U.S. Securities and Exchange Commission

                              Washington, DC 20549

                                  Form 10-QSB/A

     [X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
              OF THE SECURITIES EXCHANGE ACT OF 1934

              For the quarterly period ended June 30, 2001



     [ ]      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 of other jurisdiction of                        (IRS Employer
 incorporation or organization)                      Identification No.)


                  P.O. Box 340, Olney, MD 20830
                  ---------------------------------------------
                    (Address of principal executive offices)

                                 (301) 774-6913
                           ---------------------------
                           (Issuer's telephone number)
           1625 Knecht Ave, Baltimore, MD 21227
              -----------------------------------------------------
              (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 [ X ]      No  [__]

                 APPLICABLE ONLY TO CORPORATE ISSUERS

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

As of June 30, 2001, there were outstanding 1,960,028 shares of Class A Common
Stock, $0.10 par value, and 1,285,714 shares of Class B Common Stock, $0.10 par
value.

     Transitional Small Business Disclosure Format (check one);

                      Yes [__]       No  [ X ]
<PAGE>



                      INTERNATIONAL MERCANTILE CORPORATION

                               Form 10-QSB/A Index
                                  June 30, 2001

                                                                      Page
                                                                      ----

Part I: Financial Information .....................................     3


      Item 1. Financial Statements ................................     3

      Balance Sheets as of June 30, 2000
      and June 30, 2001 (unaudited)..............................     6-7

      Statement of Operations for the quarters ended
      June 30, 2000 and June 30, 2001 ..........................        8

      Statement of Changes in Stockholder's Equity
      for the quarters ended June 30, 2000 and June 30, 2001....        9

      Statement of Cash Flows for the quarters ended June 30,
      2001 and June 30, 2001 ....................................      10

      Notes to Financial Statements................................ 11-21


     Item 2. Management's Discussion and Analysis
             or Plan of Operation .................................    22


Part II:   Other Information ......................................    24


     Item 1.    Legal Proceedings .................................    24


     Item 2.    Changes in Securities .............................    24


     Item 3.    Defaults Upon Senior Securities ...................    25


     Item 4.    Submission of Matters to a Vote of
                Security Holders ..................................    25


     Item 5.    Other Information .................................    25


     Item 6.    Exhibits and Reports on Form 8-K ..................    25

Signatures ........................................................    27



                                        2
<PAGE>



                      INTERNATIONAL MERCANTILE CORPORATION


                                     PART I

                              FINANCIAL INFORMATION


Item 1.    Financial Statements


                      INTERNATIONAL MERCANTILE CORPORATION

                                TABLE OF CONTENTS
                                  JUNE 30, 2001

                                                                        Page

Accountants' Review Report                                                1

Balance Sheets                                                          2-3

Statements of Operations                                                  4

Statements of Changes in Stockholders' Equity                             5

Statements of Cash Flows                                                  6

Notes to the Financial Statements                                      7-21















<PAGE>



To the Board of Directors and Stockholders
International Mercantile Corporation, a Missouri corporation

We have  reviewed the  accompanying  balance sheet of  International  Mercantile
Corporation (a Missouri  Corporation) as of June 30, 2000 and June 30, 2001, and
the related statements of operations,  changes in stockholders'  equity and cash
flows for the periods then ended.  Our review was performed in  accordance  with
Statements  on  Standards  for  Accounting  and  Review  Services  issued by the
American Institute of Certified Public Accountants. All the information included
in  these  financial  statements  is the  representation  of the  management  of
International Mercantile Corporation.

A review consists  principally of inquiries of Company  personnel and analytical
procedures  applied to financial data. It is substantially less in scope than an
audit in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion  regarding the financial  statements taken
as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material  modifications that should
be made to the  accompanying  financial  statements  in order  for them to be in
conformity with generally accepted accounting principles.

The financial  statements  for the year ended December 31, 2000 presented in the
financial  statements  were audited by Caruso and Caruso of Boca Raton,  Florida
and they  expressed  an  unqualified  opinion on them in our report dated April,
2001,  but we have  not  performed  any  auditing  procedures  on  International
Mercantile Corporation.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in Note 12 to the
financial  statements,  the Company has incurred  significant  operating losses.
Although the Company is  negotiating  financing  arrangements  that will provide
additional  working  capital  until  revenues  from full  scale  operations  are
sufficient, the Company cannot predict what the outcome of the negotiations will
be. These  conditions  raise  substantial  doubt about the Company's  ability to
continue  as a going  concern.  The  financial  statements  do not  include  any
adjustments that might result from the outcome of this uncertainty.

Craig W. Conners, C.P.A.

San Diego, CA
August 18, 2001




<PAGE>


                      INTERNATIONAL MERCANTILE CORPORATION
                                 BALANCE SHEETS


                                     ASSETS
                                                       Unaudited      Unaudited
                                         December 31    June 30,       June 30,
                                            2000          2000           2001
                                         -----------  ------------  ------------

Current Assets
--------------
   Cash and Cash Equivalents           $   63,157     $  (61,840)  $     1,220
   Marketable Securities - Trading            -              -             -
   Accounts Receivable Net of
     Allowance for Doubtful Accounts    1,036,458      1,306,594           -
   Inventory                              276,391        565,151           -
   Prepaids & Other Assets                 64,585         21,418           -
   Due From Related Party                  51,404            -             -
                                        ------------  ------------  ------------

      Total Current Assets              1,491,995      1,955,003         1,220

Investments
-----------
   Investment in Equity
      Securities-Available-For-Sale        80,000      3,000,000        18,000

Fixed Assets
------------
   Fixed Assets, net of
      Accumulated Depreciation            225,967        221,574           -

Other Assets
------------
   Organization Costs,
      Net of Amortization                 169,625        191,415           -
   Deposits                                32,604         36,042           -
   Capitalized Loan Costs,
      Net  of Amortization                130,468            -             -
                                        ------------  ------------  ------------
      Total Other Assets                  332,697        227,457        18,000
                                        ------------  ------------  ------------

         Total Assets                   2,130,659    $ 5,404,034   $    19,200
                                        ============  ============  ============


  See Accountants' Review Report and Accompanying Notes to Financial Statements

                                        2
<PAGE>


                      INTERNATIONAL MERCANTILE CORPORATION
                                 BALANCE SHEETS

                       LIABILITIES & STOCKHOLDERS' EQUITY
                                                       Unaudited      Unaudited
                                         December 31    June 30,       June 30,
                                            2000          2000           2001
                                         -----------  ------------  ------------

Current Liabilities
-------------------
   Accounts Payable and
      Accrued Expenses                $ 1,097,194     $ 1,011,136  $   29,000
   Cash Overdraft                             -              -            -
   Accrued Interest Payable               130,182          47,214         -
   Due to Related Party                       -            39,573         -
   Warranty Reserve - Current Portion      12,442           2,442         -
   Convertible Debentures -
      Current Portion                         -              -            -
   Note Payable - Related Parties,
      Current Portion                     455,209         596,609         -
   Line  of Credit                        588,908         698,946         -
   Loans Payable                          247,500         247,500         -
   Capitalized Lease Payable -
      Current Portion                      13,915          10,221         -
                                        ------------  ------------  ------------
      Total Current Liabilities         2,545,350       2,653,641      29,000

Long Term Liabilities
---------------------
   Committments and Contingencies
   Warranty Reserve, Net
      of Current Portion                    5,171          11,884         -
   Capitalized Lease Payable Net
      of Current Portion                   12,126          17,987         -
   Note Payable - Related Party
      Net of Current Portion               75,000          75,000       9,000
   Convertible Debentures                 500,000            -            -
                                        ------------  ------------  ------------
      Total Long Term Liabilities         592,297         104,871      38,000
                                        ------------  ------------  ------------

