ex99-2march2010.htm

MANAGEMENT'S DISCUSSION AND ANALYSIS

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2009

The following Management’s Discussion and Analysis (MD&A) provides a review of the financial condition and results of operations of Consolidated Mercantile Incorporated (“the Company”) for the year ended December 31, 2009. This MD&A should be read in conjunction with the Company’s December 31, 2009 consolidated financial statements included elsewhere herein.

In this document and in the Company’s consolidated financial statements, unless otherwise noted, all financial data is prepared in accordance with Canadian Generally Accepted Accounting Principles (GAAP). All amounts, unless specifically identified as otherwise, both in the consolidated financial statements and this MD&A, are expressed in Canadian dollars.

Management’s Discussion and Analysis contains forward-looking statements, including statements concerning possible or assumed future results of operations of the Company. Forward-looking statements typically involve words or phrases such as “believes”, “expects”, “anticipates”, “intends”, “foresees”, “estimates” or similar expressions. Forward-looking statements involve risks, uncertainties and assumptions, as described from time to time in the Company’s reports and filed with the United States Securities and Exchange Commission and securities commissions in Canada, which could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. In addition, the Company expressly disclaims any obligation to publicly update or alter its previously issued forward-looking statements.

THE COMPANY

The business objective of the Company is to create and maximize shareholder value through internal growth of investments and acquisitions of companies having synergistic product lines and technologies, management strength and a presence in markets with the potential for sales of complementary products. The Company’s investment strategy is to assist operating units in taking advantage of their strengths by investment in and by the provision of management and merchant banking services, with the objective of creating added value to the Company and its shareholders.

Over the past number of years, the Company’s investment interests in both Polyair Inter Pack Inc. (“Polyair”) and Distinctive Designs Furniture Inc. (“Distinctive”) incurred substantial operating losses. During 2007, Management of the Company spent considerable time and effort in assisting these business units in restructuring their operations and enhancing their ability to be more competitive in their respective industries. These efforts provided the Company with the opportunity to maximize shareholder value, culminating in the December 2007 sale of both units.

closing conditions outlined in the Amalgamation Agreement. The Boards of Directors of both companies have been in the process of considering these and other matters relating to completion of the transaction as well as reviewing other potentials and alternatives.

RESULTS OF OPERATIONS

The following table sets forth items derived from the consolidated statements of operations for the three-month periods ended December 31, 2009 and 2008:

(In thousands of dollars, except per share amounts)

			2009												2008
	Fourth Quarter		Third Quarter			Second Quarter			First Quarter			Fourth Quarter			Third Quarter			Second Quarter			First Quarter

Revenue	$	147	$	142		$	168		$	121		$	(491	)	$	(307	)	$	180		$	(66	)

Earnings (loss) from Continuing operations		23		(19	)		(249	)		(29	)		338			(68	)		(40	)		117

Earnings from Discontinued operations		-		-			42			-			-			-			-			-

Net earnings (loss)		23		(19	)		(207	)		(29	)		338			(68	)		(40	)		117
Earnings (loss) per share From continuing operations
Basic and diluted	$	0.01	$	(0.00	)	$	(0.05	)	$	(0.01	)	$	0.07		$	(0.01	)	$	(0.01	)	$	0.02
Earnings per share from Discontinued operations
Basic and diluted	$	0.00	$	0.00		$	0.01		$	0.00		$	0.00		$	0.00		$	0.00		$	0.00
Earnings (loss) per share
Basic and diluted	$	0.01	$	(0.00	)	$	(0.04	)	$	(0.01	)	$	0.07		$	(0.01	)	$	(0.01	)	$	0.02

General

The following table sets forth items derived from the consolidated statements of operations for the three-month periods ended December 31, 2009 and 2008 and for the years ended December 31, 2009 and 2008:

(In thousands of dollars)	Three Months Ended December 31						Years Ended December 31
	2009			2008			2009			2008
Investment revenue (loss)	$	147		$	(491	)	$	578		$	(684	)
Expenses		(119	)		833			(841	)		1,062
Earnings (loss) on equity items		(1	)		(29	)		2			(27	)
Earnings (loss) before income taxes		27			313			(261	)		351
Income tax (expense) recovery		(4	)		25			(13	)		(4	)
Earnings (loss) from continuing operations		23			338			(274	)		347
Deferred gain recognized on sale of former consolidated subsidiary		-			-			42			-
Net earnings (loss)	$	23		$	338		$	(232	)	$	347

