<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D. C. 20549

                                   FORM 10-K

                 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

  For the Fiscal Year Ended                            Commission File Number
     December 31, 1996                                        0-7693
  -------------------------                            ------------------------


                      INTERNATIONAL MERCANTILE CORPORATION
             ------------------------------------------------------
             (Exact name of Registrant as specified in its charter)

<TABLE>
<S>                                                 <C>
       Missouri                                      43-0970243           
---------------------------                          ---------------------
(State or other jurisdiction                        (IRS Employer
of Incorporation of                                 Identification
Organization)                                       Number)
                                                    
7979 Old Georgetown Road, Bethesda MD               20814       
------------------------------------                ------------
(Address of principal executive offices)            (Zip Code)
</TABLE>

                                 (301) 774-6913
                                 --------------

          Securities Registered Pursuant to Section 12(g) of the Act:
                    Common Stock, par value $1.00 per share
                    ---------------------------------------
                                (Title of Class)

Indicate by checkmark 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 such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past (90) days.

            Yes                              No      X
                ------------                    ------------

Number of shares of Common Stock Outstanding December 31, 1996

                                   3,133,151 
                                   ---------
<PAGE>   2
                                     PART I

ITEM 1.          BUSINESS

         GENERAL

         International Mercantile Corporation, a Missouri corporation ("IMC",
the "Company" or "Registrant") was incorporated on March 10, 1971, for the
purpose of acquiring Frontier Insurance Company ("FIC" or "Frontier") and
Universal Life Holding Corporation ("ULHC" or "Universal").  IMC effected these
acquisitions on August 31, 1973.  IMC subsequently acquired a controlling
interest in Sterling Financial Corporation ("SFC").  IMC is a holding company
whose principal business as of December 31, 1995 was Home America Mortgage
Company ("HAMC"), but which had no principal business as of December 31, 1996.

         BUSINESS OVERVIEW - FRONTIER INSURANCE COMPANY

         At December 31, 1994 Frontier was no longer issuing new business due
to regulatory actions and a voluntary commitment on Frontier's part to the
State of Missouri.  Additionally, in the fourth quarter of 1994,  Frontier
entered into an Assumption/ Reinsurance Agreement with Mid-South Insurance
Frontier pursuant to which Frontier transferred all policyholder liabilities,
effective October 1, 1994.  On November 17, 1995, the Company sold Frontier by
transferring all of its stock in Frontier for full satisfaction of a note owed
to two former officers of the Company, Robert and William Bruce, cancellation
of consulting agreements, and cancellation of all intercompany receivables and
payables.  In addition, the Company transferred its accrued rights to
commissions due from the former third party administrator and all of the
obligations of Ventana Corporation f/k/a The C. J. Brown Corporation ("CJB")
held by the Company.  The Company assigned all of its rights regarding
litigation against the Ventana Corporation and its officers to Frontier.  As a
result of this sale, the Company incurred a loss of $1,652,689.

         SALE OF INTERNATIONAL FINANCIAL SERVICES LIFE INSURANCE COMPANY

         As of January 1, 1994, FIC was the 100% owner of International
Financial Services ("IFS").

         On April 15, 1994, FIC entered into a Stock Purchase Agreement (the
"Agreement")  with Franklin American Corporation, a Tennessee corporation
("Franklin"), pursuant to the terms of which Agreement FIC agreed to sell to
Franklin,





                                       2
<PAGE>   3
and Franklin agreed to purchase from FIC, shares (the "Shares") of the common
capital stock of IFS, representing all of the issued and outstanding common
stock of IFS.

         The nature and amount of the consideration to be paid to FIC by
Franklin for the purchase of the Shares were as follows: The aggregate purchase
price of the Shares equaled the sum of (a) the current market value of IFS'
total assets as of the fifth business day prior to the closing date less IFS'
total liabilities calculated on a statutory basis as of the closing date, plus
(b) $1,155,000, based on FIC's providing valid licenses authorizing IFS to
conduct business in 42 states.  The purchase price was required to be reduced
by $27,500 per state in which a valid license authorizing IFS to transact the
business of insurance therein was not delivered by FIC at closing.  The
purchase price was to be paid by Franklin through a wire transfer from
Franklin's bank to FIC's bank, which was to occur and be confirmed to FIC at
the closing, subject to any required regulatory approvals.

         Payment was required for each state wherein FIC could  affirm that
IFS' said licenses were outstanding.  If such licenses in any of the following
states were not outstanding, then there was no obligation for Franklin to
proceed with the purchase:  North Carolina, New Mexico, Oklahoma, Nevada,
Texas, Colorado, California, Pennsylvania, Arizona, Nebraska and Florida.

         The consideration paid by Franklin for the Shares was determined
through arm's-length negotiations.  Neither Franklin, nor any of its officers
or directors, is in any way affiliated with, or related to, FIC.  The Company
had loss on the sale in the amount of $775,508.

         BUSINESS OVERVIEW-HOME AMERICA MORTGAGE COMPANY

         Home America Mortgage Company ("HAMC") was incorporated in 1986 under
the name Realty Mortgage Company and began operations as a residential mortgage
brokerage operation.  Frontier purchased  HAMC from CJB in October, 1992.

         HAMC's target markets were traditionally along the "I-10 Corridor"  in
Louisiana, primarily the cities of Lafayette, Baton Rouge, and New Orleans.
Additional offices were acquired from an unrelated mortgage operation in Lake
Charles and Monroe, Louisiana and Huntsville and Birmingham, Alabama in July,
1994.  Dallas, Texas, was also a major target market due to a corporate
affiliation with Murray Realtors of Dallas.  However, with the market downturn
more fully explained hereafter, the Dallas office was closed in November, 1994.

         HAMC was organized and, when active, operated as a provider of first
mortgage residential home loans.  HAMC originated, processed, underwrote,
closed, funded and delivered qualifying home loans to established mortgage
companies throughout the





                                       3
<PAGE>   4
country.  HAMC released the loan servicing function to these investors in order
to generate fee income and to concentrate solely on the production aspect of
the lending process.

         HAMC offered a full menu of mortgage loan products, including
conventional and jumbo fixed rate, balloon and adjustable loan products.
Federal Housing Administration (FHA) and Veterans Administration (VA) loans are
also available.

         HAMC was a full service lender having in-house underwriting capability
as well as closing all loans in its own name.  HAMC did draw on three
"warehouse" bank lines totaling $26, 000,000 to fund loans short term until
they could be delivered and purchased by investors as of December 31, 1994.

         HAMC originated over 1,056 loans totaling $90,000,000 in 1994 and
1,190 in 1993 totaling over$92,000,000.  HAMC earned revenues primarily from
three (3) income streams:

                    (1)      Origination fees
                    
                    (2)      Servicing- release fees
                    
                    (3)      Discount income

         Origination fees are up-front fees charged to the customer which equal
approximately 1% of the anticipated loan amount.  This fee is collected at the
time of loan closing.  HAMC produced $798,149 in fees in 1994 and $784,700 in
1993.

