                                                     =======                        =======            =========
</TABLE>

                                      F-19

<PAGE>

                      INTERNATIONAL MERCANTILE CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 1997 and 1998

NOTE 6 - CAPITAL ASSETS

     Capital  Assets for the Company  consisted of the following at December 31,
1997:

<TABLE>
<CAPTION>
                                                         Accumulated
                                       Asset            depreciation         Balance
                                       -----            ------------         -------
<S>                                 <C>                  <C>                 <C>
     Office equipment               $   99,793           $  90,947           $   8,846
     Leasehold improvements              4,272           $   4,272           $     -0-
     Computer software                  35,519              30,042           $   5,477
                                    ----------           ---------           ---------
     Total                          $  139,584           $ 125,261           $  14,323
                                    ==========           =========           =========
</TABLE>


       Capital Assets for the Company consisted of the following at December 31,
1998:

<TABLE>
<CAPTION>
                                                         Accumulated
                                       Asset            depreciation         Balance
                                       -----            ------------         -------
<S>                                 <C>                 <C>                  <C>
     Office equipment               $  99,793           $     93,465         $ 6,328
     Leasehold improvements             4,272           $      4,272         $   -0-
     Computer software                 35,519                 35,519         $   -0-
                                    ---------           ------------         -------
     Total                          $ 139,584           $    133,256         $ 6,328
                                    =========           ============         =======
</TABLE>

       NOTE 7 - RELATED PARTY TRANSACTIONS

       a. Issuance of Shares of Capital Stock

       The Company  issued  1,500,000  shares of common  stock to CFC to acquire
HAMC.  HAMC was a former  subsidiary  of the  Company's  through  having  been a
subsidiary  of FLI. On November 17, 1995,  the Company sold FLI and retained its
interest in HAMC. In 1996, the Company sold HAMC to CFC in consideration for the
forgiveness  of certain debts and cash.  On December 25, 1996,  HAMC was sold by
CFC to UMI and in January,  1997,  the  transaction  with UMI was rescinded with
HAMC being returned back to CFC. On August 1, 1997, the Company  reacquired HAMC
from CFC.

       CFC is the majority shareholder of the Company.

                                      F-20

<PAGE>

                      INTERNATIONAL MERCANTILE CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 1997 and 1998


       For the years ended December 31, 1997 and 1998, the Company issued 63,000
and 60,000 shares of common stock to Ed Huyta, a Director in  consideration  for
the  forgiveness  of debt  arising from  expenses  paid on behalf of the Company
aggregating $63,000 and $60,000 respectively.

       The Company has issued an  aggregate of 200,000  shares of common  stock,
valued at $2.50 per share to Ventana Consulting, Inc., a Michigan corporation in
consideration for an aggregate of $500,000 in financial consulting services.

       During 1998, the Company issued 15,000 shares of common stock,  valued at
$15,000 or $1.00 per nshare to Greg Dutcher, a former Director, in consideration
for rent expense incurred by the Company renting office space at his facility.

       b. Employment Agreement with Mr. Walter Deronde

       On January 1, 1997, the Company entered into an employment agreement with
Mr.  Walter  Deronde as  Treasure  and Vice  President  for an annual  salary of
$120,000.  In addition Mr.  Deronde is  responsible  for  evaluating  merger and
acquisition candidates in the mortgage banking industry.

       For the year ending  December 31, 1997 and 1998,  the Company has accrued
$120,000 and $-0- respectively in salary.

       As of December 31,  1998,  the balance due Mr.  Deronde  pursuant to this
agreement is $-0-.

       c. Employment Agreement with Mr. Max Apple

       On May 1, 1995, the Company  entered into an employment  agreement for an
annual  salary of $120,000  per annum and  reimbursement  of all  "out-of-pocket
expenses."

       For the year ending  December 31, 1997, the Company has accrued  $120,000
in salary.

                                      F-21

<PAGE>

                      INTERNATIONAL MERCANTILE CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 1997 and 1998

       For the year ended  December 31, 1998,  the Company has accrued $6,000 in
salary and paid an  aggregate  of $6,000  during the three months ended June 30,
1998.

       As of  December  31,  1998,  the balance  due Mr.  Apple  pusuant to this
agreement is $-0-.

       d. Financial Consulting Agreement

       On May 1, 1995, the Company entered into a financial consulting agreement
with  Frederic   Richardson   for  a  monthly  fee  of  $10,000  per  month  and
reimbursement  of all  "out-of-pocket  expenses".  The income from the financial
consulting  agreement was assigned to FSR Group, Inc. ("FSR").  The term of this
agreement is 10 years and is renewable.

       For the year ending  December 31, 1997, the Company has accrued  $120,000
to FSR.

       For the year ended December 31, 1998, the Company has accrued $60,000 and
paid an aggregate of $130,000 for the year ended December 31, 1998 to FSR.

       As of December 31, 1998, the balance due Mr.  Richardson and FSR pursuant
to this agreement is $-0-.

       e. Capital contribution

       On August 15, 1997, AB  Securities,  Inc.,  ("ABS"),  contributed  to UMI
1,000,000 shares of common stock of Global Link  Technology,  which is traded on
the NASDAQ  Bulletin Board with the trading symbol GLTK. The Market price at the
date of contribution and at December 31, 1997 and 1998 was $0.08 per share.

       f. Loans Payable- Affiliated Companies

                                      F-22

<PAGE>

                      INTERNATIONAL MERCANTILE CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 1997 and 1998

       UMI has Loans receivable - affiliated parties from W-C Consultants,  Inc.
aggregating $231,992 at December 31, 1998.

       g. Managerial Relationship

       On January 1, 1997,  UMI entered into an  agreement  with James E. Clare,
Donald E. Wolpe and W-C Consultants,  Inc., (collectively referred to as "W-C"),
whereby W-C will  participate in the management of the UMI's licensed  branch at
5480 Wisconsin Avenue, Chevy Chase, Maryland. W-C >s sole shareholder is Jeffrey
A. Wolpe who is also Vice  President/Counsel  to the  Company.  W-C's  Chairman,
Donald E. Wolpe,  (Jeffrey A.  Wolpe's  father)  and W-C's  President,  James E.
Clare,  represent the Company as branch  managers.  For the year ending December
31,  1998,  W-C,  Donald E.  Wolpe and James  Clare  received  an  aggregate  of
$140,894, which was charged to operations.

       h. Officer's Compensation

       For the year ended  December 31, 1998,  no officer  received in excess of
$100,000.

       i. Sublease Agreement

       On July 1, 1996,  UMI  entered  into a lease  agreement  with W-C for the
lease of  approximately  1,322  square  feet of office  and  storage  space from
Highland House Limited  Partnership at Highland  House,  5480 Wisconsin  Avenue,
Suite LL-4, Chevy Chase, Maryland 20815 at a monthly rental of $1,665 for a term
ending  September 30, 1997. On October 1, 1997, the lease agreement was extended
to September 30, 2000 with a monthly rental of $1,766.