Review of Fourth Quarter and Year-End Results December 31, 2009 and 2008

Revenue. Revenue for the three months ended December 31, 2009 was $147,118 compared to a loss of $491,885 for the comparable 2008 period. Revenue for the three months ended December 31, 2009 includes interest income on cash and cash equivalents of $20,877 and share of income from investments in Limited Partnerships of $126,241. Revenue for the three months ended December 31, 2008 includes interest income on cash and cash equivalents of $89,480 and share of loss from investments in Limited Partnerships of $581,365. Revenue for the year ended December 31, 2009 increased to $578,379 compared to an investment loss of $684,417 for the comparable 2008 period. Revenue for the year ended December 31, 2009 includes interest income on cash and cash equivalents of $108,091 and share of income from investment Limited Partnerships of $470,288. Revenue for the year ended December 31, 2008 includes interest income on cash and cash equivalents of $361,211 and share of loss from investment Limited Partnerships of $1,045,628. The decrease in interest income in 2009 is due to the substantial decrease in interest rates following the current economic conditions and the resulting tightening in the credit markets. Investment income increased in 2009 due to the improved results achieved from the Company’s Limited Partnership investments during the period.

Administrative and General Expenses. Administrative and general expenses for the three months ended December 31, 2009 and 2008 were $157,391 and $126,259 respectively. Administrative and general expenses for the year ended December 31, 2009 and 2008 were $821,097 and $536,873 respectively. Administrative and general expenses normally include fees for management and administrative services, legal and audit fees, and public company shareholder costs. The expenses for the year ended December 31, 2009 include a provision for non-deductible interest expenses of approximately $250,000 which arise from the reassessment of prior year taxes.

Gain (loss) on Foreign Exchange. Loss on foreign exchange for the three months ended December 31, 2009 was $212 compared to a gain on foreign exchange of $1,019,061 for the comparable 2008 period. Loss on foreign exchange for the year ended December 31, 2009 was $1,978 compared to gain on foreign exchange of $1,657,741 for the comparable 2008 period. During the period under review the Company held minimal funds denominated in United States dollars. The gain for the 2008 period resulted from the effect on the Company’s U.S. Dollar holdings on hand at the time of the strengthening of the United States Dollar relative to the Canadian Dollar.

Other expenses. Effective December 28, 2007, the Company sold all of its investment interest in Distinctive to Distinctive’s other major shareholder. The proceeds from the sale of the shares was satisfied by a promissory note issued by the purchaser. The note which is non-interest bearing has been discounted and is repayable in ten equal consecutive annual instalments of $100,000, with the first instalment due January 15, 2009. The first instalment was received in April 2009. This note is only due and payable in any given year if Distinctive continues its business. Over the past number of years Distinctive incurred substantial operating losses. Distinctive continues to be impacted by a difficult retail environment as a result of competitive market conditions and the poor global economy. The second instalment on the promissory note was received in February 2010. As a result, the deferred gain on the sale of this investment has been adjusted and the balance has been set off against the impairment loss on note receivable resulting in a 2009 impairment loss of $18,676. This compares to a loss of $58,675 for the comparable 2008 period.

Equity Earnings (loss). Equity loss of significantly influenced company was $1,462 for the fourth quarter of 2009 as compared to equity earnings of $2,136 for the comparable 2008 period. Equity earnings for the year ended December 31, 2009 were $1,737 compared to equity earnings of $4,572 for the comparable 2008 period.

Income Tax Provision. The effective tax rate for the three months ended December 31, 2009 and 2008 was 13.9% and (7.9%) respectively. The effective tax rate for the year ended December 31, 2009 and 2008 was (4.9%) and 1.1% respectively. The difference between the Company’s statutory tax rate and its effective tax rate is primarily attributable to the permanent differences associated with non-deductible items, the tax treatment of capital gain transactions and the valuation allowance provided against certain future tax benefits.

