<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, 1997                                0-7693
----------------------------------------------------------


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

       Missouri                                        43-0970243
-----------------------------------------------------------------
(State or other jurisdiction                          (IRS Employer
of Incorporation of                                   Identification
Organization)                                         Number)

PO BOX 340 OLNEY, Maryland                    20832
--------------------------                    -----
(Address of principal executive offices)              (Zip Code)

                                (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, 1997

                                  3,177,583
                                  ---------
<PAGE>   2
                                     PART I

ITEM 1.           BUSINESS

      HISTORICAL

      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"). Prior to 1997, the Company, through various
transactions which have previously been reported in detail, divested itself of
its entire ownership in FIC, ULHC and SFC.

      CURRENT

      The Company currently has two wholly owned subsidiaries, University
Mortgage, Inc. ("UMI") and Home America Mortgage Company, ("HAMC"). The
Company's principal business is the organization 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.


      ACQUISITIONS OCCURRING IN 1997

      As of December 31, 1997, the Company completed a series of transactions
between the Company, UMI, (Continent Finance Corporation "CFC"), and AB
Securities, Inc. ( "ABS") for the acquisitions of HAMC and UMI. The Company
issued and aggregate of 1,910,000 shares of common stock with a value in the
aggregate of $2,250,000.

      The shares issuances were as follows:

      In January, 1997, an agreement was entered into 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, 1,000,000 shares of common


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<PAGE>   3
stock valued at $1.00 per share or $1,000,000 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 which had a license to originate mortgages in
the state of Louisiana.

      In November the Company issued to CFC 500,000 shares, with rights to
2,000,000 shares, for the acquisition of MBHC preferred stock. The deal was
subject to independent audit review.

      Finally in December the Company completed it's deal with UMI and
restructured it's agreements with CFC resulting in the 1,500,000 shares issued
to date to CFC being done so in consideration for the UMI, IMTL transaction.

      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 market price of $5.00 per share.

      On December 31, 1997, the Company issued to UMI 175,000 shares of common
stock valued at $385,000 or $2.20 per share representing one half of the market
price of the Company on December 31, 1997 as consideration.

      In addition, on December 31, 1997, the Company issued 135,000 shares of
common stock to AB Securities, Inc. as collateral in consideration of the
purchase of 6,000 shares of Class A preferred stock of ABS and a Note Payable in
the principal 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 of the
purchase of UMI. The shares were valued at $135,000 or $1.00 per share.

      The number of shares of common stock issued to UMI is subject to
adjustment if as of December 31, 1998 the market price of the shares of common
stock is less then the purchase price.


      a.  ACQUISITION OF HOME AMERICAN MORTGAGE COMPANY

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

      HAMC was a former subsidiary of the Company's through having been a
subsidiary of Frontier Insurance Company, ("FIC"). On November 17, 1995, the
Company sold FIC and retained its interest in HAMC. In 1996, the Company sold
HAMC to CFC in consideration for the forgiveness of certain debt and cash. On
December 25, 1996, HAMC was sold by CFC to UMI and in January, 1997, the


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<PAGE>   4
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 based in Chevy Chase, Maryland. UMI's
principal business is the origination and sales 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.

      PRIVATE PLACEMENT

      In 1997, 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.

      As of December 31, 1997, the Company had sold 22 Units for an aggregate
consideration of $220,000. The offering was amended to reduce to minimum
offering to 20 Units enabling the Company to receive the proceeds of $200,000 as
of December 31, 1997.

      LOOKING FORWARD

      The Company is considered to be a development stage company with little
operating history since January 1, 1996. The Company is 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. Since its reorganization, the Company's activities have been limited
to the acquisition of UMI and the preparation and sale of its private placement.

ITEM 2.   PROPERTIES

      The Company owned no real properties as of December 31, 1997 and owns none
at the time of filing of this report.

ITEM 3. LEGAL PROCEEDINGS


                                       4
<PAGE>   5
      JANET L. MERTZ, EDWIN H. MERTZ, GLENN E. MERTZ, EDNA L. MERTZ, DENNY W.
MERTZ AND VALERIE J. MERTZ VS. INTERNATIONAL MERCANTILE CORPORATION.

