INTERNATIONAL MERCANTILE CORP



                                   Filing Type: 10-Q
                                   Description: Quarterly Report
                                   Filing Date:
                                   Period End:  Mar 31, 1999


                              Primary Exchange: N/A
                                        Ticker: N/A






<PAGE>

INTERNATIONAL MERCANTILE CORP - 10-Q - Quarterly Report
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                                TABLE OF CONTENTS

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             To jump to a section, double-click on the section name.

                                      10-Q

PART I........................................................................4
Item 1........................................................................4
Balance Sheet.................................................................4
Income Statement 1............................................................5
Cash Flow Statement...........................................................5
Table 5.......................................................................6
Table 6.......................................................................6
Table 7.......................................................................8
Table 8.......................................................................8
Item 2........................................................................9
PART II......................................................................10
Item 1.......................................................................10
Item 2.......................................................................10
Item 3.......................................................................11
Item 4.......................................................................11

                                      EX-27

 .............................................................................11


<PAGE>




INTERNATIONAL MERCANTILE CORP - 10-Q - Quarterly Report
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                    U. S. SECURITIES AND EXCHANGE COMMISSION
                            Washington, D. C. 20549
                                  FORM 10-Q

[x] Quarterly report pursuant to Section 13 or 15(d) of the Securities  Exchange
    Act of 1934. For the quarterly period ended March 31, 1999.


[ ] Transition  report  pursuant  to Section  13 or 15 (d) of the  Securities
    Exchange Act of 1934.

    For the transition period from              to


                  Commission File Number: 0-7693


                       INTERNATIONAL MERCANTILE CORPORATION
    --------------------------------------------------------------------
       (Exact name of small business issuer as specified in its charter)




            MISSOURI                                  43-0970243
       -------------------------------------------------------------------
       (State or other jurisdiction                  (I.R.S. Employer
       incorporation or organization)                Identification No.)




                 -------------------------------------------
                    (Address of principal executive offices)


                                 410-242-5000
                          ---------------------------
                          (Issuer's telephone number)




          --------------------------------------------------------
              (Former name, former address and former fiscal year,
                         if changed since last report)


       Check whether the issuer

(1)    filed all  reports  required  to be filed by  Section  13 or 15(d) of the
       Exchange Act during the past 12 months (or for such  shorter  period that
       the registrant was required to file such reports), and

(2)    has been subject to such filing requirements for the past 90 days.

       Yes [ ]      No [x]

       State the number of shares outstanding of each of the issuer's classes of
       common equity as of the latest practicable date:

       4,080,757  Class A Common Shares as of March 31, 1999  1,000,000  Class B
       Common Shares as of March 31, 1999

       Transitional Small Business Disclosure Format Yes [ ] No [X]

--------------------------------------------------------------------------------
<PAGE>


                                     PART I
                              FINANCIAL INFORMATION

Item 1. Financial Statements

The condensed financial  statements for the period ended March 31, 1999 included
herein  have  been  prepared  by  International  Mercantile  Corporation,   (the
"Company")  without  audit,  pursuant  to  the  rules  and  regulations  of  the
Securities  and  Exchange  Commission  (the  "Commission").  In the  opinion  of
management,  the statements include all adjustments  necessary to present fairly
the financial  position of the Company as of March 31, 1999,  and the results of
operations  and cash flows for the three month  periods ended March 31, 1998 and
1999.

