HEALTHCARE FINANCIAL PARTNERS INC, 424B1, 1996-11-22

HEALTHCARE FINANCIAL PARTNERS INC
424B1, 1996-11-22
INVESTORS, NEC

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<PAGE>

File pursuant to 424(b)(1)
Registration number 333-12479

2,100,000 SHARES

LOGO

COMMON STOCK

All of the shares of Common Stock, $.01 par value per share (the "Common
Stock"), offered hereby (the "Offering") are being sold by HealthCare
Financial Partners, Inc. (the "Company"). Prior to the Offering, there has
been no public market for the Common Stock. See "Underwriting" for a
discussion of factors to be considered in determining the initial public
offering price.

The Common Stock has been approved for quotation on the Nasdaq National
Market under the trading symbol "HCFP."

SEE "RISK FACTORS" COMMENCING ON PAGE 9 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF COMMON STOCK OFFERED
HEREBY.

---------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

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<TABLE>
<CAPTION>
Price to Underwriting Proceeds to
Public Discount (1) Company (2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share................................. $12.50 $0.875 $11.625
Total (3)................................. $26,250,000 $1,837,500 $24,412,500
</TABLE>
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(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(2) Before deducting expenses payable by the Company estimated at $500,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
315,000 additional shares of Common Stock solely to cover over-allotments,
if any. If the Underwriters exercise this option in full, the Price to
Public will total $30,187,500, Underwriting Discount will total $2,113,125
and Proceeds to Company will total $28,074,375. See "Underwriting."

The shares of Common Stock are offered by the Underwriters named herein,
subject to receipt and acceptance by them and subject to their right to reject
any order in whole or in part. It is expected that delivery of the
certificates representing such shares will be made against payment therefor at
the offices of Montgomery Securities on or about November 27, 1996.

---------------

Montgomery Securities Stifel, Nicolaus & Company
Incorporated

November 21, 1996

<PAGE>

IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

----------------

The Company intends to furnish its stockholders with annual reports
containing financial statements audited by an independent accounting firm and
quarterly reports containing unaudited financial information for the first
three quarters of each fiscal year.

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<PAGE>

PROSPECTUS SUMMARY

The following summary should be read in conjunction with, and is qualified in
its entirety by, the more detailed information, including "Risk Factors,"
appearing elsewhere in this Prospectus, and the financial statements and notes
thereto. Unless the context otherwise requires, the information set forth in
this Prospectus gives effect to the proposed transactions described herein
under "--The Reorganization," and the term "Company" refers to HealthCare
Financial Partners, Inc. and its consolidated partnerships and subsidiaries
after giving effect to such transactions. Unless otherwise indicated, the
information set forth in this Prospectus does not give effect to the exercise
of the Underwriters' over-allotment option. All information set forth in this
Prospectus reflects the amendment and restatement of the Company's Certificate
of Incorporation, which, among other things, increased the number of authorized
shares, and gives retroactive effect to a 4.56 to 1 split of the Common Stock,
effected in the form of a stock dividend on September 13, 1996.

THE COMPANY

HealthCare Financial Partners, Inc. (the "Company") is a specialty finance
company offering asset-based financing to healthcare service providers, with a
primary focus on clients operating in sub-markets of the healthcare industry,
including long-term care, home healthcare and physician practices. The Company
also provides asset-based financing to clients in other sub-markets of the
healthcare industry, including pharmacies, durable medical equipment suppliers,
hospitals, mental health providers, rehabilitation companies and disease state
management companies. The Company targets small and middle market healthcare
service providers with financing needs in the $100,000 to $10 million range in
healthcare sub-markets which have favorable characteristics for working capital
financing, such as those where growth, consolidation or restructuring appear
likely in the near to medium term. Management believes, based on its industry
experience, that the Company's healthcare industry expertise and specialized
information systems, combined with its responsiveness to clients, willingness
to finance relatively small transactions, and flexibility in structuring
transactions, give it a competitive advantage in its target markets over
commercial banks, diversified finance companies and traditional asset-based
lenders. See "Business." From its inception in 1993 through September 30, 1996,
the Company has advanced $495.7 million to its clients in 166 transactions,
including $299.5 million advanced during the nine months ended September 30,
1996. The Company had 102 clients as of September 30, 1996, of which 35 were
affiliates of one or more other clients. The average amount outstanding per
client or affiliated client group at September 30, 1996 was approximately
$863,000. For the year ended December 31, 1995, the Company's pro forma net
income was $1.5 million, and for the nine month period ended September 30, 1996
the Company's pro forma net income was $2.0 million. See "Pro Forma Financial
Information." For the nine months ended September 30, 1996, the Company's
annualized yield on finance receivables (total interest and fee income divided
by average finance receivables for the period) was 18.0%. See "Management's
Discussion and Analysis of Pro Forma Financial Condition and Pro Forma Results
of Operations" for a discussion of the effect of a change of portfolio
composition on expected yields.

At September 30, 1996, 58.7% of the Company's portfolio consisted of finance
receivables from businesses in the long-term care and home healthcare sub-
markets. Estimated expenditures in 1995 for the long-term care, home healthcare
and physician practice sub-markets, which the Company currently emphasizes,
collectively constituted approximately $306 billion of the over $1 trillion
U.S. healthcare market. These sub-markets are highly fragmented, and companies
operating in these sub-markets generally have significant working capital
finance requirements. The Company's clients operating in these sub-markets tend
to be smaller, growing companies with limited access to traditional sources of
working capital financing from commercial banks, diversified finance companies
and asset-based lenders because many such lenders have not developed the
healthcare industry expertise needed to underwrite smaller healthcare service
companies or the specialized systems necessary to track and monitor healthcare
accounts receivable transactions. Some of the Company's clients are also
constrained from obtaining financing from more traditional working capital
sources, due to their

3
<PAGE>

inadequate equity capitalization, limited operating history, lack of
profitability, or financing needs below commercial bank size requirements. As
an asset-based lender, the Company provides financing to its clients based
principally on an assessment of the net collectible value of client receivables
from third-party payors. See "Business--Market for Healthcare Receivables
Financing."

The Company currently provides financing to its clients through (i) revolving
lines of credit secured by accounts receivable (the "ABL Program"), (ii)
advances against accounts receivable (the "AR Advance Program"), and (iii) to a
lesser extent, term loans secured by accounts receivable and other assets,
generally in conjunction with financing provided under either the ABL Program
or the AR Advance Program. In all cases, the accounts receivable are
obligations of third-party payors, such as federal and state Medicare and
Medicaid programs and other government financed programs ("Government
Programs"), commercial insurance companies, health maintenance organizations
and other managed healthcare concerns, self-insured corporations and, to a
limited extent, other healthcare service providers. Under both the ABL Program
and AR Advance Program, the Company generally advances only 65% to 85% of the
Company's estimate of the net collectible value of client receivables from
third-party payors. The Company's credit risk is mitigated by the Company's
ownership of or security interest in the remaining balance of such receivables
("Excess Collateral"). Clients continue to bill and collect the accounts
receivable, subject to lockbox collection and sweep arrangements established
for the benefit of the Company. The Company uses its proprietary information
systems to monitor its clients' accounts receivable base on a daily basis and
to assist its clients in improving and streamlining their billing and
collection efforts with respect to such receivables. The Company conducts
extensive due diligence on potential clients for all its financing programs and
follows written underwriting and credit policies in providing financing to
clients. To date, the Company has not incurred any credit losses, although it
periodically makes provisions for possible future losses in the ordinary course
of its business. See "Business--Financing Programs."

The Company has developed low cost means of marketing its services on a
nationwide basis to selected healthcare sub-markets. The Company primarily
markets its services by telemarketing to prospective clients identified by the
Company, advertising in industry specific periodicals and participating in
industry trade shows. The Company also markets its services by developing
referral relationships with accountants, lawyers, venture capital firms,
billing and collection companies and investment banks. The Company's clients
also assist the Company's marketing efforts by providing referrals and
references.