       For the year ended  December  31, 1997 and 1998,  UMI's rent  expense was
$21,483 and $21,290 respectively.

       j. Change in Managerial Control

                                      F-23

<PAGE>

                      INTERNATIONAL MERCANTILE CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 1997 and 1998

       As of  December  31,  1997,  IMTL  has  acquired  all of the  issued  and
outstanding capital stock of the Company.  This acquisition enables IMTL to have
majority  managerial and financial control in the decision making process of the
Company.

       k. Net Branch Agreement

       On December 1, 1998,  UMI entered into a net branch  agreement  with Sean
Kieran  Hagerty  and Kerry Ann  Hagerty  collectively  as branch  managers  of a
licensed branch of UMI in Severna Park, Maryland to originate, process and close
mortgage loans in jurisdictions  that UMI is licensed to do business pursuant to
certain  terms and  conditions.  The agreement may be terminated by either party
upon 90 days notice.  The Branch  manager will pay a monthly fee equal to 10% of
the  "Gross  revenue of all closed  loans for the month"  with a minimum  fee of
$5,000 per month.  During the initial months of operation  December 1998 through
February,  1999, if revenue is insufficient to pay this fee, then it will accrue
until March,  1999,  after which any unpaid  portion will be paid along with the
monthly  retainer in an amount  equal to $250 per closed  loan until  paid.  The
Company  will  maintain a lien  against  all net branch  personal  property  and
financial assets as security for all moneys due the UMI.

       As  of  December  31,  1998,  the  Severna  park  office  had  not  begun
operations.

       In addition, the UMI advanced Sean and Kerry Hagerty $10,000 as evidenced
by a note dated December 24, 1998 payable on demand with interest at 18%.

       On January 1, 1999,  UMI acting as a  Subtenant  entered  into an "Office
Sublease  Agreement"  with Sean Hagerty as Sub landlord for office space located
at the Ritchie Court Office Building, 877 Baltimore Annapolis Boulevard, Severna
Park,  Maryland 21146 for a monthly rent of $5,488.50 per month  beginning March
1, 1999. The Office  sublease is on a month to month basis and is subject to the
same terms and conditions as the Net Branch Agreement.

       l. Change in Equity Ownership

                                      F-24

<PAGE>

                      INTERNATIONAL MERCANTILE CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 1997 and 1998

       1.  On  December  25,  1996,  the  UMI  acquired  all of the  issued  and
outstanding  capital stock of HAMC from CFC in consideration for the issuance of
10,000 shares of nonvoting convertible Class A Preferred stock by the UMI.

       2. On January 1, 1997,  an  agreement  by and between ABS and  University
Consulting, Inc. ("University Consulting"), both Maryland corporations owned and
controlled by M. Scott Hess. University Consulting exchanged 1,000 shares of the
Company's common stock in settlement for a note payable to AB Securities.

       3. In January, 1997, an agreement by and between the UMI and CFC, whereby
CFC caused to be issued  100,000 shares of common stock of the Company valued at
$5.00 per share in consideration  for all of the issued and outstanding  capital
stock of HAMC with a book value of $471,637.  The  recording of the  transaction
realized a gain of $28,363.

       4. On May 14, 1997,  the UMI, CFC and ABS entered into an "Agreement  and
Plan of Reorganization"  whereby CFC exchanged all of the issued and outstanding
Class A  preferred  shares  of the UMI to AB  Securities  for  10,500  shares of
preferred stock of ABS.

       5. On December 31, 1997, the UMI was party to an agreement by and between
the Company and ABS controlled by M. Scott Hess,  President of UMI and President
of ABS.  ABS  exchanged  all of the UMI's  issued and  outstanding  stock to the
Company for 175,000  shares of the Company's  common stock valued at $385,000 or
$2.20 per share.

       m. Lease of Office Space

       The Company  rents office space from a consultant of the Company under an
operating lease expiring June 1996. The lease agreement calls for annual rent of
$18,000.  Future  minimum lease payments due subsequent to December 31, 1995 and
1996 are $9,000 and $9,000 respectively.

       NOTE 8 - CAPITAL STOCK

                                      F-25

<PAGE>

                      INTERNATIONAL MERCANTILE CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 1997 and 1998


       The  Company has amended its  certificate  of  incorporation  to issue an
aggregate of 50,000,000 shares of stock as follows:

       31,000,000 shares of Class A Common Stock, par value $0.01 per share.

        2,000,000 shares of Class B Common Stock, $0.01 per share.

       10,000,000 shares of Preferred Stock, Series 1, $0.10 per share.

        2,000,000 shares of Preferred Stock, Series 2, $0.10 per share.

        5,000,000 shares of Preferred Stock, Series 2, $0.10 per share.

       Class A Common Stock.

       The holders of shares of Class A Common  Stock are entitled to 1 vote per
share and do not have  cumulative  voting  rights on the election of  directors.
Upon any  liquidation,  dissolution  or  winding up of the  Company,  holders of
shares  of Class A Common  Stock are  entitled  to  receive  pro rata all of the
assets of the Company  available  for  distribution  to holders of shares of the
Company's  Class A Common  Stock.  Shareholders  of the  Company do not have any
preemptive rights to subscribe for or purchase any stock, obligations,  warrants
or other securities of the Company.

       Class B Common Stock

       The  holders of shares of Class B Common  Stock are  entitled to 51 votes
per share and do not have cumulative voting rights on the election of directors.
Upon any  liquidation,  dissolution  or  winding up of the  Company,  holders of
shares  of Class B Common  Stock are  entitled  to  receive  pro rata all of the
assets of the Company  available  for  distribution  to holders of shares of the
Company's

                                      F-26


<PAGE>

                      INTERNATIONAL MERCANTILE CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 1997 and 1998


Class B Common  Stock.  Shareholders  of the Company do not have any  preemptive
rights to subscribe  for or purchase any stock,  obligations,  warrants or other
securities of the Company.

       Series 1 Convertible Preferred Stock

       Each share of Series 1 Preferred Stock is convertible  into one (1) share
of Class A Common Stock at any time for 3 years following  issuance,  at a price
of two dollars  ($2.00) per share.  The Series 1 Preferred  Stock does not carry
any voting rights.  In the event the Company  declares a dividend,  the Series 1
Preferred Stock has a dividend preference to that of the Class A Common Stock.