Discontinued Operations. During the period under review the Company recognized a deferred gain of $42,050 from the 2007 sale of its investment interest in Distinctive.

Net Earnings (loss). Net earnings for the fourth quarter of 2009 and 2008 were $22,720 and $338,232 respectively. Net loss for the year ended December 31, 2009 was $232,461 compared to net earnings of $347,363 in the comparable 2008 period. Net loss for the year ended December 31, 2009 was impacted by the provision for interest on a reassessment of prior year taxes. Net earnings for the year ended December 31, 2008 were impacted by the poor performance of the equity markets and the foreign exchange gain resulting from the strengthening of the United States Dollar during the period.

Inflation. Inflation has not had a material impact on the results of the Company’s operations in its last quarter and is not anticipated to materially impact on the Company’s operations during its next fiscal year.

LIQUIDITY AND CAPITAL RESOURCES

The Company’s principal sources of liquidity are cash on hand, short-term investments and cash flow from operations.

The Company's working capital amounted to $16.0 million at December 31, 2009 compared to $16.3 million at December 31, 2008. The ratio of current assets to current liabilities decreased to 11.7:1 at December 31, 2009 from 17.9:1 at December 31, 2008.

During the twelve months ended December 31, 2009 the Company’s cash position increased by approximately $0.3 million to $14.5 million from $14.2 million at December 31, 2008. The net increase was due to the following:

-	Operating Activities decreased cash by $442,800. This was a result of $579,136 in cash utilized in operations, including an unrealized loss of $948 on foreign exchange, offset by $136,336 of cash generated from changes in non-cash components of work capital;

-	Investing Activities increased cash by $756,500. This was due to the repayment of notes receivable of $100,000 and a decrease in short-term investments of $656,500.

The Company’s ongoing expected costs include administrative expenses, fees for management and administrative services provided to the Company, legal and audit fees and public company shareholder costs. The Company expects to generate the revenue required in order to service these expenditures from interest and investment income.

RELATED PARTY TRANSACTIONS

The Company entered into transactions and had outstanding balances with various companies related by common ownership and management. These transactions are in the normal course of business and are summarized as follows:

The Company paid to Forum Financial Corporation (“Forum”) an agreed upon fee of $240,000 for administrative, management and consulting services rendered for the year ended December 31, 2009. These services include office, administrative and clerical services, including bookkeeping and accounting. Forum also assists in the decision making process relating to the Company’s and its subsidiary’s various investment interests. Fred A. Litwin, the President, a director and indirect controlling shareholder of the Company, is an officer, director and controlling shareholder of Forum. Stan Abramowitz is an officer and director of both the Company and Forum.

Accounts payable and accrued liabilities include $229,171 due to Genterra in respect of amalgamation costs incurred on behalf of the Company. Stan Abramowitz is an officer and director of both the Company and Genterra.

SHARE DATA

The following table sets forth the Outstanding Share Data for the Company as at March 22, 2010:

	Authorized	Issued

Preference Shares, issuable in series	Unlimited
Class A Preference shares $0.04 non-cumulative, non-voting, non-participating, $0.44 redeemable	Unlimited	-

Common Shares	Unlimited	5,076,407

On February 19, 2010 the Company exercised its right to redeem all of the issued and outstanding Class A preference shares at the redemption price of $0.44 per Class A preference share.

RISKS AND UNCERTAINTIES

The Company is subject to a number of broad risks and uncertainties including general economic conditions. In addition to these broad business risks, the Company has specific risks that it faces, the most significant of which are detailed below.

Failing To Consummate The Proposed Amalgamation Will Result In Costs To The Company With No Associated Benefits And The Expiration Of Some Of The Company’s Non-Capital Loss Carry Forwards.

In the event that Genterra and the Company are unable to consummate the Proposed Amalgamation, the Company may lose some of its non-capital loss carry forwards as these losses may expire before the generation by the Company, on its own, of sufficient taxable income necessary for the use thereof. In addition, the Company has expended large amounts of managerial time and effort and incurred substantial regulatory, professional and other costs in working towards the Proposed Amalgamation. In the event that we are unable to consummate the Proposed Amalgamation, these costs will have no benefit to the Company.