                      INTERNATIONAL MERCANTILE CORPORATION
                           CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>

                                                                                                              MARCH 31,
                                                                                      DECEMBER 31,               1999
                                                                                         1998                 UNAUDITED
                                                                                      ------------            ---------
<S>                                                                                       <C>                  <C>
                      ASSETS
 CURRENT ASSETS
   Cash and cash equivalents                                                              $205,022             $278,168
   Loans receivable                                                                            -0-              132,532
   Mortgages receivable                                                                    108,800              108,800
                                                                                         ---------            ---------
   Current assets                                                                          313,822              519,500
 CAPITAL ASSETS-NET                                                                          6,328                5,711
 OTHER ASSETS
   Excess of purchase price over assets acquired                                         1,120,186            1,120,186
   Notes receivable-affiliated parties                                                     232,591              232,591
 S  Securities-available for sale                                                          481,872              487,375
   Security deposit                                                                          5,488                5,489
   Intangible assets                                                                        32,241               28,239
                                                                                         ---------            ---------
   TOTAL OTHER ASSETS                                                                    1,872,378            1,873,877
                                                                                         ---------            ---------
 TOTAL ASSETS                                                                           $2,192,528           $2,399,088
                                                                                        ==========           ==========

                      LIABILITIES AND STOCKHOLDERS' EQUITY
 CURRENT LIABILITIES
   Accounts payable and accrued expenses                                                $    4,397           $    6,582
   Payroll liabilities and taxes payable                                                    74,263              111,095
   Warehouse loan payable                                                                  103,360              103,360
   Notes payable                                                                            57,494               57,494
   Deferred income                                                                           5,440                5,440
   Bank line of credit                                                                     200,700              206,922
                                                                                         ---------            ---------
 Total current liabilities                                                                 445,654              490,893
 CAPITAL STOCK
   Preferred stock-  Series 1-  authorized  10,000,000  shares,  $0.10 par value
         each, at March 31, 1999, the number of shares outstanding is -0-.
   Preferred stock-  Series 2 -  authorized  2,000,000  shares,  $0.10 par value
         each, at March 31, 1999, the number of shares outstanding is -0-.
   Preferred stock - Series 3,  authorized  5,000,000,  $0.10 par value each. At
         March 31, 1999, the number of shares outstanding is -0- .
   Common stock-Class A-authorized 31,000,000 common shares, par value $0.01                33,236               40,807
         each, at December 31, 1998 and March 31, 1999, the number of shares
         outstanding was 3,323,615 and 4,080,757 respectively
   Common stock - Class B - authorized 2,000,000, $0.01 par value each, the number          10,000               10,000
         of shares  outstanding  at  December  31,  1998 and March  31,  1999 is
            1,000,000 Unrealized gain on securities available for sale                         -0-                5,500
            Additional paid in capital                                                  13,783,133           14,040,561
            Retained earnings                                                          (11,265,312)         (11,374,490)
                                                                                        ----------           ----------
          Total stockholders' equity                                                     2,561,057            2,722,378
          Less treasury stock                                                             (814,183)            (814,183)
                                                                                         ---------            ---------
          Total stockholders equity                                                      1,746,874            1,908,195
                                                                                         ---------            ---------
          Total liabilities and stockholders' equity                                    $2,192,528           $2,399,088
                                                                                        ==========           ==========

</TABLE>

                           See accompanying notes to financial statements.

<PAGE>




                      INTERNATIONAL MERCANTILE CORPORATION
                      CONSOLIDATED STATEMENT OF OPERATIONS
                       For the three months ended March 31

<TABLE>
<CAPTION>

                                                                             1998                         1999
                                                                           UNAUDITED                    UNAUDITED
                                                                           ---------                    ---------

<S>                                                                       <C>                          <C>
 Revenue                                                                  $  232,886                   $  337,263

 Mortgage related expenses                                                   136,653                      177,724
                                                                             -------                      -------
 Gross profit                                                                 96,233                      159,539
                                                                             -------                      -------
 Operations:
   General and administrative                                                266,297                      260,719
   Depreciation and  amortization                                                841                        4,618
                                                                             -------                      -------
   Total expense                                                             267,138                      265,337
                                                                             -------                      -------
 Income (loss) from operations                                              (170,905)                    (105,798)