      On June 25, 1993, a Petition on Note was filed against IMC in the Circuit
Court of Cole County, Missouri, seeking damages in the amount of $54,294.00,
plus interest and attorney's fees, for default on numerous promissory notes. The
Petition alleged that there were promissory notes issued by IMC in favor of the
plaintiffs which were due in February, 1993, and which IMC had refused to pay.
In June, 1994, the plaintiffs' Motion for Summary Judgment was granted and
Judgment entered against IMC in the aggregate amount of $70,819.55. As of
December 31, 1997, the judgment had not been satisfied and was still pending.




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 exists a market for IMC stock, which trades over the counter. Its
trading symbol is IMTL. The bid and ask prices for IMC stock on December 31,
1997 were 5.00 and 5.5, respectively. A cash dividend has never been paid on the
common stock.



      Transfer Agent and Registrar:


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

ITEM 6.     SELECTED FINANCIAL DATA

      See attached financial statements.


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<PAGE>   6
ITEM 7         MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
               RESULTS OF OPERATIONS
               for the years of December 31, 1995, 1996 and 1997

     For the last six years, the Company has remained dormant while management
was seeking new profitable business opportunities. During this dormant period,
management has been responsible for providing for the required expenses to
remain in existence.

As of December 31, 1996, the Company had examined various investment and
business opportunities which upon the completion of a detailed due diligence
process by management resulted in the decision not consummate.

On July 1, 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. 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 and developed various sources for mortgage
funding and having acquired a warehouse line of credit through UMI and a
unsecured line of credit. The Company anticipates that with the completion of a
private placement begun in the 4th quarter 1997, the Company will be adequately
funded to complete its plans for opening new offices off mortgage banking
products and provide the working capital to continue as a going concern.

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 mortgage. 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 UMI has experienced growth
in recent years, there can be no assurance that, in the future, the Company and
UMI will sustain


                                      6
<PAGE>   7
revenue growth or remain profitable on a quarterly or annual basis or that its
growth will be consistent with predictions made by securities analysts. The
Company's computer and other systems will not be adversely affected by the year
2000.

   Results of Operations 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. These 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 by the officer's and Directors
on behalf of the Company, and in settlement of litigation. The Company also
accrued $360,000 in back salaries pursuant to various employment agreements and
has paid additional expenses of $205,038.

   Litigation
  --------------------------------------------------
    On June 25, 1993, a Petition on Note was filed against the Company in the
Circuit of Cole County, Missouri, seeking damages ion the amount of $54,294 plus
interestand 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 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, the Judgment was
not satisfied and is still pending.
        
     Results of Operations for the Year ended December 31, 1996 as Compared to
the Year ended December 31, 1995.
- --------------------------------------------------
     Revenues from any source were $-0- for the years ending December 31, 1996
and 1997.  Cost processing mortgages were $-0- for the years ending December
31, 1996 and 1997.

     General and administrative costs for the year ended December 31, 1996 were
$-0-, a decrease of $235,619 over expenses of $235,619  for the year ended
December 31, 1996.  These decreased costs were the result of the Company
remaining in a dormant mode.

                                      7
<PAGE>   8
     Liquidity and Capital Resources as of the End of Fiscal Year Ended December
31, 1996.
- ------------------------------------------------------------------------------

The Company cash balance is $-0- and incurred negative working capital of
$313,395 as of the end of fiscal 1996.

Income tax: As of December 31, 1996, the Company had a tax loss carry-forward of
$7,958,757. 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.

     Liquidity and Capital Resources 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 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.

     Income tax: As of December 31, 1997, the Company had a tax loss carry-
forward of $9,470,294. 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.


     Management believes that the present cash balance and lines of credit will
pay the ongoing cost of the mortgage banking business.

     The Company currently plans to expend approximately $1.0 million for the
expansion and development of its mortgage banking business, marketing and
general administrative capabilities in connection with the fulfillment of the
Company's marketing program and the anticipated launch of the Company's mortgage
products currently under development. Additionally, the Company utilizes cash
generated from operating activities to meet its capital requirements.