To date, the Company has funded its activities primarily through a bank line
of credit, partnership capital and stockholders' equity. Recently, the Company
received a commitment from ING (U.S.) Capital Corporation ("ING") for $100
million of financing under an investment grade, asset-backed commercial paper
program (the "proposed CP Facility").

The Company is a Delaware corporation which was organized in April, 1993 and
commenced its business in September, 1993. Until September 13, 1996 the
Company's name was HealthPartners Financial Corporation. On that date its
corporate name was changed to HealthCare Financial Partners, Inc. The Company's
principal executive offices are located at 2 Wisconsin Circle, Suite 320, Chevy
Chase, Maryland 20815, and its telephone number is (301)961-1640.

4
<PAGE>

STRATEGY

The Company's goal is to be the leading finance company in its targeted sub-
markets of the healthcare services industry. The Company's strategy for growth
is based on the following key elements (see "Business-- Strategy"):

. Target sub-markets within the healthcare industry that have favorable
characteristics for working capital financing, such as fragmented sub-
markets experiencing growth, consolidation or restructuring;

. Focus on healthcare service providers with financing needs of between
$100,000 and $10 million, a market that has been under served by
commercial banks, diversified finance companies, traditional asset-based
lenders and other competitors of the Company;

. Seek to introduce new financial products to leverage the Company's
existing expertise in healthcare finance and its origination,
underwriting and servicing capabilities within its target sub-markets;
and

. Enhance the Company's credit risk management and improve servicing
capabilities through continued development of information management
systems, which can also be used to assist the Company's clients in
managing the growth of their businesses.

THE REORGANIZATION

Since inception, the Company has conducted its operations principally in its
capacity as the general partner of HealthPartners Funding, L.P. ("Funding") and
HealthPartners DEL, L.P. ("DEL"). Management concluded that the Company's
future financial position and results of operations would be enhanced if the
Company directly owned the portfolio assets of each of these limited
partnerships. Therefore, the transactions described below (the
"Reorganization") have been or will be effected by the Company prior to or
simultaneously with the completion of the Offering. See "Pro Forma Financial
Information" and "Certain Transactions."

Effective as of September 1, 1996, Funding acquired all of the net assets of
DEL, consisting principally of finance receivables, for $486,630 in cash, which
amount approximated the fair value of DEL's net assets. Following the
acquisition, DEL distributed the purchase price to its partners and was
dissolved. The purpose of the transaction was to consolidate the assets of DEL
and Funding in anticipation of the acquisition by the Company of the limited
partnership interests of Funding described below. See "Certain Transactions."

Effective upon completion of the Offering, the Company will acquire from
HealthPartners Investors, L.L.C. ("HP Investors"), the sole limited partner of
Funding, all of the limited partnership interests in Funding, which will be
paid from the proceeds of the Offering. The purchase price for such limited
partnership interests will be $21.8 million, which represents the limited
partner's interest in the net assets of Funding and which approximates both the
fair value and book value of the net assets. See "Use of Proceeds." Effective
upon consummation of the acquisition of the limited partnership interests of
Funding, the Company will cause Funding to be liquidated and dissolved, and all
of its net assets at the date of transfer, consisting principally of advances
made under the ABL Program and the AR Advance Program (an aggregate of $79.6
million at September 30, 1996), will be transferred to the Company. The Company
intends to form a special purpose, bankruptcy remote subsidiary in connection
with the proposed CP Facility and to transfer certain assets to such subsidiary
as collateral for loans made under the proposed CP Facility. See "Management's
Discussion and Analysis of Pro Forma Financial Condition and Results of
Operations--Liquidity and Capital Resources." The principal purposes of the
Company's acquisition of Funding are (i) to consolidate ownership of such
assets and related business operations in the Company, a single entity with
greater access to the public and private capital markets, (ii) to simplify the
corporate and management structures of the Company by eliminating its general
partnership interest in Funding and the concomitant management responsibilities
of the Company as a general partner of Funding, and (iii) to allow the Company
to realize the return on the assets transferred to the Company which otherwise
would have been paid to HP Investors as the limited partner of Funding prior to
the transfer of the ownership of such assets to the Company. See "Certain
Transactions."

5
<PAGE>

In connection with the liquidation of Funding, Farallon Capital Partners,
L.P. ("Farallon") and RR Capital Partners, L.P. ("RR Partners"), the only two
members of HP Investors, will exercise warrants for the purchase of an
aggregate of 379,998 shares of Common Stock acquired on December 28, 1994 for
an aggregate payment of $500, which represented the fair value of the warrants
at that date. No additional consideration will be paid in connection with the
exercise of the warrants. HP Investors transferred the warrants to Farallon and
RR Partners in contemplation of the liquidation of Funding.

In anticipation of the Offering and the liquidations of Funding and DEL,
Fleet Financial Corporation ("Fleet") has consented to the assignment to the
Company of the agreements relating to the lines of credit (the "Bank Facility")
made available to Funding and DEL (up to $31,250,000 and $3,750,000,
respectively), which will enable the Company to borrow from Fleet up to $50
million (an increase of $15 million from the previous levels) on the same terms
as previously extended to Funding and DEL. See "Business--Capital Resources."

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered by the Company........ 2,100,000 shares
Common Stock to be outstanding after the
Offering.................................. 5,899,991 shares(1)
Use of Proceeds............................ Of the net proceeds of the Offering, $21.8
million will be used to acquire the limited
partnership interests in Funding and the
remainder will be used for general corporate
purposes.
Nasdaq National Market symbol.............. "HCFP"
</TABLE>
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(1) Does not include 750,000 shares of Common Stock reserved for issuance
pursuant to the HealthCare Financial Partners, Inc. 1996 Stock Incentive
Plan (the "Incentive Plan"), of which options to purchase 300,000 shares
have been granted (but are not presently exercisable). See "Management-
Stock Incentive Plan." Also does not include an option to purchase 38,381
shares of Common Stock granted outside the Incentive Plan on November 1,
1995, which option is presently exercisable.

6
<PAGE>

SUMMARY PRO FORMA FINANCIAL INFORMATION

The following sets forth summary unaudited pro forma financial information
derived from the unaudited pro forma financial information included elsewhere
in this Prospectus. The summary unaudited pro forma statements of operations
give effect to the Reorganization as if it had occurred at the beginning of the
respective periods. The summary unaudited pro forma balance sheet data as of
September 30, 1996 have been prepared as if the Offering and the Reorganization
had occurred on September 30, 1996.

The summary unaudited pro forma financial information does not purport to
present the actual financial position or results of operations of the Company
had the transactions and events assumed therein in fact occurred on the dates
specified, nor is it necessarily indicative of the results of operations that
may be achieved in the future. The summary unaudited pro forma financial
information is based on certain assumptions and adjustments further described
herein. See "Pro Forma Financial Information" and "Management's Discussion and
Analysis of Pro Forma Financial Condition and Pro Forma Results of Operations."