       The Series 1 Preferred  Stock is  redeemable  by the Company for $.10 per
share at any time after the first annual anniversary of issuance, if the average
closing bid price of the Class A Common Stock for 10 business  days  immediately
preceding  the date of such  redemption  notice is at least 125% of the exercise
price of the Series 1 Preferred Stock. Following any such redemption notice, the
holder of the Series 1 Preferred Stock shall have the opportunity to convert the
Series 1 Preferred Stock for a period of 20 days following such notice.

       The Company has  approved  the  issuance of  1,000,000  shares of Class B
Common stock to Mr. Frederic Richardson in consideration for the cancellation of
1,000,000 shares of his Class A Common Stock.

       The Company issued to Continent Finance Corporation one million shares of
Class "B" Common Stock in exchange for one million shares Class "A" Common Stock
which it previously held. Continent Finance Corporation is controlled by a trust
established for the family of Frederic Richardson,  the Chairman of the Company.
The purpose of this exchange was to maintain  voting control with  management as
management  enters  into  negotiations  with other  companies  for  mergers  and
acquisitions utilizing

     NOTE 8 - NOTE RECEIVABLE

       As reported on Form 8-K filed with the Securities and Exchange Commission
on September 30, 1998,  the Company has entered into  agreements to purchase the
stock and assets of two companies:

                                      F-27

<PAGE>

                      INTERNATIONAL MERCANTILE CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 1997 and 1998

      In the first  transaction,  the Company issued  3,000,000 shares of Series
"2"  Preferred  Stock to Oxford  International  in exchange  for  $3,000,000  in
publicly traded  securities.  The Series "2" Preferred Stock bears a dividend of
6%,  which  dividend  is  payable  in the  Company's  Class  "A"  Common  Stock.
Subsequently,  on December 2, 1998,  The  Company  desires to loan the  publicly
traded but restricted  securities  back to Oxford  International  and received a
Promissory Note in the principal  amount of $3,000,000,  bearing interest at the
rate of 8% per annum, due in full December 15, 1999.

     As of December 31, 1998,  the Company has in Company  escrow the  3,000,000
shares of Series "2" Preferred  Stock pending the  completion of a due diligence
by the Company's  management as to the value and marketability of the securities
underlying the  transaction.  Subsequent to the date of the balance  sheet,  the
Company  completed its due diligence and has decided to rescind the  transaction
and return the shares of Series "2" Preferred stock to the treasury.

     In the second transaction,  the Company has entered into a letter of intent
with Union Express Mortgage  Corporation  ("Union  Express") whereby the Company
would  acquire 100% of the  outstanding  stock of Union  Express in exchange for
400,000  shares of Class  "A"  Common  Stock.  As of  December  31,  1998,  this
transaction as originally contemplated has been terminated.

        NOTE 9 - INCOME TAXES

       The Company provides for the tax effects of transactions  reported in the
financial statements. The provision if any, consists of taxes currently due plus
deferred taxes related primarily to differences  between the basis of assets and
liabilities for financial and income tax reporting.  The deferred tax assets and
liabilities,  if any  represent  the  future tax  return  consequences  of those
differences,  which will  either be taxable  or  deductible  when the assets and
liabilities  are recovered or settled.  As of December 31, 1998, the Company had
no material current tax liability, deferred tax assets, or liabilities to impact
on the Company's  financial  position  because the deferred tax asset related to
the  Company's  net  operating  loss  carryforward  and was  fully  offset  by a
valuation allowance.

       At December 31, 1998,  the Company has net operating  loss carry forwards
for income tax purposes of $11,934,304. This carryforward is available to offset
future  taxable  income,  if any,  and

                                      F-28

<PAGE>

                      INTERNATIONAL MERCANTILE CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 1997 and 1998


expires in the year 2010. The Company's utilization of this carryforward against
future  taxable  income may  become  subject  to an annual  limitation  due to a
cumulative change in ownership of the Company of more than 50 percent.

       The  components of the net deferred tax asset as of December 31, 1998 are
as follows:

       Deferred tax asset:


<TABLE>
<S>                                                  <C>
Net operating loss carry forward                     $   4,057,663
Valuation allowance                                  $  (4,057.663)
                                                      ------------
Net deferred tax asset                               $         -0-
                                                      ============
</TABLE>

       The Company recognized no income tax benefit for the loss generated as of
December 31, 1998.

       SFAS No. 109  requires  that a valuation  allowance  be provided if it is
more likely than not that some  portion or all of a deferred  tax asset will not
be realized.  The Company's ability to realize benefit of its deferred tax asset
will depend on the generation of future taxable income.  Because the Company has
yet to recognize significant revenue from the sale of its products,  the Company
believes that a full valuation allowance should be provided.

       NOTE 10 -  COMMITMENTS AND CONTINGENCIES

        a. Lease Agreement for Office Space

       On May 1, 1996,  the  Company  entered  into a 20 month  lease  agreement
beginning  May 1, 1996 and ending  January 1, 1998 for office  space at 7979 Old
Georgetown Road, Bethesda, Maryland 20814 for a rental of $2,000 per month.

                                      F-29

<PAGE>

                      INTERNATIONAL MERCANTILE CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 1997 and 1998

       As of December  31, 1998 the  Company  had paid an  aggregate  of $40,000
towards the rent with the  issuance of 30,000  shares of common  stock valued at
$40,000.

       b. Litigation

       As part of the sale of  Washington,  the Company  transferred  all of its
rights to litigation against Ventana to Washington.

       On June 25, 1993, a Petition on Note was filed against the Company in the
Circuit of Cole County, Missouri,  seeking damages on the amount of $54,294 plus
interest and attorney's  fees,  for default on numerous  promissory  notes.  The
Petition alleged that there were promissory notes issued by the Company in favor
of Plaintiffs,  Janet L. Mertz,  Edwin H. Mertz,  Glenn E. Mertz, edna L. Mertz,
Danny W. Mertz and Valerie J. Mertz, which were due in February, 1993, and which
the Company had refused to pay. In June, 1994, the Plaintiffs Motion for Summary
Judgment  was  granted  and  Judgment  was  entered  against  the Company in the
aggregate amount of $70,820.  As of December 31, 1997 and December 31, 1998, the
Judgment was not satisfied and is still pending.

       c. Net Branch Agreement

       On February  24,  1997,  UMI  entered  into a Net Branch  agreement  with
Diversity  Financial  Services,  Inc.  ("DFS") to establish a mortgage branch at
DFS's office in Mount Rainier,  Maryland. UMI subleased the Mount Rainier office
from DFS. As of December 10,  1997,  the Mount  Rainier  office was sold and the
agreement was terminated.  As of December 31, 1997, UMI had an obligation to the
management of the Mount Rainier office of $49,000.

       d. Group Compensation Plan

       On August 6, 1997, the Company filed a registration statement on Form S-8
registering  800,000  shares  of  common  stock to  provide  a means of  noncash
remuneration  to  consultants,  and  service  providers  who  contribute  to the
operating progress and earning power of the Company.  The eligible  participants
to  this  plan  includes  any  consultant  or  service  provider  that is not an
employee.