     The Company expects its capital requirements to increase over the next


                                      8
<PAGE>   9
several years as it commences to seek out new mortgage banking opportunities and
development efforts, undertakes 
new mortgage product development, increases sales and administration
infrastructure and embarks on developing in-house warehousing 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
continued market penetration are successfully developed and gain market
acceptance, the timing of regulatory actions regarding the Company's potential
mortgage products, the costs and timing of expansion of sales, marketing and
mortgage production activities, facilities expansion needs, procurement of
additional mortgage banking licenses in additional states.

     The Company believes that its available cash and cash from operations will
be sufficient to satisfy its funding needs for at least the next 12 months.
Thereafter, if cash generated from 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.


ITEM 8.        FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

      See attached Financial Statements.

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

      As reported in the 8-K herewith filed by the Company, on July  , 1998, the
Company's independent auditors, Weinberg and Company, resigned and Thomas
Monahan, CPA was engaged as the Company's new independent auditor. There were no
disagreements or accounting and financial disclosure matters or other reportable
events involving the Company and its former auditors.

                                    PART III


                                      9
<PAGE>   10
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 Beneficially
                   Age     Ship                                 Since         Owned
                   ---     ----                                 -----         -----

<S>                <C>     <C>                                  <C>           <C>    
Max Apple          58      Chairman of the Board                1995          180,000
                           Secretary and Director,
                           IMC, 1995 to present.
                           1991 to present, attorney,
                           private law practice,
                           Jasper, Indiana

Roger B. Arnold    40      President, Director: History         1997 -
                           as Mortgage, Banker, Financial       Present       N/A
                           Services

Walt DeRonde       48      COO, CFO, Treasurer, Vice            1997 -
                           President,  Director; History        Present       120,000
                           in Financial Services and 
                           Modular Housing Market

Ed Huyta           55      Director, Vice President;            1997 -        60,000
                           History in Healthcare and            Present
                           Senior Age Market

Scott Hess         34      Director, CEO; History in            1997 -        310,000
                           Insurance and Mortgage               Present
                           Operations

</TABLE>

ITEM 11.    EXECUTIVE COMPENSATION

      a. 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, the Company had accrued $120,000 in
salary.


                                      10
<PAGE>   11
      b.   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 had accrued $120,000 in
salary.

      c. 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, in October of 1997 Mr Richardson
assigned his contract to FSR Group . The term of this agreement is 10 years and
is renewable. From time to time, FSR has engaged in business transactions with
affiliates of the placement agent, including a loan to a corporate stockholder
of the placement agent.

      For the year ending December 31, 1997, the Company had accrued $120,000.

      d. General

      Except as set forth above no cash compensation, including bonuses and
      deferred compensation, was paid during 1997 by IMC to any of its executive
      officers. No fees were paid to Board members for attending Board meetings
      during 1997. Shares of the Company's common stock may be issued to its
      officers representing the fair market value of services actually rendered
      by them with out 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, 1997, 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      Contract Finance Corproation     1,500,000           47.21        47.21
</TABLE>


                                      11
<PAGE>   12
<TABLE>
<S>         <C>                                <C>                <C>          <C> 
Common      AB Securities, Inc.                310,000            9.76         9.76


Common      Scott Hess                         310,000            9.76         9.76
</TABLE>


------------------------------
(1)   To the best knowledge of the Company, as of December 31, 1997, 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. In July, 1997 the Company reverse split the number of shares of common
stock outstanding in a ratio of 31 to 1, restating the number of shares of
common stock outstanding to 101,0834.

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

      a.  Issuance of Shares of Capital Stock

The company issued 1,500,000 shares of common stock to CFC to acquire UMI and
HAMC. HAMC was a former subsidiary of the Company's through having been a
subsidiary of FIC. On November 17, 1995, the Company sold FIC and retained its
interest in HAMC. In 1996, the Company sold HAMC to CFC in consideration for the
forgiveness of certain debt 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 acquired UMI and
reacquired HAMC from CFC.

      CFC is the majority shareholder of the Company.
     