 Corporate income taxes                                                          -0-                          -0-
 Other income
   Interest income                                                             1,598                        1,420
   Gain on sale of asset                                                         250                          -0-
   Interest expense                                                           (2,683)                      (4,800)
                                                                            --------                     --------
Net Profit (Loss)                                                           $(171,740)                  $(109,178)
                                                                             ========                    ========

 Net income (loss) per share - basic                                           $(0.05)                    $ (0.03)
                                                                             ========                    ========

 Number of shares outstanding                                               3,457,583                   4,080,757
                                                                            =========                   =========

 Net income (loss) per share - diluted                                         $(0.05)                     $(0.03)
                                                                            =========                   =========

 Number of shares outstanding                                               3,457,583                   4,080,757
                                                                           ==========                  ==========
</TABLE>

                 See accompanying notes to financial statements.


<PAGE>

                      INTERNATIONAL MERCANTILE CORPORATION
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                       For the three months ended March 31

<TABLE>
<CAPTION>

                                                                              1998                      1999
                                                                            UNAUDITED                 UNAUDITED
                                                                            ---------                 ---------
<S>                                                                        <C>                     <C>
 CASH FLOWS FROM OPERATING ACTIVITIES
   Net income                                                              $ (171,740)             $ (109,178)
   Depreciation                                                                   841                   4,618
 Adjustments
   Accounts payable and accrued expenses                                       13,250                   2,184
   Accrued salaries and payroll taxes payable                                 (12,495)                 36,832
                                                                              -------                 -------
 TOTAL CASH FLOWS FROM OPERATIONS                                            (170,144)                (65,544)
                                                                              -------                  ------
CASH FLOWS FROM INVESTING ACTIVITIES
   Mortgages receivable                                                       575,100                     -0-
   Notes and loans receivable                                                 (66,667)               (132,532)
   Fixed assets                                                                (2,500)                    -0-
                                                                              -------                 -------
 TOTAL CASH FLOWS FROM INVESTING ACTIVITIES                                   505,933                (132,532)
                                                                              -------                 -------
 CASH FLOWS FROM FINANCING ACTIVITIES
   Sale of capital stock                                                      280,000                 265,000
   Warehouse loan payable                                                    (548,025)                    -0-
   Bank line of credit                                                            -0-                   6,222
   Deferred income                                                            (27,075)                    -0-
                                                                              -------                 -------
 TOTAL CASH FLOWS FROM FINANCING ACTIVITIES                                  (374,100)                271,222
                                                                              -------                 -------
 NET INCREASE (DECREASE) IN CASH                                              (38,311)                 73,146
 CASH BALANCE BEGINNING OF PERIOD                                             290,951                 205,022
                                                                              -------                 -------
 CASH BALANCE END OF PERIOD                                                  $252,640                $278,168
                                                                            =========                ========
</TABLE>

                              See accompanying notes to financial statements.
<PAGE>


                      INTERNATIONAL MERCANTILE CORPORATION
                  CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY

<TABLE>
<CAPTION>


                                                       PREFERRED   PREFERRED   PREFERRED    CLASS A   CLASS A     CLASS B   CLASS B
                                                         STOCK       STOCK       STOCK      COMMON    COMMON      COMMON     COMMON
 DATE                                                   SERIES 1    SERIES 2    SERIES 3    STOCK      STOCK       STOCK      STOCK
 ----                                                   --------    --------    --------    ------    ---------    ------     -----
<S>                                                     <C>          <C>        <C>       <C>        <C>          <C>        <C>
12-31-1995                                                                                3,133,151  $ 3,133,151

Net loss
                                                                                          ---------    ---------
12-31-1996                                                                                3,133,151    3,133,151
                                                                                          ---------    ---------
Reflects 31 to 1 reverse split                                                              101,083        1,011
Shares issued for consulting fees                                                           946,500        9,465
Shares issued for acquisitions                                                            1,910,000       19,100
Sale of shares through private                                                              220,000        2,200
  Placement at $1.00 per share