         Total Liabilities              3,137,647       2,758,512      38,000
                                        ------------  ------------  ------------

Stockholders' Equity
--------------------
   Common stock-Class A -
      31,000,000 authorized
      @ $.10 Par 9,333,536,
      @ .01 Par 16,534,847
      and @ $.10 Par 11,960,028
      shares respectively                 933,354         271,902   1,196,003
   Common stock-Class B - $.01 Par,
      2,000,000 shares authorized,
      1,000,000 and 2,000,000
      shares outstanding                   20,000          20,000      20,000
   Preferred stock - Series 1 -
      $1.00 Par, 2,000,000
      authorized, -0- and -0- shares
      outstanding                             -              -             -
   Preferred stock - Series 2 -
      $1.00 Par, 2,000,000 authorized,
      -0- and 285,714 shares
      outstanding                         285,714         200,000     285,714
   Preferred stock - Series 3 - $1.00
      Par, 5,000,000 authorized, -0-
      shares outstanding                      -              -            -
   Additional Paid in Capital           3,364,530       3,252,577   3,094,732
   Accumulated Deficit                 (5,610,586)     (1,373,315) (4,615,249)
                                      --------------  ------------  ------------

      Total Stockholders' Equity       (1,006,988)      2,645,522   (  18,800)
                                      --------------  ------------  ------------

         Total Liabilities &
            Stockholders' Equity      $ 2,130,659     $ 5,404,034  $   19,200
                                      ==============  ============  ============

  See Accountants' Review Report and Accompanying Notes to Financial Statements

                                        3
<PAGE>


                      INTERNATIONAL MERCANTILE CORPORATION
                            STATEMENTS OF OPERATIONS


                            For the Year       For the Six        For the Six
                               Ended           Months Ended        Months Ended
                            December 31,         June 30,             June 30,
                               2000                2000                 2001
                                                Unaudited            Unaudited
                          ----------------    ----------------    --------------
Revenues

   Sales                    $ 7,064,025        $ 4,045,914         $      -
   Cost of Merchandise
      Sold                    6,463,249          3,697,212                -
                          ----------------    ----------------    --------------

      Gross Profit              600,776            202,898                -
Operating Expenses
   Amortization                 109,796             20,384                -
   Auto and Truck                 -                 15,993
   Bad Debts                    410,870             34,625                -
   Bank Charges                    -                18,470
   Donations                       -                 1,817
   Depreciation                  50,713             22,494                -
   Interest Expense             249,932             88,454                -
   Marketing, Advertising
      Expense & Sales Expense   432,765              8,622
   Other General &
      Administrative Expense  2,057,519          1,204,713               8,363
   Warranty Reserve              10,037              7,000                 -
                          ----------------    ----------------    --------------

      Total Operating
         Expenses             3,321,632          1,422,573               8,363
                          ----------------    ----------------    --------------

      Net (Loss)
         From Operations     (2,720,856)        (1,073,871)             (8,363)

Other Revenues and (Expenses)
      Loss on Securities     (2,645,642)               -                   -
      Finance Charge Income      55,356                -                   -
                          ----------------    ----------------    --------------

      Net (Loss) From
         Operations and
         Other Revenues     $(5,311,142)       $  (374,374)        $    (8,363)
                          ================    ================    ==============

      Earnings (Loss)
         per share of
         common Stock
         - Basic              $ (1.4461)         $ (0.0368)          $ (0.0000)
                          ================    ================    ==============

      Weighted Average
         Shares - Basic       3,672,698          9,190,183          10,470,467
                          ================    ================    ==============

      Earnings (Loss)
         per share of Common
         Stock - Diluted      $ (0.9392)         $ (0.0368)        $   (0.0000)
                          ================    ================    ==============

      Weighted Average
         Shares - Diluted     5,655,036           9,190,183          20,454,753
                          ================    ================    ==============


  See Accountants' Review Report and Accompanying Notes to Financial Statements

                                        4
<PAGE>

<TABLE>
<CAPTION>

                      INTERNATIONAL MERCANTILE CORPORATION
                  STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
             FOR THE YEAR JANUARY 1, 2000 THROUGH DECEMBER 31, 2000
                    AND THE SIX MONTHS ENDED JUNE 30, 2001


                                                           COMMON STOCK                 PREFERRED STOCK
                                                        SHARES       AMOUNT         SHARES          AMOUNT
                                                        -------      ------         ------          ------


<S>                                                   <C>           <C>           <C>            <C>
Balance, Janaury 1, 2000, as adjusted for
August 8, 2000 1:7 reverse stock split                1,728,920     $ 82,892      $2,945,874     $ (299,444)
Issuance of Common Stock of International
Mercantile Corporation a Missouri corp to
owners of Micromatix.com, Inc., a Delaware
corporation, as adjusted for August 8,
    2000 1:7 reverse stock split
    Class A Common Stock                                214,286       21,429            -               -
    Class B Common Stock                              1,000,000       10,000            -               -
Issuance of Common Stock of International
Mercantile Corporation a Missouri
corporation, as adjusted for August 8,
2000 1:7 reverse stock split
    Class A Common Stock                              8,390,330      839,033         418,656            -
    Class B Common Stock
    Series 2 Preferred Stock                              -             -            285,714


Balance,  December 31, 2000                          11,619,250      953,354         285,714      3,364,530

Issuance of Common Stock of International
Mercantile Corporation a Missouri
Corporation, as adjusted for August 8,
    2000 1:7 reverse stock split
    Class A Common Stock                              2,626,492      262,649            -          (269,798)
    Class B Common Stock
    Series 2 Preferred Stock
                                                    --------------------------------------------------------

Balance, June 30, 2001                               14,245,742     $ 1,216,003   $ 285,714
</TABLE>


  See Accountants' Review Report and Accompanying Notes to Financial Statements

                                        5
<PAGE>


<TABLE>
<CAPTION>

                      INTERNATIONAL MERCANTILE CORPORATION
                            STATEMENTS OF CASH FLOWS


CASH FLOWS FROM OPERATING ACTIVITIES                        Year Ended    For 6 Months
------------------------------------                          12/31/01      6/30/01
                                                            -----------   ------------

<S>                                                        <C>             <C>
Net (Loss)                                                 $(5,311,142)    $  (8,363)
Adjustments to Reconcile Net Income to Net Cash
     Provided by Operating Activities
                 Bad Debts                                     410,870
                 Depreciation & Amortization                   160,509
               (Increase)Decrease in
                    Marketable Securities - Trading            715,075
                    Accounts Receivable                       (712,457)
                    Inventory                                  199,235
                    Prepaids & Other Assets                    (50,287)
                    Deposits                                   (14,274)
                    Organization Costs & Loan Costs            (70,199)
                    Due From Related Party                     (51,404)
                 Increase(Decrease)
                    Accounts Payable & Accrued Expenses        473,106
                    Cash Overdraft
                    Due to Related Party                      (261,322)
                    Accrued Interest                           121,130
                    Warranty Reserve                            10,287
                                                           ---------------------------
     NET CASH PROV. BY OPERATING ACTIVITIES                 (4,380,873)       (8,363)

CASH FLOWS FROM INVESTING ACTIVITIES
------------------------------------
Acquisition of Fixed Assets                                    (87,127)
Permanent Impairment of Equity Securities
   Available-for-Sale                                        2,645,642
                                                           ---------------------------
     NET CASH (USED) IN INVESTING ACTIVITIES                 2,558,515

CASH FLOWS FROM FINANCING ACTIVITIES
------------------------------------
Proceeds from Loans, Notes Payable, Capital
    Leases and Line of Credit                                1,695,000         9,000
Payments on Loans, Notes and Line of Credit                 (1,413,591)
Payments on Capital Lease                                       (8,422)
Issuance of Capital Stock & Capital Contributions Thereon    1,574,829
Reverse Merger of Macromatix per Unwind Provision                            (31,788)
                                                           ---------------------------