      The Company issued 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 $60,000,

      The Company has issued an aggregate of 200,000 shares of common stock to
Ventana Consulting, Inc., a Michigan corporation.

      b.  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. This amount is due on
demand and bears no interest. All expenses incurred during 1996 were paid by the
officers of the Company and have not been reimbursed.

      c.  Employment Agreement with Mr. Walter Deronde



                                      12
<PAGE>   13

      On January 1, 1997, the Company entered into an employment agreement with
Mr. Walter Deronde as COO, 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 and modular housing
industry.

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

      d.  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 had accrued $120,000 in
salary.

      e.  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 contract was assigned to FSR
Group in October 1997. The term of this agreement is 10 years and is renewable.

      For the year ending December 31, 1997, the Company had accrued $120,000.


      f.  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 was $0.08 per share.


      g.  Loans Payable- Affiliated Companies

    UMI has Loans receivable - affiliated parties from W-C Consultants, Inc.
aggregating $292,091 at December 31, 1997.

      h.  Managerial Relationship

    On January 1, 1997, the 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

                                      13
<PAGE>   14
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, 1997, W-C
received $377,970, which was charged to operations.

      i.  Sublease Agreement

      On July 1, 1996, the 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, rent expense was $21,483.

      j.  Change in Managerial Control

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

      k.  Change in Equity Ownership

      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 I, 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



                                      14
<PAGE>   15
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 175,00 shares of the Company's common stock valued at $385,000 or
$2.20 per share.

ITEM 14.    SUBSEQUENT EVENT

      Subsequent to the date of the financial statements, the Company had
appointed Mr. Roger Arnold as President of the Company.


                                     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)         Form 8-K, dated ______________, 1997, reporting the reverse stock 
split of the Company's common stock and the simultaneous infusion of capital by 
CFC in exchange for the issuance of 1,500,000 shares of Company common stock to
it.

(c)   Exhibits:

3(a)  Articles of Incorporation of the Company*


                                      15
<PAGE>   16
3 (b) Articles of Amendment of the Company*

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

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

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

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

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

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

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

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

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

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

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

      10 (a) Incentive Stock Option Plan*

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

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

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

      10 (e) Settlement Agreement ***


                                      16
<PAGE>   17
      10 (f) Extension and Modification Agreement ***

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

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

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

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

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

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

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

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

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

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

**    These items were filed in the Company's Annual Report on Form 10-K dated



                                      17
<PAGE>   18

      December   31, 1986 (File No. 0-7693), and are incorporated herein by
      reference.

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

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

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

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

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

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

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

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

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

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


      SIGNATURES

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

                        INTERNATIONAL MERCANTILE CORPORATION

DATE:_____________      BY:______________________________________
                           Max Apple, Chairman, Secretary and Director


                                      18
<PAGE>   19

DATE:_____________      BY:______________________________________
                           Roger B. Arnold, President and Director

DATE:_____________      BY:_________________________________
                           Walt DeRonde, Chief  Operating Officer, 
                           Financial Officer, Principal Accounting
                           and Director

DATE:_____________      BY:_________________________________
                           Ed Huyta, Vice President




                                      19
<PAGE>   20




                               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 ( a development stage company)

    I have audited the accompanying consolidated balance sheet of International
Mercantile Corporation ( a development stage company) as of December 31, 1997
and the related consolidated statements of operations, cash flows and
shareholders' equity for the year ended December 31, 1997. 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, 1995 and 1996.  Those statements were audited by other
auditors whose report has been furnished to me, and our opinion, insofar as it
relates to the amounts included for financial statements as of December 31,
1995 and 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 ( a development stage company) as of December 31, 1997
and the related consolidated statements of operations, cash flows and
shareholders' equity for the year ended December 31, 1997 in conformity with
generally accepted accounting principles.