                                      F-30

<PAGE>

                      INTERNATIONAL MERCANTILE CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 1997 and 1998

       As of December 31, 1997, the Company has issued  330,000 shares  pursuant
to this plan.  The Company has reserved  470,000  shares of common stock pending
the issuance of shares pursuant to this plan.

       e. Payroll taxes

       For the year ending  December  31,  1998,  UMI is behind it is payment of
payroll  taxes.  The  aggregate  balance  due at  December  31,  1998 is $74,263
including penalties and interest.

       f. Financial Consulting Agreement with Ventana Consultants, Ltd.

       On October 31,  1998,  the Company  entered  into a financial  consulting
agreement with Ventana  Consultants,  Ltd.("Ventana")  to render services in the
areas  of  investment  banking,   finance  and  general  business  analysis.  In
consideration  for these services,  the Company will pay 60,000 shares of common
stock issued  pursuant to S-8 and pay an  aggregate  of 60,000  shares of common
stock at the rate of 20,000  shares per month.  Ventana  also  agrees to aid the
Company in the  preparation  and  filing of an  application  for  listing on the
NASDAQ.

       As of December 31, 1998, the Company has issued to Venetian and aggregate
of  260,000  shares  of  common  stock,  pursuant  to  S-8,  with  an  aggregate
consideration of $260,000 .

       g. Financial Consulting Agreement with E&E Company

       On January 1, 1998,  the  Company  entered  into a  financial  consulting
agreement with E&E Company for financial consulting  services.  In consideration
for these services,  the Company agrees to pay a quarterly fee equal to a number
of free trading shares of common stock aggregating $60,000 in value each quater.

       For the year ending  December 31, 1998, the Company has paid an aggregate
of 30,000 shares of common stock  aggregating  $$31,250 in financial  consulting
services.

                                      F-31

<PAGE>

                      INTERNATIONAL MERCANTILE CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 1997 and 1998

       h. Stock Option Plan

       On August 6, 1996, the Company adopted a Compensation  Plan ( the "Plan")
which  is  intended  to  promote  the  best  interest  of the  Company,  and its
stockholders by providing a means of non-cash  remuneration to consultants,  and
services providers who contribute to the operating progress and earning power of
the Company. The Company has reserved 800,000 shares of common stock pursuant to
this plan.

       For the year ended  December  31,  1998,  the Company has issued  632,333
shares of common  stock.  The Company has reserved  167,667  shares for issuance
pursuant to the Plan.

       NOTE  11 - WAREHOUSE LOAN PAYABLE

       On August  28,  1997,  UMI  entered  into Whole  Loan  Purchase  and Sale
Agreement and a Warehouse  Credit and Security  Agreement with Lau Funding Plus,
Inc.  ("LFP")  whereby  LFP has agreed to make loans to UMI from time to time to
finance loans on  single-family  mortgage  loans to a limit of  $2,000,000.  The
amounts  advanced to finance loans are limited to typically 95% of the principal
amount of the loan. Interest is charged at LIBOR plus 4.75%.

       The  Warehouse  Loan is  collateralized  by the  underlying  loans and is
personally  guaranteed by M. Scott Hess,  James Clare,  Donald Wolpe and Jeffrey
Wolpe.

       At December 31, 1998, the warehouse loan balance outstanding was $103,360
with mortgages receivable of $128,168.


       At December 31, 1998, the loans  comprising the  warehousing  balance are
past the agreed upon term under which they may be held on the  warehousing  line
of credit. The loans are current as to their payment terms and conditions.

       NOTE 12 - LOAN PAYABLE TO THE FIRST NATIONAL BANK OF MARYLAND

                                      F-32

<PAGE>

                      INTERNATIONAL MERCANTILE CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 1997 and 1998

       On January 22, 1997,  UMI entered into an agreement for an unsecured line
of credit with the First  National Bank of Maryland  aggregating  $200,000.  The
loan is payable in full or on demand with interest at 4.5% payable monthly.  The
note is secured by moneys on deposit with the bank.

         At December 31, 1998, the amount due is $200,700.

       NOTE 13 - PRIVATE PLACEMENT

       a. Sale of Units

       The  Company  offered for sale to persons who  qualified  as  "accredited
investors"  as defined  under  Regulation D promulgated  by the  Securities  and
Exchange  Commission  a minimum  of 25 Units  and a  maximum  of 75 Units of its
securities.  25 Units were offered on an all-or-none  basis and the remaining 50
Units are being offered on a "best efforts basis".  Each Unit consists of 10,000
shares of the  Company's  common  stock.  The  Company  is  obligated  to file a
registration statement within 90 days of the first closing of this offering.

       As of December 31, 1997,  and December 31, 1998 , the Company had sold 22
Units and 42 Units or 220,000 and 420,000  shares of common  stock  respectively
for an  aggregate  consideration  of $220,000  and  $420,000  respectively.  The
offering  was  amended to reduce to minimum  offering to 20 Units  enabling  the
Company to receive the proceeds of $220,000 as of December 31, 1997.

       As of December 31,  1998,  the Company has not  registered  the shares of
common stock underlying the Units.

       b. Private Placement

       The Company is offering for sale a minimum of 4 Units and a maximum of 80
Units of its  securities.  Each Unit (the  "Unit") is being sold at $25,000  per
Unit and  consists  of  20,833  shares  of

                                      F-33

<PAGE>

                      INTERNATIONAL MERCANTILE CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 1997 and 1998

common  stock  and  20,833  shares of  convertible  preferred  stock,  which are
convertible into 20,833 shares of common stock. The units are being offered on a
"best- efforts" basis. The minimum amount of securities offered will be four (4)
units.  The units must be purchased  for  investment  purposes only and the free
transferability  of the securities is restricted.  The shares of preferred stock
is  convertible  at any time for three  years  following  issuance at a price of
$2.00 per share.  The shares of preferred stock is redeemable by the Company for
$0.10 per share at any time after the first  annual  anniversary  of issuance if
the average  closing bid price of the shares of common stock for the 10 business
days immediately  preceding the date of such redemption  notice is at least 125%
of the exercise price of the shares of preferred  stock (i.e.  $2.50 per share).
following  any such  redemption  notice,  the holders of the shares of preferred
stock will have the  opportunity to convert the shares of preferred  stock for a
period of 20 days following such notice.

       As of December 31, 1998, no shares have been sold.