         Servicing-release fees are those fees paid to HAMC by its investors in
exchange for the release of the "loan servicing rights" on each loan.  These
fees differ with each loan program and loan size.  HAMC sometimes used part of
this income stream to offset discount quotes from its investors in order to be
competitive with street rate quotes.  HAMC's servicing-release fees were
$885,237 in 1994 and $1,074,500 for 1993 compared to approximately 360,000 in
1995.  HAMC ceased operations in 1995.

         Discount income consists of up-front fees (points) charged by the
lender, which are designed to increase the overall yield to the lender.
Discount income generated in 1994 amounted to $515,252 and $675,300 for 1993
compared to approximately $120,000 in 1995.

         HAMC also generated miscellaneous income in 1994, in the form of
underwriting fees, which amounted to $92, 798.  Miscellaneous income in 1993,
in the form of underwriting and processing fees, amounted to $53,800 and
$10,000 respectively.  There was no miscellaneous income in 1995.





                                       4
<PAGE>   5
         As a result of the Settlement Agreement between Robert and William
Bruce and IMC in November of 1995,  Robert and William Bruce obtained a
controlling interest in FIC,  IMC relinquished any and all equity interest it
had in FIC,  and IMC retained 100% ownership of HAMC common stock.  HAMC
received a mortgage executed by a consultant to IMC in the approximate amount
of $200,000.  In 1996, said mortgage was offset by fees incurred, and the
remaining asset and related mortgage debt of HAMC were transferred to Robert
and William Bruce.  HAMC has had no operations since November of 1995.  
 .

         UNIVERSAL LIFE HOLDING CORPORATION

         Universal Life Holding Corporation ("Universal" or "ULHC") was
incorporated under the laws of Illinois on August 13, 1964.  Historically, the
principal business of Universal has been in real estate development, ownership,
and management and the investment in Frontier Insurance Company.  On May 4,
1995, the Company exchanged all of the common stock in ULHC owned by the
Company for forgiveness of the notes and other payables owed by the Company to
ULHC.  The Company incurred a gain on the sale in the amount of $751,089.

         OTHER EVENTS OCCURRING IN 1996

         On August 14, 1996, the Company executed an agreement to purchase 100%
of the outstanding capital stock of a corporation that has the rights to
develop and operate an ambulatory surgery center in Waldorf, Maryland, for
250,000 shares of the Company's common stock.   The seller would retain 70% of
the voting rights under a voting trust agreement.  The Company agreed to
furnish within 15 days a commitment letter to raise equity capital in the
amount of $3,000,000.  The equity funding was to be provided within 90 days of
the execution of the agreement.  The Company was unable to raise the equity
within the 90 day period, therefore the agreement was canceled.

         In November 1996, the Company attempted to acquire 100% of  the
outstanding capital stock of Great Ape Bike Company for 250,000 shares of
company common stock.  The seller would retain 70% of the voting rights under a
voting trust agreement.  The Company agreed to furnish within 15 days a
commitment letter to raise equity capital in the amount of $5,000,000.  The
equity funding was to be provided within 90 days of the execution of the
agreement.  The company was unable to raise the equity within the 90 day
period, therefore the agreement was canceled.

         On September 18, 1996, the Company entered into an agreement to
purchase 100% of the capital stock of University Consulting, Inc. ("UC") for
387,500 shares of the company's common stock valued at $387,500.  UC owns and
operates a mortgage company, title company and income tax and accounting
service business.  This agreement was canceled in December, 1996.





                                       5
<PAGE>   6
ITEM 2.  PROPERTIES

         The Company owned no real properties as of December 31, 1996 and owns
none at the time of filing of this report.

ITEM 3. LEGAL PROCEEDINGS

         ADMINISTRATIVE ACTIONS TAKEN BY STATE DEPARTMENTS OF INSURANCE
                 On March 15, 1995, the Board of Directors of Frontier adopted
         a resolution stating that, because of concerns of the Commissioner of
         Insurance of the State of Texas regarding Frontier's financial
         condition, Frontier would  voluntarily cease writing business in the
         State of Texas until it notifies the Commission of the intent to write
         further business and provides the Commission with information
         establishing that it is in compliance with Texas insurance code.
         Frontier has no current plans to write further business in the State
         of Texas.

                 By letter dated February 10, 1995, Frontier voluntarily agreed
         with the Missouri Department of Insurance not to write any new
         business or acquire any policyholder liability without first having
         discussions with the Missouri Department of Insurance.

                 The Illinois Department of Insurance, by Order dated January
         27, 1994, has rescinded its previous Order  suspending Frontier's
         authority of transact insurance business in the State.

                 On January 25, 1994, the Commissioner of Insurance of the
         State of Louisiana issued a Cease and Desist Order to Frontier
         ordering Frontier to cease and desist from the writing of any and all
         new and /or renewal polices of insurance coverage in the State of
         Louisiana.

                 SEC INVESTIGATION

                 On May 14, 1993, Registrant's executive officers were advised
         by officials of the Enforcement Division of the United States
         Securities and Exchange Commission (the "Commission"), that an
         informal investigation of Registrant, FIC and ULHC was being conducted
         by the Commission.


                 On or about November 22, 1993, Registrant's executive officers
         were advised by telephone by officials of the Enforcement Division of
         the Commission that the Commission had ordered that a formal private
         investigation of Registrant,





                                       6
<PAGE>   7
         FIC and ULHC be conducted pursuant to Section 20 (a) of the Securities
         Act of 1933 and Section 21 (a) of the Securities Act of 1934.

                 Registrant's officers, directors, auditors and attorneys have
         complied with all requests made of them by representatives of the
         commission in connection with the said investigations, including all
         requests for the production of documents and information pertaining to
         Registrant and its affiliates.

                 Additionally, certain officers, directors and others
         affiliated with Registrant have given testimony before the Staff of
         the Commission.

                 Following extensive testimony, the Commission notified the
         Registrant by letter dated October 11, 1994 that the staff of the
         Division of Enforcement intended to recommend filing a civil
         injunctive action in Federal District Court against Registrant and its
         affiliates, Frontier Insurance Company and Universal Life Holding
         Corporation, for violating Section 10 (b), 14 (a), 13 (a), 13 (b) (2)
         (A) and (B) of the Securities Exchange Act of 1934 and Rules 10b-5,
         13a-1, 13a-13, and 12b-20 thereunder.  The staff also stated its
         intention to recommend that Registrant and its affiliates, FIC and
         Universal Life Holding Corporation, pay penalties arising from the
         failure of each company to file timely certain periodic reports as
         required by the federal securities laws.

