UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
Form 10-Q
{X} Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarterly period ended SEPTEMBER 30, 1997
OR
{ } 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 001-13460
COASTAL PHYSICIAN GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 56-1379244
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
2828 CROASDAILE DRIVE, DURHAM, NC 27705
Address of principal executive offices) (Zip Code)
(919) 383-0355
(Registrant's telephone number including area code)
NONE
(Former name, former address and former fiscal year, if
changed since last report)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12
months (or 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.
{X} Yes { } No
As of October 31, 1997 there were outstanding 36,119,073
shares of common stock, par value $.01 per share.
COASTAL PHYSICIAN GROUP, INC.
INDEX
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at December
31, 1996 and September 30, 1997 (Unaudited)
Unaudited Consolidated Statements of
Operations
Unaudited Consolidated Condensed
Statements of Cash Flows
Notes to Consolidated Financial Statements
(Unaudited)
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
PART II - OTHER INFORMATION
Item 4. Matters Voted Upon by Shareholders
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
COASTAL PHYSICIAN GROUP, INC.
Consolidated Balance Sheets
(In thousands, except per share data)
September December
30, 31,
1997 1996
Assets (unaudited
)
Current assets:
Cash and cash equivalents 5,717 10,239
Marketable securities 7,723 7,020
Trade accounts receivable, net 33,916 87,410
Accounts receivable, other 14,302 11,187
Refundable income taxes --- 2,498
Prepaid expenses and other current 11,783 10,923
assets
Total current assets 73,441 129,277
Property and equipment, at cost, less
accumulated depreciation 12,236 19,041
Excess of cost over fair value of net
assets acquired, net 8,408 19,305
Other assets 11,716 14,218
Total assets 105,801 181,841
Liabilities and Shareholders' Equity
(Deficit)
Current liabilities:
Current maturities and other short-term
borrowings 2,481 71,130
Accounts payable 31,049 46,307
Deferred revenue 53,379 ---
Income taxes payable 2,716 2,211
Accrued physicians fees and medical 24,253 33,709
costs
Accrued expenses 18,141 20,182
Total current liabilities 132,019 173,539
Long-term debt, excluding current 3,215 4,799
maturities
Total liabilities 135,234 178,338
Shareholders' equity (deficit):
Preferred stock $.01 par value; shares
authorized 10,000; issued and
outstanding
1,164 and 0, respectively
Series A convertible preferred stock
shares authorized 48; shares
issued 1 ---
and outstanding 46 and 0,
respectively
Series B convertible preferred stock
shares authorized 33; shares
issued --- ---
and outstanding 33 and 0,
respectively
Series C convertible preferred stock
shares authorized 1,200; shares
issued 11 ---
and outstanding 1,085 and 0,
respectively
Common stock $.01 par value; shares
authorized
100,000; shares issued and 244 241
outstanding
24,433 and 24,126, respectively
Additional paid-in capital 158,095 144,070
Common stock warrants 2,828 987
Retained earnings (accumulated deficit) (190,693) (141,931)
Unrealized appreciation of available-
for-sale securities 81 136
Total shareholders' equity (deficit) (29,433) 3,503
Total liabilities and shareholders'
equity (deficit) 105,801 181,841
See accompanying notes to consolidated financial statements.
COASTAL PHYSICIAN GROUP, INC.
Unaudited Consolidated Statements of Operations
(In thousands, except per share data)
Three months ended
September 30,
1997 1996
Operating revenue, net 99,595 137,805
Costs and expenses:
Physician and other provider services 84,903 109,557
Medical support services 8,894 22,615
Selling, general and administrative 18,694 52,958
Total costs and expenses 112,491 185,130
Operating loss (12,896) (47,325)
Other income (expense):
Interest expense (119) (4,133)
Program costs (3,416) ---
Interest income 83 173
Other, net (621) 13,993
Total other expense (4,073) 10,033
Loss before income taxes (16,969) (37,292)
Provision (benefit) for income taxes (1,400) 1,163
Net loss (15,569) (38,455)
Net loss per share (.64) (1.61)
Weighted average number of shares
outstanding 24,415 23,862
See accompanying notes to consolidated financial statements.
COASTAL PHYSICIAN GROUP, INC.