     NET CASH (USED) IN FINANCING ACTIVITIES+B15             1,847,816       (31,788)
                                                           ---------------------------


NET INCREASE (DECREASE) IN CASH                                 25,458        31,151

CASH - BEGINNING                                                37,699        32,371
                                                           ----------------------------
CASH - ENDING                                                 $ 63,157         1,220
                                                           ============================
</TABLE>

  See Accountants' Review Report and Accompanying Notes to Financial Statements

                                        6
<PAGE>


                      INTERNATIONAL MERCANTILE CORPORATION
                          NOTES TO FINANCIAL STATEMENTS

1.    Organization and Summary of Significant Accounting Policies


ORGANIZATION

International  Mercantile  Corporation  (The  Company)  is a profit  corporation
organized  under  the  laws of the  State  of  Missouri  on  March  10,  1971 as
International  Mercantile  Corporation  (IMTL).  On July 31,  1999,  the Company
liquidated  its'  majority  interest  holdings  in its'  subsidiary,  University
Mortgage,  Inc.,  which  represented  the  Company's  operations,  through a new
issuance of University Mortgage, Inc. stock to a related third party investor in
consideration  of their  capital  investment in  University  Mortgage,  Inc. The
result of this action left an OTC Bulletin Board publicly traded company with no
substantial assets or liabilities. On September 6, 1999, the Company merged with
Micromatix.com,   Inc.  (the  predecessor  company),  a  newly  formed  Delaware
corporation which maintained an Internet based personal  computer  manufacturing
business  that sells  build-to-order  unbranded or "white box" PC systems and PC
related hardware throughout the United States to value added retailers and other
marketers of micro computer  systems.  Shareholders of the  predecessor  company
received 2,500 shares of the Company's  stock for each share of the  predecessor
company;  a total  of  2,500,000  shares  issued,  in  exchange  for 100% of the
outstanding stock of the predecessor  company. The merger was accounted for as a
capital  transaction with no recognition of goodwill or other intangible assets.
The Company,  however,  has not completed  the requisite  articles of merger and
related  documents,  which are  required to be filed with the  applicable  state
authorities.  Immediately  subsequent  to the  transaction,  the  owners  of the
predecessor  company  assumed the  management of the Company  doing  business as
Micromatix.net  and owned  approximately  26.92% of the outstanding stock of the
Company representing 48.32% of the voting rights. Since this transaction was, in
substance, a recapitalization of Micromatix.com,  Inc. (the predecessor company)
and  not a  business  combination,  pro  forma  information  is  not  presented.
Accordingly,  the historical data contained in the financial  statements is that
of the predecessor  company.  An unwind provision  existed as part of the merger
agreement,  whereby the merger agreement could be rendered void. On September 2,
2000 this  provision  was extended  until March 30, 2001.  On March 31, 2001 the
Board of Directors  elected exercise their put option and unwind the merger with
Micromatix.com.  The net effect of this was to return each  corporation to their
status pro ante prior to their  merger.  The  unwinding  returned all assets and
liabilities to Micromatix so they could continue to operate  independently.  The
Company has now changed its direction and intends on acquiring a new business in
either the form of a merger,  acquisition or some type of pooling of shares.  At
this  time  there  are no  actual  targets  and  the  company  is in  search  of
candidates.  The intention is to raise the capital by either a private placement
memorandum or foreign financing.  Micromatix has agreed to indemnify the company
for any and all  liabilities  arising from the merger.  The reverse merger has a
potential for liability to the company and accordingly  Micromatix has proffered
marketable securities in the name of the company.  Accordingly 3 debentures that
were issued pursuant to the merger have been canceled but will be effectuated by
a conversion provision for equity.


REVENUE RECOGNITION

Revenues were derived primarily from sales of build-to-order  personal computers
and  related PC  hardware  via the  Company's  business-to-business  e:commerce.
Revenues  related  to these  sales are  recognized  when a  computer  product is
shipped and invoiced.


INVENTORY

Inventory  consists  primarily  of  component  parts.  The  Company  maintains a
perpetual inventory system and determines quantities by the average cost method.
Inventory  is valued at the lower of actual  cost or  market,  net of  inventory
allowance.

                                        7
<PAGE>


                      INTERNATIONAL MERCANTILE CORPORATION
                          NOTES TO FINANCIAL STATEMENTS


ADVERTISING EXPENSE

The Company  recognizes  advertising  expenses in accordance  with  Statement of
Position  ("SOP") 93-7  "Reporting on  Advertising  Costs." As such, the Company
expenses the costs of producing  advertisements  at the time production  occurs,
and expenses the cost of  communicating  advertising  in the period in which the
advertising space or airtime is used.


PROPERTY AND EQUIPMENT

Property and  equipment is stated at cost.  Depreciation  is computed  using the
straight-line  method based on the estimated  useful lives of the assets,  which
range from three to five years.  Costs for routine  repairs and  maintenance are
expensed  as  incurred  and  gains  and  losses on the  disposal  of assets  are
recognized in the period such disposals occur.


SOFTWARE DEVELOPMENT COSTS

Internal  and  external  costs  incurred to develop  internal-use  software  are
capitalized  during the  application  development  stage and are being amortized
over three years.


INTANGIBLE ASSETS

Costs  incurred to organize  the Company  are  capitalized  and  reported on the
balance sheet as other assets.  The costs are being amortized over a period of 5
years using the straight-line  method.  Costs associated with the procurement of
loans and lines of credit are  capitalized  and reported on the balance sheet as
other  assets.  The  costs  are  amortized  over  the term of the  related  debt
instrument.


INTERIM FINANCIAL STATEMENTS

The accompanying  unaudited  interim  financial  statements at June 30, 2000 and
June 30, 2001 and for the  quarters  then ended do not  include all  disclosures
provided in the annual financial statements.  These interim financial statements
are the  representation of management and should be read in conjunction with the
Company's  annual  audited  financial  statements  and  the  footnotes  thereto.
However,  the accompanying  interim financial statements reflect all adjustments
which are,  in the  opinion of  management,  of a normal  and  recurring  nature
necessary  for a fair  presentation  of the  financial  position  and results of
operations of the Company.  Unless otherwise stated,  all information other than
that related to December 31, 2000 and the year then ended is  unaudited,  and no
other form of assurance is provided.


                                        8
<PAGE>


                      INTERNATIONAL MERCANTILE CORPORATION
                          NOTES TO FINANCIAL STATEMENTS


MARKETABLE SECURITIES AND INVESTMENT IN EQUITIES          AVAILABLE-FOR-SALE

The Company's marketable  securities are comprised of equity and debt securities
and are  classified as trading  securities.  Trading  securities are recorded at
fair  value,  with the change in fair value  during the period  included  in net
earnings.  In the first  quarter  of the year 2000 the  Company  liquidated  its
entire marketable  trading  securities  portfolio.  The Company's  Investment in
Equities  Available-For-Sale  is comprised of securities that management has not
demonstrated  are being held for  trading.  The  investment  is recorded at fair
market value on the balance sheet with any permanent decline in value recognized
in the statement of operations in accordance with SFAS 115. Currently,  the only
securities  being held by the company are 200,000 of GLTK and  4,000,000 of PCLO
currently traded on the OTCBB.


WARRANTY RESERVE

The Company  maintains  a depot  warranty on  components  sold and  manufactured
systems for three years; the equivalent  period of time that  substantially  all
components  from supplier  manufacturers  are warranted.  As the Company has not
established a history of warranty service,  a warranty reserve of one quarter of
1% of sales has been recorded at March 31, 2000, December 31, 2000, and at March
31,  2001.  This  potential  warranty  should not affect the company as it would
become the responsibility of Micromatix.