PRO FORMA STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
PRO FORMA FOR
THE NINE MONTH
PERIOD ENDED
PRO FORMA FOR SEPTEMBER 30,
THE YEAR ENDED ---------------------
DECEMBER 31, 1995 1995 1996
----------------- ---------- ----------
<S> <C> <C> <C>
Fee and interest income
Fee income........................... $4,814,504(1) $2,814,792 $6,077,290
Interest income...................... 403,659 163,365 2,211,007
---------- ---------- ----------
Total fee and interest income...... 5,218,163 2,978,157 8,288,297
Interest expense....................... 634,556 253,360 2,304,331
---------- ---------- ----------
Net fee and interest income........ 4,583,607 2,724,797 5,983,966
Provision for losses on receivables.... 217,388 217,388 613,116
---------- ---------- ----------
Net fee and interest income after
provision for losses on
receivables....................... 4,366,219 2,507,409 5,370,850
Operating expenses..................... 2,096,297 1,207,438 2,282,245
Other income........................... 224,691 186,512 171,651
---------- ---------- ----------
Income before income taxes............. 2,494,613 1,486,483 3,260,256
Income taxes........................... 972,899 579,728 1,271,500
---------- ---------- ----------
Net income............................. $1,521,714 $ 906,755 $1,988,756
========== ========== ==========
Pro forma net income per share (2)..... $ .26 $ .15 $ .33
========== ========== ==========
Pro forma weighted average shares
outstanding (2)....................... 5,938,372 5,938,372 5,938,372
</TABLE>

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PRO FORMA BALANCE SHEET DATA
<TABLE>
<CAPTION>
PRO FORMA AS OF
SEPTEMBER 30,
1996
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<S> <C>
Total assets.................................................. $83,784,590
Net finance receivables....................................... 78,174,688
Client holdbacks.............................................. 16,212,360
Bank Facility................................................. 42,607,630
Stockholders' equity.......................................... 23,194,667
Total liabilities............................................. 60,589,923
OTHER DATA
Number of clients being provided financing at period end (3).. 102
Allowance for losses on receivables as a percentage of finance
receivables.................................................. 1.3%
Yield on finance receivables (4)(5)........................... 18.0%
Total operating expenses as a percentage of average assets
(5).......................................................... 4.6%
</TABLE>
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(1) Includes $430,000 of fees resulting from the acquisition of certain
receivables from MediMax Receivables Funding II, L.P. ("MediMax"). See
"Management's Discussion and Analysis of Pro Forma Financial Condition and
Pro Forma Results of Operations--Overview."
(2) Pro forma net income per share was computed by dividing pro forma net
income by the pro forma weighted average shares outstanding, which gives
effect to the Offering and to a dilutive outstanding stock option.
(3) Includes 35 clients who are affiliates of one or more other clients.
(4) Fee and interest income divided by monthly average finance receivables.
(5) Calculated on an annualized basis.

8
<PAGE>

RISK FACTORS

Investment in the Company's Common Stock offered hereby involves a high
degree of risk. Prospective investors should carefully consider the following
risk factors, together with the other information included in this Prospectus,
before purchasing the shares of Common Stock offered hereby.

RISK OF NONPAYMENT AND CLIENT FRAUD

The Company's ability to fully recover amounts due under the AR Advance
Program and the ABL Program may be adversely affected by, among other things,
the financial failure of the Company's clients or their third-party payors,
fraud (e.g., the purchase of fraudulent receivables from a client),
misrepresentation, conversion of account proceeds by clients (e.g., client
misappropriation of account proceeds in violation of the terms of the ABL
Program or AR Advance Program), third-party payor disputes, and third-party
claims with respect to security interests. All of these risks are exacerbated
by concentrations of clients or third-party payors at any time. Accordingly,
the Company makes provisions for losses on finance receivables by establishing
an allowance for losses. In evaluating the adequacy of the allowance,
management of the Company considers trends in past-due accounts, historical
charge-off and recovery rates, credit risk indicators, economic conditions,
on-going credit evaluations, overall portfolio size, average client balances,
Excess Collateral and underwriting policies, among other items. Many of these
considerations involve significant estimation by management and are subject to
rapid changes which may be unforeseen and could result in immediate increased
losses and material adjustments to the allowance. Historically, the Company
has experienced no losses on finance receivables, but there is no assurance
that the Company will not experience losses on finance receivables in the
future, and such future losses could be significant and may vary from current
reserve estimates. The Company does not maintain insurance covering credit
losses. In addition, the amount of provisions for losses on finance
receivables may be either greater or less than actual future charge-offs of
finance receivables relating to these provisions. See "Business--Credit Loss
Policy and Experience" and "Management's Discussion and Analysis of Pro Forma
Financial Condition and Pro Forma Results of Operations--Provision and
Allowance for Possible Losses on Receivables."

DILUTION OF CLIENT RECEIVABLES; GOVERNMENT RIGHT OF OFFSET

Dilution of accounts receivable occurs when such receivables are not fully
collectible for reasons other than a third-party payor's financial inability
to pay (such as disagreements as to appropriate reimbursement for services
provided). Dilution with respect to any client's receivables increases the
risk that the Company will be unable to collect amounts advanced by the
Company to the client. The Company generally advances funds to its clients up
to a specified percentage of the Company's estimate of the net collectible
value of such client's receivables. In order to determine its estimate of the
net collectible value of a prospective client's receivables, the Company works
with third-party claim verifiers to contact third-party payors and reviews
historical collection factors by types of third-party payors. Should dilution
occur with respect to any client in an amount greater than the Excess
Collateral with respect to such client, the Company will typically need to
look to newer accounts receivable generated by such client or to other rights
the Company may have for the collection of the outstanding obligation to the
Company. If no such new accounts receivable are forthcoming or the Company is
unsuccessful in pursuing such other rights, the Company may incur a loss. Some
dilution occurs with respect to most, if not all, clients and may be more
significant with respect to Medicare and Medicaid receivables as a result of
the government's right of offset. The Company's historical dilution has not
exceeded its Excess Collateral. However, the Company does not track such
activity and, therefore, knows only that it has not exceeded its Excess
Collateral. Federal and state government agencies, in accordance with Medicare
and Medicaid statutes and regulations, have broad rights to audit a healthcare
service provider and offset any amounts it determines were overpaid to such
provider on any claims against payments due on other current, unrelated
claims. This right of offset could create losses to the extent the Company has
made advances against the accounts receivable for such unrelated claims. The
Company monitors collections on a daily basis but may not be able to react
quickly enough to dilution to cover resulting losses through collections on
newer accounts receivable generated by the relevant client. See "Business--
Operations."

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<PAGE>

CONCENTRATION OF CLIENT BASE AND THIRD-PARTY PAYOR BASE

At September 30, 1996, approximately 27.4% of the Company's finance
receivables were concentrated in receivables from two clients or groups of
affiliated clients, Southhampton Hospital and Unison Healthcare Corporation.
Adverse conditions affecting any of these clients could have a material
adverse effect on the Company's ability to collect advances to such clients.
At and for the nine month period ended September 30, 1996, Southampton
Hospital accounted for approximately 15% of the Company's finance receivables
and 12.4% of the Company's total fee and interest income for this period. The
loss of this client could have a material adverse effect on the Company's
results of operations and financial condition. The Company's client
concentration has decreased as the number of its clients have increased over
time, however, there can be no assurance that such concentration will continue
to decrease in the future.

At September 30, 1996, approximately 44.6% of the accounts receivable that
the Company had purchased or that were pledged to the Company were payable
under Government Programs. Any situation which would result in the inability
of the federal and state governments to fully fund such programs could have a
material adverse effect on the Company and its ability to collect advances to
such clients. See "Business--Operations."

INABILITY TO COLLECT HEALTHCARE RECEIVABLES DIRECTLY FROM MEDICARE AND
MEDICAID

With certain limited exceptions, federal law prohibits payment of amounts
owed to healthcare providers under the Medicare and/or Medicaid programs to
any entity other than providers. Except pursuant to a court order, the Company
is unable to force collection directly against third-party payors in a
Government Program. Accordingly, the Company is unable to collect receivables
payable under Government Programs directly, and, instead, the Company requires
that Medicare and Medicaid proceeds be paid to a segregated lockbox account
under the control of the client, the collected balances of which are then
swept to the Company via wire transfer on a daily basis. The Company must
closely monitor its clients' collection efforts to ensure compliance with the
foregoing procedures. At September 30, 1996, approximately 44.6% of the
accounts receivable that the Company had purchased or that were pledged to the
Company were payable under Government Programs. Although to date the Company
has been successful in monitoring the collection of government-based
receivables from its clients in accordance with their contractual obligations,
there can be no assurance that the Company will continue to be successful in
monitoring such collection activities in the future. See "Business--
Operations."