Unaudited Consolidated Statements of Operations
(In thousands, except per share data)
Nine months ended
September 30,
1997 1996
Operating revenue, net 335,805 436,577
Costs and expenses:
Physician and other provider services 267,824 337,249
Medical support services 33,048 69,886
Selling, general and administrative 72,144 108,346
Total costs and expenses 373,016 515,481
Operating loss (37,211) (78,904)
Other income (expense):
Interest expense (9,159) (9,088)
Program costs (4,130) ---
Interest income 545 376
Other, net (207) 13,735
Total other income(expense) (12,951) 5,023
Loss before income taxes (50,162) (73,881)
Provision (benefit) for income taxes (1,400) 1,163
Net loss (48,762) (75,044)
Net loss per share (2.01) (3.15)
Weighted average number of shares 24,311 23,832
outstanding
See accompanying notes to consolidated financial statements.
COASTAL PHYSICIAN GROUP, INC.
Unaudited Consolidated Condensed Statements of Cash Flows
(In thousands)
Nine months ended
September 30,
1997 1996
Net cash provided by (used in)
operating activities (2,862) (25,295)
Cash flows from investing activities:
Sales of marketable securities and
investments, net (816) 4,795
Sales (purchases) of property and
equipment, net 456 4,147
Disposition of subsidiaries, net of
cash disposed 4,890 17,593
Net cash provided by
investing activities 4,530 26,535
Cash flows from financing activities:
Repayments of long-term debt (92,086) (41,673)
Borrowings on long-term debt 22,206 45,819
Deferred revenue 53,379 ---
Cash payments for debt issue costs --- (3,048)
Proceeds from issuances of preferred 10,000 ---
stock
Proceeds from issuances of common 311 720
stock
Net cash provided by(used
in) (6,190) 1,818
financing activities
Net increase (decreases)in
cash and cash equivalents (4,522) 3,058
Cash and cash equivalents at beginning
of period 10,239 8,147
Cash and cash equivalents at end of
period 5,717 11,205
Supplemental disclosures of cash flow
information:
Cash payments (refunds) during
the period for:
Interest 9,174 7,131
Income taxes (4,401) (14,665)
See accompanying notes to consolidated financial statements.
COASTAL PHYSICIAN GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) Basis Of Presentation
The accompanying consolidated financial statements of
Coastal Physician Group, Inc. and its subsidiaries (the
"Company" or "Coastal") are unaudited and, in the opinion of
management, include all adjustments which are necessary for
a fair presentation. The unaudited consolidated financial
statements should be read in conjunction with the Company's
audited consolidated financial statements and the notes
thereto included in the Company's Annual Report on Form 10-K
for the year ended December 31, 1996. Operating results for
the interim periods presented are not necessarily indicative
of the results that may be expected for the fiscal year
ending December 31, 1997.
(2) Capital
On August 29, 1997 the shareholders voted to approve the
issuance of Common Stock of the Company upon the conversion
of the Series A Convertible Preferred Stock, par value $.01
per share, the conversion of the Series B Convertible
Preferred Stock, par value $.01 per share and the conversion
of the Series C Convertible Preferred Stock, par value $.01
per share. On October 23, 1997, Dr. Steven M. Scott,
Coastal's Chief Executive Officer, a director, and largest
shareholder, converted the 46,033 shares of the Company's
Series A Convertible Preferred Stock into 460,330 shares of
the Company's Common Stock, the 32,739 shares of the
Company's Series B Convertible Preferred Stock into 327,390
shares of the Company's Common Stock and the 1,084,983
shares of the Company's Series C Convertible Preferred Stock
into 10,849,830 shares of the Company's Common Stock.
COASTAL PHYSICIAN GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(3) Debt Refinancing
On June 6, 1997, the Company entered into a series of sale
and subservicing agreements ("Sale Agreements") with various
subsidiaries of National Century Financial Enterprises, Inc.
("NCFE"). The existing accounts receivables and rights to
future receivables sold were purchased at their current book
value, and therefore no gain or loss was recorded on the
sale. A gain or loss may be recognized in future periods,
depending upon cash collections. The cash received for the
rights to future receivables is recorded as deferred revenue
in the accompanying consolidated balance sheets.
(4) Sale of Better Health Plan, Inc.