12-31-1997 Net loss

Prior period correction -                                                                 1,000,000)     (10,000)
Cancellation of shares
                                                                                          ---------      -------
12-31-1997                                                                                2,177,583      21,776

Sale of shares                                                                              420,000       4,200
Issuance of shares as                                                                     1,093,699      10,937
 Non cash compensation
Issuance of shares for                                                                      125,000       1,250
 Legal expenses
Issuance of shares pursuant                                                                 507,333       5,073
 To S-8 options valued at $1.74
Exchange of shares                                                                       (1,000,000)    (10,000)  1,000,000  10,000
12/31/98 Net loss
                                                           ---         ---         ---    ---------     -------   ---------  ------
12-31-1998                                                 -0-         -0-         -0-    3,332,615     $33,236   1,000,000  10,000

Sale of shares                                                                              757,142       7,571
3-31-99 Net loss

                                                           ---         ---         ---    ---------     -------   ---------  ------
3-31-99                                                    -0-         -0-         -0-    6,080,757     $40,807   1,000,000  10,000
                                                           ===         ===         ===    =========     =======   =========  ======

</TABLE>

<PAGE>


<TABLE>
<CAPTION>

                                                       ADDITIONAL          TREASURY         RETAINED    UNREALIZED GAIN
 DATE                                                PAID IN CAPITAL         STOCK          EARNINGS     ON SECURITIES       TOTAL
 ----                                                --------------          -----          --------     --------------      -----

<S>                                                   <C>               <C>              <C>               <C>           <C>

12-31-1995                                            $  5,326,395      $  (814,183)     $ (7,958,757)                    $(313,395)

12-31-1996 Net loss                                                                               -0-                           -0-
                                                      ------------      -----------      ------------                    ----------
12-31-1996                                               5,326,395      $  (814,183)     $ (7,958,757)                    $(313,395)
                                                      ------------      -----------      ------------                     ----------
Reflects 31 to 1 reverse split                           8,458,535         (814,183)     $ (7,958,757)                     (313,395)
Shares issued for consulting                               947,035                                                           956,500
Shares issued for acquisition                            2,500,900                                                         2,520,000
Sale of shares - private plmt                              217,800                                                           220,000
Prior period correction                                   (990,000)                                                      (1,000,000)
12-31-1997 Net loss                                                                       (1,511,538)                    (1,511,538)
                                                      ------------      -----------      ------------                     ----------
12-31-1997                                              11,134,270         (814,183)       (9,470,295)                      871,568

Sale of shares                                             415,800                                                          420,000
Issuance of shares as                                    1,100,762                                                        1,111,699
 Non cash compensation
Issuance of shares for                                     254,375                                                          255,625
 Legal expense
Issuance of shares pursuant                                877,927                                                          883,000
 To S-8
Exchange of shares                                                                                                               -0-
12-31-98 Net loss                                                                          (1,795,017)                   (1,795,017)
                                                      ------------      -----------      ------------                     ----------
         12-31-1998                                   $ 13,783,134      $  (814,183)     $(11,265,312)                    $1,746,875

         Sale of shares                                    257,429                                                          265,000
         Unrealized Gain on Securities                                                                         5,500          5,500
         3-31-99 Net loss                                                                    (109,178)                     (109,178)
                                                      ------------      -----------      ------------      ---------      ----------
         3-31-99                                      $ 14,040,561      $  (814,183)     $(11,374,490)         5,500      $1,908,195
                                                      ============      ===========      ============      =========      ==========

</TABLE>

                               See accompanying notes to financial statements.


<PAGE>






                      INTERNATIONAL MERCANTILE CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                    FOR THE THREE MONTHS ENDED MARCH 31, 1999

1. BASIS OF PRESENTATION

The accompanying  unaudited  financial  statements of  International  Mercantile
Corporation, (the "Company"),  reflect all adjustments which are, in the opinion
of  management,  necessary  to a fair  statement  of the  results of the interim
periods  presented.  All such adjustments are of a normal recurring nature.  The
financial  statements  should be read in conjunction with the notes to financial
statements  contained in the  Company's  Annual Report on Form 10-K for the year
ended December 31, 1998.