INCOME TAXES

The  Company  files its tax  return  with the  Internal  Revenue  Service as a C
Corporation.  Applying statutory tax rates to future year's differences  between
the tax  bases  and  financial  reporting  amounts  of  assets  and  liabilities
recognizes deferred income taxes. No deferred tax asset/valuation  allowance has
been recognized for the losses incurred to date, as it is not determinable  that
the Company will realize any tax benefit from such losses.  Loss  carryforwards,
if any,  expire  fifteen  years  following the tax year-end in which they occur.
Micromatix  will be responsible  for the filing of the operations  through March
30, 2001.  To the extent of the  operations  for the company's  activities  from
March 31, 2001 through the end of their fiscal  period is what will be reflected
on their tax return.


USE OF ESTIMATES AND ASSUMPTIONS

The preparation of financial  statements in conformity  with generally  accepted
accounting  principles  requires that  management make estimates and assumptions
that affect 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 respective  reporting
period. Actual results could vary from these estimates and assumptions.


                                        9

<PAGE>

                      INTERNATIONAL MERCANTILE CORPORATION
                          NOTES TO FINANCIAL STATEMENTS


CONCENTRATIONS OF RISK

Financial  instruments that potentially subject the Company to concentrations of
credit  risk  consist   primarily  of  cash,  cash  equivalents  and  marketable
securities.  The Company maintains its cash and cash equivalents in bank deposit
accounts,  the balances of which, at times, may exceed federally insured limits.
Additionally,  the Company  assumes that computer  chip and memory  availability
will remain constant.  This assumption subjects the Company to concentrations of
risk should the availability of these items become uncertain in the future


RECENT ACCOUNTING PRONOUNCEMENTS

The Financial  Accounting  Standards  Board issued SFAS No. 133,  Accounting for
Derivative  Instruments and Hedging Activities effective for all fiscal quarters
of fiscal years  beginning  after June 15, 1999. The Company does not anticipate
the impact of this pronouncement will be material. Further, the Company does not
believe that any recently  issued,  but not yet effective  accounting  standards
will have a material  effect on the  Company's  financial  position,  results of
operations or cash flows.

In December 1999, the  Securities and Exchange  Commission  staff released Staff
Accounting  Bulletin No. 101, Revenue  Recognition in Financial  Statements (SAB
No.  101),  which  provides  guidance  on  the  recognition,   presentation  and
disclosure of revenue in financial  statements.  SAB No. 101 does not impact the
Company's revenue recognition.


EARNINGS PER SHARE

As per Financial  Accounting  Standards Board Statement of Financial  Accounting
Standards  No. 128 (SFAS 128),  Earnings Per Share,  standards for computing and
presenting  earnings  per share (EPS)  applies to publicly  held common stock or
potential  common stock. It requires dual  presentation of basic and diluted EPS
on the face of the  income  statement  for all  entities  with  complex  capital
structures.  Basic EPS  excludes  dilution  and is computed  by dividing  income
available to common stockholders by the weighted average number of common shares
outstanding  for the period.  Diluted EPS reflects the  potential  dilution that
could  occur  if  securities  or other  contracts  to issue  common  stock  were
exercised or  converted  into common stock or resulted in the issuance of common
stock that then shared in the earnings of the entity.  In computing  EPS for the
year ended December 31, 2000 and the quarters ended March 31, 2000 and March 31,
2001,  the number of shares  considered  to be  outstanding  is  computed as the
average actual number of shares of the Company outstanding during the period.


                                       10
<PAGE>


                      INTERNATIONAL MERCANTILE CORPORATION
                          NOTES TO FINANCIAL STATEMENTS


EARNINGS PER SHARE CONT'D

Other appropriate  adjustments have been made to deal with changes in numbers of
shares issued during the period.  Diluted EPS for the period ended June 30, 2000
were computed as a result of the Company's complex capital  structure  including
1,000,000  shares  of  Class B Common  stock  (see  reverse  split)  which  were
authorized  and  unissued as of June 30, 2000.  These  shares were  subsequently
issued by April 12,  2000.  Diluted  EPS for the year  2000 were  computed  as a
result of the Company's complex capital  structure;  including 285,714 shares of
Series 2 Preferred  stock,  20,000 shares of Class B Common stock, and 1,250,000
equivalent converted shares represented by the $500,000  Convertible  Debenture.
Diluted EPS for the quarter ended June 30, 2001 were computed as a result of the
Company's  complex  capital  structure;  including  285,714  shares  of Series 2
Preferred stock, 20,000 shares of Class B Common stock, and 5,714,286 equivalent
converted shares represented by the $500,000 Convertible  Debenture.  The actual
conversion  may be reduced given the reverse  merger and  relinquishment  of the
debentures.


DEVELOPMENT STAGE

The Company's prior principal operations when operating as Micromatix, comprised
of sales of  build-to-order  unbranded  or "white box" PC systems and PC related
hardware  were in a start up phase  through  December  31, 1999.  Although  some
sales,  manufacturing  and  distribution  of personal  computers  and related PC
hardware had  commenced,  as of December 31, 1999 there had been no  significant
revenue generated therefrom.

Substantially  all the efforts of the Company were focused on  capitalization of
the  Company,  the  establishment  of  its'  website,  internal  infrastructure,
production  lines and  development of a marketing team.  Accordingly,  financial
statements  of the Company as of December 31, 1999 and for the period  September
2, 1999 (Date of Inception)  through December 31, 1999 reflect the Company as in
the Development Stage.  Subsequently,  thereto,  the Company entered into normal
operations.

2.    Allowance for Doubtful Accounts

In accordance with Generally Accepted Accounting  Principles the Company records
anticipated  uncollectible  amounts by creating an allowance  account.  Bad Debt
Expense is recognized  using the Percentage of Sales method.  For the year ended
December  31,  2000 and the  quarters  ended June 30, 2000 and June 30, 2001 the
Company  recognized  a  bad  debt  expense  of  $410,870,   $34,625,  and  $0.00
respectively. This issue related primarily to operations as Micromatix which has
no longer  affects  the  company.  In the year ended  December  31, 2000 and the
quarters  ended June 30,  2000,  and 2001 no actual  receivables  were  directly
written off. As a result,  the allowance  account included on the balance sheet,
as net of account  receivables is $542,806 at December 31, 2000, $21,961 at June
30, 2000, and $0.00 at June 30, 2001.


                                       11
<PAGE>


                      INTERNATIONAL MERCANTILE CORPORATION
                          NOTES TO FINANCIAL STATEMENTS

3.    Related Party Transactions

The Company's  financing since inception,  throughout its development  stage and
during the year ended December 31, 2000 and the quarters ended June 30, 2000 and
2001 has been provided by interest bearing loans, non-interest bearing loans and
capital  contributions  to the  Company by its  shareholders.  All Notes due Red
River as a result of the 1999 reverse  acquisition have been cancelled  pursuant
to the terms of the  agreement.  As of June 30,  2001,  the Company is no longer
intending  on paying the notes as the company is  insolvent to the extent of the
ability to repay these notes.  The  shareholders  have agreed to exchange  their
debt for additional  shares in the company and  consequently the amount shown on
the balance sheet has been eliminated,  however the dilution factor has not been
determined as of June 30, 2001.