On August 19, 1997, the Company sold certain assets of
Better Health Plan, Inc., to the New York State Catholic
Health Plan, Inc. for approximately $7,750,000 in cash and
short-term notes. Due to the $4,200,000 goodwill impairment
adjustment recorded in the second quarter of 1997, the loss
on this transaction was minimal. This loss in included in
Other income and expense.
(5) Tax provision and benefit
In September 1997, the Company analyzed the need to maintain
an accrual for certain federal income tax items and
determined that given the continuing operating loss, and the
Net Operating Loss carryforward available that $1,400,000
of the prior provision should be reversed. The Company has
shown the effect of this as a benefit for income taxes.
(6) Subsequent Events
The Company and certain of its current and former officers
and directors are defendants in a purported shareholder
class action alleging common law fraud and deceit and
negligent misrepresentation. The suit seeks unspecified
compensatory and punitive damages and costs. On August 21,
1997, Order was entered denying plaintiff's request to have
the action declared a class action, and plaintiff has stated
COASTAL PHYSICIAN GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
his intention to appeal that Order. The Company intends to
vigorously defend its position, and at this stage of the
litigation exposure to the Company cannot be determined.
On October 30, 1997, a person believed to be a relative of
the plaintiff in the preceding case filed a purported
shareholder class action against the Company and certain of
its current and former officers and directors alleging
violations of 10(b) and 20(s) of the Securities Exchange
Act of 1934 and Rule 10b-5 and negligent misrepresentations
concerning the Company's operations and prospects. The
Company intends to vigorously defend its position, and at
this stage of the litigation exposure to the Company cannot
be determined.
In November 1997, the Company received similar letters from
Medicare Part B carriers requesting specific information on
the Company's compliance with the Health Care Financing
Administration ("HCFA") requirement regarding the Medicare
reassignment. Since February 1997, the Company has been
working with HCFA's Central office and Region 4 office to
reach an agreement on the issues raised by the Medicare Part
B carriers. While the Company believes that it can favorably
resolve the issues raised by the Medicare Part B carriers
there can be no assurance that Medicare payments to the
Company will not be delayed as a result of these inquiries.
In November 1997, the Company's subsidiary, Coastal
Physician Services, Inc., ("CPS") was notified that auditors
from the Regional Office of the Inspector General ("OIG")
Health and Human Services would be conducting a review of
CPS's business, including a sampling and Medicare carrier
review of medical coding and billing done on behalf of CPS.
While the Company does not currently know the precise scope
and nature of the OIG's review, CPS has from time to time
been subject to Medicare Carrier Part B audits and the
Company believes that the OIG's current review is generally
in the nature of and similar to past Medicare Carrier
audits.
COASTAL PHYSICIAN GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(5) Reclassifications
Certain reclassifications have been made to the unaudited
consolidated statements of operations for the three months
ended September 30, 1996 and the nine months ended September
30, l996 to conform to the 1997 presentation for the same
periods. Such reclassifications had no impact on the net
loss for the periods presented.
COASTAL PHYSICIAN GROUP, INC.
Management's Discussion And Analysis Of
Financial Condition And Results Of Operations
INTRODUCTION
The following discussion provides an assessment of the
Company's results of operations, liquidity and capital
resources, and trends and uncertainties and should be read
in conjunction with the consolidated financial statements of
the Company and notes thereto included elsewhere in this
document, and the Company's Annual Report on Form 10-K for
the year ended December 31, 1996.
RESULTS OF OPERATIONS
Third Quarter Ended September 30, 1997 Compared to the Third
Quarter Ended September 30, 1996.
Net operating revenue ("operating revenue") decreased by
$38,210,000 for the third quarter of 1997 to $99,595,000
from $137,805,000 in the third quarter of 1996. The
decrease in operating revenue due to dispositions completed
since the first quarter of 1996 for which prior period
results were not restated was approximately $21,335,000, or
55.8%, of the total decline. This decrease was primarily
due to the sale of certain assets of Physicians Planning
Group, Inc. ("PPG") and the common stock of Healthcare
Automation, Inc. ("HCA") effective September 30, 1996, the
sale of MedCost, Inc. ("MedCost") effective November 22,
1996, the sale of the HealthNet Medical Group division of
Physicians Planning Group, Inc. ("HealthNet") effective
November 30, 1996 as well as the sale of the assets of
Better Health Plan ("BHP"). Net operating revenue,
excluding operating revenue associated with dispositions,
decreased approximately $16,875,000, or 14.5%, from the
prior period level. Contract attrition and less new
business development throughout 1996 and the first nine
months of 1997 in the Company's hospital-based contract
management division were significant factors that reduced
operating revenue in the third quarter of 1997 as compared
to the third quarter of 1996 when disposition-related
revenues are excluded. This decline in operating revenue
was partially offset by increased operating revenue
associated with the growth in the number of enrollees in
each of the Company's health plans in North Carolina and
Florida.