2. NET INCOME PER SHARE

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


                                      FOR THE THREE         FOR THE THREE
                                       MONTHS ENDED          MONTHS ENDED
                                         MARCH 31,             MARCH 31,
                                           1998                  1999
                                       -------------       --------------

 Total number common
  shares outstanding                    3,457,583             4,080,757
                                        =========             =========



3. ACCOUNTING FOR INCOME TAXES

The Company follows  Statement of Financial  Accounting  Standards  ("SFAS") No.
109,  "Accounting  for Income  Taxes,"  which  requires  an asset and  liability
approach of accounting for income taxes. Deferred tax assets and liabilities are
computed  annually for  differences  between  financial  statement basis and tax
basis  of  assets,   liabilities  and  available  general  business  tax  credit
carry-forwards.  A valuation  allowance is established  when necessary to reduce
deferred tax assets to the amount expected to be realized.



4. MARKETABLE SECURITIES

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,
1998 and March 31, 1999, the Company had no investments  that were classified as
trading or held-to-maturity as defined by the Statement.


<PAGE>


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



                                                            ESTIMATED
                                        GROSS       GROSS     FAIR
                                     UNREALIZED  UNREALIZED   MARKET
                              COST      LOSSES      GAINS     VALUE
                             -----     --------  ---------   ---------

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

Securities-available for
     sale                $   580,000   ( 98,128)       -0-   $ 481,872
                            --------    -------      ------    -------
Total cash, cash
  equivalents and
  securities available
  for sale               $   785,022  $( 98,128)       -0-   $ 686,894
                            ========   ========      ======   ========


The  following is a summary of cash,  cash  equivalents  and  available-for-sale
securities by balance sheet classification at March 31, 1999:



                                                            ESTIMATED
                                        GROSS       GROSS     FAIR
                                     UNREALIZED  UNREALIZED   MARKET
                              COST      LOSSES      GAINS     VALUE
                             -----     --------  ---------   ---------

Cash                     $   278,168    $  -0-     $  -0-    $ 278,168
                             -------    -------     -------   --------
Total cash and cash
  equivalents            $   278,168       -0-        -0-    $ 278,168

Securities-available for
     sale                $   580,000  $(142,628)     50,000  $ 487,372
                            --------    -------      ------    -------
Total cash, cash
  equivalents and
  securities available
  for sale               $   858,168  $(142,628)     50,000  $ 657,951
                            ========   ========      ======   ========




5. Commitments and Contingencies

   a. The employment agreement with Mr. Walter Deronde has been cancelled.

   b. The employment agreement with Mr. Max Apple has also been cancelled.

   c. The financial consulting agreement with Frederic Richardson has been paid
      in full.



<PAGE>


6. Private Placement

Pursuant to a private  placement  under Rule 506 of the  Securities Act of 1933,
the  Company  is  offering a minimum of 4 Units and a maximum of 80 Units of its
securities.  Each Unit is being sold at $25,000 per Unit and  consists of 20,833
shares  of Class A Common  Stock  and  20,833  shares  of  Convertible  Series 1
Preferred  Stock,  which are  convertible  into 20,833  shares of Class A Common
Stock. The Units are being offered on a "best-efforts" basis. The Minimum Amount
of  securities  offered  shall be 4  Units.  The  Units  must be  purchased  for
investment  purposes  only and the free  transferability  of the  securities  is
restricted.  The  above  terms  were  changed  upon  mutual  agreement  with the
investors to only the sale of Class A common stock shares at $0.35 per share.