A B securities, a shareholder of IMTL, acquired authorized, but unissued, shares
of University  Mortgage,  Inc. (UMI) diluting the voting and equity  interest of
IMTL in UMI to less than 5%. The shares of UMI remaining after the dilution were
then exchanged in a stock for stock transaction for registered shares of Virtual
Lender.com,   Inc.  (VLDC),  a  publicly  traded  company.  The  investment  was
originally recorded at cost. On December 31, 1999 IMTL acquired 3,000,000 shares
of VLDC's  restricted  common  stock in exchange  for  3,000,000  shares of IMTL
restricted  Class A common  stock.  In  April  2000,  the  Company  received  an
additional  1,000,000 shares of VLDC's  restricted  common stock in exchange for
the balance of IMTL's  equity  interest in UMI. The  investment is defined as an
investment in securities - available for sale, in accordance  with  Statement of
Financial  Accounting  Standards (SFAS 115) and is reported on the balance sheet
at its fair  market  value.  During the year ended  December  31,  2000 the fair
market value declined  significantly.  Since no conditions  presently exist that
would  demonstrate  that the decline in value of this  investment  is other than
temporary,  the loss is  recognized  in the  statement of operations in the year
2000, the period of fair market value decline As of the date of these  financial
statements  the value of this  investment  remains  unchanged  from December 31,
2000.

At  December  31, 2000 the Company  had  outstanding  a note  payable to a major
stockholder  due in one lump sum payment of principal  and interest on or before
November  23,  2000.  The note,  the  principal  balance  of which is  $571,609,
$430,209 and  $343,929 at March 31,  2000,  December 31, 2000 and March 31, 2001
respectively,  bears interest at a rate of 8% per annum, and is unsecured. As of
March 31, 2000, December 31, 2000 and March 31, 2001 unpaid interest has accrued
in the amount of $11,432,  $19,791 and $0 on the  liability  respectively.  As a
result of a separate  transaction  the  Company had a  receivable  from the same
related party in the amount of $51,404 at December 31, 2000. This receivable was
offset against the above referenced note at March 31, 2001.

                                       12
<PAGE>


                      INTERNATIONAL MERCANTILE CORPORATION
                          NOTES TO FINANCIAL STATEMENTS

4.    Commitments

The Company formerly leased its corporate offices and  manufacturing  facilities
in Baltimore,  Maryland under a six-year lease agreement, which began on October
1, 1999. The lease  encompasses  commercial  facilities of approximately  40,000
square feet. Rent for the first year was $14,274 per month plus applicable sales
tax,  utilities,  maintenance  and  property  tax  reimbursement  and  increases
approximately  5% in each of the succeeding five years.  An additional  security
deposit of  $14,274,  as  required  under the lease  agreement,  was paid to the
landlord on February 21, 2000. During the periods ended March 31, 2000, December
31, 2000, and March 31, 2001, the Company paid $44,009,  $174,205 and $15,303 in
lease payments.  At June 30, 2001, the Company is no longer liable for the lease
payments as this is the responsibility of Micromatix.


The Company issued  285,714  shares of Preferred,  Series 2, $.10 Par stock to a
shareholder  for the purpose of securing  financing in the amount of $1,000,000.
The stock is being held in escrow  pending  the  consummation  of the  financing
contract,  which as of the date of these financial  statements has not occurred,
nor,  according  to  management  is likely to occur.  The Company has applied to
their loan an additional 750,000 shares as a total payoff of this 1,000,000 line
of credit.

Included in the  Company's  Trade  Accounts  Payable is a $140,000  payable to a
vendor,  which the Company has secured with 150,000 restricted shares of Class A
common Stock.


                                       13
<PAGE>


                      INTERNATIONAL MERCANTILE CORPORATION
                          NOTES TO FINANCIAL STATEMENTS

Commitments cont'd

In June  2000,  the  Company  issued a  private  offering  of  convertible  debt
debentures for the purposes of securing capital in the amount of $3,000,000. The
investment was funded by an initial  payment of $500,000 at closing and is to be
followed by monthly  installments of $250,000 each for ten months  beginning the
month after an effective registration statement is filed with the Securities and
Exchange  Commission  (SEC).  On  August  16,  2000  the  Company  filed  a SB-2
registration  statement with the SEC pursuant to this contract. The SEC declined
to review the SB-2  statement  and notified the Company as such on September 19,
2000.  As a result no  additional  funding  has been  received as of the date of
these  financial  statements  as the  Company is  required  to make  substantive
amendments to the  registration  statement before the SEC will continue a review
of the prospectus.  To date these substantive amendments have not been made. The
Company has the right to prepay the Note at 130% of the principal balance at the
time  of  prepayment  upon 10  days  written  notice.  Interest  accrues  on the
debenture at 8% per annum  payable in  restricted  Class A common  stock.  As of
December  31, 2000 and March 31, 2001,  the Company has accrued  interest in the
amount  of  $22,889  and  $32,889   respectively.   The  equity   instrument  is
convertible,  at any time, into Common Stock at a price  equivalent to the lower
of 70% of the lowest closing bid price as reported on the OTC Bulletin Board for
the three days  preceding  receipt by the Company of a notice of  conversion  or
$.40. Of the initial  $500,000  funding,  $150,000 was distributed in payment of
legal,  consulting and brokerage  fees incurred to facilitate the contract.  The
balance of $350,000 was used to reduce related party debt.

5.    Capital Lease Obligations

The Company had formely leased its operational  and accounting  software under a
capital lease,  which expires in December,  2002.  This is now requires  monthly
payments of  principal  and  interest of $1,235 plus  applicable  sales tax from
Micromatix.  Interest  is  imputed  at 13.25%  per  annum.  The lease  agreement
concludes  with a $1 buy  option at the end of the lease  term.  As of March 31,
2001,  the  Company  is  three  months  in  arrears  of  its  lease  obligation.
Approximate future lease payments under the capital lease is as follows:

                             FYE 12/31/01                      $17,651
                             FYE 12/31/02                        9,414
                                                                 -----
                                                               $27,065
 Less Amount representing interest                               3,278
                                                                 -----
                                                                23,787
 Less current maturities                                        14,824
                                                                ------
 Long-term debt, less current maturities                      $  8,963
                                                                ======


                                       14
<PAGE>


                      INTERNATIONAL MERCANTILE CORPORATION
                          NOTES TO FINANCIAL STATEMENTS

6.    Officers' Compensation

Prior to the reverse  acquisition,  the  Company's  day-to-day  activities  were
managed  by  certain  officer/shareholders,  who  contributed  their time on the
Company's  behalf  without  compensation  in either cash or stock.  No value for
these  services has been  determined or recorded on the  accompanying  financial
statements.  Subsequent  to the  merger  one of  these  officer/shareholders  is
compensated as a consultant  through a wholly owned  corporation of the officer/
shareholder  and another  officer is being  compensated  through  the  Company's
payroll.  Given there are no current  operations other than the acquisition of a
new company and the financing thereof there are currently no officer salaries.

7.    Fixed Assets

There are  currently no fixed assets for the  Company.  Micromatix  fixed assets
consisted of the following at June 30, 2000:
                                                     Accumulated
                                    Fixed Asset      Depreciation      Balance
                                    -----------      ------------      --------
Website Development                $   5,637        $         414     $   5,226
 Furniture & Fixtures                 33,717                2,516        31,201
Manufacturing/Warehouse Equip         37,499                2,643        34,856
Computer Hardware                     71,214                6,549        64,665
Transportation Equip                   7,000                  758         6,242
Office Equipment                      36,577                3,385        33,192
Software Systems                      44,133                4,265        39,868
Leasehold Improvements                 4,000                1,000         3,000
                                  ----------------------------------------------
                                  $  239,777        $      21,530     $ 218,247
                                  ==============================================

Fixed assets for the Company consisted of the following at December 31, 2000:
                                                     Accumulated
                                    Fixed Asset      Depreciation      Balance
                                    -----------      ------------      --------
Website Development                $    9,641       $       1,712     $  7,929
 Furniture & Fixtures                  33,142               6,064       27,078
Manufacturing/Warehouse Equip          38,026               6,724       31,302
Computer Hardware                      90,511              18,554       71,957
Transportation Equip                    7,000               1,808        5,192
Office Equipment                       36,909               8,972       27,937
Software Systems                       67,931              13,359       54,572
Leasehold Improvements                  4,000               4,000            0
                                  ----------------------------------------------
                                   $  287,160        $     61,193     $225,967
                                  ==============================================