Operating expenses decreased by $72,639,000 for the third
quarter of 1997 to $112,491,000 from $185,130,000 in the
third quarter of 1996. The decrease in operating expenses
due to dispositions completed since the first quarter of
1996 for which prior period results were not restated was
approximately $31,387,000 or 43.2% of the total decline.
This decrease was primarily due to the sale of certain
assets mentioned above. Operating expenses, excluding
expenses associated with dispositions, decreased
approximately $41,252,000 or 26.8% from the prior period
level. This change was a function of decreases due to
contract attrition throughout 1996 and the first nine months
of 1997 (as discussed above) and expense reduction programs
implemented in 1997, partially offset by increased expenses
associated with the growth in the number of enrollees in
each of the Company's health plans in North Carolina and
Florida.
The changes in operating revenue and operating expenses
described above resulted in an operating loss of $12,896,000
for the third quarter of 1997, compared to an operating loss
of $47,325,000 for the third quarter of 1996. After giving
effect to disposed operations, operating losses were
$12,896,000 for the third quarter of 1997 compared to
$37,270,000 for the third quarter of 1996.
The Company experienced an improvement in operating margins
during the third quarter of 1997 compared to the third
quarter of 1996. The operating margin for the three months
ended September 30, 1997 was negative 12.9% versus a
negative 34.3% for the same period in the prior year. This
improvement is primarily attributable to the termination of
low or negative margin contracts at the Company's hospital-
based contract management division, as well as expense
reductions programs implemented in 1997.
Other income and expense was a net expense of $4,073,000 for
the third quarter of 1997 versus income of $10,033,000 for
the third quarter of 1996. This is attributable to gains on
assets sold in the third quarter of 1996. Excluding these
gains, other expenses decreased primarily due to declines in
interest expenses offset by an increase in Program Costs as
a result of changes in methods of financing, as discussed
below.
There was a benefit for income taxes recorded in the third
quarter of 1997 in the amount of $1,400,000 compared to a
provision of $1,163,000 recorded for the same period in
1996. The benefit is the result of a reduction in the
accrued federal income taxes as discussed in Note (5) to the
financial statements. The Company expects to record no
additional tax expense or benefit, other than as a result of
future asset dispositions, until such time as the Company
returns to profitability.
Overall, the Company incurred a net loss of $15,569,000 in
the third quarter of 1997 as compared to a net loss of
$38,455,000 in the third quarter of 1996 for the reasons
discussed above.
Weighted average shares outstanding increased 2.3% from
23,862,000 shares in the third quarter of 1996 to 24,415,000
shares in the third quarter of 1997, primarily as a result
of shares issued to Dr. Scott in satisfaction of the
Company's obligation to reimburse him for certain rental
obligations and proxy solicitation expenses, as well as
shares issued in connection with the Company's employee
stock purchase plan.
Nine Months Ended September 30, 1997 Compared to the Nine
Months Ended September 30, 1996.
Operating revenue decreased $100,772,000 for the nine months
ended September 30, 1997 to $335,805,000 from $436,577,000
for the nine months ended September 30, 1996. The decrease
in operating revenue due to dispositions completed in 1996
for which prior period results were not restated was
approximately $46,209,000, or 45.9%, of the total decline.