    The accompanying consolidated financial statements have been prepared
assuming that International Mercantile Corporation ( a development stage
company) 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 ( a development stage company) to continue as a going
concern.
                                        /s/ THOMAS P. MONAHAN
                                        --------------------------
                                        Thomas P. Monahan, CPA
July 15, 1998
Paterson, New Jersey





                                       F1

<PAGE>   21
                      INTERNATIONAL MERCANTILE CORPORATION
                          CONSOLIDATED BALANCE SHEET




<TABLE>
<CAPTION>
                                                                               December 31,      December 31,
                                                                                  1996              1997       
                                                                               -----------       -----------
<S>                                                                             <C>              <C>
                      ASSETS                                              
Current assets                                                            
  Cash and cash equivalents                                                          $-0-          $290,951
  Mortgages receivable                                                                              687,500
                                                                                                    -------
  Current assets                                                                      -0-           978,451
                                                                          
Capital assets-net                                                                                   14,323
                                                                          
Other assets                                                              
  Excess of purchase price over assets acquired                                                   2,120,186
  Notes receivable-affiliated parties                                                               316,850
  Securities-available for sale                                                                     367,000
  Intangible assets                                                                                  49,209
                                                                                                     ------
  Total other assets                                                                              2,853,245
                                                                                                  ---------
Total assets                                                                         $-0-        $3,846,019
                                                                                                 ==========
                                                                          
                      LIABILITIES AND STOCKHOLDERS' EQUITY                             
                                                                          
Current liabilities                                                       
  Accounts payable and accrued expenses                                            $75,638         $487,699
  Loan payable                                                                      57,494          606,494
  Warehouse loan payable                                                                            654,805
  Loan payable-related parties                                                     180,263          180,263
  Deferred income                                                                                    32,695
  Corporate income tax payable                                                                       12,495
                                                                                   -------           ------       
Total current liabilities                                                          313,395        1,974,451
                                                                          
                                                                          
Capital stock                                                             
  Common stock-authorized 5,000,000 common shares, par value $1.00               3,133,151        3,177,583
each, at December 31, 1996 and 1997 the number of shares outstanding
was 3,133,151 and 3,177,583 respectively.
  Additional paid in capital                                                     5,326,394        8,978,462
  Retained earnings                                                             (7,958,757)      (9,470,294)
                                                                                 ---------       ----------
Total stockholders' equity                                                         500,788        2,685,751
Less treasury stock                                                               (814,183)        (814,183)
                                                                                 ---------         --------
Total stockholders equity                                                          313,395        1,871,568
                                                                                 ---------        ---------
Total liabilities and stockholders' equity                                           $-0-        $3,846,019
                                                                                     =====       ==========
</TABLE>



                 See accompanying notes to financial statements.
                                         F2

<PAGE>   22
                      INTERNATIONAL MERCANTILE CORPORATION
                     CONSOLIDATED STATEMENT OF OPERATIONS
                               DECEMBER 31, 1997


<TABLE>
<CAPTION>
                                                                              For the year      For the year         For the year  
                                                                                  ended             ended                ended      
                                                                               December 31,      December 31,         December 31,
                                                                                   1995              1996                 1997
                                                                              -------------     -------------        -------------  
<S>                                                                           <C>               <C>               <C>
Revenue                                                                            $98,119             $-0-                $-0-
                                                                                                               
Mortgage related expenses                                                             -0-               -0-                 -0- 
                                                                                   -------           -------             -------
                                                                                                               
Gross profit                                                                          -0-               -0-                 -0- 
                                                                                                               
Operations:                                                                                                    
  General and administrative                                                       235,619              -0-            1,511,538
  Depreciation and amortization                                                                         -0-                     
                                                                                    ------            ------              ------
  Total expense                                                                    235,619              -0-            1,511,538

Income (loss) before loss on disposition of subsidiaries                          (137,500)             -0-           (1,511,538)

Loss on disposition of subsidiaries                                               (901,600)


                                                                                                               
Net income (Loss)                                                              $(1,039,100)            $-0-          $(1,511,538)
                                                                               ===========              ====         ===========
                                                                                                               
Net income (loss) per common share                                                   
                                                                                     
Net income (loss) before loss on disposition of subsidiary                          $(0.04)
                                                                                    ======
Loss on disposition of subsidiary                                                   $(0.29)
                                                                                    ======
Net income (loss) per share -basic                                                  $(0.33)            $0.00              $(0.47)
                                                                                    ======             =====              ======
Number of shares outstanding-basic                                                3133151          3,177,583           3,177,583
                                                                                 =========         =========           =========
</TABLE>