                 Through counsel, FIC responded to the Commission on November
         30, 1994, agreeing to consent to an injunction against future
         violations of federal securities regulations and agreeing to pay a
         $50,000 fine in lieu of any other fines or penalties which could or
         might be assessed against FIC, Registrant and Universal Life Holding
         Corporation. This offer for settlement was accepted in August, 1995,
         and no further investigation of Registrant is pending.


                 JANET L. MERTZ, EDWIN H. MERTZ, GLENN E. MERTZ, EDNA L. MERTZ,
         DENNY W. MERTZ AND VALERIE J. MERTZ VS. INTERNATIONAL MERCANTILE
         CORPORATION.

                 On June 25, 1993, a Petition on Note was filed against IMC in
         the Circuit Court of Cole County, Missouri, seeking damages in the
         amount of $54,294.00, plus interest and attorney's fees, for default
         on numerous promissory notes.  The Petition alleged that there were
         promissory notes issued by IMC in favor of the plaintiffs which were
         due in February, 1993, and which IMC had refused to pay.  In June,
         1994, the plaintiffs' Motion for Summary Judgment  was granted and





                                       7
<PAGE>   8
         Judgment entered against IMC in the aggregate amount of $70,819.55.
         As of  December 31, 1996, the judgment had not been satisfied and was
         still pending.


                 DOWNARD / WEGMAN LITIGATION

                 On December 21, 1993, a Petition (the "Petition") was filed in
         the Circuit Court of Cole County, Missouri, by Lloyd Downard and Ken
         Wegman, as Plaintiffs (the "Plaintiffs"), against the Registrant, FIC,
         and certain other defendants.  In the Petition, the Plaintiffs alleged
         that the Registrant had defaulted in payments due each of the
         Plaintiffs under agreements entered into between each of the
         Plaintiffs and the Registrant, FIC, and The C. J. Brown Corporation, a
         Louisiana corporation, dated November 19, 1991, said defaults being in
         the amounts of (i) $77,336 under the said Downard agreement, and (ii)
         $24,268 under the said Wegman agreement said defaults consisting only
         of the amounts not paid when due and not the amounts in total due
         under said agreements.

                 The Petition further alleged that certain of the defendants,
         including the Registrant, "conspired to intentionally and improperly
         interfere with the contractual relationship between (the Plaintiffs)
         and defendant, International Mercantile Corporation, by causing (the
         Plaintiffs) not to be paid."  For this, the Plaintiffs each sought
         punitive damages from the defendants, jointly and severally, in the
         amount of $250,000 on each of several counts.

                 By Mutual Release and Settlement Agreement dated August 23,
         1994, Registrant and its affiliate, FIC, were released from all of its
         claims with regard to said Petition.  Under the terms of the
         settlement, Registrant paid Downard the sum of $268,000 and Wegman the
         sum of $132,000 in full satisfaction of all claims against Registrant
         and FIC.  Registrant and FIC were subsequently released, with
         prejudice, from said litigation.


             BRUCE AND BRUCE V. THE C. J. BROWN CORPORATION, ET AL

                 On March 2, 1995, Robert E. Bruce and William D. Bruce filed a
         Complaint in the United States District Court, Western District of
         Missouri, Western Division, seeking a declaratory judgment releasing
         them of any liabilities which they may have under a certain Stock
         Purchase Agreement dated August 25, 1994, entered into by CJB, Life
         America Corporation ("LAC"), Ronald T. Benitez, 1122 Corporation and
         the plaintiffs.  That agreement, to which neither Registrant nor any
         of its affiliates was a party, set forth a series of transactions by
         which the said plaintiffs would acquire a controlling interest in
         Registrant and its affiliates.  Settlement was reached in 1996 between
         the parties.





                                       8
<PAGE>   9
        THE VENTANA CORPORATION, ET AL. V. WILLIAMS D. BRUCE, ET AL.

        In a Petition for Breach of Contract, Damages and Specific Performance
filed in the 19th Judicial Circuit for the Parish of East Baton Rouge,
Louisiana, on March 10, 1995, the Ventana Corporation (formerly The C. J. Brown
Corporation) filed an action against William D. Bruce, Robert E. Bruce and IMC
seeking damages for a breach of the Stock Purchase Agreement (See Bruce and
Bruce v. The C. J. Brown Corporation, et al., above) and specific performance
of the related Stock Redemption Agreement.  This suit was also settled in 1996.

        IN RE:  THE VENTANA CORPORATION A/K/A THE C. J. BROWN CORPORATION.

        On March 17, 1995, IMC and Home America Mortgage Company, a subsidiary
of IMC, filed an involuntary bankruptcy petition against the Ventana
Corporation.  Ronald Brignac, a former director of Registrant, was the third
creditor bringing the involuntary bankruptcy action.  Settlement of this action
was also reached in 1996.

ITEM 4.           SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
         
         None.
         
                            PART II
         
ITEM 5.           MARKET FOR COMPANY'S COMMON STOCK AND RELATED
                  STOCKHOLDER MATTERS
         
         There is no principal market for IMC stock.  The value of the stock
would be determined by negotiation between the trading parties.  A cash
dividend has never been paid on the common stock.



         Transfer Agent and Registrar:


         Curt Hughe
         Interwest Transfer Agent
         1981 East 4800 South, Suite 100
         Salt Lake City, Utah   84117
         (801) 272-9294





                                       9
<PAGE>   10
ITEM 6.          SELECTED FINANCIAL DATA

         See attached financial statements.

ITEM 7.          MANAGEMENT'S DISCUSSION & ANALYSIS (MDA)

         The Company has suffered severe losses for the past six years.
Management has not been able to secure working capital for the Company from
outside debt or equity funding sources.

         Management has spent considerable time and effort to bring the
Company's public securities filings current to allow it to merge with, acquire
or be acquired by another company.  At this point in time management has
several such business combination candidates and plans to work aggressively in
the area when its filings are current.

         There is no cash flow from operations and unless the Company can
successfully develop relationships with financial sources and acquire an
operating company which can immediately generate cash flow from operations, no
cash flow is anticipated.

         HAMC ceased operations in 1995 and is currently inactive.

         To bring operational capability and positive cash flow to IMC,
management will seek to acquire assets that will improve the overall financial
picture of the Company.  Management plans to restructure the capital stock of
the Company by reducing the total number of outstanding common shares and
introducing new classes of stock.

         This plan of acquisition and reorganization should put the Company in
a better position to attract working capital from debt and equity sources.
There is absolutely no assurance that any or all of these steps can be
successfully completed.  In the event that management fails to meet its goals,
the Company will not be a viable going concern and may face bankruptcy or
liquidation.