                                       15
<PAGE>


                      INTERNATIONAL MERCANTILE CORPORATION
                          NOTES TO FINANCIAL STATEMENTS

Fixed Assets cont'd

Fixed assets for the Company consisted of the following at March 31, 2001:
                                                     Accumulated
                                    Fixed Asset      Depreciation      Balance
                                    -----------      ------------      --------
Website Development                $   15,246       $       2,474     $ 12,772
 Furniture & Fixtures                  33,117               7,247       25,870
Manufacturing/Warehouse Equip          38,026               8,082       29,944
Computer Hardware                     134,398              25,274      109,124
Transportation Equip                    7,000               2,158        4,842
Office Equipment                       36,909              10,448       26,461
Software Systems                       70,631              16,891       53,740
Leasehold Improvements                  4,000               4,000            0
                                  ----------------------------------------------
                                   $  339,327       $      76,574     $262,753
                                  ==============================================

8.    Employee Stock Option Plan

The Company's Board of Directors has authorized officers of the Company to offer
certain  employees  benefits  under an  unqualified  Employee Stock Option Plan,
which, as of the date of these financial  statements,  has not been consummated.
The terms of such options are contracted  between each eligible employee and the
Company on a case-by-case basis. As of the date of these financial statements, 7
such  plans  are  either  active,  pending  the  start  of  employment  or under
negotiation; none are vested.

9.    Notes Payable and Convertible Debentures

Notes Payable consisted of the following at June 30, 2000:

         Note Payable - related party dated September 6, 1999         $100,000
         Note Payable - related party dated November 23, 1999          571,609
                                                                       -------
                                                                       671,609
                           Less Current Portion                        596,609
                                                                       -------
                           Long Term Portion                          $ 75,000
                                                                      ========


                                       16
<PAGE>


                      INTERNATIONAL MERCANTILE CORPORATION
                          NOTES TO FINANCIAL STATEMENTS

Notes Payable and convertible Debentures, cont'd

Based on the borrowing rates  currently  available to the Company for loans with
similar terms and average maturities,  the fair value of the Company's long term
debt  approximates the carrying amount.  Interest expense on the above notes and
loans amounted to $14,294 for the quarter ended March 31, 2000.

Notes Payable consisted of the following at December 31, 2000:

         Note Payable - related party dated September 6, 1999         $  9,000
         Note Payable - related party dated November 23, 1999          430,209
                                                                       -------
                                                                       530,209
                           Less Current Portion                        455,209
                                                                       -------
                           Long Term Portion                          $ 75,000
                                                                     =========

Loans Payable consisted of the following at December 31, 2000:

         Loan Payable - Dated November, 1999                          $  7,500
         Loan Payable - Dated March, 2000                               50,000
         Loan Payable - Dated April, 2000                              150,000
         Loan Payable - Dated May, 2000                                 40,000
                                                                       -------
                                                                       247,500
                           Less Current Portion                       (247,500)
                                                                      ---------
                           Long Term Portion                          $      -
                                                                     ===========

Convertible Debentures at December 31, 2000 are as follows:

              Convertible Debentures dated March 30, 2000             $500,000
                                 Less Current Portion                        0
                                                                     ----------
                                    Long Term Portion                 $500,000
                                                                     ===========

Based on the borrowing rates  currently  available to the Company for loans with
similar terms and average maturities,  the fair value of the Company's long term
debt  approximates the carrying amount.  Interest expense on the above notes and
convertible debentures for the year ended December 31, 2000 amounted to $73,395.

Notes Payable consist of the following at March 31, 2001:

         Note Payable - related party dated September 6, 1999         $100,000
         Note Payable - related party dated November 23, 1999          343,929
                                                                       -------
                                                                       443,929
                           Less Current Portion                        393,929
                                                                       -------
                           Long Term Portion                         $  50,000
                                                                      =========
For June 30,  2001  there is a  shareholder  loan to  maintain  the  fundamental
operations for the acquisition and financing of a new company.

                                       17


                      INTERNATIONAL MERCANTILE CORPORATION
                          NOTES TO FINANCIAL STATEMENTS

Notes Payable and convertible Debentures, cont'd

Based on the borrowing rates  currently  available to the Company for loans with
similar terms and average maturities,  the fair value of the Company's long term
debt  approximates the carrying amount.  Interest expense on the above notes and
convertible debentures for the quarter ended March 31, 2001 amounted to $20,604.
This liability now lies with Micromatix.

10.   Line of Credit

On March  22,  2000 the  Company  entered  into a  factoring  agreement  with an
unrelated  third party to fund the  purchase of  inventory  to fulfill  purchase
orders under an agreement to manufacture  approximately 2,000 white-box computer
units per month for a national satellite  distributed  program network marketing
group. The factoring  arrangement is in the form of a one year revolving line of
credit,  which allows for the drawing of funds by the Company in an amount equal
to 75% of the purchase  orders  received from the marketing  group.  The line of
credit is capped at $750,000  representing up to $1,000,000 of purchase  orders.
The  financing  calls for the payment of 3 points per month on open invoices and
is secured by an assignment of the  underlying  receivable,  acquired  inventory
related to the contract,  and 214,286 restricted shares of the Company's Class A
common stock.  The Company issued 650,000  restricted  shares to the lender as a
fee for securing the financing. For the year ended December 31, 2000 the Company
paid $93,032 in financing  costs and accrued an  additional  $79,502 of interest
payable related to the line of credit.  The company further issued an additional
50,000 shares to lender and converted the debt to equity.  No payments were made
during the  quarter  ended  March 31,  2001,  however an  additional  $53,002 of
interest  payable was accrued for the quarter related to the line of credit.  As
of the date of these financial  statements,  the line of credit is in default as
payments of principal  and interest are past due.  Consequently,  the lender has
disallowed

                                       18
<PAGE>


                      INTERNATIONAL MERCANTILE CORPORATION
                          NOTES TO FINANCIAL STATEMENTS

Line of Credit cont'd

further  advances on the credit line.  As of December 31, 2000 and June 30, 2001
the  Company  was  indebted  on the line of credit  including  accrued  interest
thereon  for  $668,410  and $0.00  respectively.  Management  and the lender are
working  jointly with counsel to collect the  underlying  receivable.  As of the
date of these financial statements legal action has been filed in this regard by
the Company to collect the underlying receivable.  The balance of the receivable
as of  December  31,  2000 and June 30,  2001,  including  additional  financing
charges,  is  $628,745  and $0.00  respectively.  The  Company  has  reserved an
allowance of  approximately  $378,000,  against this  receivable at December 31,
2000  and  March  31,  2001.  As of  June  30,  2001  this is the  liability  of
Micromatix.

11.   Contingencies

The Company's sales during the year ended December 31, 2000 include one
significant customer that represents approximately 14% of the total sales. As of
the date of these financial statements the Company is no longer providing
products or services to this customer as the customer is over 350 days past due
on outstanding invoices.

In July 1999 Bowne & Co, Inc., a financial  corporate printer filed suit against
the Company in New York seeking  approximately $18,000 for claims of outstanding
printed invoices. As of March 31, 2001 the suit is still pending and the outcome
is not  yet  determinable.  This  is a  liability  of the  Company  as  well  as
Micromatix as a judgment has been procured.