                See accompanying notes to financial statements.
                                       F3


<PAGE>   23
                      INTERNATIONAL MERCANTILE CORPORATION
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                DECEMBER 31, 1997
<TABLE>
<CAPTION>
                                                          For the year ended      For the year ended    For the year ended
                                                          December 31, 1995       December 31, 1996     December 31, 1997 
                                                          ------------------      ------------------    ------------------
<S>                                                         <C>                     <C>                   <C>         
   Net income (loss)                                        $(1,039,100)                  $-0-            $(1,474,234)

   Depreciation                                                                                                44,075

   Loss on disposition of subsidiaries                          901,600

   Gain on sale of asset                                                                                       28,363

   Non cash transactions                                                                                    1,316,492

 Adjustments to reconcile new income (loss) to net cash

   Other receiables                                            (185,776)

   Other liabilities                                            140,045

   Interest receivable                                                                                          2,882

   Employee advances                                                                                            2,500

   Due to affiliate                                                                                             4,300

   Accounts payable and accrued expenses                                                                       52,061

   Income taxes payable                                                                                       (28,802)
                                                               --------                                      --------
 TOTAL CASH FLOWS FROM OPERATIONS                              (183,231)                   -0-                (52,363)

 CASH FLOWS FROM INVESTING ACTIVITIES

   Mortgages receivable                                                                                      (687,500)

   Securities-available for sale                                                                             (580,000)

   Capital assets                                                                                              (5,400)

   Notes receivable                                                                                          (148,810)

   Deposits                                                                                                     2,376
                                                                                                                -----
TOTAL CASH FLOWS FROM INVESTING ACTIVITIES                                                 -0-             (1,419,334)
 
CASH FLOWS FROM FINANCING ACTIVITIES

   Advances from related parties                                180,263

   Sale of capital stock                                                                                      220,000

   Additional paid in capital                                                                                  80,000

   Warehouse loan payable                                                                                     654,805

   Loan  payable                                                                                               49,000
                                                                                    
   Line of Credit                                                                                             200,000

   Deferred income                                                                                             32,695
                                                                -------                                        ------
 TOTAL CASH FLOWS FROM FINANCING ACTIVITIES                     180,263                    -0-              1,236,500

 NET INCREASE (DECREASE) IN CASH                                 (2,968)                   -0-               (235,188)

 CASH BALANCE BEGINNING OF PERIOD                                 2,968                    -0-                526,139
                                                                                                              -------
 CASH BALANCE END OF PERIOD                                     $-0-                      $-0-               $290,951
                                                                 ======                   ====               ========
</TABLE>



                 See accompanying notes to financial statements
                                       F4
<PAGE>   24
                                            
                      INTERNATIONAL MERCANTILE CORPORATION
                  CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY

<TABLE>
<CAPTION>
                                                        Additional       
                          Common          Common         paid in         Treasury          Retained
  Date                    Stock           Stock          capital          Stock            Earnings          Total
  ----                    -----           -----          -------          -----            --------          -----
<S>                     <C>             <C>             <C>              <C>              <C>             <C>       
 12-31-1995             3,133,151       $3,133,151      $5,326,395       $(814,183)       $(7,958,757)     $(313,395)
 12-31-1996              Net loss                                                              -0-            -0-
                         --------       ----------      ----------       ----------            ------         ------
 12-31-1996             3,133,151        3,133,151       5,326,395       $(814,183)       $(7,958,757)     $(313,395)

 06-01-1997(1)            101,083          101,083       8,358,463        (814,183)        (7,958,757)      (313,395)
 12-31-1997(2)            946,500          946,500          10,000                                           956,500
 12-31-1997(3)          1,500,000        1,500,000                                                         1,500,000
 12-31-1997(4)            100,000          100,000         400,000                                           500,000
 12-31-1997(5)            135,000          135,000                                                           135,000
 12-31-1997(6)            175,000          175,000         210,000                                           385,000
 12-31-1997(7)            220,000          220,000                                                           220,000
 12-31-1997              Net loss                                                          (1,511,538)    (1,511,546)
                                        ----------      ----------       ----------        -----------    -----------
                        3,177,583        3,177,583       8,978,463        (814,183)        (9,470,295)     1,871,568