       NOTE 14 -  SUPPLEMENTAL  SCHEDULE  OF NON CASH  INVESTING  AND  FINANCING
ACTIVITIES

       As of December 31,  1997,  the Company has issued an aggregate of 946,500
shares of  common  stock in  consideration  for  $956,500  in  consulting  fees,
reimbursement  for expenses paid by the officer's and Directors on behalf of the
Company, and in settlement of litigation.

       As of December 31, 1997, the Company has issued an aggregate of 1,910,000
shares of common stock and recorded a Note  Payable in the  principle  amount of
$300,000 in  consideration  for the  acquisition of HAMC and UMI from CFC and AB
Securities, Inc.

       NOTE 15 - SUBSEQUENT EVENTS

       Change in Management

                                      F-34

<PAGE>

                      INTERNATIONAL MERCANTILE CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 1997 and 1998

       Subsequent  to the  date of the  financial  statements  the  Company  had
appointed Scott Hess as President of the Company and President of UMI.

                                      F-35

<PAGE>


Item 8.           Changes In and Disagreements with Accountants
                  on Accounting and Financial Disclosure.

         On July 14, 1998,  the  Company's  independent  auditors,  Weinberg and
Company,  resigned and Thomas  Monahan,  CPA, was engaged as the  Company's  new
independent  auditor for the fiscal year ended  December 31, 1998. The hiring of
Thomas  Monahan was approved by the board of  directors.  Except as indicated in
the  next  paragraph,   the  principal  accountant's  report  on  the  financial
statements  for the past two  years  did not  contain  any  adverse  opinion  or
disclaimer of opinion and was not modified as to  uncertainty,  audit scope,  or
accounting principles.

         The  consolidated  financial  statements  for the  fiscal  years  ended
December 31, 1997 and December 31, 1998 were prepared  assuming that the Company
will  continue as a going  concern.  As more fully  described  in Note 2 to such
financial statements,  the Company has incurred operating losses since inception
and requires additional capital to continue  operations.  These conditions raise
substantial  doubt about the Company's  ability to continue as a going  concern.
Management's  plans as to these  matters  are  described  in Item 6 of this Form
10-KSB.  The financial  statements do not include any adjustments to reflect the
possible  effects  on the  recoverability  and  classification  of assets or the
amounts and  classifications  of  liabilities  that may result from the possible
inability of the Company to continue as a going concern.

  There  were  no  disagreements  on any  matter  of  accounting  principles  or
practices,  financial  statement  disclosure,  or auditing scope or procedure or
other reportable events involving the Company and its former auditors.

                                    PART III

Item 9.           Directors and Executive Officers of the Registrant;
Compliance with Section 16(a) of the Exchange Act.

                                   MANAGEMENT

Directors and Executive Officers

         The Directors and executive  officers of the Company as of December 31,
1998, together with their ages and business backgrounds are as follows.

Name                                      Age                Position(s) Held
----                                      ---                ----------------

Frederic S. Richardson                    39                 Chairman of the
                                                             Board of Directors,
                                                             Chief Financial
                                                             Officer

<PAGE>

M. Scott Hess                             36                 Chief Executive
                                                             Officer, President,
                                                             Director

Max W. Apple                              60                 Secretary, Director

Walter DeRonde                            50                 Chief Operating
                                                             Officer, Treasurer,
                                                             Vice President,
                                                             Director

Edward A. Hutya                           57                 Vice President,
                                                             Director




         Each director and executive  officer of the Company holds office during
the  term  for  which  they  are  elected  and  qualify.  There  are  no  family
relationships among or between such directors and executive officers.

         Frederic S.  Richardson has been the Chairman of the Board of Directors
and Chief  Financial  Officer of the Company since September 1998. Mr Richardson
has extensive  experience in insurance,  mortgage and financial services.  He is
familiar with every facet of investment  banking and  specializes in structuring
transactions for private and public entities,  raising large amounts of capital,
and identifying  acquisition  targets.  Since 1994, Mr.  Richardson has been the
President of Maccabean  Industries,  Inc., a  consulting  firm  specializing  in
raising capital for companies in the financial services industry and real estate
market.  Prior  to that he was the  President  of  First  Security  Merchant,  a
subsidiary of Corporate Life Insurance Company ("CLIC"), of which Mr. Richardson
was a principal.  Mr.  Richardson raised $10 million to purchase CLIC and became
one of the youngest persons in the country to purchase a life insurance company.
As an associate for Protectogon,  Inc., Mr.  Richardson acted as an intermediary
in the merger and acquisition of life and property casualty insurance companies.
He was also the Managing Director of Pierce Investment  Banking.  Mr. Richardson
received a degree in Economics  from the University of Maryland and a Masters in
Business Administration from American University.

         Mr.  Richardson  was a director and officer of Corporate Life Insurance
Company  ("CLIC"),  a  stock  life  insurance  company,   from  1991  until  its
liquidation  in  February  1994.  He  was  the  controlling  stockholder  of the
corporate  parent and  controlling  stockholder of CLIC. In June 1995,  Linda L.
Kaiser,  the  Insurance   Commissioner  of  Pennsylvania  and  CLIC's  Statutory
Liquidator,  filed a complaint  against Mr.  Richardson  (and others)  alleging,
among other things,  that he engaged in fraudulent and negligent  conduct in his
operation of CLIC causing the company to lose millions of

<PAGE>

dollars and finally collapse. CLIC was liquidated and dissolved by the Insurance
Commissioner.  In  October  1997,  Mr.  Richardson  entered  into  a  Settlement
Agreement with the Insurance Commissioner pursuant to which he was released from
the  lawsuit  and from  any  further  liability.  Pursuant  to the  terms of the
Settlement  Agreement,  the policy limits of Mr.  Richardson's  insurance policy
were paid to the Statutory Liquidator.  In addition, he agreed not to accept any
position  of  executive  authority  with any  Pennsylvania  domiciled  insurance
company  without  the consent of the  Commissioner  and agreed not to accept any
position of executive authority with any other insurance company for a period of
ten years.

         M. Scott  Hess has been the  President,  Chief  Executive  Officer  and
Director of the Company since September 1998. Mr. Hess is also the sole director
and  president of UMI, a subsidiary  of the  Company.  Since 1983,  Mr. Hess has
operated as a merchant banking principal,  acquiring, starting, capitalizing and
managing small to mid-size  companies.  His  accomplishments  include  planning,
managing and financing  high profile  domestic and  international  projects with
aggregate  values  of over  $750  million.  Since  1995,  Mr.  Hess has been the
Chairman and CEO of AB Securities,  Inc., a financial  services holding company.
Mr. Hess also founded and capitalized Atlantic International  Resources Corp., a
financial  services  holding  company.  Mr. Hess served as the President and CEO
from  1991-1995.  He also founded and  capitalized  W.P.  Consolidated,  Inc., a
financial  consulting and investment  holding  company and served as its CEO and
Chairman.  Mr. Hess attended Auburn University before graduating magna cum laude
from and completing a Graduate Fellowship at the University of Maryland.