In August 2000  Interim  Atlantic  Enterprises,  LLC filed suit against IMTL for
$11,038  This suit  concerns a claim that an  employee  did not work the minimum
number of days required  under the terms of a contract  between IMTL and Interim
Atlantic Enterprises, LLC. As of June 30, 2001 the is a default judgment against
the  company  as well as  Micromatix.  This  liability  is  still  shown  on the
Company's  balance  sheet.  On March 28,  2000,  Microsoft  Corporation  filed a
complaint  against  the  Company  and an  employee  for  alleged  copyright  and
trademark  infringement  and related  causes of action.  On November 7, 2000 the
Company filed an answer  denying all of  Microsoft's  claims.  As of the date of
these financial  statements the suit is still pending and the outcome is not yet
determinable however it would be a liability of Micromatix.

12.   Going Concern

The  Company's  financing  has been  provided by related  party  loans,  capital
contributions  from shareholders and third party loans. The Company  anticipates
that  through the rest of the year ended  December  31, 2001 the Company will be
able to locate,  finance  and  acquire a new  viable  business.  Currently,  the
Company is merely a shell for a new viable  business  opportunity.  There are no
operations and  accordingly  the losses are  considerably  less. The company has
much less capital requirements as the operations have changed from manufacturing
of computers to the acquisition of a new business.


                                       19
<PAGE>


                      INTERNATIONAL MERCANTILE CORPORATION
                          NOTES TO FINANCIAL STATEMENTS

13.   Segment Information

The Company formerly operated primarily in two industry  segments:  (1) whitebox
system sales and (2) computer  component sales.  The accounting  policies of the
segments and the products and services  provided by the  operating  segments are
described  in Note 1.

The table below presents information about reported segments at March 31, 2000:
<TABLE>
<CAPTION>

                                   System           Component
                                   Sales              Sales          Other          Total
<S>                             <C>               <C>            <C>             <C>
Sales                           $1,427,999        $  768,115     $   14,132      $2,210,246
Gross Profit                       170,429            56,537         14,132         241,098
Operating Income (Loss)             80,167            26,450       (480,991)       (374,374)
Assets                           1,633,742           544,581      3,303,066       5,481,389
Capital Expenditures                 3,374             1,125         24,790          29,289
Depreciation Expense                   723             1,208          9,119          11,050
</TABLE>

The table below presents information about reported segments at December 31,
2000:
<TABLE>
<CAPTION>
                                   System           Component
                                   Sales              Sales          Other          Total
<S>                             <C>               <C>            <C>             <C>
Sales                           $4,395,261        $2,607,430     $   61,334      $7,064,025
Gross Profit                       338,582           200,860         61,334         600,776
Operating Income (Loss)             72,367            42,932     (2,836,155)     (2,720,856)
Assets                           1,078,284           639,678        412,697       2,130,659
Capital Expenditures                 3,155             1,871         82,101          87,127
Depreciation Expense                 4,236             2,513         43,964          50,713
</TABLE>

The table below presents information about reported segments at March 31, 2001:
<TABLE>
<CAPTION>
                                   System           Component
                                   Sales              Sales          Other          Total
<S>                             <C>               <C>            <C>             <C>
Sales                           $612,242          $  403,413     $        0      $1,015,655
Gross Profit                      63,326              46,349              0         109,675
Operating Income (Loss)           11,520               9,070       (996,992)       (976,402)
Assets                           526,312             223,927        732,310       1,482,549
Capital Expenditures                   0                   0         52,167          52,167
Depreciation Expense               2,110               2,210         11,061          15,381
</TABLE>


                                       20
<PAGE>


                      INTERNATIONAL MERCANTILE CORPORATION
                          NOTES TO FINANCIAL STATEMENTS

14.   Reverse Stock Split

On August 8, 2000 the Company, through a Board action,  authorized a 1:7 reverse
split of the Company's  outstanding Class A Common Stock, and outstanding Series
1, Series 2 and Series 3 Preferred  Stock. The Board approved the rounding up of
every  fractional  shareholder to a full share,  with all  shareholders  equally
affected. Coinciding with the reverse split, the Company increased the par value
of its Class A Common Stock from $.01 to $.10 per share,  and  increased the par
value of its  Preferred  Stock from $.10 to $1.00 per share.  The purpose of the
reverse split was to facilitate  raising  additional capital for the Company and
allow management to find possible merger and acquisition candidates.  Because of
the Linuxone deal and the need to find another  acquisition  candidate the Board
approved  another  reverse  stock  split of 11 to 1. The  Board  and  Management
believe this is one of several  necessary steps that must be taken to insure the
viability of the Company.

Subsequent Events

On November 11, 2000 the Company  signed a contract to acquire a privately  held
developer (proposed acquired company) of embedded Linux thin client systems as a
wholly  owned  subsidiary  of the  Company.  The  agreement  is  subject  to due
diligence,  including  independent  valuation of the proposed  acquired company,
which  if  satisfactory  to  the  Company's  management,   will  result  in  the
consummation of the merger.  The terms of the merger call for each issued common
share, $.001 par value, of the proposed acquired company as of the closing shall
be converted  into and exchanged for .85 shares of fully paid and non assessable
IMTL Class A common stock. On April 5, 2001 the original contract dated November
11, 2000 was amended to change the  transaction  from a merger  agreement  to an
asset  acquisition  agreement by the Company of selected  assets of the proposed
acquired company.

On March 16, 2001,  Micromatix,  at the  direction  of the courts,  entered into
mediation with management of a customer that, the Company has ascertained,  owes
the Company  $654,202.  The  mediation  was  unsuccessful  and a hearing date is
expected to be set by the courts in the near future.  The customer,  on April 5,
2001,  declared Chapter 11 Bankruptcy,  and as a result the Company has reserved
approximately $378,000 against this receivable at March 31, 2001.

In April 2001,  Micromatix  received formal notice from its landlord that it was
delinquent on its lease payments for February, March and April of 2001.

On January 4, 2001 the Company's Board of Directors  approved a plan to transfer
the  Company's  assets  into  Micromatix.com,  a wholly  owned  subsidiary.  The
transfer of the Company's  assets and operations  will occur upon  completion of
all of the appropriate  documents.  As of the date of these financial statements
this has not yet occurred.

On March 30, 2001 the Company  elected to reverse the merger with Micromatix and
return all assets and  liabilities.  Micromatix has agreed to indemnify and hold
harmless the Company from all current and future liabilities.


                                       21
<PAGE>



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


CAUTIONARY STATEMENT FOR PURPOSE OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

The following discussion regarding International  Mercantile Corp ("the Company"
or "IMTE") and its business and operations contains "forward-looking" statements
within the meaning of Private  Securities  Litigation  Reform Act of 1995. These
statements  consist of any statement  other than a recitation of historical fact
and can be identified by the use of  forward-looking  terminology such as "may,"
"except,"  "anticipate,"  "estimate,"  or  "continue"  or the  negative or other
variations thereof or comparable  terminology.  The reader is cautioned that all
forward-looking  statements are necessarily  speculative and there are risks and
uncertainties  that could cause  actual  events or results to differ  materially
from those referred to in such forward-looking statements,  including no history
of  profitable   operations,   competition,   risks  related  to   acquisitions,
difficulties in managing  growth,  dependence on key personnel and other factors
discussed under the section titled "Management's Discussion and Analysis or plan
of Operations-Factors That May Affect Future Results" in the Company's quarterly
report on the form 10-Q for the quarter  ended June 30,  2001.  The Company does
not have a policy of updating or revising forward-looking statements and thus it
should not be assumed  that  silence of  management  over time means that actual
events are occurring as estimated in such forward-looking statements.

     The following  discussion and analysis  should be read in conjunction  with
the financial  statements  appearing as Item {1} to this Report. These financial
statements reflect the operations of the Company for the quarters ended June 30,
2001 and June 30, 2000.