</TABLE>







                 See accompanying notes to financial statements
                                       F5
<PAGE>   25
                      INTERNATIONAL MERCANTILE CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 1997

      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. On May 21, 1988, the Company
amended its certificate of incorporation to increase the number of directors to
constitute the Board of Directors to 9.
      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 is licensed
to do business in the state of Louisiana through HAMC. 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.
      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.
      As of December 31, 1997, the Company is required to issue 220,000 shares
of common stock pursuant to a private placement under Rule 506 of the Securities
Act of 1933, as amended for an aggregate consideration of $220,000 or $1.00 per
share. The Company has reflected these shares as outstanding as of December 31,
1997.
      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 $9,470,294 for the period from inception March 10, 1971 to December 31, 1997.
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 newly acquired subsidiary


                                       
<PAGE>   26
                      INTERNATIONAL MERCANTILE CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 1997

University Mortgage, Inc. , the Company will complete its plans for 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, 1996 and 1997 and the related
consolidated statements of operations, stockholders equity and cash flows for
the years ended December 31, 1995, 1996 and 1997.
      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
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:

                                       
<PAGE>   27
                      INTERNATIONAL MERCANTILE CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 1997

                               Year ended      Year ended
                              December 31,    December 31,
                                  1996            1997
                        -------------------------------------
 Total number common
    shares outstanding           101,083(1)        3,177,583
       (1) Pre split shares were 3,133,151
      e. Revenue recognition
      Revenue is recognized when products are shipped or services are rendered.
      f. Selling and Marketing Costs
      Selling and Marketing - Certain selling and marketing costs are expensed
in the period in which the cost pertains. Other selling and marketing costs are
expensed as incurred
      g. 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 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.
      h. Significant Concentration of Credit Risk
      At December 31, 1997, the Company has concentrated its credit risk by
maintaining deposits in several banks. The maximum loss that could have resulted
from this risk totaled $134,823 which represents the excess of the deposit
liabilities reported by the banks over the amounts that would have been covered
by the federal insurance.
      j. 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 mortgage inventory has been sold. Mortgage inventory secures
the related warehouse lines of credit
      k. 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.
      l. Excess of purchase price over cost of assets acquired
      Excess of purchase price over cost of assets acquired represents the cost
in excess of the fair value of net assets acquired and is amortized on a
straight line basis over 20 to 40 years.


<PAGE>   28
                      INTERNATIONAL MERCANTILE CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 1997


     NOTE 3 - ACQUISITIONS
      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 issued and aggregate of 1,910,000 shares of common stock with a value in
the aggregate of $2,520,000.

      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 value of the
assets. The Company concluded its due diligence process and determined that the
value of the assets could not be confirmed. As of December 31, 1997, this aspect
of the transaction was rescinded.
      The share issuances 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 1,000,000 shares of common
stock valued at $1.00 per share or $1,000,000 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.
      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 UMI 175,000 shares of common
stock valued at $385,000 or $2.20 per shares representing on half of the market
price of the Company on December 31, 1997 in consideration of the risk of the
holding period.
      In addition on December 31, 1997, the Company issued 135,000 shares of
common stock to AB Securities, Inc., ("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.
      The company restructured the transaction between CFC and IMTL, so that the
1,500,000 shares issued to CFC was done in consideration for IMTL's acquisition
of UMI.
      The number of shares of common stock issued to UMI is 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 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


                                       
<PAGE>   29
                      INTERNATIONAL MERCANTILE CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 1997

 be increased to equal the market price on that date.
      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.
      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, HAMC had no assets or
liabilities. as of December 31, 1997, 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 - SALE OF SUBSIDIARIES
      On May 4, 1995, the Company exchanged all of the common stock owned by the
Company in 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. The Company
entered into an agreement dated November 17, 1995, amended on May 3, 1996, for