RISKS RELATED TO LOWER CREDIT GRADE BORROWERS

The Company focuses its marketing efforts on small and middle market
healthcare service providers. Some of these providers may be unable to obtain
financing from more traditional credit sources, such as commercial banks.
Advances made to these types of clients may entail a higher risk of loss than
advances made to clients who are able to utilize traditional credit sources.
While the Company employs underwriting criteria and monitoring procedures to
mitigate the higher risks inherent in advances made to some of its clients, no
assurance can be given that such criteria or procedures will afford adequate
protection against such risks. See "Business--Operations." In the event that
collection of amounts due under the AR Advance Program and the ABL Program are
less than anticipated, the Company's results of operations and financial
condition could be adversely affected.

RISK OF FAILURE TO RENEW FUNDING SOURCES

The Company requires substantial capital to finance its business.
Consequently, the Company's ability to grow and the future of its operations
will be affected by the availability and the terms of financing. In addition
to proceeds from the Offering, the Company expects to fund its future
financing activities principally from (i) the $100 million proposed CP
Facility, which will have a five-year term, and (ii) the $50 million Bank
Facility, which will expire on March 9, 1998, subject to automatic renewals
for one-year periods thereafter unless terminated by Fleet. Prior to March
1995, the Company financed its operations solely through equity. The use of
borrowings under the Bank Facility financed the Company's growth after March
1995. The Company's pro forma debt-to-equity ratio (without giving effect to
the Offering) was approximately 1.4 to 1 at December 31, 1995 and 2.0 to 1 at
September 30, 1996. The Company's debt-to-equity ratio is expected to increase
as a result of its reliance on the proposed CP Facility and the Bank Facility
to finance its continued growth. While the Company expects to be able to
obtain or renew these facilities and to have continued access to other sources
of credit after the expiration of these facilities, there is no assurance that
such financing will be available, or, if available, that it will be on terms
favorable to the Company. In the event the Company is not able to obtain or

10
<PAGE>

renew the proposed CP Facility or the Bank Facility or find alternative
financing for its activities, the Company would be forced to curtail or cease
its ABL Program and AR Advance Program, which action would have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business--Capital Resources" and "Management's Discussion and
Analysis of Pro Forma Financial Condition and Pro Forma Results of
Operations--Liquidity and Capital Resources."

RISK OF CONTROL BY CERTAIN STOCKHOLDERS

Upon completion of the Offering, the Company's executive officers and
directors and stockholders holding 5% or more of the Common Stock will
beneficially own 3,755,470 shares of Common Stock representing 63.7% of the
outstanding shares of Common Stock. Consequently, such stockholders will have
substantial influence on the operations of the Company, and, if they act
together, will be able effectively to control all matters requiring approval
by the Company's stockholders, including the election of all directors and the
approval of any business combination involving the Company. Control by these
stockholders could limit the price that certain investors might be willing to
pay in the future for shares of Common Stock. See "Principal Stockholders" and
"Description of Capital Stock--Special Provisions of the Certificate of
Incorporation and Bylaws."

RISK OF INABILITY OF THE COMPANY TO CONTINUE ITS GROWTH STRATEGY

The Company's growth strategy is principally dependent upon its ability to
increase its finance receivables by making advances against accounts
receivable meeting its underwriting standards. No assurance is given that the
rate of growth experienced by the Company to date will be sustainable or is
indicative of future results. See "Management's Discussion and Analysis of Pro
Forma Financial Condition and Pro Forma Results of Operations." Of the
Company's clients at December 31, 1995, 12.9% were no longer being financed by
the Company at September 30, 1996, due primarily to competition, consolidation
in the healthcare industry and clients' ability to self finance. Of the nine
clients which comprised the 12.9% which have left since 1995, five refinanced
their receivables with other sources, three terminated their relationship with
the Company because they were sold and one repaid the Company with internally
generated funds. See "Business--Operations." Therefore, the Company's ability
to further implement its strategy for continued growth is largely dependent
upon its ability to attract and retain new clients in a competitive market.
The Company's growth is also dependent on the business growth of its clients,
which may be affected by a number of factors not within the Company's control.
See "Business--Strategy." At September 30, 1996, 58.7% of the Company's
portfolio consisted of finance receivables of long-term care and home
healthcare businesses. If demand for working capital financing in either of
these sub-markets declines, the Company's ability to increase its finance
receivables could be adversely affected. In the event the Company is unable to
continue to attract new clients, such inability could have a material adverse
effect on the Company's business, financial condition and results of
operations.

RISKS ASSOCIATED WITH NEW PRODUCT OFFERINGS

The Company may in the future provide services not previously offered by it
to healthcare industry clients, or offered only on a limited basis, such as
financing in the form of term loans and financing secured by real estate,
equipment and inventory. See "Business--Strategy." The Company has either very
limited or no experience with these new services, and there is no assurance
that the Company will be able to market these new services successfully or
that the return on these services will be consistent with the Company's
historical financial results.

DEPENDENCE ON MANAGEMENT AND KEY PERSONNEL

The Company's success depends to a significant degree upon the continued
contributions of members of its senior management, particularly John K.
Delaney, the Company's Chairman, President and Chief Executive Officer; Ethan
D. Leder, the Company's Vice-Chairman and Executive Vice President; and Edward
P. Nordberg, Jr., the Company's Senior Vice President-Legal and Financial
Affairs and Secretary, as well as other officers and key personnel, many of
whom would be difficult to replace. The future success of the Company also
depends on its ability to identify, attract and retain additional qualified
technical and managerial personnel, particularly with experience in healthcare
financing. Although the Company has employment agreements with Messrs.

11
<PAGE>

Delaney, Leder and Nordberg, the loss of Messrs. Delaney, Leder or Nordberg or
other officers and key personnel could have a material adverse effect on the
Company's business, financial condition and results of operations. The Company
does not maintain key man life insurance on any officers. See "Management."

RISKS ASSOCIATED WITH INABILITY TO SUCCESSFULLY COMPETE

The Company competes with numerous commercial banks, diversified finance
companies, asset-based lenders and specialty healthcare finance companies.
Many of these competitors have greater financial and other resources than the
Company and may have significantly lower cost of funds. This disparity in cost
of funds ranges from approximately 1% to 5% and reflects commercial banks'
access to deposits and other low cost sources of capital and other
competitors' greater access to the capital markets. Competition can take many
forms, including the pricing of financing, the timeliness and responsiveness
in processing a prospective client's application, and customer service. The
Company's competitors target the same type of healthcare service providers as
those targeted by the Company and, with the exception of most specialty
healthcare finance companies, generally have operated in the markets serviced
by the Company for a longer period of time than the Company. If the Company is
unable to successfully compete, its financial position and results of
operations would be adversely affected. See "Business--Competition."

LIMITED OPERATING HISTORY

The Company commenced its business in September, 1993. Management has
limited operating results on which to base any expectations regarding future
performance of the Company's business. There is no assurance that the Company
will continue to be profitable, increase its volume of finance receivables
and/or maintain its lack of credit losses. See "Management's Discussion and
Analysis of Pro Forma Financial Condition and Pro Forma Results of
Operations."

FAILURE TO COMPLY WITH GOVERNMENT REGULATIONS

The Company's healthcare finance business is subject to numerous federal and
state laws and regulations, which, among other things, may (i) require the
Company to obtain and maintain certain licenses and qualifications, (ii) limit
the interest rates, fees and other charges that the Company is allowed to
collect, (iii) limit or prescribe certain other terms of its finance
receivables arrangements with clients, and (iv) subject the Company to certain
claims, defenses and rights of offset. Although the Company believes that it
is currently in compliance with statutes and regulations applicable to its
business, there can be no assurance that the Company will be able to maintain
such compliance without incurring significant expense. The failure to comply
with such statutes and regulations could have a material adverse effect upon
the Company. Furthermore, the adoption of additional statutes and regulations,
changes in the interpretation and enforcement of current statutes and
regulations, or the expansion of the Company's business into jurisdictions
that have adopted more stringent regulatory requirements than those in which
the Company currently conducts business could have a material adverse effect
upon the Company. See "--Risk of Adverse Effect of Healthcare Reform" and
"Business--Government Regulation."