         The Company has ongoing cash demands that are not being met.
Management has agreed to be paid in stock to minimize the cash burden to the
Company.  There are several advisors, consultants and professionals who are due
fees, and management plans to fulfill these responsibilities first since these
advisors, professionals and consultants are necessary to bring the Company's
public filings current and inject working capital and operational assets into
the Company.





                                       10
<PAGE>   11

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         See attached Financial Statements.



ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

         None.


                                    PART III

ITEM 10.         DIRECTORS AND EXECUTIVE OFFICER OF COMPANY
<TABLE>
<CAPTION>
                          Principal
                          Occupation                        Director/
                          or Employment                     Officer
                          for Past Five Years                of              IMC
                          and Director-                     Company          Shares
                 Age      Ship                              Since            Owned
                 ---      ----                              -----            -----

<S>              <C>      <C>                               <C>              <C>
Max Apple        58       Chairman of the Board             1995             None
                          and Director,
                          IMC, 1995 to present.
                          1991 to present, attorney,
                          private law practice,
                          Jasper, Indiana

Eric Attia       36       President and Director,           1995             None
                          IMC, 1995 to present.
                          1991 to 1995, Director of
                          Mergers and Acquisitions,
                          Optimum Consulting, Inc.
                          San Diego, California

Ehud Lissauer    28       Director,                         1995             None
                          IMC, 1995 to present.
                          1991 to present, Vice
                          President, United American
                          Export, Inc.
</TABLE>





                                       11
<PAGE>   12

<TABLE>
<S>              <C>      <C>                               <C>              <C>
Gregory Dutcher  38       Secretary and Director            1996             None
                          IMC, 1996 to present.
                          1993 to present,
                          President, Oxford Funding
</TABLE>


ITEM 11.         EXECUTIVE COMPENSATION

         No cash compensation, including bonuses and deferred compensation, was
paid during 1996 by IMC to any of its executive officers.  No fees were paid to
Board members for attending Board meetings during 1996.  Shares of the
Company's common stock may be issued to its officers representing the fair
market value of services actually rendered by them without pay and as
reimbursement for expenses actually incurred by them in the performance of
their duties as officers of the Company.


ITEM 12.         SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND 
                       MANAGEMENT

         The following table sets forth, as of December 31, 1996, the only
persons known to the Company to be the beneficial owners of more than five
percent (5%) of the outstanding number of Shares in IMC:

<TABLE>
<CAPTION>
                                                   Amount &         Equity           Voting
Title                                              Nature of        Percent          Percent
  of             Name and Address of               Beneficial         of             of
Class            Beneficial Owner                  Ownership (1)    Class            Class
-----            ----------------                  -------------    -----            -----
<S>              <C>                                    <C>           <C>             <C>
Common           Robert E. Bruce                        891,500 (2)   28.45            8.66
                 916 Sherwood Drive
                 Lake Bluff, IL   70044

Common           William D. Bruce                       891,500 (2)   28.45            8.66
                 916 Sherwood Drive
                 Lake Bluff, IL  70044

Common           Frontier Insurance                     213,158 (3)    6.80           13.05
                 Company Employee Stock
                 Ownership Trust
                 8146 One Calais, Ste 104
                 Baton Rouge, LA  70809
</TABLE>





                                       12
<PAGE>   13

<TABLE>
<S>              <C>                                    <C>             <C>                 <C>
Common           Sterling Financial                     205,000         6.54                12.55
                 Corporation
                 1715 S.  Capital Tx. Hwy.
                 Suite 200-D
                 Austin, TX  78746-6561
</TABLE>

----------------------------------------
(1)      To the best knowledge of the Company, as of December 31, 1996, such
holders had the sole voting and investment power with respect to the voting
securities of IMC beneficially owned by them, unless otherwise indicated by
footnote.

(2)      Of the shares owned by William and Robert Bruce, 1,500,000 shares are
non-voting as of December 31, 1994.  These shares became non-voting in
November, 1994 as a result of  the former owner of these shares, Life America's
failure to honor the IMC shareholders' option to cause Life America Corporation
to purchase any and all outstanding shares of International Mercantile
Corporation, which option was part of the original Purchase and Sale Agreement
of Corporate Stock dated July 29, 1991 pursuant to which Life America acquired
a controlling interest in IMC.

(3)      Under FIC's Employee Stock Ownership Plan and Agreement ("ESOP"),
employees have the right to vote shares of such stock allocated to their
account.  The ESOP's Administrative  Committee, which was appointed by the FIC
Board, may be deemed to share investment power with the ESOP Trustee, Boatmen's
First National Bank of Kansas City, Kansas City, Missouri, over all shares held
in the ESOP, in that the Committee may give investment instructions to the
Trustee, and also may be deemed to share voting power with the Trustee over
shares not allocated to participant accounts in that it may direct the Trustee
as to the voting of such shares.


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         In 1994, the Company paid $400,000 to settle consulting and
non-competitive agreements with two former members of the Board of Directors.
See Item 3, above.





                                       13
<PAGE>   14
                                    PART IV

ITEM 14.         EXHIBITS, FINANCIAL STATEMENT, SCHEDULES AND REPORTS ON FORM
                 8-K

(a)      Financial Statements - International Mercantile Corporation

         Independent Auditors' Report

         Balance Sheets as of December 31, 1996 and 1995

         Statements of Operations for the Years ended December 31, 1996, 1995
         and 1994

         Statements of Changes in Stockholders' Equity (Deficiency) for the
         Years Ended December 31, 1996, 1995 and 1994

         Statements of Cash Flows for the Years Ended December 31, 1996, 1995
         and 1994

         Notes to Financial Statements as of December 31, 1996 and 1995

(b)      Reports on Form 8-K

(c)      Exhibits:

3(a)     Articles of Incorporation of the Company*

3(b)     Articles of Amendment of the Company*

3(c)     Bylaws of Company****
4(a)     Note dated December, 1985, from Company to Frontier **

4(b)     Note dated December, 1985, from Company to Universal**

4(c)     Noted dated December, 1985, from Company to Sterling**

4(d)     Note dated December, 1982, from Universal to Community Federal Savings
and Loan**

4(e)     Note dated December, 1982, from Shepherd Hills Manor, Ltd. to
Universal **





                                       14
<PAGE>   15
4 (f)    Note dated September, 1985, from Company to BMA, secured by a deed of
trust on the Company's office facility**

4 (g)    Note dated May, 1986, from Company Merchants Bank, secured by capital
stock of Frontier and Sterling**

4 (h)    Notes dated February, 1983, from Company to former shareholders of
SFC**

4 (I)    Contributions Agreement of Frontier dated June 1985, relating to
annual contribution to Frontier ESOP**

4 (j)    Note dated February, 1988, from Company to Universal ****

4 (k)    Note dated May 24, 1988, from Company to Frontier *****

10 (a)   Incentive Stock Option Plan*

10 (b)   Agreement between Company and Lloyd R. Downard and Kenneth Wegman
(change in control agreements with management).