Uncertain Return On Short-Term Investments Could Have A Material Adverse Effect On Our Business, Financial Condition And Results Of Operations.

The Company’s return on its short-term investments will be contingent upon the performance of its various professional investment managers and the public financial markets. Difficult market and economic conditions may adversely affect our business and profitability. Our revenues and profitability are likely to decline during periods of poor performance of our various professional investment managers and the public financial markets. The financial markets are by their nature risky and volatile and are directly affected by many factors that are beyond our control. Our operations may suffer to the extent that ongoing market volatility of the recent past was to persist which could adversely affect our financial condition and cash flow.

Cash Deposits Held At Banks May Exceed The Amounts Of Insurance Provided On Such Deposits And Any Loss Arising There From Could Have A Material Adverse Affect On Our Business, Financial Condition And Results Of Operations.

Cash and cash equivalents are maintained with several financial institutions. Deposits held with banks may exceed the amount of insurance provided on such deposits. If we were to suffer a loss as a result of a failure of one of these Banks and the insurance provided thereon was insufficient to cover the amount of the deposit our operations may suffer. This could adversely affect our financial condition and cash flow.

Adverse Currency Fluctuations on Cash Deposits Held In Foreign Denominated Currencies Could Have A Material Adverse Affect On Our Business, Financial Condition And Results Of Operations.

Currency risk is the risk that a negative variation in exchange rates between the Canadian Dollar and foreign currencies will affect the Company’s operating and financial results. If the Company holds funds denominated in a foreign currency and the value of this currency experiences a negative fluctuation due to a change in exchange rates this could have a material adverse affect on our business, financial condition and results of operations.

Declines In Invested Amounts As A Result Of Changes In Prevailing Interest Rates Could Have A Material Adverse Affect On Our Business, Financial Condition And Results Of Operations.

Interest rate risk is the risk that the value of a financial instrument will fluctuate due to changes in market interest rates. Some of the cash, cash equivalents and securities that the Company may invest in are subject to interest rate risk. This means that an adverse change in prevailing interest rates may cause the principal amount of the investment to fluctuate and the amount of the investment to decline. Such a decline could have a material adverse affect on our business, financial condition and results of operations.

Third Party Valuation Risk Could Have A Material Adverse Affect On Our Business, Financial Condition And Results Of Operations

The valuations of private investment Limited Partnerships rely on third party financial inputs of the underlying securities. If the financial inputs of the underlying securities were directly verifiable, there is a risk that the reported fair values may differ.

The Company Has No Experience Operating As An Investment Company And, If Required To Register As An Investment Company Under The United States Investment Company Act Of 1940, As Amended (The "Company Act"), We Would Find This Process Both Costly and Challenging.

Should the Proposed Amalgamation be successfully completed, we do not believe that we would be an investment company under the Company Act, by virtue of Rule 3A-1. Rule 3A-1 provides that an issuer will not be considered an investment company if no more than 45% of the value of its total assets (exclusive of cash items and government securities) consists of, and no more than 45% of its net income after taxes is derived from, certain securities. In order to continue to meet the requirements of Rule 3A-1, we would be required to analyze our assets and financial statements on a continuous basis in order to identify any potential problems including the need to reallocate working capital assets presently held in Government of Canada Treasury Bills as a hedge against the recent problems in international banking conditions, to cash and cash items. This analysis and reallocation would obviously increase our cost of operations, and may from time to time require the retention of legal and accounting experts in order to address any problems identified by such analysis. Should we not be able to continue to qualify for the applicable exclusion, the Company may be required to register as an investment company under the Company Act. In such an event, substantial work on our part would be required to implement appropriate reporting and compliance processes as required by the Company Act. The significant changes to our operations would include retaining a registered investment adviser, registered under the United States Investment Advisers Act of 1940, as amended, to manage the Company's portfolio and adopting a series of compliance documents to ensure compliance. Such modifications could result in a complete change in the Company's operations, and, further, may require a new investment decision to be made by the Company's shareholders. In order to do so, the Company may be required to file appropriate documentation with the Securities and Exchange Commission and there is no guarantee that all shareholders would approve of the change. Finally, the failure to comply properly with SEC laws, rules and regulations could result in significant fines and other penalties, resulting in a material negative impact on the Company.