RELIANCE ON REIMBURSEMENTS BY THIRD-PARTY PAYORS

The Company's clients receive payment for services rendered to patients from
third-party payors (including health maintenance organizations, managed care
concerns and other insurers), large corporations (which may be self-insured),
other healthcare providers and patients themselves, and from Government
Programs. The clients rely on prompt payments from third-party payors to
enable them to satisy their obligations to the Company under the AR Advance
Program and the ABL Program. The healthcare industry is experiencing a trend
toward cost containment, as government and other third-party payors seek to
impose lower reimbursement and utilization rates and negotiate reduced payment
schedules with healthcare providers. Such cost containment could adversely
affect the ability of the Company's clients to make payments owed to the
Company, which would have an adverse impact on the Company's business and
financial performance.

RISK OF ADVERSE EFFECT OF HEALTHCARE REFORM

In addition to extensive existing government healthcare regulation (see
"Business--Government Regulation"), there are numerous initiatives on the
federal and state levels for comprehensive reforms affecting the payment for
and availability of healthcare services, including a number of proposals that
would significantly

12
<PAGE>

limit reimbursement under Government Programs. It is not clear at this time
what proposals, if any, will be adopted or, if adopted, what effect such
proposals would have on the Company's business. Aspects of certain of these
healthcare proposals, such as cutbacks in Government Programs, containment of
healthcare costs on an interim basis by means that could include a short-term
freeze on prices charged by healthcare providers, a restructuring of the way
in which Medicare pays for certain services, and permitting greater state
flexibility in the administration of Medicaid, could adversely affect the
Company.

There can be no assurance that currently proposed or future healthcare
legislation or other changes in the administration or interpretation of
Government Programs will not have an adverse effect on the Company or that
payments under Government Programs will remain at levels comparable to present
levels or will be sufficient to cover the costs allocable to patients eligible
for reimbursement pursuant to such programs. Concern about the potential
effects of the proposed reform measures has contributed to the volatility of
prices of securities of companies in healthcare and related industries, and
may similarly affect the price of the Company's Common Stock in the future.

In addition, certain private reform efforts have been instituted throughout
the healthcare industry, including the capitation of certain healthcare
expenditures. Capitation is the pre-payment of certain healthcare costs by
third-party payors (typically health maintenance organizations and other
managed healthcare concerns), based upon a predetermined monthly fee for the
aggregate patient lives under any given healthcare provider's care. The
healthcare provider then provides healthcare to such patients when and as
needed, and assumes the risk that its prepayments will cover its costs and
provide a profit for all of such services rendered. Since capitation
essentially eliminates the clients' accounts receivable that are the primary
source of payment for the Company's finance receivables, capitation could
materially adversely affect the Company's business, financial condition and
results of operations. See "--Failure to Comply with Government Regulations"
and "Business--Government Regulation."

RESTRICTIVE DEBT COVENANTS

The Bank Facility contains financial and operating covenants, including the
requirement that the Company maintain an adjusted tangible net worth of more
than $5.0 million, and a ratio of debt to equity of not more than 3.0 to 1.0.
In addition, under the Bank Facility the Company is not allowed to have at any
time a cumulative negative cash flow (as defined in the Bank Facility) in
excess of $1.0 million. At September 30, 1996, on a pro forma basis, assuming
the use of the net proceeds of the Offering as described herein, the Company
had an adjusted tangible net worth of approximately $23.2 million and the
Company's ratio of debt to equity was approximately 1.8 to 1.0. The Company
anticipates that intercreditor arrangements to be entered into in connection
with the proposed CP Facility will exclude borrowings under the proposed CP
Facility from debt for purposes of calculation of the debt-to-equity ratio.
The Bank Facility also includes certain limitations on the ability of the
Company to consolidate, merge or transfer all or substantially all of its
assets, incur debt, create liens on its property, make capital expenditures,
dispose of assets or make investments. Under the terms of the proposed CP
Facility, ING will have the option to refuse to make any advances in the event
the Company fails to maintain a tangible net worth of at least $20.0 million
and to refuse to make advances in excess of $50.0 million in the event the
Company fails to maintain a tangible net worth of at least $25.0 million. See
"Business--Capital Resources."

Future financing agreements, including the proposed CP Facility, may also
contain similar financial and operating covenants. The foregoing limitations
in the Bank Facility and any future financing agreements could adversely
affect the Company's ability to implement its growth strategy. Failure to
comply with the obligations contained in these agreements could result in an
event of default under such agreements which could permit acceleration of the
indebtedness under the Bank Facility, the proposed CP Facility or any future
financing agreements.

13
<PAGE>

GENERAL ECONOMIC RISKS

The Company's business could be affected by general economic conditions in
the United States, and any sustained period of economic slowdown or recession
could materially adversely affect the Company's business, financial condition
and results of operations. The risks to which the Company's business is
subject become more acute during an economic slowdown or recession because
fewer accounts receivable may be generated by clients, resulting in decreased
fees for the Company. In addition, the financial ability of certain third-
party payors to pay outstanding accounts receivable and of clients to pay
outstanding advances may be impaired, resulting in increased credit losses.
Further, some of the Company's clients are startup or less mature ventures
that may be more susceptible to economic slowdowns or recessions.

NO DIVIDENDS

The Company has not paid any cash dividends to date and does not intend to
pay cash dividends in the foreseeable future. The Company intends to retain
earnings to finance the development and expansion of its business. In
addition, the Bank Facility and the proposed CP Facility do, and future
financing arrangements may, impose minimum net worth covenants, debt-to-equity
covenants and other limitations that could restrict the Company's ability to
pay dividends. See "--Restrictive Debt Covenants" and "Dividend Policy."

POSSIBLE ADVERSE IMPACT ON TRADING PRICE OF SHARES ELIGIBLE FOR FUTURE SALE

Upon consummation of the Offering, the Company will have 5,899,991 shares of
Common Stock outstanding (6,214,991 shares if the Underwriters' over-allotment
is exercised in full). All of the shares of Common Stock sold in the Offering
will be freely tradeable without restriction under the Securities Act of 1933,
as amended (the "Securities Act"), except for any shares purchased by existing
affiliates of the Company, which shares will be subject to the resale
limitations of Rule 144 as promulgated under the Securities Act ("Rule 144").
All of the remaining shares of Common Stock held by existing stockholders will
be "restricted" securities as that term is defined in Rule 144. Subject to the
180 day lock-up agreement and a certain other agreement restricting seven of
the Company's existing stockholders from selling Common Stock, each of which
is described below, these "restricted" securities will be eligible for sale
pursuant to Rule 144 in the public market following the consummation of the
Offering. Additional shares of Common Stock, including shares issuable upon
exercise of employee stock options, will also become eligible for sale in the
public market from time to time. In addition, certain stockholders and members
of senior management have been granted certain registration rights relating to
shares of Common Stock held by them for sale under the Securities Act.
However, the Company, all of its officers and directors and certain other
stockholders, who in the aggregate own 3,755,470 shares of Common Stock, have
agreed that, for a period of 180 days after the date of this Prospectus, they
will not, without the prior written consent of the Underwriters, offer to
sell, sell or otherwise dispose of any shares of Common Stock or any
securities convertible into or exchangeable for shares of Common Stock (the
"180 day lock-up agreement"). Further, five of the existing stockholders of
the Company, who in the aggregate own 3,205,977 shares of Common Stock, have
agreed that, without the prior written consent of the Company, they will not
effect any sales of Common Stock for a period of 18 months after expiration of
the 180 day lock-up agreement in excess of the volume limitations provided
under Rule 144 (the "Rule 144 Sale Agreement"). Following the Offering and
upon the expiration of the 180 day lock-up agreement and the Rule 144 Sale
Agreement, sales of substantial amounts of the Company's Common Stock in the
public market pursuant to Rule 144 or otherwise, or the availability of such
shares for sale, could adversely affect the prevailing market price of the
Common Stock and impair the Company's ability to raise additional capital
through the sale of equity securities. See "Shares Eligible for Future Sale."