10 (c)   Lease Agreement between Company and Frontier**

10 (d)   From of sublease agreements between Frontier and Company, Universal
and Sterling**

10 (e)   Settlement Agreement ***

10 (f)   Extension and Modification Agreement ***

10 (g)   Assumption of Consulting Agreement ****
10 (h)   Deferred Compensation Agreement *****

10 (i)   Exchange Agreement between International Mercantile Corporation and
Sterling Financial Corporation dated December 7, 1992******

10 (j)   Amendment to Exchange Agreement between International Mercantile
Corporation and Sterling Financial Corporation dated December 7, 1992, such
Amendment dated December 18, 1992*******

10 (k)   Reinsurance Agreement between Frontier Insurance Company and Central
Security Life Insurance Company, dated August 3, 1993 ********





                                       15
<PAGE>   16
         10(1)  Contract for Home Office Administrative and Data Processing
         Services between Frontier Insurance Company and Central Security Life
         Insurance Company dated September 23, 1993*********

         10(m)  Stock Redemption Agreement, dated December 10, 1993, between
         International Mercantile Corporation and Frontier Insurance
         Company**********

         10(n)  First Amendment to Exchange Agreement dated February 17, 1994,
         between International Mercantile Corporation and Sterling Financial
         Corporation***********

         10(o)  Agreement, dated August 29, 1994, between The C. J. Brown
         Corporation, Life America Corporation, Ronald T. Benitez, 1122
         Corporation and Robert E. Bruce and William D. Bruce, along with the
         various exhibits thereto, including Stock Purchase Agreement and Stock
         Redemption Agreement.************

         11(a)  Letter addressed to the Commission from FIC's former
         independent certifying accounts, Grant Thornton, dated May 7, 1993, in
         response to FIC's request that Grant Thornton furnish it with a letter
         addressed to the Commission stating whether it agreed with the
         statements made by the FIC in its initial Form 8-K, dated April 29,
         1993, pursuant to Item 304 (a) of Regulation S-K*******

*        These items were filed in the Company's Annual Report on Form 10-K
         dated December 31, 1981 File No. 0-7693), and are incorporated herein
         by reference.

**       These items were filed in the Company's Annual Report on Form 10-K
         dated December 31, 1986 (File No. 0-7693), and are incorporated
         herein by reference.

***      These items were filed on the Form 8-K dated May 22, 1987 (File No.
         0-7693), and are incorporated herein by reference.

****     These items were filed in the Company's Annual Report on Form 10-K
         dated December 31, 1987 (File NO. 0-7693), and are incorporated herein
         by reference.

*****    These items were filed in the Company's Annual Report on Form 10-K
         dated December 31, 1988 (File No. 0-7693), and are incorporated herein
         by reference.

******   These items were filed on the Form 8-K dated December 9, 1992
         (File No. 0-7693), and are incorporated herein by reference.

*******  These items were filed on the Form 8-K dated May 10, 1993
         (File No. 0-2650), and are incorporated herein by reference.





                                       16
<PAGE>   17
******** These items were filed on the Form 8-K dated August 18,1993
      (File No. 0-7693), and are incorporated herein by reference.

********* These items were filed on the Form 8-K dated September 23, 1993
      (File No. 0-2650), and are incorporated herein by reference.

**********This item was filed on the Form 8-K dated January 4, 1994
      (File No. 0-7693) and is incorporated herein by reference.

***********This item was filed on the Form 8-K dated February 17, 1994
      (File No. 0-7693) and is incorporated herein by reference.

************These items were filed on the Form 8-K dated September 12, 1994
      (File No. 0-7693) and are incorporated herein by reference.


         SIGNATURES

         Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                  INTERNATIONAL MERCANTILE CORPORATION

DATE:     7/7/97                  BY: /s/ MAX APPLE                          
     -------------                   ---------------------------------
                                     MAX APPLE, CHAIRMAN AND DIRECTOR



DATE:     7/8/97                  BY: /s/ ERIC ATTIA                         
     -------------                   ---------------------------------
                                     ERIC ATTIA, PRESIDENT, PRINCIPAL
                                     FINANCIAL OFFICER, PRINCIPAL ACCOUNTING
                                     OFFICER AND DIRECTOR

DATE:  7 July 97                  BY: /s/ EHUD LISSAUER                     
     -------------                   ---------------------------------
                                     EHUD LISSAUER, SECRETARY AND DIRECTOR


DATE:     7/8/97                  BY: /s/ GREGORY DUTCHER                    
     -------------                   ---------------------------------
                                     GREGORY DUTCHER,
                                     SECRETARY AND DIRECTOR





                                       17
<PAGE>   18
                      INTERNATIONAL MERCANTILE CORPORATION


                                     REPORT

                            AS OF DECEMBER 31, 1996
<PAGE>   19
                 [WEINBERG, PERSHES & COMPANY, P.A. LETTERHEAD]


                          INDEPENDENT AUDITORS' REPORT

To the Board of Directors of:
 International Mercantile Corporation

We have audited the accompanying balance sheets of International Mercantile
Corporation as of December 31, 1996 and 1995 and the related statements of
operations, changes in stockholders' equity and cash flows for the three years
then ended.  These financial statements are the responsibility of the Company's
management.  Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards.  Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement.  An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.  An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.  We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of International Mercantile
Corporation as of December 31, 1996 and 1995, and the results of their
operations and cash flows for the three years then ended in conformity with
generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that
International Mercantile Corporation will continue as a going concern.  As
discussed in Note 2 to the financial statements, the Company has no current
operations, no current assets and has a substantial deficit, which raises
substantial doubt about its ability to continue as a going concern.
Management's plans in regard to this matter are also described in Note 2.  The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.

                              Weinberg, Pershes & Company, P.A.

                              /s/ WEINBERG, PERSHES & COMPANY, P.A.