(a)  Results of Operations

     As a result of the reverse  merger  operations in the computer  industry no
longer affect the Company however for the purpose of analyzing prior  operations
the following information is provided:

     For the quarter of operations  ending  3/31/2000,  our Company posted total
sales of  $2,210,246.  Total  sales  for the three  months  ended  3/31/01  were
$1,015,655. While sales for the first quarter of 2000 were strong, sales for the
first quarter of 2001 were subject to a flattening due to market conditions that
were  reflected  throughout  the  technology  industry  as a  whole.  Management

                                       22
<PAGE>


anticipates  increasing sales volume in the last half of 2001 as a result of the
commencement  of a purchase  order  program  which  could  result in a long term
relationship with a major defense  contractor.  Financing is required to fulfill
these orders;  management has begun  negotiations  to satisfy this  requirement.
Capital is now  required in order to have the  inventory  necessary  to increase
sale volume that can be created by our sales team.

     In the  third  quarter  of  2000,  management  began  reducing  the SG&A to
compensate  for the lack of  funding  and the change in market  conditions  that
slowed down demand for product throughout the industry.

     The same market conditions  currently exist in the financial market,  where
NASDAQ stocks have plummeted in value and have brought a dramatic decline in the
value of our stock  position in VLDC.  This decline is shown as a  non-operating
loss in our year ended December 31, 2000 statement. Additionally, this slow down
has caused delays in our ability to raise additional capital necessary to expand
our business.

     The industry  trends which  effected the  Company's  sales also effects our
customer's  ability to pay their  balances to us in a timely  manner.  While the
majority of our customers are current and paying on a timely basis.

     Our  largest  receivable  refused to pay and we were forced to file suit on
September 28, 2000.  This  receivable  totals  $628,745.  We have  increased our
reserve  for  doubtful  accounts  to  $410,870  in order to  compensate  for our
evaluation of this receivable.  Efforts to settle this case have failed to date.
On April 7, 2001,  this customer filed for relief under Chapter 11 Bankruptcy in
Federal Court in PA.


(b)  Plan of Operation

     The Company now intends to search for a acquisition candidate to merge into
it's existing  shell.  The financing of the new candidate will likely be through
private  placement  memorandum  or  existing  companies  willing  to pay for the
corporate shell because it is a fully reporting company. There are no guarantees
this will occur and the Company is current in all it's filing's with the SEC.


                                       23
<PAGE>



                                     PART II
                                OTHER INFORMATION


Item 1. Legal Proceedings

     There are two default judgments against the Company for a total of $29,000.


Item 2. Change in Securities

     During April 2000, we sold 135,400 shares of our common stock at various
prices ranging from $0.30 to $0.50 per share (depending upon OTCBB price
quotations for our common stock at the time of sale), $67,200 in the aggregate,
pursuant to a private placement transaction. The exemptions we relied upon were
Sections 4(2), 4(6) and Regulation D of the Securities Act of 1933, as amended.
The stock was sold to 22 individuals and/or entities, all of whom were
"accredited" investors as that term is defined in Regulation D. The net proceeds
to our Company for the sale of the 135,400 shares were approximately $37,789
after offering expenses and commissions of approximately $29,411. No
underwriting discounts were paid by our Company in connection with the
abovementioned transactions.

     During May 2000, we sold 161,500 shares of our common stock at various
prices ranging from $0.30 to $.50 per share (depending upon OTCBB price
quotations for our common stock at the time of sale), $80,000 in the aggregate,
pursuant to a private placement transaction. The exemptions we relied upon were
Sections 4(2), 4(6) and Regulation D of the Securities Act of 1933, as amended.
The stock was sold to 13 individuals and/or entities, all of whom were
"accredited" investors as that term is defined in Regulation D. The net proceeds
to our Company for the sale of the 161,500 shares were approximately $53,287
after offering expenses and commissions of approximately $26,713. No
underwriting discounts were paid by our Company in connection with the
abovementioned transactions.

     During June 2000, we sold 187,500 shares of our common stock at various
prices ranging from $0.25 to $0.35 per share (depending upon OTCBB price
quotations for our common stock at the time of sale), $45,000 in the aggregate,
pursuant to a private placement transaction. The exemptions we relied upon were
Sections 4(2), 4(6) and Regulation D of the Securities Act of 1933, as amended.
The stock was sold to 12 individuals and/or entities, all of whom were
"accredited" investors as that term is defined in Regulation D. The net proceeds
to our Company for the sale of the 421,268 shares were approximately $29,877
after offering expenses and commissions of approximately $15,123. No
underwriting discounts were paid by our Company in connection with the
abovementioned transactions.


                                       24
<PAGE>


     From the period August 28, 2000 to November 26, 2000 the Company sold a
private placement memo under an exemption from registration as set forth in
Section 4(2) of the Act and Regulation D. The Company offered 286 units
consisting of 10,000 shares of Restricted Class A Common Stock plus 10,000
warrants to purchase one share of Restricted Class A Common Stock shares at $
0.10 per share. Warrants expire on August 31, 2001. The purchase price of each
unit was $10,000. The Company raised $1,169,025 in capital and issued 3,828,682
shares and warrants in the offering.


Item 3. Defaults Upon Senior Securities

     Not Applicable


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

     Not Applicable


Item 5. Other Information

     Not Applicable


Item 6. Exhibits and Reports

     Previously file on Form 8-K

     (a)     Exhibits.

  (3)(i)(a)  Articles of Incorporation (incorporated by reference to our Report
             on Form 10-K for the year ended December 31, 1981).

       (b)   Articles of Amendment (incorporated by reference to our Report on
             Form 10-K for the year ended December 31, 1981).

       (c)   Articles of Amendment (incorporated by reference to our Report on
             Form 10-K for the year ended December 31, 1998).

       (d)   Articles of Amendment (incorporated by reference to our Report on
             Form 10-K for the year ended December 31, 1998).

                                       25
<PAGE>


  (3)(ii)    Bylaws (incorporated by reference to the Company's Report on Form
             10-K for the year ended December 31, 1987).

       (4)   Instruments defining the rights of holders (incorporated by
             reference to Exhibit (3) herein).


  (10)
       (1)   Our Acquisition  Agreement with Red River
             Trading  Company,  Inc. and  Micromatix.com,  Inc. and
             Addendum thereto  (incorporated by reference to our Report
             on Form 10-K for the year ended  December 31, 1999).

       (2)   Our compensation plan agreement with Frederic Richardson
             (incorporated by reference to our Report on Form 10-K for the year
             ended December 31, 1999).

       (3)   Our Lease Agreement (incorporated by reference to our Report on
             Form 10-K for the year ended December 31, 1999).

       (4)   Our Note Payable to Sarah Saul Simon Trust (incorporated by
             reference to our Report on Form 10-K for the year ended December
             31, 1999).

       (5)   Our Note Payable to Red River Trading (incorporated by reference to
             our Report on Form 10-K for the year ended December 31, 1999).

       (6)   Our Stock Exchange agreement with LinuxOne,Inc. (to be filed
             by later amendment to this Form 10-QSB).

      (11)   Earnings per share (See Financial Statements).

      (27)   Financial Data Schedule.


                                       26
<PAGE>


                                   SIGNATURES

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


INTERNATIONAL MERCANTILE CORPORATION


By: /s/ C. Fredric Richardson
    --------------------------
        C. Frederic Richardson
           Chief Exec. Officer
           President, Director


Date: August 19, 2001



By: /s/ C. Fredric Richardson
    --------------------------
        C. Timothy Jewell,
           Chief Exec. Officer
           President, Director


By: /s/ Edward Hutya
    --------------------------
        Edward Hutya,
           Director


By: /s/ Max W. Apple
    --------------------------
        Max W. Apple,
           Chairman

Date: August 19, 2001



        __________________________________________________________________





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<PAGE>