         Max W. Apple has been the  Secretary  of the  Company  since 1995 and a
Director  since 1991.  Mr Apple is a former judge and  currently a member of the
Indiana Bar. Mr. Apple attended the Indiana University Schools of Law as well as
the National College of the State Judiciary and Indiana Judicial College. He has
been  involved  in  various   business   ventures  which  include  owning  Nunur
Corporation, a company which owned commercial and residential properties,  being
a partner in French Lick Springs  Golf and Tennis  Resort,  L.P.,  and being the
sole  shareholder  of The  Paoli  Corporation,  a  company  specializing  in the
manufacturing of wood products and operating lumber dry kilns.

         Walt  DeRonde has been the Chief  Operating  Officer,  Chief  Financial
Officer,  Vice President,  Treasurer and Director of the Company since 1997. Mr.
DeRonde, is involved with the housing manufacturing  industry, has experience in
the financial services industry and operates out of Dallas, Texas.

         Edward A. Hutya has been a Vice  President  and Director of the Company
since 1997. He is currently the  president of the Center of  Independent  Living
and  A  consultant  to  Riverside  Healthcare  foundation,   two  not-for-profit
organizations.  Mr. Hutya has many years of  experience  in the  operations  and
acquisitions of health

<PAGE>

care  properties.  During his  tenure as  president  of  several  not-for-profit
corporations,  Mr. Hutya directed  corporate  development for the acquisition of
housing and nursing  facilities  for the  elderly and special  populations.  Mr.
Hutya also selected and hired management companies which operated nursing homes.
Prior  to  his  involvement  with   not-for-profit   organizations,   Mr.  Hutya
specialized  in  financing,  including  equipment,  vehicles,  real  estate  and
governmental leasing and financing. Mr. Hutya has a degree in economics from the
University of Connecticut  and  participated in graduate work in Urban Economics
at American University.

Officer and Director Resignations

         In 1997,  Gregory C. Dutcher resigned as a Director of the Company.  In
September  1999,  Walter  DeRonde and Edward A. Hutya  resigned as Directors and
officers of the Company.  In September  1999, Mr. Hess resigned as President and
Chief Executive Officer of the Company.

Section 16(a) Beneficial Ownership Reporting Compliance

         During the 1998 year,  based  solely upon the reports  furnished to the
Company, none of the officers,  directors, or beneficial owners of more than ten
percent of the equity securities of the Company filed any reports required under
Section 16(a) of the Securities Exchange Act of 1934.

Item 10.          Executive Compensation.

         Except as set forth  below,  no  compensation,  including  bonuses  and
deferred  compensation,  was paid  during 1997 and 1998 by the Company to any of
its  executive  officers in excess of $100,000  (other than the Chief  Executive
Officer).  Members of the Board of Directors do not  currently  receive any cash
compensation for serving on the Board of Directors.

                           Summary Compensation Table

Name and Principal Position        Fiscal year              Annual Compensation
---------------------------        -----------              -------------------
                                                            Salary       Bonus
                                                            ------       -----
M. Scott Hess, Chief               9/97-
Executive Officer,                 12/97                    $9,000         $0
President(1)
                                   1/98-
                                   12/98                    $36,000        $0

Frederic S. Richardson,
Chief Financial Officer            1997(2)                  $48,000        $0
                                   1998(2)                  $130,000       $0

<PAGE>

Max W. Apple,
Secretary                           1997(3)                 $0             $0
                                    1998(3)                 $180,000       $0

Walter DeRonde,
Chief Operating Officer             1997(4)                 $0             $0
                                    1998(4)                 $120,000       $0


         (1) M. Scott Hess receives $3,000 per month from  University  Mortgage,
Inc.

         (2) Mr. Richardson has a consulting agreement with the Company pursuant
to which he is entitled to $10,000 per month. In 1997, he received 48,000 shares
of Class A Common Stock for reimbursement of expenses, and in 1998 he received a
cash  payment of  $130,000 on account of accrued  compensation.  The shares were
valued at $1.00 per share which was the fair market value thereof at the time of
issuance.

         (3) During 1998,  Mr. Apple  received  180,000 shares of Class A Common
Stock in payment of all  accrued  salary  and  expenses  due to him for 1997 and
1998.  The shares were valued at $1.00 per share which was the fair market value
thereof at the time of issuance.

         (4) During 1998, Mr. DeRonde  received 120,000 shares of Class A Common
Stock in  payment  of all  accrued  salary  and  expenses  due to him  under his
employment  agreement  for 1997 and 1998.  The shares  were  valued at $1.00 per
share which was the fair market value thereof at the time of issuance.

Executive Employment Agreements

         On May 1,  1995,  the  Company  entered  into  a  financial  consulting
agreement  with Frederic  Richardson  for a monthly fee of $10,000 per month and
reimbursement of all "out-of-pocket"  expenses. The term of this agreement is 10
years and is renewable.  The Agreement was assigned to FSR Group, Inc. ("FSR") a
company owned by Mr. Richardson in October 1997. Commencing January 1, 1999, the
agreement was reassigned by FSR to Mr. Richardson.  For the year ending December
31, 1997,  the Company has accrued  $120,000 to FSR and issued  48,000 shares of
Class A Common Stock to him in payment of accrued  expenses.  For the year ended
December  31,  1998,  the Company has accrued  $60,000 and paid an  aggregate of
$130,000  for the year ended  December 31, 1998 to FSR. As of December 31, 1998,
the balance due Mr.  Richardson  and FSR  pursuant to this  agreement  is $0.00.
During 1998, FSR borrowed from the Company the principal amount of $280,000.  As
of December 31, 1998,  the loan was  satisfied by FSR assuming  debt owed by the
Company to AB Securities, Inc.

         On May 1, 1995, the Company  entered into an employment  agreement with
Max Apple for an annual salary of $120,000 per annum

<PAGE>

and reimbursement of all "out-of-pocket"  expenses. For the year ending December
31, 1997, the Company  accrued  $120,000 in salary.  For the year ended December
31,  1998,  the Company has accrued  $6,000 in salary and paid an  aggregate  of
$6,000  during the three  months  ended June 30,  1998.  During 1998 the Company
issued to him 180,000  shares of Class A Common  Stock in payment of all accrued
salary and expenses due under the agreement.  As of December 31, 1998, no salary
is due to Mr.  Apple  pursuant  to the  agreement  and the  agreement  has  been
canceled.