Boca Raton, Florida
May 16, 1997





                                      F-1
<PAGE>   20
                      INTERNATIONAL MERCANTILE CORPORATION
                                 BALANCE SHEETS
                        AS OF DECEMBER 31, 1996 AND 1995


<TABLE>
<CAPTION>
                                  ASSETS
                                  ------


                                                      1996        1995    
                                                  -----------  -----------
<S>                                               <C>          <C>
Cash                                                     -            -

Other Receivables                                        -            -

Net Assets of Subsidiaries Sold                          -            -   
                                                  -----------  -----------

TOTAL ASSETS                                      $      -     $      -   
------------                                      ===========  ===========


<CAPTION>
               LIABILITIES AND STOCKHOLDERS' EQUITY DEFICIENCY
               -----------------------------------------------


                                                     1996         1995    
                                                  -----------  -----------
<S>                                               <C>          <C>
LIABILITIES
  Mortgage and Notes Payable                           57,494       57,494

  Due to Related Parties                              180,263      180,263

  Other Liabilities                                    75,638       75,638
                                                  -----------  -----------

     TOTAL LIABILITIES                                313,395      313,395
                                                  -----------  -----------

STOCKHOLDERS' EQUITY DEFICIENCY
 Common stock, $1 par value, 5,000,000
  shares authorized, 3,133,151 shares
  issued and outstanding                            3,133,151    3,133,151
 Capital in excess of par                           5,326,394    5,326,394
 Deficiency                                        (7,958,757)  (7,958,757)
                                                  -----------  ----------- 
                                                      500,788      500,788
 Less: Treasury stock at cost                         814,183      814,183
                                                  -----------  -----------

     TOTAL STOCKHOLDERS' EQUITY (DEFICIENCY)         (313,395)    (313,395)
                                                  -----------  ----------- 

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
 (DEFICIENCY)                                     $      -     $      -   
 ------------                                     ===========  ===========
</TABLE>





                Read accompanying notes to financial statements.

                                      F-2
<PAGE>   21
                      INTERNATIONAL MERCANTILE CORPORATION
                            STATEMENTS OF OPERATIONS
              FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994


<TABLE>
<CAPTION>
                                          1996         1995        1994      
                                      -----------  -----------   ----------- 
<S>                                   <C>          <C>           <C>            
REVENUE                               $      -     $    98,119   $   183,039 
                                                                             
GENERAL AND ADMINISTRATIVE                   -         235,619       353,279 
                                      -----------  -----------   ----------- 
                                                                             
LOSS BEFORE LOSS FROM SUBSIDIARIES                                           
 AND LOSS ON DISPOSITION OF                                                  
 SUBSIDIARIES                                -        (137,500)     (170,240)
                                                                             
LOSS FROM SUBSIDIARIES                       -            -         (247,087)
                                      -----------  -----------   ----------- 
                                                                             
LOSS BEFORE LOSS ON DISPOSITION                                              
 OF SUBSIDIARIES                             -        (137,500)     (417,327)
                                                                             
LOSS ON DISPOSITION OF SUBSIDIARIES          -        (901,600)     (775,508)
                                      -----------  -----------   ----------- 
                                                                             
NET LOSS                              $      -     $(1,039,100)  $(1,192,835)
--------                              ===========  ===========   =========== 
                                                                             
                                                                             
NET LOSS PER COMMON SHARE                                                    
-------------------------                                                    
                                                                             
NET LOSS BEFORE LOSS ON DISPOSITION                                          
 OF SUBSIDIARIES                      $      -     $      (.04)  $      (.13)
                                                                             
LOSS ON DISPOSITION OF SUBSIDIARIES           -           (.29)         (.25)
                                      -----------  -----------   ----------- 
                                                                             
NET LOSS                              $       -    $      (.33)  $      (.38)
--------                              ===========  ===========   =========== 
                                                                            
WEIGHTED AVERAGE NUMBER OF COMMON                                           
 SHARES OUTSTANDING                     3,133,151    3,133,151     3,133,151
---------------------------------     ===========  ===========   ===========
</TABLE>



                Read accompanying notes to financial statements.
                                      F-3
<PAGE>   22
                      INTERNATIONAL MERCANTILE CORPORATION
                       STATEMENTS OF STOCKHOLDERS' EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994




<TABLE>
<CAPTION>
                                    COMMON STOCK                                            TREASURY STOCK        
                                ----------------------    ADDITIONAL                   -------------------------
                                NUMBER OF     $1.00         PAID-IN                    NUMBER OF                  
                                 SHARES     PAR VALUE       CAPITAL     (DEFICIT)       SHARES         AMOUNT     
                                ---------   ----------    ----------   ------------     -------      -----------
<S>                             <C>         <C>           <C>          <C>              <C>          <C>          
BALANCE - DECEMBER 31, 1993                                                                                       
   AS PREVIOUSLY STATED         2,928,151   $2,928,151    $4,878,661   $ (4,727,258)    358,434      $  (871,391)  
                                                                                                                  
CONSTRUCTIVE DIVIDEND                   -            -             -       (999,564)          -                -  
                                ---------   ----------    ----------   ------------     -------      -----------
BALANCE - DECEMBER 31, 1993                                                                                       
   AS RESTATED                  2,928,151    2,928,151     4,878,661     (5,726,822)    358,434         (87l,391)  
                                                                                                                  
                                                                                                                  
CHANGE IN MINORITY INTEREST             -            -       447,733              -           -                -  
                                                                                                                  
TRANSFER OF PREFERRED STOCK                                                                                       
   FROM AFFILIATE                       -            -             -              -           -                -  
                                                                                                                  
ISSUANCE OF COMMON STOCK          205,000      205,000             -              -           -                -  
                                                                                                                  
NET LOSS                                -            -             -     (1,192,835)          -                -  
                                ---------   ----------    ----------   ------------     -------      -----------
BALANCE - DECEMBER 31, 1994                                                                                       
   AS RESTATED                  3,133,151    3,133,151     5,326,394     (6,919,657)    358,434         (871,391)  
                                                                                                                  
RECLASSIFICATION DUE TO SALE                                                                                      
   OF SUBSIDIARIES                      -            -             -              -           -           57,208  
                                ---------   ----------    ----------   ------------     -------      -----------
BALANCE - DECEMBER 31, 1994                                                                                       
   AS RESTATED                  3,133,151    3,133,151     5,326,394     (6,919,657)    358,434         (814,183)  
                                                                                                                  
NET LOSS                                -            -             -     (1,039,100)          -                -  
                                ---------   ----------    ----------   ------------     -------      -----------
                                                                                                                  
BALANCE - DECEMBER 31, 1995     3,133,151    3,133,151     5,326,394     (7,958,757)    358,434          814,183  
                                                                                                                  
NET LOSS                                -            -             -              -           -                -  
                                ---------   ----------    ----------   ------------     -------      -----------
                                                                                                                  
BALANCE - DECEMBER 31, 1996     3,133,151   $3,133,151    $5,326,394   $ (7,958,757)    358,434      $   814,183  
                                =========   ==========    ==========   ============     =======      ===========


<CAPTION>
                                     IN AND          TOTAL
                                    ADVANCES     STOCKHOLDERS'
                                       TO           EQUITY
                                   AFFILIATED    (DEFICIENCY)
                                  ------------   -----------
<S>                                <C>           <C>
BALANCE - DECEMBER 31, 1993     
   AS PREVIOUSLY STATED           $ (1,000,000)  $ 1,208,163
                                
CONSTRUCTIVE DIVIDEND                        -      (999,564)
                                  ------------   -----------
                                