We have no experience operating as an investment company and to do so is costly and challenging, and could materially hinder our ability to operate as a public company.

The risks and uncertainties discussed above highlight the more important factors that could significantly affect the Company’s operations and profitability. They do not represent an exhaustive list of all potential issues that could affect the financial results of the Company.

OUTLOOK

Since the time of sale of both Polyair and Distinctive, the Company with its strengthened financial and management resources has sought out new long-term strategic acquisitions. While the Company’s management have analyzed a number of potential acquisition targets during this period, to-date none have been consummated. In keeping with its history of being primarily engaged in the business of investing in and managing of majority owned operating companies, management continues to seek out target acquisitions that they believe will offer future growth and added value to the Company and its shareholders. As part of this process, the Company’s Board of Directors determined that the Proposed Amalgamation with Genterra would be in the best interests of the Company. The Company’s Board of Directors believe that with the successful completion of the amalgamation, the amalgamated company’s strengthened balance sheet would allow it to analyze larger potential investments, to capitalize on favorable market conditions and to, among other things, to consider expanding its real estate income producing portfolio. The transaction has been approved by the regulatory authorities and the special resolution authorizing the amalgamation was adopted at meetings of the shareholders of both companies on February 25, 2010. Completion of the action approved by the special resolution remains subject to the satisfaction or waiver by both companies of various closing conditions outlined in the Amalgamation Agreement. The Boards of Directors of both companies have been in the process of considering these and other matters relating to completion of the transaction as well as reviewing other potentials and alternatives.

In the interim, the Company’s working capital is held in a combination of cash and liquid marketable securities with risk-adjusted returns.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Company’s discussion and analysis of its results of operations and financial condition are based upon its consolidated financial statements that have been prepared in accordance with generally accepted accounting principles in Canada. The preparation of financial statements in conformity with Canadian GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. Estimates and assumptions are evaluated on an ongoing basis and are based on historical and other factors believed to be reasonable under the circumstances.

The results of these estimates may form the basis of the carrying value of certain assets and liabilities and may not be readily apparent from other sources. Actual results, under conditions and circumstances different from those assumed, may differ from estimates.

The Company believes the following accounting policy is critical to its business operations and the understanding of results of operations:

Future Income Taxes – The Company follows the asset and liability method of accounting for income taxes. Under this method, future tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying value and tax basis of the assets and liabilities. Consistent with this policy the Company recognizes future tax assets net of a valuation allowance, taking into account whether it is more likely than not that the recognized future tax assets will be realized. Changes in future profitability of the Company may impact the realization of these future tax assets.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In January 2009, the CICA issued new accounting standards, Handbook Section 1582 “Business Combinations”, Handbook Section 1602 “Non-Controlling Interests”, and Handbook Section 1601 “Consolidated Financial Statements”, which are based on the International Accounting Standards Board’s (“IASB”) International Financial Reporting Standard 3, “Business Combinations”. The new standards replace the existing guidance on business combinations and consolidated financial statements. The objective of the new standards is to harmonize Canadian accounting for business combinations with the international and U.S. accounting standards. The new standards are to be applied prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after January 1, 2011, with earlier application permitted. Assets and liabilities that arose from business combinations whose acquisition dates preceded the application of the new standards shall not be adjusted upon application of these new standards. Section 1602 should be applied retrospectively except for certain items. The Company expects to early adopt these standards effective January 1, 2010 and is currently assessing the impact these new standards may have on its results of operations, financial position and disclosures (see “The Company - Proposed Amalgamation”).

On April 29, 2009, the CICA amended Section 3855, “Financial Instruments – Recognition and Measurement”, adding/amending paragraphs regarding the application of effective interest method to previously impaired financial assets and embedded prepayment options. The amendments are effective for interim and annual financial statements relating to fiscal years beginning on or after January 1, 2011 with early adoption permitted. These amendments are not expected to have a significant impact on the Company’s accounting for its financial instruments.

IFRS CONVERGENCE

In February 2008, the CICA announced that Canadian generally accepted accounting principles (“GAAP”) for publicly accountable enterprises will be replaced by International Financial Reporting Standards (“IFRS”) for fiscal years beginning on or after January 1, 2011. Companies will be required to provide IFRS comparative information for the previous fiscal year. Accordingly, the conversion from Canadian GAAP to IFRS will be applicable to the Company’s reporting for the first quarter of 2011, for which the current and comparative information will be prepared under IFRS. Should the Proposed Amalgamation be consummated during 2010, the Company’s IFRS changeover date will be October 1, 2011.

The Company’s IFRS project consists of three phases – scoping, evaluation and design, and implementation and review. The Company has commenced the scoping phase of the project, which consists of project initiation and awareness, identification of high-level differences between Canadian GAAP and IFRS and project planning and resourcing. The Company has completed a high level scoping exercise and has prepared a preliminary comparison of financial statement areas that would be impacted by the conversion.

The Company has retained an external consultant to establish appropriate IFRS financial reporting expertise at all levels of the business. The external consultant will train key finance and operational staff starting in the second quarter of 2010. The Company has provided Audit Committee members with detailed project scoping, project structure, significant policy impact areas, a detailed timetable and a summary of accounting differences relating to the transition to IFRS. This included a discussion of key accounting choices available under IFRS 1 and First-time adoption of IFRS’s. Based on matters brought to their attention the Audit Committee members will review the Audit Committee Charter and make the necessary changes to reflect the requirements for IFRS financial expertise. The Audit Committee will continue to receive periodic presentations and project status updates from the external consultant and management.

A detailed assessment of the impact of adopting IFRS on the Company’s consolidated financial statements, accounting policies, information technology and data systems, internal controls over financial reporting, disclosure controls and procedures, and the various covenants and capital requirements and business activities has not been completed. The impact on such elements will depend on the particular circumstances prevailing at the adoption date and the IFRS accounting policy choices made by the Company. The Company has not completed its quantification of the effects of adopting IFRS. The financial performance and financial position as disclosed in the Company’s GAAP consolidated financial statements may be significantly different when presented in accordance with IFRS.

The Company will complete the initial diagnostic phase during 2010 and will continue to update its disclosures throughout 2010 to reflect specific actions taken to facilitate adoption of IFRS effective January 1, 2011.

DISCLOSURE CONTROLS AND PROCEDURES

Disclosure controls and procedures are designed to provide reasonable assurance that all relevant information is gathered and reported to senior management, including the Company’s Chief Executive Officer and Chief Financial Officer, on a timely basis so that appropriate decisions can be made regarding public disclosure. Management of the Company, with the participation of the Chief Executive Officer and the Chief Financial Officer, have evaluated the effectiveness of the Company’s disclosure controls and procedures as at December 31, 2009 as required by Canadian securities laws. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer, have concluded that, as of December 31, 2009, the disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in the Company’s annual filings and interim filings (as such terms are defined under Multilateral Instrument 52-109 Certification of Disclosure in Issuer’s Annual and Interim Filings) and other reports filed or submitted under Canadian securities laws is recorded, processed, summarized and reported within the time periods specified by those laws and that material information is accumulated and communicated to management of the Company, including the Chief Executive Officer and the Chief Financial Officer, as appropriate to allow for accurate disclosure to be made on a timely basis.

INTERNAL CONTROL OVER FINANCIAL REPORTING

Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with Canadian GAAP. The Chief Executive Officer and Chief Financial Officer have also concluded that there has been no change in the Company’s internal control over financial reporting during the year ended December 31, 2009 that has materially affected, or is reasonably likely to affect, the Company’s internal control over financial reporting.

ADDITIONAL INFORMATION

Additional information relating to the Company, including the Company’s Annual Information Form, audited year-end financial results and unaudited quarterly financial results, can be accessed on SEDAR (www.sedar.com) in Canada and on EDGAR (www.sec.gov/edgar.shtml) in the United States. For further information shareholders may also contact the Company by email at info@consolidatedmercantile.com

GENERAL

Except where otherwise indicated, information contained herein is given as of March 22, 2010.

DIRECTORS

Fred A. Litwin

Stan Abramowitz

Sol D. Nayman

Ian Dalrymple

Mark E. Dawber

OFFICERS

Fred A. Litwin - President

Stan Abramowitz - Secretary

AUDITORS

BDO CANADA LLP, Chartered Accountants

Toronto, Canada

REGISTRAR & TRANSFER AGENT

COMPUTERSHARE INVESTOR SERVICES INC.

Toronto, Canada

BANKERS

ROYAL BANK OF CANADA

Toronto, Canada

HEAD OFFICE

106 Avenue Road

Toronto, Canada

M5R 2H3

LISTED

TORONTO STOCK EXCHANGE

Symbol: CMC – Common

QUOTED

THE OTC BULLETIN

Symbol: CSLMF.PK – Common

CONSOLIDATED MERCANTILE INCORPORATED

106 Avenue Road

Toronto, Ontario

M5R 2H3

ASSETS	2009		2008

Current
Cash and cash equivalents	$	14,491,151	$	14,178,399
Short-term investments		2,475,769		2,880,094
Accounts receivable		981		20,797
Prepaid expenses		467,395		49,010
Note receivable (Note 3)		96,853		99,935
		17,532,149		17,228,235
Investment (Note 4)		294,164		292,427
	$	17,826,313	$	17,520,662

Current
Accounts payable and accrued liabilities (Note 10)	$	377,565	$	121,181
Income taxes payable		1,118,086		839,565
Future income taxes (Note 9)		3,157		-
		1,498,808		960,746
Deferred gain (Note 5)		42,100		42,050
		1,540,908		1,002,796

Capital stock (Notes 6 and 12)
Issued and outstanding
315,544Class A Preference shares		141,826		141,826
5,076,407Common shares		2,688,939		2,688,939
		2,830,765		2,830,765
Contributed surplus		59,411		59,411
Retained earnings		13,395,229		13,627,690
		16,285,405		16,517,866
	$	17,826,313	$	17,520,662

	2009			2008			2007

BALANCE AT BEGINNING OF YEAR, as previously stated	$	13,627,690		$	13,285,290		$	9,839,400
Unrealized gain on short-term investments, net of taxes (Note 1)		-			-			237,135
BALANCE AT BEGINNING OF YEAR, as restated		13,627,690			13,285,290			10,076,535
Excess of cost of shares purchased for cancellation over stated value (Note 6(b))		-			(4,963	)		-

Net earnings (loss) for the year		(232,461	)		347,363			3,208,755
BALANCE AT END OF YEAR	$	13,395,229		$	13,627,690		$	13,285,290

	2009		2008		2007

BALANCE AT BEGINNING OF YEAR, as previously stated	$	-	$	-	$	-
Share of accumulated unrealized exchange loss of significantly influenced company (Note 1)		-		-		(757,088	)
BALANCE AT BEGINNING OF YEAR, as restated		-		-		(757,088	)
Other comprehensive income for the year		-		-		757,088
BALANCE AT END OF YEAR	$	-	$	-	$	-

APPROVED ON BEHALF OF THE BOARD:
Signed “Fred A. Litwin” Director	Signed “Stan Abramowitz” Director

Earnings (loss) per share from continuing operations Basic and diluted	$	(0.05	)	$	0.07	$	0.74
Earnings (loss) per share from discontinued operations Basic and diluted	$	0.01		$	0.00	$	(0.11	)
Earnings (loss) per share Basic and diluted	$	(0.04	)	$	0.07	$	0.63

OPERATING ACTIVITIES
Earnings (loss) from continuing operations	$	(274,511	)	$	347,363		$	3,755,788
Items not affecting cash (Note 8(a))		(304,625	)		228,631			(4,450,662	)
Change in non-cash components of working capital (Note 8(b))		136,336			(601,815	)		579,038
		(442,800	)		(25,821	)		(115,836	)
Funds provided by discontinued operations		-			-			8,012
		(442,800	)		(25,821	)		(107,824	)

Purchase of common shares for cancellation		-		(7,505	)		-

INVESTING ACTIVITIES
Proceeds from note receivable to former consolidated subsidiary		-		-			1,082,459
Proceeds from (advances on) notes receivable		100,000		832,459			(1,289,972	)
Proceeds from short-term investments		656,500		2,349,827			1,634,870
Proceeds from disposal of investment in former consolidated subsidiary, net		-		-			420,954
Proceeds from disposal of investment in former equity investee, net		-		-			6,003,795
Proceeds from redemption of shares in significantly influenced company		-		59,891			-
		756,500		3,242,177			7,852,106
UNREALIZED FOREIGN EXCHANGE GAIN (LOSS) ON CASH BALANCES		(948)		8,136			(356,272	)

CHANGE IN CASH AND CASH EQUIVALENTS		312,752		3,216,987			7,388,010

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR		14,178,399		10,961,412			3,573,402

CASH AND CASH EQUIVALENTS AT END OF YEAR (Note 8(c	$	14,491,151	$	14,178,399		$	10,961,412

			Fair Value Measurements at Reporting Date Using:

Assets:	December 31, 2009		Quoted Prices in Active Markets for Identical Level Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)

Cash	$	14,491,151	$	14,491,151	$	-	$	-
Short-term investments		2,475,769		377,315		-		2,098,454

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)

	Short Term Investments

Balance at beginning of period	$	2,577,554

Additional investments		-

Redemption of investments		(846,086	)

Gain on investments included in earnings		366,986

Balance at end of period	$	2,098,454

	2009			2008
Note receivable, non-interest bearing, discounted at 17.5%, repayable in ten equal consecutive annual instalments of $100,000, with the instalment due on January 15 of each year. The note is secured by the shares of a former consolidated subsidiary, Distinctive Designs Furniture Inc. (“Distinctive”).	$	437,578		$	457,513
Accretion interest		73,429			80,000
		511,007			537,513
Allowance for doubtful accounts		(414,154	)		(437,578	)
		96,853			99,935
Less: Current portion		96,853			99,935
	$	-		$	-

	2009		2008
Investment in significantly influenced company Common shares – at equity (1.5%) This is a public company with substantial interests in real estate properties located in Ontario, Canada. This is a significantly influenced company whose shares have limited trading. Accordingly the investment is recorded at equity. (market value 2009 - $175,270; 2008 - $62,805)	$	294,164	$	292,427

	Common Shares						Class A Preference Shares
	# of Shares			$ Value			# of Shares		$ Value
Balance at December 31, 2006 and 2007		5,081,207			2,691,481			315,544		141,826
Repurchase for cancellation		(4,800	)		(2,542	)		-		-
Balance at December 31, 2008 and 2009		5,076,407			2,688,939			315,544		141,826

(c) Cash and cash equivalents:
Cash and cash equivalents consist of cash balances with banks and investments in money market instruments. Cash and cash equivalents included in the statement of cash flows are comprised of the following balance sheet amounts:

Cash balances with banks	$	17,269	$	48,606	$	38,209
Money market instruments		14,473,882		14,129,793		10,923,203
Total cash and cash equivalents	$	14,491,151	$	14,178,399	$	10,961,412

	2009		2008			2007

EXPENSES
Administrative and general	$	821,097	$	536,873		$	1,083,445
Loss (gain) on foreign exchange		1,978		(1,657,741	)		342,732
Impairment loss on note receivable, net (Notes 3 & 5)		18,676		58,675			-
	$	841,751	$	(1,062,193	)	$	1,426,177

	2009			2008

Non-current future income tax assets
Non-capital loss carry-forwards	$	376,356		$	511,000
Marketable securities		-			26,500
Valuation allowance		(376,356	)		(537,500	)
Total future income tax assets	$	-		$	-

	2009		2008

Current future income tax liabilities
Short term investments	$	3,157	$	-
Total future income tax liabilities	$	3,157	$	-

	2007

Sales	$	18,990,737

Loss before income taxes		(2,473,725	)
Income tax (recovery)		(55,000	)
Loss before non-controlling interest		(2,418,725	)
Non-controlling interest		1,231,728
Loss from discontinued operations	$	(1,186,997	)