         On January 1, 1997,  the Company  entered into an employment  agreement
with Walter  DeRonde as Treasurer  and Vice  President  for an annual  salary of
$120,000.  In addition,  Mr.  DeRonde is responsible  for evaluating  merger and
acquisition  candidates in the mortgage  banking  industry.  For the years ended
December 31, 1997, and December 31, 1998,  the Company has accrued  $120,000 and
$0.00  respectively  in salary.  During 1988,  the Company issued to him 120,000
shares of Class A Common Stock in full payment of all amounts  accrued under his
agreement.  As of December 31, 1998, no salary is due to Mr. DeRonde pursuant to
the agreement and the agreement has been canceled.

Item 11.          Security Ownership of Certain Beneficial
                  Owners and Management.

         The following  tables set forth  information as to the number of shares
of stock of the Company  beneficially  owned as of December 31, 1998 by (i) each
person who is deemed to be a beneficial owner of more than 5% of the outstanding
shares; (ii) each director; (iii) each executive officer; and (iv) all directors
and executive  officers as a group. A person is deemed to be a beneficial  owner
of any  securities  of which that  person  has the right to  acquire  beneficial
ownership of such securities within sixty days.

Class A Common Stock

                                       Number of shares of
Name and Address of                    Class A Common Stock             Percent
Beneficial Owner (1)                   Beneficially Owned               Of Class
--------------------                   ------------------               --------

Max W. Apple                                    180,000                  5.4%
215 East Thornton Street
Paoli, Indiana 47454

Walter DeRonde                                  120,000                  3.6%
475 Medina Drive
Highland Village, Texas 75067

M. Scott Hess (2)                               310,000                  9.3%
3B  Compremise Street
Annapolis, Maryland 21401

<PAGE>

Edward Hutya                                    60,000                   1.8%
3014 U.S. Highway
301 North No. 500
Tampa, Florida 53619

Frederic S. Richardson                          48,000                   1.4%
1801 Gold Mine Road
Brookerville, Maryland 21401

Continent Finance Corporation                   200,000(3)               6.0%
1801 Gold Mine Road
Brookerville, Maryland 21401

Urban Agriculture Network                       300,000                  9.0%
1711 Lamont Street, N.W.
Washington, D.C. 20010

Vinny Pazienza                                  220,000                  6.62%
Anchor Bay Club, Suite 720
300 Three Islands Blvd.
Hallandale, Florida 33009

All Officers and Directors
as a group (6 persons)                          718,000                  21.6%
--------------------------------------------------------------------------------
(1) To the best knowledge of the Company,  as of December 31, 1998, such holders
had the sole voting and investment  power with respect to the voting  securities
of the  Company  beneficially  owned  by them,  unless  otherwise  indicated  by
footnote.

(2) All of these shares are owned of record by AB  Securities,  Inc., a Maryland
corporation  owned by Mr. Hess and of which he is President and Director.  As of
December 31,  1998,  the Company has reserved  approximately  700,000  shares of
Class  A  Common  Stock  which  may be  issuable  to  ABS  pursuant  to the  UMI
acquisition.  Pending  resolution of this issue, these shares have been excluded
from the above table and are not considered as issued and outstanding.

(3) Excludes  1,000,000 shares of Class B Common Stock which is identical to the
Class A Common  Stock but  carries 51 votes per share,  and such shares have not
been  considered  issued and  outstanding  for  purposes of this  table.  At the
September 1998  shareholder's  meeting,  Mr.  Frederic  Richardson  received the
discretionary  proxy to vote all of such  shares  of Class B Common  Stock.  Mr.
Richardson disclaims beneficial ownership of these shares.

<PAGE>

Class B Common Stock

                               Number of shares of
Name and Address of            Class B Common Stock                     Percent
Beneficial Owner               Beneficially Owned                       Of Class
----------------               ------------------                       --------

Sarah Saul Simon Trust         1,000,000                                  100%
P.O. Box 340
Olney, Maryland 20832 (1)

--------------------------------------------------------------------------------
(1) The  beneficiaries  of the Sarah Saul Simon Trust are Frederic  Richardson's
children. The current trustees are Mr. Richardson's mother and sister-in-law. In
September 1998, the trust received  1,000,000  shares of Class B Common Stock in
consideration for the cancellation by Continent Finance Corporation of 1,000,000
shares of Class A Common Stock.

Item 12.          Certain Relationships and Related Transactions.

         Effective  September  1998,  the Sarah  Saul  Simon  Trust  became  the
majority  shareholder of the Company.  The beneficiaries of the Sarah Saul Simon
Trust are Mr. Richardson's  children.  The current trustees are Mr. Richardson's
mother and  sister-in-law.  As of December 31, 1998,  the trust owned  1,000,000
shares  of  Class  B  Common  Stock.  In  September  1998,   Continent   Finance
Corporation,  a corporation owned by the trust, and of which Mr. Richardson is a
Director and President,  canceled  1,000,000  shares of Class A Common Stock and
the trust received  1,000,000 shares of Class B Common Stock. The Class B Common
Stock is  identical  to the Class A Common  Stock except that the Class B Common
Stock has 51 votes per share.

         On January 1, 1997,  UMI entered into an agreement with James E. Clare,
Donald E. Wolpe and W-C Consultants,  Inc., (collectively referred to as "W-C"),
whereby W-C will  participate in the management of the UMI's licensed  branch at
5480 Wisconsin Avenue, Chevy Chase, Maryland.  W-C's sole shareholder is Jeffrey
A. Wolpe who is also Vice  President/Counsel  to UMI. W-C's Chairman,  Donald E.
Wolpe,  (Jeffrey  A.  Wolpe's  father)  and  W-C's  President,  James E.  Clare,
represent UMI as branch  managers.  For the year ending  December 31, 1998,  W-C
received $140,894, which was charged to operations.

         On July 1, 1996, UMI entered into a sublease agreement with W-C for the
lease of  approximately  1,322  square  feet of office  and  storage  space from
Highland House Limited  Partnership at Highland  House,  5480 Wisconsin  Avenue,
Suite LL-4, Chevy Chase, Maryland 20815 at a monthly rental of $1,665 for a term
ending  September 30, 1997. On October 1, 1997, the lease agreement was extended
to September  30, 2000 with a monthly  rental of $1,766.  For the years 1997 and
1998, rent expense was $21,483 and $21,290.

         During 1997, a series of  transactions  occurred  pursuant to which UMI
and HAMC became wholly-owned subsidiaries of the Company.

<PAGE>

As a result of such  transactions,  the following shares of Class A Common Stock
were issued by the Company:  1,500,000 shares to CFC; 100,000 shares to UMI; and
310,000 shares to AB Securities,  Inc. As part of the  transaction,  the Company
issued a note to AB Securities, Inc. in the principal amount of $300,000 bearing
interest at 10% per annum and due March 31,  1998.  During  1998,  CFC  canceled
1,000,000  shares  of the stock  that had been  issued  to it,  and the  Company
reserved  approximately  700,000 additional shares of Class A Common Stock which
appear to be due to AB Securities,  Inc. under the agreement. As of December 31,
1998,  these reserved shares are not considered  issued and outstanding and have
not been reflected in the share amounts set forth in this Form 10-KSB.

         The  910,000  shares  which  have  been  issued  pursuant  to the above
transactions  as of  December  31, 1999 were valued at $1.67 per share which was
the fair market  value on the date of issuance.  All of such shares  constituted
restricted  securities as defined in Rule 144 promulgated under the Act and were
issued pursuant to the exemption from  registration set forth in Section 4(2) of
the Act.

         During 1998, FSR, a company owned by Mr. Richardson,  borrowed from the
Company  the amount of  $280,000.  As of  December  31,  1998,  FSR  assumed the
outstanding  obligation  due  from the  Company  to ABS in full  payment  of the
obligation due from FSR to the Company. ABS consented to this arrangement.

         During 1997,  the Company  issued to Mr.  Richardson  48,000  shares of
Class A Common  Stock in payment of out of pocket  expenses  incurred  by him on
behalf of the  Company.  Such  shares  were  valued at $1.00  which was the fair
market value on the date of issuance.  All of such shares constituted restricted
securities as defined in Rule 144  promulgated  under the Act and were issued to
him pursuant to the exemption from registration set forth in Section 4(2) of the
Act.

         In September 1998, the Board of Directors  approved the issuance to the
Sarah Saul Simon Trust of 1,000,000 shares of Class B Common Stock.

         During 1997 and 1998,  the Company  issued  63,000 and 60,000 shares of
Class A Common Stock,  respectively,  to Ed Huyta, for reimbursement of expenses
paid by him on behalf of the Company. Such shares were valued at $1.00 per share
which was the fair  market  value on the date of  issuance.  All of such  shares
constituted  restricted  securities as defined in Rule 144 promulgated under the
Act and were issued to him pursuant to the exemption from registration set forth
in Section 4(2) of the Act.

         During 1997 and 1998,  the Company issued an aggregate of 30,000 shares
of Common Stock to Gregory Dutcher, a former Director of the Company, in payment
of  rental  for the  Company's  former  executive  offices  located  at 7979 Old
Georgetown Road, Bethesda,

<PAGE>

Maryland.  The lease  expired on January 1, 1998,  and was at a rental of $2,000
per month.  Such  shares  were valued at an average of $1.33 per share which was
the fair market  value on the date of issuance.  All of such shares  constituted
restricted  securities as defined in Rule 144 promulgated under the Act and were
issued to him pursuant to the exemption from  registration  set forth in Section
4(2) of the Act.

         During 1998, the Company issued the following  shares of Class A Common
Stock to its  officers  in payment of all accrued  salary or expenses  due under
their respective  employment  agreements:  Max Apple-180,000  shares; and Walter
DeRonde-120,000.  These agreements were terminated  effective December 31, 1998,
and no further payments are due under such  agreements.  Such shares were valued
at $1.00 per share which was the fair market value on the date of issuance.  All
of such  shares  constituted  restricted  securities  as  defined  in  Rule  144
promulgated  under the Act and were issued to him pursuant to the exemption from
registration set forth in Section 4(2) of the Act.

         During 1998,  the Company  issued 60,000 shares of Class A Common Stock
to Edward Hutya, a Director,  in exchange for a prior  investment in the Company
made by him in 1995.  Such  shares  were valued at $1.00 per share which was the
fair  market  value  on the date of  issuance.  All of such  shares  constituted
restricted  securities as defined in Rule 144 promulgated under the Act and were
issued to him pursuant to the exemption from  registration  set forth in Section
4(2) of the Act.

Item 13.          Exhibits, Consolidated Financial Statement
                  Schedules and Reports on Form 8-K.

         (a)      Consolidated Financial Statements filed herewith at Item
                  7 hereof include balance sheets at December 31, 1998 and
                  1997 and statements of operations, stockholders equity,
                  and cash flows, for the years ended December 31, 1998 and
                  1997.  All other schedules for which provision is made in
                  regulation S-B of the Commission are not required under
                  the related instruction or are not applicable and
                  therefore have been omitted.

         (b)      No reports on 8-K were filed by the  Company  during the final
                  quarter of 1998.

         (c)      The  following  exhibits  are being filed as part of this Form
                  10-KSB:

      Exhibit No.                                     Description
      -----------                                     -----------

         3.1                          Articles of Incorporation (incorporated by
                                      reference to the Company's  Report on Form
                                      10-K for the year ended December 31, 1981)

<PAGE>

         3.2                          Articles  of  Amendment  (incorporated  by
                                      reference to the Company's  Report on Form
                                      10-K for the year ended December 31, 1981)

**       3.3                          Amendment of Article Three of the Articles
                                      of Incorporation dated September 11, 1998

**       3.3.1                        Amendment  of Article Six of the  Articles
                                      of Incorporation dated September 11, 1998

         3.4                          By-laws  (incorporated by reference to the
                                      Company's Report on Form 10-K for the year
                                      ended December 31, 1987)

         10.1                         International Mercantile Corporation Group
                                      Compensation  Plan dated  November 4, 1997
                                      (incorporated  by  reference  from Exhibit
                                      3.2 to Form S-8 filed  November  9,  1998,
                                      No. 333-66965)

**       27.1                         Financial Data Schedule (Electronic Filing
                                      Only)

**-Filed herewith

<PAGE>

                                   SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) 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

                                    By:   /s/  Timothy Jewell
                                        ---------------------------------
                                        Timothy Jewell, Chief Executive
                                        Officer, President

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the  registrant and
in the capacities and on the dates indicated.

<TABLE>
<CAPTION>

     Signatures                                 Title                                      Date
     ----------                                 -----                                      ----

<S>                                        <C>                                       <C>
/s/ Frederic S. Richardson
----------------------------               Chairman of the Board,                    September 24, 1999
Frederic S. Richardson                     Chief Financial Officer,
                                           (Principal Accounting Officer)

/s/ M. Scott Hess
----------------------------               Director                                  September 24, 1999
M. Scott Hess

/s/ Max W. Apple
----------------------------               Secretary, Director                       September 24, 1999
Max W. Apple

/s/ Timothy Jewell
----------------------------               President, Chief Executive
Timothy Jewell                             Officer, Director (Principal
                                           Executive Officer)                        September 24, 1999
</TABLE>