This decrease was primarily due to the sale of certain
assets of PPG and the common stock of HCA effective
September 30, 1996, the sale of MedCost effective November
22, 1996, the sale of HealthNet effective November 30, 1996
as well as the sale of the assets of Better Health Plan
("BHP") effective August 19, 1997. Operating revenue,
excluding operating revenue associated with dispositions,
decreased approximately $54,563,000, or 14.0%, from the
prior period level. Contract attrition and less new
business development throughout 1996 and the first nine
months of 1997 in the Company's hospital-based contract
management division were significant factors that reduced
operating revenue in the first nine months of 1997 as
compared to the first nine months of 1996 when disposition-
related revenues are excluded. These declines in operating
revenue were partially offset by increased operating revenue
associated with the growth in the number of enrollees in
each of the Company's health plans in North Carolina and
Florida. This net decline in operating revenue is likely to
continue during the balance of 1997 due to the Company's
strategy to divest certain non-core assets.
Operating expenses decreased by $142,465,000 for the nine
months ended September 30, 1997 from $373,016,000 from
$515,481,000 for the nine months ended September 30, 1996.
The decrease in operating revenue due to dispositions
completed since the first quarter of 1996 for which prior
period results were not restated was approximately
$50,541,000 or 35.5% of the total decline. This decrease was
primarily due to the sale of certain assets mentioned above.
Operating expenses, excluding expenses associated with
dispositions, decreased approximately $91,924,000, or 19.8%,
from the prior period level. This change was a function of
decreases due to contract attrition and lower new business
development throughout 1996 and the first half of 1997 (as
discussed above) and expense reduction programs implemented
in 1997, partially offset by increased expenses associated
with the growth in the number of enrollees in each of the
Company's health plans in North Carolina and Florida.
The Company experienced an improvement in operating margins
during the nine months ended September 1997, compared to the
same period of 1996. The operating margin for the nine
months ended September 30, 1997 was negative 11.0% versus a
negative 18.0% for the same period in the prior year. This
improvement is primarily attributable to the termination of
low or negative margin contracts at the Company's hospital-
based contract management division, as well as expense
reduction programs implemented in 1997.
Other income and expense was a net expense of $12,951,000
for the nine months ended September 30, 1997 versus other
income of $5,023,000 for the nine months ended September 30,
1996. This is attributable to gains on assets sold in 1996.
Excluding these gains, other expenses increased primarily
due to increased interest expenses as a result of financing
costs incurred in 1997, prior to repayment of the
outstanding bank credit facilities.
There was a benefit for income taxes for the nine months
ended September 30, 1997 in the amount of $1,400,000
compared to a provision for income taxes of $1,163,000 for
the nine months ended September 30, 1996. The benefit is
the result of a reduction in the accrued federal income
taxes as discussed in Note (4) to the financial statements.
The Company expects to record no additional tax expense or
benefit, other than as a result of future asset
dispositions, until the Company returns to profitability.
The Company incurred a net loss of $48,762,000 for the nine
months ended September 30, 1997 as compared to a net loss of
$75,044,000 for the nine months ended September 30, 1996.
Weighted average shares outstanding increased 2.0% from
23,832,000 shares for the nine months ended September 30,
1996 to 24,311,000 shares for the nine months ended
September 30, 1997, primarily as a result of shares issued
to Dr. Scott in satisfaction of the Company's obligation to
reimburse him for certain rental obligations and proxy
solicitation expenses, as well as shares issued in
connection with Company's employee stock purchase plan.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities for the nine months
ended September 30, 1997 was $2,862,000 as compared to net
cash used in operating activities of $25,295,000 for the
nine months ended September 30, 1996. Net cash provided for
operating activities for the nine months ended September 30,
1997 was primarily due to the sale of accounts receivable to
various subsidiaries of National Century Financial
Enterprises, Inc. during the period, explained below,
offset by the net loss for the period.
On May 29, 1996, the Company entered into credit agreements
which restructured its existing credit facilities and
provided the Company with up to $40 million of additional
borrowing availability. The facilities required total
principal payments of at least $40 million by January 2,
1997, which were made by the Company, at which time the
availability of borrowings under the facilities declined to
$10 million. The facilities also required an amendment to
be finalized by January 15, 1997 which would have
established financial covenants for the period subsequent to
February 1997. This amendment did not occur by January 15,
1997 and therefore outstanding amounts, originally due on
July 1, 1997, became due on February 28, 1997. From
February 28, 1997 through June 10, 1997, the Company was in
default on these obligations, but accelerated payment was
not required by the lenders. From May 29, 1996 through June
10, 1997, interest on loans under the facilities accrued at
rates ranging from 1.5% to 4.5% over a designated prime
rate.