                                       
<PAGE>   30
                      INTERNATIONAL MERCANTILE CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 1997

the purchase of the common stock of a mortgage company from Washington in
exchange for a parcel of real estate owned by the mortgage company.
      For financial reporting purposes, the assets, liabilities, results of
operations, and cash flows of ULHC and Washington are included as a discontinued
operation.
      NOTE 5 -  MARKETABLE SECURITIES, AVAILABLE FOR SALE
      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,
1996:

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



     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
</TABLE>

<PAGE>   31
                      INTERNATIONAL MERCANTILE CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 1997
<TABLE>
<S>                          <C>             <C>            <C>      <C>            <C>        <C>    
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>

     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>

      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.
      The Company issued 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 $60,000.
      The Company has issued an aggregate of 200,000 shares of common stock to
Ventana Consulting, Inc., a Michigan corporation.
      b. 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. This 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.
      c. Employment Agreement with Mr. Walter DeRonde
      On January 1, 1997, the Company entered into an employment agreement with
Mr. Walter 

<PAGE>   32
                      INTERNATIONAL MERCANTILE CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 1997

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, the Company has accrued $120,000 in
salary.
      d. 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.
      e. 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 term of this agreement is 10
years and is renewable.
      For the year ending December 31, 1997, the Company has accrued $120,000.
      f. 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 was $0.08 per share.
      g. Loans Payable- Affiliated Companies
      UMI has Loans receivable - affiliated parties from W-C Consultants, Inc.
aggregating $292,091 at December 31, 1997.
      h. Managerial Relationship
      On January 1, 1997, the 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, 1997, W-C
received $377,970, which was charged to operations.
     i. Sublease Agreement
     On July 1, 1996, the 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, rent expense was $21,483.
     j. Change in Managerial Control
     As of December 31, 1997, the Company acquired all of the issued and
outstanding capital

<PAGE>   33
                      INTERNATIONAL MERCANTILE CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 1997

stock of the UMI. This acquisition enables the Company to have majority
managerial and financial control in the decision making process of the UMI.
     k. Change in Equity Ownership
     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.
     l. 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.
     m. Other Agreements
     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.
     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.

<PAGE>   34
                      INTERNATIONAL MERCANTILE CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 1997


      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 canceled.
      NOTE 8 - 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, 1997, 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, 1997, the Company has net operating loss carry forwards
for income tax purposes of $9,470,294. This carryforward is available to offset
future taxable income, if any, and 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, 1997 are
as follows:
      Deferred tax asset:

            Net operating loss carry forward                $  3,443,603
            Valuation allowance                             $( 3,443,603)
                                                             ------------
            Net deferred tax asset                          $    -0-
                                                             ========
      The Company recognized no income tax benefit for the loss generated as of
December 31, 1997.
      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 9 -  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.
     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.

<PAGE>   35
                      INTERNATIONAL MERCANTILE CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 1997

   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 ion 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, 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.
     NOTE  10 - WAREHOUSE LOAN PAYABLE
     On August 28, 1997, the UMI entered into Whole Loan Purchase and Sale
greement and a Warehouse Credit and Security Agreement with Lau Funding Plus,
Inc. ("LFP") whereby LFP has agreed to make loans to the 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, 1997, the warehouse loan balance outstanding was $654,805
with mortgages receivable of $687,500.
     NOTE 11 - LOAN PAYABLE TO THE FIRST NATIONAL BANK OF MARYLAND
     On January 22, 1997, the 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, 1997, the amount due is $200,000.
     NOTE 12 - 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
<PAGE>   36
                      INTERNATIONAL MERCANTILE CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 1997


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, the Company had sold 22 Units for an aggregate
consideration of $220,000. 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.
     NOTE 13 - SUPPLEMENTAL SCHEDULE OF NON CASH INVESTING AND FINANCING
     ACTIVITIES
     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.
     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 14 - SUBSEQUENT EVENTS
     Subsequent to the date of the financial statements the Company had
appointed Mr. Roger Arnold as President of the Company.