BALANCE - DECEMBER 31, 1993     
   AS RESTATED                      (1,000,000)      208,599
                                
                                
CHANGE IN MINORITY INTEREST                  -       447,733
                                
TRANSFER OF PREFERRED STOCK     
   FROM AFFILIATE                    1,000,000     1,000,000
                                
ISSUANCE OF COMMON STOCK                     -       205,000
                                
NET LOSS                                     -    (1,192,835)
                                  ------------   -----------
                                
BALANCE - DECEMBER 31, 1994     
   AS RESTATED                               -       668,497
                                
RECLASSIFICATION DUE TO SALE    
   OF SUBSIDIARIES                           -        57,208
                                  ------------   -----------
                                
BALANCE - DECEMBER 31, 1994     
   AS RESTATED                               -       725,705
                                
NET LOSS                                     -    (1,039,100)
                                  ------------   -----------
                                
BALANCE - DECEMBER 31, 1995                  -      (313,395)
                                
NET LOSS                                     -             -
                                  ------------   -----------
                                   
BALANCE - DECEMBER 31, 1996        $         -   $  (313,395)
                                  ============   ===========
</TABLE>                        


                Read accompanying notes to financial statements.
                                      F-4
<PAGE>   23
                      INTERNATIONAL MERCANTILE CORPORATION
                            STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

<TABLE>
<CAPTION>
                                          1996        1995           1994   
                                       ----------- -----------   ----------- 
<S>                                   <C>          <C>           <C>            
CASH FLOWS FROM OPERATING ACTIVITIES:                                        
                                                                             
 Net loss                              $      -    $(1,039,100)  $(1,192,835)
 Adjustments to reconcile net loss                                           
 to net cash (used in) provided by                                           
 operating activities:                                                       
                                                                             
   Depreciation and amortization              -           -           26,956 
   Loss on disposition of subsidiaries        -        901,600       775,508 
   Loss on litigation settlement              -           -          256,367 
   Loss on sale of property and                                              
    equipment                                 -           -             -    
   Equity in net income (loss) of                                            
    affiliate                                 -           -          247,087 
   Changes in:                                                               
    Other receivables                         -       (185,776)        3,726 
    Other liabilities                         -        140,045       (13,209)
                                       ----------- -----------   ----------- 
                                                                             
      Net Cash (Used in) Provided                                            
       by Operating Activities                -       (183,231)      103,600 
                                       ----------- -----------   ----------- 
                                                                             
CASH FLOW FROM FINANCING ACTIVITIES:                                         
 Payments on mortgage and notes               -           -         (108,879)
 Advances from related parties                -        180,263          -    
                                       ----------- -----------   ----------- 
                                                                             
     Net Cash Provided by (Used In)                                          
      Financing Activities                    -        180,263      (108,879)
                                       ----------- -----------   ----------- 
                                                                             
(DECREASE) IN CASH                            -         (2,968)       (5,279)
                                                                             
CASH - BEGINNING OF YEAR                      -          2,968         8,247 
                                       ----------- -----------   ----------- 
                                                                             
CASH - END OF YEAR                     $      -    $      -      $     2,968 
-------------------                    =========== ===========   =========== 
</TABLE>




SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

<TABLE>
<CAPTION>
                                           1996        1995        1994   
                                       ----------- ----------- -----------
  <S>                                  <C>         <C>
  Cash paid during for year for:
   Interest                            $      -    $    24,088 $    28,397
                                       =========== =========== ===========
</TABLE>


                Read accompanying notes to financial statements.
                                      F-5
<PAGE>   24
                    INTERNATIONAL MERCANTILE CORPORATION
                          STATEMENTS OF CASH FLOWS
                   AS OF DECEMBER 31, 1996, 1995 AND 1994


SUPPLEMENTAL SCHEDULE OF NON CASH INVESTING AND FINANCING ACTIVITIES:

On February 17, 1994, the Company issued 205,000 common shares of the Company,
transferred $1,000,000 of the Ventana Corporation a/k/a The C.J. Brown
Corporation preferred stock, and all of the Sterling Financial Corporation's
common stock held by the Company to Sterling Financial Corporation in exchange
for 246,088 shares of Frontier Insurance Company, and the forgiveness of a note
due to Sterling Financial Corporation in the amount of $472,000.

On May 4, 1995, the Company exchanged all of the common stock owned by the
Company in Universal Life Holding Company ("ULHC") for forgiveness of the notes
and other payables owed by the Company to ULHC.  The Company had a gain on the
sale in the amount of $751,089.

On November 17, 1995, the Company sold its insurance subsidiary, Washington
Security Life Insurance Company f/k/a Frontier Insurance Company ("Washington")
by transferring all of its stock in Washington for full satisfaction of a note
owed to two former officers, cancellation of consulting agreements, and
cancellation of all intercompany receivables and payables.  In addition, the
Company transferred its accrued rights to commissions due from the former third
party administrator and all of the obligations of Ventana Corporation f/k/a
C.J. Brown ("Ventana") held by the Company.  The Company also received a
mortgage executed by one of the Company's consultants in the amount of
approximately $200,000.  This amount was offset by a commission due the
consultant as part of the purchase of the Company.  The Company assigned all
rights to Washington regarding litigation against Ventana and its officers.  As
a result of this sale, the Company incurred a loss of $1,652,689.



                Read accompanying notes to financial statements
                                      F-6
<PAGE>   25
                      INTERNATIONAL MERCANTILE CORPORATION
                         NOTES TO FINANCIAL STATEMENTS
                        AS OF DECEMBER 31, 1996 AND 1995


NOTE  1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

        A Organization
          International Mercantile Corporation ("IMC" or "the Company") is a
          corporation organized in Missouri on March 10, 1971.  The Company was
          a stock life insurance holding company.  Through the date of sale of
          the Company's subsidiaries in 1995, the Company operated a life
          insurance company, a mortgage origination business, a residential
          rental property management business and other real estate and
          investment activities.
          
          The Company currently has no operations.  There were no material
          transactions or activity during 1996.  All expenses of the Company
          were paid by the officers of the Company.  The officers have waived
          reimbursement of these expenses for 1996.
          
        B Income Taxes
          The Company has adopted the liability method of accounting for income
          taxes pursuant to Statement of Financial Accounting Standards No.
          109.  Under this method, deferred income taxes are recorded to
          reflect the tax consequences in future years of temporary differences
          between the tax basis of the assets and liabilities and their
          financial amounts at year-end.  The Company has a deferred tax asset
          of approximately $2,500,000 at December 31, 1996.  A valuation
          allowance has been recognized for the full amount of the deferred tax
          asset since there is no assurance of future taxable income.
          
        C Income (Loss) per Common Share
          Income (Loss) per common share of common stock are based on the
          weighted average number of shares outstanding.
          
        D Goodwill
          Goodwill represented the cost in excess of the fair value of net
          assets acquired and was amortized on a straight-line basis over 20 to
          40 years.  During 1995, the Company disposed of its subsidiaries and
          expensed any remaining goodwill.
          
        E Statement of Cash Flows
          For purposes of the statement of cash flows, the Company considers
          all highly liquid debt instruments purchased with an original
          maturity of three months or less to be cash equivalents.
          
        F Use of Estimates in the Preparation of Financial Statements
          The preparation of financial statements in conformity with generally
          accepted accounting principles requires management to make estimates
          and assumptions that affect the reported amounts of assets and
          liabilities and disclosure of contingent assets and liabilities as
          the date of the financial statements and revenues and expenses during
          the reporting period.  Actual results could differ from those
          estimates.
          




                                      F-7
<PAGE>   26
                    INTERNATIONAL MERCANTILE CORPORATION
                        NOTES TO FINANCIAL STATEMENTS
                      AS OF DECEMBER 31, 1996 AND 1995


NOTE  2 - GOING CONCERN

          The accompanying financial statements have been prepared in
          conformity with generally accepted accounting principles which
          contemplate continuation of the Company as a going concern. The
          Company presently has no operations, no current assets and has
          incurred a substantial deficit.  The Company's continued existence is
          dependent on its ability to obtain funding to acquire or start up  an
          operating business.  The accompanying financial statements do not
          reflect any adjustments relating to the amounts and classification of
          liabilities that might be necessary in the event the Company cannot
          continue in existence.
          
NOTE  3 - SALE AND PURCHASE OF SUBSIDIARIES

          On April 15, 1994, Washington Security Life Insurance Company f/k/a
          Frontier Insurance ("Washington") entered into a stock purchase
          agreement to sell 100% of the common stock of International Financial
          Services Life Insurance Company ("IFSLIC").  The consideration
          received was based on the current market value of IFSLIC's total
          assets less the liabilities calculated on the statutory basis as of
          the closing date plus $1,155,000 in cash.  The purchase price was
          based on the purchaser receiving valid licenses for the purchaser to
          transact business in 42 states.  The Company had a loss on the sale
          in the amount of $775,508.
          
          On May 4, 1995, the Company exchanged all of the common stock owned
          by the Company in Universal Life Holding Corporation ("ULHC") for
          forgiveness of the notes and other payables owed by the Company to
          ULHC.  The Company had a gain on the sale in the amount of $751,089.
          
          On November 17, 1995, the Company sold its insurance subsidiary
          (Washington) by transferring all of its stock in Washington for full
          satisfaction of a note owed to two former officers, cancellation of
          consulting agreements, and cancellation of all intercompany
          receivables and payables.  In addition, the Company transferred its
          accrued rights to commissions due from the former third party
          administrator and all of the obligations of Ventana Corporation f/k/a
          C.J. Brown ("Ventana") held by the Company.  The Company also
          received a mortgage executed by one of the Company's consultants in
          the amount of  approximately $200,000.  The $200,000 mortgage was
          offset by a commission due the consultant regarding the purchase of
          the Company. The Company assigned all rights to Washington regarding
          litigation against Ventana and its officers.  As a result of this
          sale, the Company incurred a loss of $1,652,689.
          




                                      F-8
<PAGE>   27
                      INTERNATIONAL MERCANTILE CORPORATION
                         NOTES TO FINANCIAL STATEMENTS
                        AS OF DECEMBER 31, 1996 AND 1995


NOTE  4 - SALE AND PURCHASE OF SUBSIDIARIES (CONTINUED)

          Operating results of IMC's Discontinued operations for the
          years ended December 31, 1996, 1995, and 1994 are:

<TABLE>
<CAPTION>
                                          1996        1995         1994   
                                       ----------- ----------- -----------
          <S>                          <C>         <C>         <C>
          REVENUES                     $      -    $      -    $ 2,420,374
                                       =========== =========== ===========

          INCOME (LOSS) BEFORE TAXES
            Operating                         -           -       (864,489)

          Income Tax Provision
           (Benefit)                          -           -       (324,173)
                                       ----------- ----------- ----------- 

          NET INCOME (LOSS)            $      -    $      -    $(1,188,662)
                                       =========== =========== =========== 
</TABLE>


NOTE  5 - DUE TO RELATED PARTIES

          Certain officers and consultants of the Company paid expenses
          in the amount of $180,263 on behalf of the Company during
          1995.  The amount is due on demand and bears no interest.  All
          expenses incurred during 1996 were paid by the officers of the
          Company and waived reimbursement.


NOTE  6 - MORTGAGE AND NOTES PAYABLE

          Mortgage and notes payable at December 31, 1996 and 1995 are as 
          follows:
<TABLE>
<CAPTION>
                                                    1996       1995   
                                                ----------- ----------
          <S>                                    <C>        <C>
          Notes payable - former stockholders,
           unsecured, interest only payable
           quarterly at 10.125%, due
           February 1993 and unpaid                  57,494     57,494
                                                 ---------- ----------
          TOTAL MORTGAGE AND NOTES PAYABLE       $   57,494 $   57,494
          --------------------------------       ========== ==========
</TABLE>


NOTE  6 - LITIGATION

          As part of the sale of Washington, the Company transferred all
          of its rights to litigation against Ventana to Washington (See
          Note 3).
          
          The Company is a defendant from time to time in claims and
          lawsuits arising and of the normal course of business, none of
          which are expected to have a material adverse effect on the
          financial statements.





                                      F-9
<PAGE>   28
                      INTERNATIONAL MERCANTILE CORPORATION
                         NOTES TO FINANCIAL STATEMENTS
                        AS OF DECEMBER 31, 1996 AND 1995


NOTE  7 - ACQUISITIONS

                 On August 14, 1996, the Company executed an agreement to
                 purchase 100% of the outstanding capital stock of a
                 corporation that has the rights to develop and operate an
                 ambulatory surgery center in Waldorf, Maryland, for 250,000
                 shares of the Company's common stock.  The seller would retain
                 70% of the voting rights under a voting trust agreement.  The
                 Company agreed to furnish within 15 days a commitment letter
                 to raise equity capital in the amount of $3,000,000.  The
                 equity funding was to be provided within 90 days of the
                 execution of the agreement.  The Company was unable to raise
                 the equity within the 90 day period, therefore the agreement
                 was cancelled.

                 On September 18, 1996, the Company entered into an agreement
                 to purchase 100% of the capital stock of University
                 Consulting, Inc. ("UC") for 387,500 shares of the company's
                 common stock valued at $387,500.  UC owns and operates a
                 mortgage company, title company and income tax and accounting
                 service business.  This agreement was cancelled in December
                 1996.

                 On December 23, 1996, the Company entered into a stock
                 purchase agreement with University Mortgage, Inc. to purchase
                 40,000 shares of its non-voting Redeemable Class A Preferred
                 Stock for $400,000 which was subsequently cancelled.





                                    F-10