On June 6, 1997, the Company entered into a series of sale
and subservicing agreements (the "Sale Agreements") with
NCFE. The Sale Agreements provide for accounts receivable
purchase commitments totaling $151 million for the purchase
of the Company's healthcare receivables from third party
payors that meet specified eligibility requirements. Certain
Sale Agreements create facilities for the purchase of up to
$36 million of receivables and terminate on July 1, 1998.
Another Sale Agreement creates a facility for the purchase
of up to $115 million of receivables and terminates on June
1, 2000. After taking into account required reserves and
administrative fees, the maximum amount of funding available
under the Sale Agreements at any one time is approximately
$125 million. Pursuant to the Sale Agreement, the Company
pays a program fee ranging from approximately 10.94% to
approximately 12.50% per annum on the outstanding amount of
uncollected purchased receivables.
Also on June 6, 1997, pursuant to a separate loan and
security agreement, an affiliate of NCFE agreed to provide
the Company with a revolving line of credit of up to $15
million. Interest on outstanding amounts under this line of
credit is payable monthly at prime plus 4%. The
availability under the line of credit declines, at the
option of the lender, based on the Company's receipt of net
proceeds in excess of $10 million from the sale of specified
assets, and the line of credit expires June 15, 1998. The
line of credit is secured by substantially all of the assets
of Coastal Physician Group, Inc., including pledges of the
Common Stock of each of its subsidiaries, including the
HMO's where permitted by law.
The Sale and Subservicing Agreements, and the line of credit
requires that the Company's shareholder equity not be less
than a negative $30,000,000. The Company's shareholder
equity as of September 30, 1997 was a negative $29,433,000.
The Company continues to strive to become profitable,
however additional losses could result in a violation of
this covenant. Accordingly, the Company is exploring a
number of alternatives that are available to it, including,
but not limited to, the sale of additional assets,
additional equity infusions and seeking a modification to
the agreements. There can be no assurances that the Company
will be successful in these efforts.
On June 10, 1997, the Company used proceeds of approximately
$82 million from sales of its existing receivables and
rights to future receivables to repay outstanding balances
under its previous credit facilities which terminated on
that date. All collateral held by the lenders under those
facilities was released. After repayment, the Company had
access to approximately $40 million of cash from potential
additional sales of its existing receivables and rights to
future receivables and borrowing availability under the line
of credit. The Company continues to generate and sell its
receivables to NCFE for working capital purposes.
On August 19, 1997, the Company sold certain assets of
Better Health Plan, Inc. to the New York Catholic Health
Plan, Inc. for approximately $7,750,000 in cash and short-
term notes. Due to the $4,200,000 goodwill impairment
adjustment recorded in the second quarter of 1997, the loss
on this transaction was minimal.
On August 29, 1997 the shareholders voted to approve the
issuance of Common Stock of the Company upon the conversion
of the Series A Convertible Preferred Stock, par value $.01
per share, the conversion of the Series B Convertible
Preferred Stock, par value $.01 per share and the conversion
of the Series C Convertible Preferred Stock, par value $.01
per share. On October 23, 1997 Dr. Steven M. Scott
Coastal's Chief Executive Officer, a director, and largest
shareholder, converted the 46,033 shares of the Company's
Series A Convertible Preferred Stock into 460,330 shares of
the Company's Common Stock, the 32,739 shares of the
Company's Series B Convertible Preferred Stock into 327,390
shares of the Company's Common Stock and the 1,084,983
shares of the Company's Series C Convertible Preferred Stock
into 10,849,830 shares of the Company's Common Stock.
The Company's strategic business plan provides for ongoing
reviews of the non-core businesses, improving the
profitability of its core businesses, reducing contract
attrition rates and cutting overhead costs. As a result of
the reviews of its business units, the Company sold the
assets of Better Health Plan, Inc. in August 1997.
CPS is implementing physician educational programs to
increase revenues through better documentation of procedures
performed in emergency departments. Using its Corporate
Compliance Program as a pattern, Healthcare Business
Resources, Inc. is educating CPS' employees and independent
contractor physicians on compliance with Medicare, Medicaid
and CHAMPUS laws and regulations to ensure accurate billing
for CPS' services. Also, a "Physician Partnering Program"
is being implemented which more closely ties revenue with
physician compensation. These programs are expected to
improve CPS' operating margins. CPS is devoting significant
management resources to contract retention efforts and
margin improvement on less profitable contracts. Management
has also completed a reorganization of the corporate
headquarters resulting in headcount reductions and lower
consulting fees.
Although these actions are expected to have a positive
effect on the Company's financial performance, there can be
no assurances that each of these actions will be successful
and that improved financial results will be achieved without
additional asset sales, revenue and margin improvements and
cost reductions.
The Company expects to satisfy its anticipated demands and
commitments for cash in the next twelve months from amounts
available under the various agreements with NCFE discussed
above and the sale of certain non-core assets, as well as a
reduction in cash used in operations.
Forward-looking Information or Statements: Except for
statements of historical fact, statements made herein are
forward-looking in nature and are inherently subject to
uncertainties. The actual results of the Company may differ
materially from those reflected in the forward-looking
statements based on a number of important risk factors,
including, but not limited to: receipt of sufficient
proceeds from divested assets, and the timing of any
divestitures; the level and timing of improvements in
operating results and cash flow; the possibility of poor
accounts receivable generation, collection and/or
reimbursement experience; the possibility of increased
medical expenses due to increased utilization; the
possibility that the Company may not be able to improve
operations or execute its divestiture strategy as planned;
and other important factors disclosed from time to time in
the Company's Form 10-K, Form 10-Q and other Securities and
Exchange Commission filings.
PART II - OTHER INFORMATION
Item 4. - Matters Voted Upon By Shareholders
The Annual Meeting of Shareholders of the Company was held
on August 29, 1997. At such meeting the following members
were elected to the Board of Directors.
Number of Shares Voted
For Withhold
Edward L. Suggs, Jr. 30,372,226 3,264,151
Charles E. Potter 30,277,328 3,359,049
Deborah L. Redd 30,288,456 3,347,921
The following director's terms of office continued after the
meeting:
Jacque J. Sokolov, M.D. John P. Mahoney, M.D.
Steven M. Scott, M.D. Eugene F. Dauchert, Jr.
Bertram E. Walls, M.D. Mitchell W. Berger
The vote taken on the proposal to approve the issuance of
Common Stock upon conversion of Series B Convertible Stock
was as follows:
For 13,587,049 Against 3,754,382 Abstain 165,720
The vote taken on the proposal to approve the issuance of
Common Stock upon conversion of Series A Preferred Stock was
as follows:
For 13,591,899 Against 3,754,332 Abstain 160,920
The vote taken on the proposal to approve the issuance of
Common Stock upon conversion of Series C Preferred Stock was
as follows:
For 13,587,400 Against 3,751,389 Abstain 168,36l
The vote taken on the proposal to approve the appointment of
KPMG Peat Marwick, LLP, as the Company's independent
certified public accountants for the Corporation for the
fiscal year ending December 31, 1997 was as follows:
For 33,423,559 Against 100,630 Abstain 112,188
Item 6. - Exhibits and Reports on Form 8-K
(a) Exhibits
BHP Asset Purchase Agreement, incorporated by reference to
the Form 8-K filed on September 9, 1997.
(b) Reports on Form 8-K
Form 8-K was filed on September 9, 1997 in connection with
the sale of Better Health Plan, Inc., the Company's wholly-
owned New York-based Prepaid Health Services Plan, to The
New York State Catholic Health Plan, Inc. for $7,750,000 in
cash and short-term notes.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
COASTAL PHYSICIAN GROUP, INC.
(Registrant)
Date: November 21, 1997 By: /S/STEVEN M. SCOTT, M.D.
Steven M. Scott, M.D.
President and Chief
Executive Officer
Date: November 21, 1997 By: /S/CHARLES F. KUONI, III
Charles F. Kuoni, III
Executive Vice President
and Chief Financial
Officer
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1997 AND THE STATEMENT
OF EARNINGS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 5,717,000
<SECURITIES> 7,723,000
<RECEIVABLES> 33,916,000
<ALLOWANCES> 0
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<CURRENT-ASSETS> 26,085,000
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<COMMON> 244,000
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