This  Offering  will  terminate  on the  earlier of receipt  and  acceptance  of
subscriptions for all 80 Units or December 31, 1999, unless extended in the sole
discretion of the Company for an additional period of up to 90 days,  subject to
termination at any time prior thereto by the Company.

As of March 31,  1999,  the  Company  has sold  several  Units.  The Company has
reserved approximately $200,000 worth of shares.



Item 2. Management's Discussion and Analysis or Plan of Operation

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
              For the three months ended March 31, 1998 and 1999
                ------------------------------------------------

Except for the description of historical facts contained  herein,  this Form 10Q
contains certain forward looking statements that involve risks and uncertainties
as  detailed  herein  and from time to time in the  Company's  filings  with the
Securities and Exchange  Commission and elsewhere.  Such statements are based on
management's  current  expectations  and are  subject to a number of factors and
uncertainties  which could cause actual results to differ  materially from those
described  in the  forward-looking  statements.  These  factors  include,  among
others,  the  Company's  fluctuations  in sales  and  operating  results,  risks
associated  with  international  operations  and  regulatory,   competitive  and
contractual risks and product development.

Results of  operations  for the three months ended March 31, 1999 as compared to
the three months ended March 31, 1998.
--------------------------------------------------------------------------------

Revenues  were $337,263 for the three months ended March 31, 1999 as compared to
$232,886  for the three  months  ended  March 31,  1998.  Mortgages  and related
expenses for the three months ended March 31, 1999, were $177,724 as compared to
$136,653  for the three  months  ended  March 31,  1998  representing  a cost of
mortgages related expenses of 52.7% for the three months ended March 31, 1999 as
compared to 58.7% for the three months ended March 31, 1998.

General and administrative  costs for the three months ended March 31, 1999 were
$260,716,  an decrease of 2.1% over  expenses of $266,297  for the three  months
ended March 31, 1998.


Liquidity and capital resources as of March 31, 1999.
--------------------------------------------------------------------------------

The  Company's  cash balance was $278,168 and working  capital was $28,607 as of
March 31, 1999.

The Company's primary short-term needs for capital, which are subject to change,
are for  the  search  for  acquisitions,  operation  of the  Company's  mortgage
business and payment of the day to day operating expenses.

<PAGE>


Income tax: As of March 31, 1999,  the Company has a tax loss  carry-forward  of
$12,040,102.  The Company's ability to utilize its tax credit  carry-forwards in
future years will be subject to an annual limitation  pursuant to the "Change in
Ownership  Rules"  under  Section 382 of the Internal  Revenue Code of 1986,  as
amended.  However,  any annual  limitation  is not  expected  to have a material
adverse   effect  on  the   Company's   ability  to   utilize   its  tax  credit
carry-forwards.


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

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

                                      PART II
                                OTHER INFORMATION

Item 1. Legal Proceedings.

No legal  proceedings  were brought,  are pending or are  threatened  during the
quarter.


Item 2. Changes in Securities

Amendment to the Certificate of Incorporation

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

       31,000,000  shares of Class A Common  Stock,  par value  $0.01 per share.
        2,000,000 shares of Class B Common Stock, $0.01 per share.
       10,000,000  shares  of  Preferred  Stock,  Series  1,  $0.10  per  share.
        2,000,000  shares  of  Preferred  Stock,  Series  2,  $0.10  per  share.
        5,000,000 shares of Preferred Stock, Series 2, $0.10 per share.

Class A Common Stock.

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

Class B Common Stock

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



<PAGE>

Series 1 Convertible Preferred Stock

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

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



Item 3. Defaults upon Senior Securities

       None.

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

       None.





                                   SIGNATURES



       In accordance  with the  requirements  of the Securities  Exchange Act of
1934,  the  registrant  has caused this report to be signed on its behalf by the
under signed thereunto duly authorized.




                                   INTERNATIONAL MERCANTILE CORPORATION
                                      (Registrant)

                                    By:
                                       ------------------

                                       PRESIDENT


 Dated: