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 MARCH 31, 1998
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.
{ } Yes {X} No
As of May 31, 1998 there were outstanding 37,621,750 shares of
common stock, par value $.01 per share.
COASTAL PHYSICIAN GROUP, INC.
INDEX
PART I - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Balance Sheets at December
31, 1997 and March 31, 1998 (Unaudited) 1
Unaudited Consolidated Statements of
Operations 2
Unaudited Consolidated Condensed
Statements of Cash Flows 3
Notes to Consolidated Financial Statements
(Unaudited) 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 6
PART II - OTHER INFORMATION 9
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES 10
COASTAL PHYSICIAN GROUP, INC.
Consolidated Balance Sheets
(In thousands, except per share data)
March 31, December
1998 31,
1997
Assets (unaudite
d)
Current assets:
Cash and cash equivalents $ 866 $ 8,921
Marketable securities 2,499 5,735
Trade accounts receivable, net 24,792 23,612
Reserves held by NCFE 7,453 6,396
Accounts receivable, other 8,725 12,684
Receivables from related party 4,204 9,405
Prepaid expenses and other current 7,102 7,923
assets
Total current assets 55,641 74,676
Property and equipment, at cost, less
accumulated depreciation 9,333 10,342
Excess of cost over fair value of net
assets acquired, net 2,404 2,450
Other assets 8,203 8,628
Total assets $ $ 96,096
75,581
Liabilities and Shareholders' Equity
Current liabilities:
Current maturities and other short-term
borrowings $ 5,804 $ 2,529
Accounts payable 24,963 31,364
Income taxes payable 1,363 1,359
Accrued physicians fees and medical 21,411 31,431
costs
Accrued expenses 10,711 16,142
Total current liabilities 64,252 82,825
Long-term debt, excluding current 74,548 74,698
maturities
Total 138,800 157,523
Deferred credit on business transferred
net of note receivable 2,743 ---
Shareholders' deficit:
Preferred stock $.01 par value; shares
authorized 10,000; none issued or
outstanding --- ---
Common stock $.01 par value; shares
authorized
100,000; shares issued and 376 375
outstanding
37,572 and 37,493, respectively
Additional paid-in capital 160,433 160,374
Common stock warrants 1,582 1,582
Retained earnings (accumulated deficit) (228,505) (223,912)
Unrealized appreciation of available-
for-sale securities 152 154
Total shareholders' deficit (65,962) (61,427)
Total liabilities and shareholders' $ 75,581 $ 96,096
deficit
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
March 31,
1998 1997
Operating revenue, net $ 87,877 $
124,714
Costs and expenses:
Physician and other provider services 72,644 94,644
Medical support services 1,986 13,341
Selling, general and administrative 15,906 25,029
Total costs and expenses 90,536 133,014
Operating loss (2,659) (8,300)
Other income (expense):
Interest expense (2,140) (3,843)
Interest Income 56 326
Other, net 150 251
Total other expense (1,934) (3,266)
Loss before income taxes (4,593) (11,566)
Benefit for income taxes --- ---
Net loss $ (4,593) $(11,566)
Basic and diluted loss per share $ (0.12) $ (0.48)
Weighted average number of shares
outstanding 37,516 24,129
See accompanying notes to consolidated financial statements.
COASTAL PHYSICIAN GROUP, INC.
Unaudited Consolidated Condensed Statements of Cash Flows
(In thousands)
Three months ended
March 31,
1998 1997
Net cash used in operating activities $ (5,467) $ (1,599)
Cash flows from investing activities:
Sales of marketable securities and
investments, net 245 2,388
Purchases of property and equipment, net (153) (115)
Disposition of subsidiaries, net of
cash disposed (5,865) 900
Net cash provided by (used in)
investing activities (5,773) 3,173
Cash flows from financing activities:
Repayments of long-term debt (614) (522)
Borrowings on long-term debt 3,739 9,815
Net proceeds from issuances of common
stock 60 30
Net cash provided by
financing activities 3,185 9,323
Net increase (decrease) in
cash and cash equivalents (8,055) 10,897
Cash and cash equivalents at beginning
of period 8,921 10,239
Cash and cash equivalents at end of
period $ 866 $ 21,136
Supplemental disclosures of cash flow
information:
Cash payments (refunds) during
the period for:
Interest $ 2,140 $ 2,050
Income taxes $ --- $(3,979)
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. (the "Company") 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, 1997. 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, 1998.
(2) Sale of Doctors Health Plan, Inc.
In March 1998, the Company received regulatory approval of the
sale of Doctor's Health Plan ("DHP") to DHP Holdings LLC., an
entity that is controlled by Dr. Steven M. Scott, Chief Executive
of Coastal Physician Group, Inc. and the largest shareholder of
the Company. Under terms of the sale, the Company received cash
of $993,000 and a note in the amount of $5,000,000, bearing
interest at the rate of twelve percent 12% per annum until paid.
In addition, the purchaser assumed all liabilities as of December
31, 1997, in excess of a certain amount as agreed upon between
the buyer and the Company. The Company for accounting purposes
has not treated the sale as a completed transaction. As a result
the difference between the proceeds and the Company's basis is
shown on the Consolidated Balance Sheet as of March 31, 1998 as a
Deferred credit. The Deferred credit has been reduced by the
$5,000,000 note received from the buyer.
Net revenues for DHP for the quarters ended March 31, 1998 and
1997, included in the Consolidated Statement of Operations were
$10.0 and $5.5 million respectively. DHP's operating loss
included in the Statement of Operations for the respective
periods was $.2 million and $.9 million.
COASTAL PHYSICIAN GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(UNAUDITED)
(3) Income Taxes
The Company has not made a provision for federal or state income
taxes for the quarter ended March 31, 1998 because it anticipates
utilizing a portion of its net operating loss carryforwards to
offset any income tax liability.
(4) Capital Stock
In March 1998, the Company issued 78,857 shares of common stock
with a market value at the date of issue $0.75 per share to
Berger Davis & Singerman, P.A., a law firm in which, Mitchell
Berger, a director, is a principal, in satisfaction of directors
fees due and owing for calendar year 1997.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
FIRST QUARTER ENDED MARCH 31, 1998 COMPARED TO THE FIRST QUARTER
ENDED MARCH 31, 1997.
Net operating revenue ("operating revenue") decreased 29.5% for
the first quarter of 1998 to $87.9 million from $124.7 million in
the first quarter of 1997. The decrease in operating revenue due
to dispositions completed since the first quarter of 1997 for
which prior periods' results were not restated was approximately
$18.7 million or 15.0% of the 1997 first quarter revenues. The
dispositions included the sale of certain assets of Better Health
Plan, Inc. in August 1997, Coastal Physician Services of the
West, Inc. and Coastal Physician Services of South Florida, Inc.
in November 1997, and the sale of certain clinics in May 1997 and
November 1997; the sale of the stock of Integrated Provider
Networks, Inc., Practice Solutions, Inc. and Sunlife OB/GYN
Services of Broward County, Inc. in November 1997, and the sale
of the stock of Doctors Health Plan, Inc. in March 1998.
Operating revenue not related to disposed entities decreased
approximately $23.2 million or 18.6% from the 1997 first quarter
revenues. This decline includes the net favorable impact of a
growth in revenue from those contracts that have been in
operation for one year as of January 1, 1998 within the emergency
room services group and a growth in the number of enrollees in
the Company's North Carolina and Florida health plans offset by
contract terminations, net of new contracts added. This decline
in operating revenue is likely to continue during 1998 as a
result of the dispositions listed above.
Operating expenses decreased 32.0% to $90.5 million in the first
quarter of 1998 from $133.0 million in the first quarter of 1997.
The decrease in operating expenses due to dispositions completed,
as detailed above, for which prior periods' results were not
restated was approximately $30.3 million or 22.8% of the 1997
first quarter operating expenses. Operating expenses not related
to disposed entities decreased approximately $16.5 million or
12.4%. This change was partly due to decreases in the number of
contracts within the emergency room services group. In addition,
the reductions in personnel, telecommunication, and information
technology costs, as well as, the closure of certain offices
contributed to the reduction in operating costs. These reductions
were offset by increased expenses associated with the growth in
the number of enrollees in the Company's health plans in North
Carolina and Florida. In addition, the Company has included in
operating costs approximately $1.8 million of program fees
associated with the sale of accounts receivable.
The changes in operating revenue and operating expenses described
above resulted in an operating loss of $2.7 million for the first
quarter of 1998, compared to an operating loss of $8.3 million
for the first quarter of 1997.
The Company experienced improved operating margins during the
first three months of 1998 compared to the first three months of
1997. The operating margin (excluding the program fees, as
discussed above, for the three months ended March 31, 1998 was
negative 1.0% versus a negative 6.7% for the same period in the
prior year.
Interest expense decreased $1.7 million, or 44.3%, for the first
quarter of 1998 from $3.8 million in the first quarter of 1997.
The decrease is primarily due to a change in the Company's debt
structure and lower interest rates charged in the current
quarter.
There was no provision for income taxes recorded for the first
quarter of 1998 or 1997. The Company expects to record no tax
expense or benefit, other than as a result of potential asset
dispositions, until the Company utilizes federal and state net
operating loss carryforwards("NOL"). As of March 31, 1998 the
Company has approximately $170 and $240 million in NOLs for
federal and state purposes respectively.
Overall, the Company had a net loss of $4.6 million in the first
quarter of 1998 as compared to a net loss of $11.6 million in the
first quarter of 1997 for the reasons discussed above.
Weighted average shares outstanding increased 55.5% from
24,129,000 shares in the first quarter of 1997 to 37,516,000
shares in the first quarter of 1998. The increase is primarily
the result of shares issued to Dr. Scott during 1997.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities for the three months ended
March 31, 1998 was $5.5 million as compared to $1.6 million for
the three months ended March 31, 1997. The increase in the net
cash used in operating activities is primarily due to the sale of
DHP and a decline in the accounts receivable balances, due to the
sale of eligible accounts receivable to affiliates of National
Century Financial Enterprises, Inc. ("NCFE") under a program that
was begun in June 1997. Borrowings on long-term debt for the
three months ended March 31, 1998 was $3.7 as compared to $9.8
million for the three months ended March 31, 1997. The net income
for the three months ended March 31, 1998 was $4.6 million
compared to a net loss of $11.6 million for the same period in
1997.
The Company expects to satisfy its anticipated demands and
commitments for cash in the next twelve months from the sale of
receivables under purchase agreements with affiliates of NCFE and
a line of credit with an affiliate of NCFE, the sale of certain
non-core assets that the Company has identified, as well as a
reduction in cash used in operations. The Company is dependent
upon NCFE to purchase eligible accounts receivable for its
primary source of funds.
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 the
operational efforts; 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 1. - Legal Proceeding
See Item 6 8-K filing on March 27, 1998
Item 2. - Changes in Securities
In March 1998, the Company issued 78,857 shares of common stock
with a market value at the date of issue $0.75 per share to
Berger Davis & Singerman, P.A., a law firm in which, Mitchell
Berger, a director, is a principal, in satisfaction of directors
fees totaling $58,900 due and owing for calendar year 1997. The
issuance of the shares was exempt from registration under Section
4(2) of the Securities Act of 1933, as amended.
Item 6. - Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
Two reports on Form 8-K was filed during the quarter for which
this report is filed:
1. On January 15, 1998, the Company filed a report on Form 8-K
filing under Item 5 - Other Events.
I) The event disclosed in the filing was the sale by the Company
and certain of its subsidiaries to Scott Medical Group LLC
("Scott Medical") the following assets: (i) all of the issued and
outstanding stock of Integrated Provider Networks, Inc., (ii) all
outstanding stock of Practice Solutions, Inc. (iii) all of the
outstanding stock of Sunlife OB/GYN Services of Borward County,
Inc. (iv) substantially all the assets of Ft. Lauderdale
Perinatal Associates (v) certain accounts receivable of Sunlife
(vi) the assets of Physician Access Center.
II. Also disclosed in the filing was resignation of Jacques J.
Sokolov, M.D. from the Board of Directors effective January 18,
1998.
2. On March 27, 1998, the Company filed a report on Form 8-K
filing under Item 2 and Item 5 thereof.
I) Under Item 2, the report disclosed the disposition of the
Company's Doctors Health Plan, Inc. subsidiary to DHP, LLC a
company controlled by Steven M. Scott, M.D., the Chairman and
Chief Executive Officer of the Company and the Company's largest
shareholder. The report disclosed the purchase price of
approximately $6.0 million and that the Company has the right to
market and sell Doctors Health Plan to third party purchasers.
Under Item 5, the report disclosed the following:
II) On March 9, 1998, the Company entered into a definitive
written Stipulation of Settlement with counsel for the plaintiffs
in the matter of In re Coastal Physician Group, Inc. Securities
Litigation, Case No. 1:95CV00306, a class action lawsuit filed in
the United States District Court for the Middle District of North
Carolina. The settlement required a funding of $8,150,000 into an
Escrow Account, which has been fully funded as of the date of the
filing.
III) In a letter dated January 19, 1998, Deborah L. Redd resigned
as a member of the Board of Directors of the Company and as an
officer of several of the Company's subsidiaries, effective
February 18, 1998.
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: June 17, 1998 By: /S/Steven M. Scott, M.D.
Steven M. Scott, M.D.
Chairman of the Board of Directors,
President and Chief Executive
Officer
Date: June 17, 1998 By: /S/Charles F. Kuoni III
Charles F. Kuoni III
Executive Vice President
and Chief Financial
Officer
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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