UNITED STATES
SECURITY AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
May 14, 1997
For the quarter ended: March 31, 1997
Commission file number: 0-26322
IAC, Inc.
a Nevada corporation
IRS Number 88-0303769
714 "C" Street, San Rafael, California 94901
(800) 554-1250
Check whether 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:
4,272,578 shares.
Transitional Small Business Disclosure Format (Check one): Yes ___ No _X_
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
IAC, Inc.
CONSOLIDATED BALANCE SHEET
March 31, 1997
(Unaudited)
ASSETS
CURRENT ASSETS
Cash in bank $2,129
Prepaid expense 10,343
---------------
TOTAL CURRENT ASSETS 12,472
---------------
OTHER ASSETS
Organizational costs, net of amortization 1,969
---------------
1,969
---------------
TOTAL ASSETS $14,441
===============
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Accounts payable $42,641
Other liabilities 1,891
---------------
TOTAL CURRENT LIABILITIES $44,532
---------------
STOCKHOLDERS' EQUITY
Preferred stock, no par value, 5,000,000 2,500
shares authorized; 630,000 outstanding
Capital stock, $.001 par value, 25,000,000 4,273
shares authorized; 4,272,578 shares outstanding
Additional paid in capital 695,125
Accumulated deficit (731,989)
---------------
(30,091)
---------------
LIABILITIES AND STOCKHOLDERS' EQUITY $14,441
===============
See notes to unaudited consolidated financial statements.
IAC, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
AND ACCUMULATED DEFICIT
(Unaudited)
Three Months Ended
March 31, 1997 March 31, 1996
REVENUES
Management fees $28,356 $29,971
Other income 26 684
----------------- ----------------------
$28,382 $30,655
----------------- ----------------------
OPERATING AND GENERAL EXPENSES
Compensation and employee benefits 33,870 15,912
Promotion and advertising 3,224 5,314
Administrative expenses 42,699 13,841
----------------- ----------------------
79,793 35,067
----------------- ----------------------
LOSS FROM OPERATIONS (51,411) (4,412)
----------------- ----------------------
INCOME TAXES (800) (800)
----------------- ----------------------
NET LOSS (52,211) (5,212)
DEFICIT-beginning of period (679,778) (215,967)
----------------- ----------------------
DEFICIT- end of period ($731,989) ($215,967)
================= ======================
Loss Per Share ($0.01) ($0.00)
================= ======================
See notes to unaudited consolidated financial statements
IAC, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31, 1997 March 31, 1996
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss ($52,211) ($5,212)
Adjustment to reconcile net loss to
net cash provided by (used in) operating activities:
Amortization 4,317 180
Increase in receivable from related party (5,393)
Decrease in refundable payroll taxes 3,973
Increase in accounts payable and other liabilities 38,310 1,637
------------- -------------
Net Cash Used In Operating Activities (9,584) (4,815)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
------------- -------------
Net Cash Used In Investing Activities 0 0
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Sale of common stock, net of expenses 0 600
------------- ------------
------------- ------------
Net Cash Provided By Financing Activities 0 600
------------- ------------
Net Increase (Decrease) In Cash (9,584) (4,215)
Cash At Beginning Of Period 11,713 37,967
============= ============
Cash At End Of Period $2,129 $33,752
============= ============
Income taxes paid during period $800
============= ============
See notes to unaudited consolidated financial statements.
IAC, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIODS ENDED MARCH 31, 1997 AND 1996
Note 1 - Organization, operations and basis of presentation:
Organization:
IAC, Inc.(IAC) is a Nevada corporation engaged in the business of managing a
malpractice insurance contract between International Associations' Coalitions',
Inc., (Coalitions) a related party, and an insurance company, Pacific Rim
Insurance Company, a minority stockholder of IAC. The members of Coalitions' and
its successor, Health Professionals Coalition, Inc. (Health) are podiatrists
seeking affordable malpractice insurance. Under the management contract, IAC,
Inc. is entitled to receive 27.5% of the premiums paid by the podiatrists to
United and Pacific Rim.
The term of the insurance contract between Coalitions' and the insurance
carriers is one year and is generally renewable if both parties have performed
satisfactorily. The management contract with Coalitions' also has a term
concurrent with the insurance contract.
Coalitions' is a wholly-owned by the Company's Chairman and majority
shareholder. In September, 1996, the business of Coalitions' was transferred to
a newly created company, Health Professionals Coalition, Inc. which is also
wholly owned by IAC's Chairman .
On December 8, 1995, IAC formed a subsidiary, Mt. Tam Re, Inc. In Nevis (in
the West Indies) with initial capital of $25,000. Mt. Tam Re was formed to
provide reinsurance coverage for other insurance companies. See note 4.
Basis of presentation:
The consolidated financial statements have been prepared on the going concern
basis. IAC has reported a loss during the last two years and the quarter ended
March 31, 1997. In addition, its current liabilities substantially exceed its
available cash. Losses are expected to continue.
On March 5, 1997, the Company and Health Professionals Coalition, Inc. signed a
Consent Cease and Desist Order (Cease and Desist Order) issued by the Texas
Insurance Commissioner that insurance coverage for podiatrists resident in Texas
must be terminated effective April 21, 1997. In 1996, Health & Coalition, in the
aggregate, collected insurance premiums of $95,000 from podiatrists residing in
Texas. IAC received related management fees of approximately $26,000 (20% of its
revenue) in 1996. The Cease and Desist Order also requires payment of a $10,000
fine which was recognized as an expense in the quarter ended March 31, 1997.
IAC, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIODS ENDED MARCH 31, 1997 AND 1996
Note 1 - Organization, operations and basis of presentation (continued):
The Cease and Desist Order provides that IAC and Health can in the future,
accept payment of premiums only if first authorized to conduct business in
Texas. Such authorization will be dependent upon formation of a risk retention
group (RRG), or retention of an insurance broker and insurer licensed in Texas.
Pacific Rim is not licensed in Texas. Management was unable to retain a broker
licensed in Texas, or an insurer licensed in Texas by April 21, 1997. Retention
in the future of some or all of the revenues from Texas based podiatrists is
dependent upon formation of an RRG.
In 1996, the Company received revenues of approximately $19,000 from Mt. Tam Re
reinsurance premiums and a gain from sale of a security which will not reoccur
in 1997.
The Company has been seeking funding for the initial capitalization of a Risk
Retention Group (RRG) for podiatrists. The Company entered into a contract in
October of 1996 to provide $600,000 but such funding has yet to be received.
This agreement, as amended, provides that upon funding by the investor, the
Company must pledge 500,000 shares of convertible preferred stock. Such pledged
shares can, at the Company's option, either be from those currently outstanding
or be newly issued shares. The agreement provides for a success fee of $47,500.
Without a RRG, IAC is unable to substantially expand its marketing efforts to
podiatrists around the country and reduce its dependence upon the limited number
of members of Health.
Note 2 - Accounting Policies:
The process of preparing financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions regarding certain assets, liabilities, revenue and expenses. Such
estimates primarily relate to unsettled transactions and events as of the date
of the financial statements. Accordingly, upon settlement, actual results may
differ.
Revenues are recorded by IAC when insurance premiums are collected by Coalitions
or Health.
Expenses are recorded on the accrual method of accounting.
The carrying value of cash, note receivable, accounts payable and accrued
liabilities is a reasonable estimate of fair value of these financial
instruments.
IAC, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIODS ENDED MARCH 31, 1997 AND 1996
Note 3 - Authorized stock:
The Company's authorized capital consists of 25,000,000 shares of $.001 par
value common stock and 5,000,000 shares of no par preferred stock. Each share of
preferred stock is entitled to one vote per share and is convertible into 10
shares of common stock; the preferred stock has no dividend rights nor
preference in liquidation.
Note 4 - Mt. Tam Re Trust:
In December 1995, a shareholder of IAC deposited common stock of an Bulletin
Board company in a trust account which is held by a domestic stock brokerage
firm. These securities are to serve as additional capital, for reinsurance
underwriting purposes, for Mt. Tam Re, Inc. At March 31, 1997, the value of the
securities held by the trust was $73,500.
Under the terms of the trust agreement, the trustee can require this shareholder
to add sufficient securities to the trust to maintain an aggregate value
$500,000 as of each quarter. In March, 1997, the Company made a demand upon the
shareholder to add additional securities to the trust to bring its value to
$500,000.
Note 5 - Income Taxes:
At December 31, 1996, IAC's consolidated net operating loss carry forwards
(NOL's) amounted to approximately $516,000 for federal tax purposes. These NOLs
will expire from 1999 through 2011. For California franchise tax purposes, the
NOL is approximately $258,000 and expires in 2001.
Item 2. Management's Discussion and Analysis or Plan of Operation.
The following discussion relates to the unaudited financial statements for the
three month periods ended March 31, 1997 and 1996 which are included in Item 1
above.
Basis of presentation:
The consolidated financial statements as of March 31, 1997 have been prepared on
the going concern basis. IAC has reported a loss during the last two years and
the quarter ended March 31, 1997. In addition, its current liabilities
substantially exceed its available cash. Losses are expected to continue in the
foreseeable future.
On March 5, 1997, the Company and Health Professionals Coalition, Inc. signed a
Consent Cease and Desist Order (Cease and Desist Order) issued by the Texas
Insurance Commissioner that insurance coverage for podiatrists resident in Texas
must be terminated effective April 21, 1997. In 1996, Health & Coalition, in the
aggregate, collected insurance premiums of $95,000 from podiatrists residing in
Texas. IAC received related management fees of approximately $26,000 (20% of its
revenue) in 1996. The Cease and Desist Order also requires payment of a $10,000
fine which was recognized as an expense in the quarter ended March 31, 1997.
The Cease and Desist Order provides that IAC and Health can in the future,
accept payment of premiums only if first authorized to conduct business in
Texas. Such authorization will be dependent upon formation of a risk retention
group (RRG), or retention of an insurance broker and insurer licensed in Texas.
Pacific Rim is not licensed in Texas. Management was unable to retain a broker
licensed in Texas, or an insurer licensed in Texas by April 21, 1997. Retention
in the future of some or all of the revenues from Texas based podiatrists is
dependent upon formation of an RRG.
In 1996, the Company received revenues of approximately $19,000 from Mt. Tam Re
reinsurance premiums and a gain from sale of a security which will not reoccur
in 1997.
The Company has been seeking funding for the initial capitalization of a Risk
Retention Group (RRG) for podiatrists. The Company entered into a contract in
October of 1996 to provide $600,000 but such funding has yet to be received.
This agreement, as amended, provides that upon funding by the investor, the
Company must pledge 500,000 shares of convertible preferred stock. Such pledged
shares can, at the Company's option, either be from those currently outstanding
or be newly issued shares. The agreement provides for a success fee of $47,500.
Without a RRG, IAC is unable to substantially expand its marketing efforts to
podiatrists around the country and reduce its dependence upon the limited number
of members of Health.
Liquidity:
During the past 27 months, IAC has used about $120,000 of cash in its operations
with the result that cash reserves have declined to about $2,000 at March 31,
1997. As of March 31, 1997, IAC's current liabilities of $$44,632 substantially
exceed its cash resources of $2,129. Moreover, payroll tax liabilities of
$14,050 which were due in April, 1997 remain unpaid as of May 12, 1997.
Penalties and interest will be assessed on these unpaid taxes.
Discussion of quarterly results:
Management fees in the first quarter of 1997 declined $1,600 or 5% from the
preceding year. This was due to a decrease in premiums written to the
podiatrists group under management.
During the third quarter of 1996, The Board of Directors authorized an increase
in the salary of the CEO from $5,000 to $10,000 per month reflecting the
increased time required to conduct the company's affairs.
Administrative expenses increased largely as a result of an increase in legal
fees of $6,000, accounting fees of $5,000, amortization of Directors' and
Officer's liability insurance premiums of $4,300 and the nonrecurring cost of
the $10,000 fine imposed by the Texas Insurance Commissioner. The increase in
legal fees resulted from discussions with the Texas Insurance Commissioner which
led to the Cease and Desist Order (see discussion above).
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
NA.
Item 2. Changes in Securities.
NA.
Item 3. Defaults Upon Senior Securities.
NA.
Item 4. Submission of Matters to a Vote of Security Holders.
NA.
Item 5. Other Information.
NA
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits
Exhibit 27. Financial Data Schedule
b. Reports on Form 8-K.
No reports have been filed on Form 8-K during this quarter.
/S/ Dr. Michael Wener, President
May 14, 1997