ABSENCE OF PUBLIC MARKET; POSSIBLE FLUCTUATIONS OF STOCK PRICE

Prior to the Offering, there has been no public market for the Company's
Common Stock. There can be no assurance that an active trading market for the
Common Stock will develop or that, if developed, it will be sustained after
the Offering or that it will be possible to resell the shares of Common Stock
at or above the initial public offering price. The market price of the Common
Stock could be subject to significant fluctuations in

14
<PAGE>

response to the Company's operating results and other factors. In addition,
the stock market in recent years has experienced extreme price and volume
fluctuations that often have been unrelated or disproportionate to the
operating performance of companies. Such fluctuations, and general economic
and market conditions, may adversely affect the market price of the Common
Stock.

SUBSTANTIAL DILUTION TO NEW INVESTORS

Purchasers of the Common Stock offered hereby will experience immediate
dilution in net tangible book value of Common Stock in the amount of $8.57.
See "Dilution."

AVAILABILITY OF PREFERRED STOCK FOR ISSUANCE

In addition to the Common Stock, the Company's Amended and Restated
Certificate of Incorporation authorizes the issuance of up to 10,000,000
shares of "blank check" preferred stock. Following the Offering, there will be
no shares of preferred stock outstanding, and the Company has no present
intention to issue any shares of preferred stock. However, since the rights
and preferences of any class or series of preferred stock may be set by the
Board of Directors in its sole discretion, the rights and preferences of any
such preferred stock may be superior to those of the Common Stock, and thus
may adversely affect the rights of holders of Common Stock. The ability to
issue preferred stock could have the effect of delaying or preventing a change
in control of the Company. See "Description of Capital Stock--Preferred
Stock."

POSSIBLE ANTI-TAKEOVER EFFECTS

Certain provisions of the Delaware General Corporation Law and the Company's
Amended and Restated Certificate of Incorporation may be deemed to have anti-
takeover effects and may delay or prevent a takeover attempt that a
stockholder of the Company might consider to be in the best interests of the
Company or its stockholders. These provisions include authorized blank check
preferred stock, limitations on the persons who may call a special meeting of
stockholders, a classified Board of Directors, the ability of the directors to
fill vacancies on the Board of Directors and advance notice requirements for
stockholder proposals and director nominees. The Company has also elected to
be subject to Section 203 of the Delaware General Corporation Law which
prohibits certain business transactions involving certain stockholders without
the approval of the Board of Directors or stockholders. See "Description of
Capital Stock--Special Provisions of the Certificate of Incorporation and
Bylaws."

RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS

This Prospectus contains certain statements that are "forward-looking
statements." Those statements include, among other things, the discussions of
the Company's business strategy and expectations concerning the Company's
market position, future operations, margins, profitability, funding sources,
liquidity and capital resources. Investors in the Common Stock offered hereby
are cautioned that reliance on any forward-looking statement involves risks
and uncertainties, and that although the Company believes that the assumptions
on which the forward-looking statements contained herein are based are
reasonable, any of those assumptions could prove to be inaccurate, and as a
result, the forward-looking statements based on those assumptions also could
be incorrect. The uncertainties in this regard include, but are not limited
to, those identified in the risk factors discussed above. In light of these
and other uncertainties, the inclusion of a forward-looking statement herein
should not be regarded as a representation by the Company that the Company's
plans and objectives will be achieved.

15
<PAGE>

USE OF PROCEEDS

The net proceeds to be received by the Company from the issuance and sale of
the Common Stock offered hereby, after deducting the underwriting discount and
estimated offering expenses, are estimated to be approximately $23.9 million
(approximately $27.6 million if the over-allotment option granted to the
Underwriters is exercised in full).

The Company intends to use $21.8 million of the net proceeds from the
Offering to acquire the limited partnership interests in Funding and the
remainder for general corporate purposes, including acquisition of finance
receivables, and payment of general and administrative expenses. See
"Capitalization" and "Certain Transactions." Pending such uses, the net
proceeds will be invested in short-term, interest bearing securities.

DIVIDEND POLICY

The Company intends to retain all future earnings for the operation and
expansion of its business, and does not anticipate paying cash dividends in
the foreseeable future. Any future determination as to the payment of cash
dividends will depend upon the Company's results of operations, financial
condition and capital requirements and any regulatory restrictions or
restrictions under credit agreements or other funding sources of the Company
existing from time to time, as well as other matters which the Company's Board
of Directors may consider. In addition, the Bank Facility and the proposed CP
Facility do, and future financing arrangements may, impose minimum net worth
covenants, debt-to-equity covenants and other limitations that could restrict
the Company's ability to pay dividends. See "Risk Factors--Restrictive Debt
Covenants."

16
<PAGE>

CAPITALIZATION

The following table sets forth the pro forma capitalization of the Company
as of September 30, 1996 giving effect to the elimination of transactions
among DEL, Funding and the Company. Pro forma capitalization as adjusted gives
effect to the Offering and the application of $21.8 million of the net
proceeds therefrom to acquire the limited partnership interests in Funding.
This table should be read in conjunction with the unaudited pro forma
financial information appearing elsewhere in this Prospectus. See "Use of
Proceeds" and "Description of Capital Stock."

<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1996
----------------------------
PRO FORMA AS
PRO FORMA ADJUSTED
------------ --------------
<S> <C> <C>
Bank Facility...................................... $ 42,607,630 $ 42,607,630
============ ============
EQUITY
Limited partner capital in Funding(1).............. $22,314,662 --
Stockholders' equity (deficit)
Preferred stock, $0.01 par value 10,000,000
shares authorized; none outstanding.............
Common stock, $.01 par value; 30,000,000 shares
authorized; 3,799,991 shares outstanding, pro
forma; 5,899,991 shares outstanding, pro forma
as adjusted(2).................................. 38,000 59,000
Additional paid-in capital....................... 23,891,500
Retained earnings (deficit)...................... (755,833) (755,833)
------------ ------------
Total stockholders' equity (deficit)............... (717,833) 23,194,667
------------ ------------
Total equity....................................... $21,596,829 $23,194,667
============ ============
</TABLE>
- --------
(1)Includes undistributed net income.
(2) Does not include 750,000 shares of Common Stock reserved for issuance
pursuant to the Incentive Plan, of which options to purchase 300,000
shares have been granted (but are not presently exercisable). See
"Management-Stock Incentive Plan." Also does not include an option to
purchase 38,381 shares of Common Stock granted outside of the Incentive
Plan on November 1, 1995, which option is presently exercisable.

17
<PAGE>

DILUTION

The pro forma net tangible book value (deficit) of the Company as of
September 30, 1996, giving effect to the Reorganization, was $(717,833) or
$(0.19) per common share. Pro forma net tangible book value per share
represents the amount of total tangible assets less total liabilities, divided
by the pro forma number of shares of Common Stock outstanding. After giving
effect to the sale by the Company of 2,100,000 shares of Common Stock and the
application of the net proceeds therefrom, the pro forma net tangible book
value of the Company at September 30, 1996 would have been $23,194,667 or
$3.93 per share. This represents an immediate increase in net tangible book
value of $4.12 per share to existing stockholders and an immediate dilution in
net tangible book value of $8.57 per share to purchasers of Common Stock in
the Offering ("New Investors"). The following table illustrates the dilution
in net tangible book value per share to New Investors:

<TABLE>
<S> <C> <C>
Initial public offering price.................................... $12.50
Pro forma tangible book value (deficit) per share at September
30, 1996...................................................... $(0.19)
Increase per share attributable to New Investors............... 4.12
------
Pro forma net tangible book value per share after the Offering... 3.93
------
Net tangible book value dilution per share to New Investors...... $ 8.57
======
</TABLE>

The following table sets forth, on a pro forma basis, as of September 30,
1996, the difference between existing stockholders and New Investors with
respect to the number of shares purchased from the Company, the total
consideration paid to the Company and the average price paid per share, giving
pro forma effect to the sale of Common Stock offered hereby:

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------- ------------------- PRICE PAID
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- ----------
<S> <C> <C> <C> <C> <C>
Existing stockholders.......... 3,799,991 64.4% $ 8,371 .03% $ --
New Investors.................. 2,100,000 35.6 26,250,000 99.97 12.50
--------- ----- ----------- ------
Total........................ 5,899,991 100.0% $26,258,371 100.00%
========= ===== =========== ======
</TABLE>

18
<PAGE>

PRO FORMA FINANCIAL INFORMATION

The Unaudited Pro Forma Statements of Operations for the nine month periods
ended September 30, 1995 and 1996 and the year ended December 31, 1995 and the
Unaudited Pro Forma Balance Sheet as of September 30, 1996 give effect to: (i)
the sale by the Company of 2,100,000 shares of Common Stock offered hereby and
(ii) the use of substantially all of the net proceeds of the Offering to
acquire the limited partnership interests in Funding. The planned acquisition
of Funding will be for cash and the amounts paid will reflect the fair value
of the limited partnership interests acquired, which will also approximate
book value. It is assumed such transactions had occurred on September 30, 1996
as to the Pro Forma Balance Sheet, and the beginning of the respective periods
as to the Pro Forma Statements of Operations. The pro forma information does
not necessarily indicate what the Company's results of operations would have
been had such transactions occurred at the beginning of such periods.

PRO FORMA STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1995
-----------------------------------------------------------------
HEALTHCARE FINANCIAL
PARTNERS, INC.
AND DEL
(COMBINED) FUNDING PRO FORMA PRO FORMA,
(HISTORICAL) (HISTORICAL) ADJUSTMENTS(1) AS ADJUSTED
-------------------- ------------ -------------- -----------
<S> <C> <C> <C> <C>
Fee and interest income
Fee income..................... $ 565,512 $4,248,992(2) $4,814,504(2)
Interest income................ 403,659 403,659
---------- ---------- ----------
Total fee and interest income.. 565,512 4,652,651 5,218,163
Interest expense................. 79,671 554,885 634,556
---------- ---------- ----------
Net fee and interest income.... 485,841 4,097,766 4,583,607
Provision for losses on
receivables..................... 45,993 171,395 217,388
---------- ---------- ----------
Net fee and interest income
after provision for losses on
receivables................... 439,848 3,926,371 4,366,219
Operating expenses............... 1,472,240 1,024,057 $ (400,000)(a) 2,096,297
Other income..................... 1,221,837 (997,146)(a) 224,691
---------- ---------- ------------ ----------
Income before income taxes
(benefit)....................... 189,445 2,902,314 (597,146) 2,494,613
Income taxes (benefit)........... (5,892) 978,791 (b) 972,899
---------- ---------- ------------ ----------
Net income....................... $ 195,337 $2,902,314 $ (1,575,937) $1,521,714
========== ========== ============ ==========
Pro forma net income per share
(3)............................. $ .26
==========
Pro forma weighted average shares
outstanding (3)................. 5,938,372
</TABLE>

19
<PAGE>

PRO FORMA STATEMENTS OF OPERATIONS (CONTINUED)

<TABLE>
<CAPTION>
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1995
---------------------------------------------------------------
HEALTHCARE FINANCIAL
PARTNERS, INC.
AND DEL
(COMBINED) FUNDING PRO FORMA PRO FORMA,
(HISTORICAL) (HISTORICAL) ADJUSTMENTS(1) AS ADJUSTED
-------------------- ------------ -------------- -----------
<S> <C> <C> <C> <C>
Fee and interest income
Fee income............ $ 395,780 $2,419,012 $2,814,792
Interest income....... 163,365 163,365
--------- ---------- ----------
Total fee and
interest income.... 395,780 2,582,377 2,978,157
Interest expense........ 45,526 207,834 253,360
--------- ---------- ----------
Net fee and interest
income............... 350,254 2,374,543 2,724,797
Provision for losses on
receivables............ 45,993 171,395 217,388
--------- ---------- ----------
Net fee and interest
income after
provision for losses
on receivables....... 304,261 2,203,148 2,507,409
Operating expenses...... 769,537 737,901 $ (300,000)(a) 1,207,438
Other income............ 652,092 (465,580)(a) 186,512
--------- ---------- ----------- ----------
Income before income
taxes.................. 186,816 1,465,247 (165,580) 1,486,483
Income taxes............ 579,728 (b) 579,728
--------- ---------- ----------- ----------
Net income.............. $ 186,816 $1,465,247 $ (745,308) $ 906,755
========= ========== =========== ==========
Pro forma net income per
share (3).............. $ 0.15
==========
Pro forma weighted
average shares
outstanding (3)........ 5,938,372
<CAPTION>
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1996
---------------------------------------------------------------
HEALTHCARE FINANCIAL
PARTNERS, INC.
AND DEL
(COMBINED) FUNDING PRO FORMA PRO FORMA,
(HISTORICAL) (HISTORICAL) ADJUSTMENTS(1) AS ADJUSTED
-------------------- ------------ -------------- -----------
<S> <C> <C> <C> <C>
Fee and interest income
Fee income............ $ 842,458 $5,234,832 $6,077,290
Interest income....... 2,211,007 2,211,007
--------- ---------- ----------
Total fee and
interest income.... 842,458 7,445,839 8,288,297
Interest expense........ 156,957 2,147,374 2,304,331
--------- ---------- ----------
Net fee and interest
income............... 685,501 5,298,465 5,983,966
Provision for losses on
receivables............ 75,311 537,805 613,116
--------- ---------- ----------
Net fee and interest
income after
provision for losses
on receivables....... 610,190 4,760,660 5,370,850
Operating expenses...... 1,371,819 1,226,393 $ (315,967)(a) 2,282,245
Other income............ 1,007,987 (836,336)(a) 171,651
--------- ---------- ----------- ----------
Income before income
taxes (benefit) ....... 246,358 3,534,267 (520,369) 3,260,256
Income taxes (benefit).. (13,268) 1,284,768 (b) 1,271,500
--------- ---------- ----------- ----------
Net income.............. $ 259,626 $3,534,267 $(1,805,137) $1,988,756
========= ========== =========== ==========
Pro forma net income per
share (3).............. $ .33
==========
Pro forma weighted
average shares
outstanding (3)........ 5,938,372
</TABLE>

20
<PAGE>

PRO FORMA BALANCE SHEET

<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1996
---------------------------------------------------------------
HEALTHCARE
FINANCIAL
PARTNERS, INC.
AND DEL
(COMBINED) FUNDING PRO FORMA THE COMPANY
(HISTORICAL) (HISTORICAL) ADJUSTMENTS(4) PRO FORMA
-------------- ------------ -------------- -----------
<S> <C> <C> <C> <C>
Assets
Cash and cash
equivalents........... $ 2,464,578 $ 1,550,651 (a)(b)(c) $ 4,015,229
Finance receivables.... 79,566,908 79,566,908
Less:
Allowance for losses
on receivables...... 1,035,992 1,035,992
Unearned discount
fees................ 356,228 356,228
---------- ----------- ----------- -----------
Net finance receiv-
ables.............. 78,174,688 78,174,688
Prepaid expenses and
other................. $ 645,504 1,110,260 (161,091)(d) 1,594,673
---------- ----------- ----------- -----------
Total assets............ $ 645,504 $81,749,526 $ 1,389,560 $83,784,590
========== =========== =========== ===========
Liabilities and equity
Line of credit......... $42,607,630 $42,607,630
Client holdbacks....... 16,212,360 16,212,360
Accounts payable to
clients............... 645,067 645,067
Accounts payable and
accrued expenses...... $1,316,150 402,461 $ (593,745)(d) 1,124,866
---------- ----------- ----------- -----------
Total liabilities....... 1,316,150 59,867,518 (593,745) 60,589,923
Equity
Partners' capital....... 47,187 21,882,008 (47,187)(a)
(22,314,662)(c)
432,654 (d)
Stockholders' equity
(deficit).............. (717,833) 23,912,500 (b) 23,194,667
---------- ----------- ----------- -----------
Total equity (deficit).. (670,646) 21,882,008 1,983,305 23,194,667
---------- ----------- ----------- -----------
Total liabilities and
equity................. $ 645,504 $81,749,526 $ 1,389,560 $83,784,590
========== =========== =========== ===========
</TABLE>
- --------
(1) Pro Forma Statements of Operations adjustments reflect the following:
(a) The elimination of transactions between the Company and Funding, which
consist of management fees paid/received and the elimination of the
Company's income from its investment in Funding.
(b) The provisions for income taxes (at an estimated effective tax rate of
39%) for DEL and Funding which previously were not subject to such taxes as
partnerships.
(2) Includes $430,000 of fees resulting from the acquisition of certain
receivables from MediMax. See "Management's Discussion and Analysis of
Pro Forma Financial Condition and Pro Forma Results of Operations--
Overview."
(3) Pro forma net income per share was computed by dividing pro forma net
income by the pro forma weighted average shares outstanding, which gives
effect to the Offering and includes 379,998 shares of Common Stock to be
issued pursuant to the exercise of warrants in connection with the
Reorganization.
(4) Pro forma Balance Sheet adjustments reflect the following:
(a) Debit to partners' capital $ 47,187
Credit to cash $ 47,187
Liquidation of limited partnership interests in DEL.
(b) Debit to cash $23,912,500
Credit to stockholders' equity$ 23,912,500
Net proceeds of the Offering
(c) Debit to partners' capital $22,314,662
Credit to cash $ 22,314,662
Use of net proceeds of the Offering to acquire the limited partnership
interests in Funding.
(d) Debit to accounts payable and accrued expenses $ 593,745
Credit to prepaid expenses and other$ 161,091
Credit to partners' capital $ 432,654
Elimination of intercompany accounts (management fees) and general
partner's capital.
21
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
PRO FORMA FINANCIAL CONDITION AND
PRO FORMA RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the information
under "Pro Forma Financial Information" and the combined financial statements,
including the notes thereto, of HealthCare Financial Partners, Inc. and DEL,
and the financial statements of Funding, including the notes thereto,
appearing elsewhere in this Prospectus.

OVERVIEW

From its inception in September, 1993 through the year ended December 31,
1995, the Company principally originated finance receivables through the AR
Advance Program. The AR Advance Program was characterized by high and varying
yields, as a result of the differing terms of AR Advance Program transactions
negotiated with individual clients. The yield on finance receivables generated
under the AR Advance Program was 26.9% during the year ended December 31,
1995, and 19.7% during the nine months ended September 30, 1996. By September
30, 1996, the finance receivables originated through the Company's ABL Program
had grown to 42.1% of total finance receivables, as the Company focused its
marketing efforts on larger balance, prime-rate based ABL Program advances to
more creditworthy borrowers. ABL Program advances are characterized by lower
overall yields than AR Advance Program advances, but provide the Company with
the opportunity to expand the range of potential clients while reducing costs
as a percentage of finance receivables. The yield on finance receivables
generated under the ABL Program was 15.2% during the nine months ended
September 30, 1996 (on an annualized basis). The Company anticipates that
finance receivables generated under the ABL Program will account for a
significant majority of its finance receivables in future periods. As a
result, the Company's overall yield on finance receivables, which was 18.0%
for the nine months ended September 30, 1996 (on an annualized basis), is
expected to decline gradually (assuming a stable interest rate environment) to
approach the yields generated by the ABL Program.

In September 1995, the Company purchased certain finance receivables of
healthcare service providers of MediMax, an unrelated third party in the
business of providing advances against accounts receivable in a manner similar
to the AR Advance Program. The Company paid $7.5 million for such receivables,
net of purchase discount of $430,000. The discount was taken into income
during the fourth quarter of 1995 when the receivables were collected. Certain
of the healthcare service providers subsequently elected to become clients of
the Company.

22
<PAGE>

The following table provides certain unaudited pro forma financial
information as of and for the periods indicated. The Pro Forma Statements of
Operations and Other Data reflect the Reorganization described on page 5 and
are prepared on the same basis as the Pro Forma Financial Information
preceding.

<TABLE>
<CAPTION>
PRO FORMA FOR PRO FORMA FOR THE
THE YEAR ENDED NINE MONTH PERIOD
DECEMBER 31, ENDED SEPTEMBER 30,
----------------------- -----------------------
1994 1995 1995 1996
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
PRO FORMA STATEMENTS OF OP-
ERATIONS
Fee and interest income:
Fee income................ $ 291,752 $ 4,814,504(1) $ 2,814,792 $ 6,077,290
Interest income........... 2,770 403,659 163,365 2,211,007
---------- ----------- ----------- -----------
Total fee and interest
income................. 294,522 5,218,163 2,978,157 8,288,297
Interest expense............ 3,975 634,556 253,360 2,304,331
---------- ----------- ----------- -----------
Net fee and interest
income................. 290,547 4,583,607 2,724,797 5,983,966
Provision for losses on
receivables................ 328,894 217,388 217,388 613,116
---------- ----------- ----------- -----------
Net fee and interest
income after provision
for losses on
receivables............ (38,347) 4,366,219 2,507,409 5,370,850
Operating expenses.......... 485,831 2,096,297 1,207,438 2,282,245
Other income................ 289,994 224,691 186,512 171,651
---------- ----------- ----------- -----------
Income (loss) before income
taxes...................... (234,184) 2,494,613 1,486,483 3,260,256
Income taxes................ 972,899 579,728 1,271,500
---------- ----------- ----------- -----------
Pro forma net income
(loss)..................... $ (234,184) $ 1,521,714 $ 906,755 $ 1,988,756
========== =========== =========== ===========
Pro forma net income (loss)
per share.................. $ (.04) $ .26 $ .15 $ .33
========== =========== =========== ===========
<CAPTION>
AS OF AS OF
DECEMBER 31, SEPTEMBER 30,
----------------------- -----------------------
1994 1995 1995 1996
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
OTHER DATA
Finance receivables--AR
Advance Program............ $6,236,663 $32,443,023 $22,588,760 $46,064,079
Finance receivables--ABL
Program.................... 6,270,629 5,073,933 33,502,829
---------- ----------- ----------- -----------
Total finance
receivables............ $6,236,663 $38,713,652 $27,662,693 $79,566,908
========== =========== =========== ===========
</TABLE>
- --------
(1) Includes $430,000 of fees resulting from the acquisition of certain
receivables from MediMax. See""--Overview"

RESULTS OF OPERATIONS

Nine Months Ended September 30, 1996 Compared to the Nine Months Ended
September 30, 1995

Total fee and interest income increased from $3.0 million for the nine
months ended September 30, 1995 to $8.3 million for the nine months ended
September 30, 1996, an increase of 178.3%. The increase principally resulted
from an increase of $46.2 million in average finance receivables outstanding
due to the Company's introduction of the ABL Program during the last quarter
of 1995 and a corresponding increase of $28.4 million in ABL Program
receivables from September 30, 1995 to September 30, 1996. Interest earned
from the ABL Program increased from $163,366 for the nine month period ended
September 30, 1995 to $2.2 million for the nine month period ended September
30, 1996, which accounted for $2.0 million of the $5.3 million growth in total
fee and interest income between the periods. The Company increased its client
base in the AR Advance Program from 63 clients at September 30, 1995 to 73
clients at September 30, 1996. Additionally, existing clients increased their
average borrowings from the Company in the first nine months of 1996 as
compared to the same period in the prior year. Because the annualized yield
declined markedly from 26.3% in the nine month period ended September 30, 1995
to 18.0% in the same period of 1996, the increase in fee and interest income
was due to growth in the volume of finance receivables, and was somewhat
offset by the decline in yield. The yield for the nine month period ended
September 30, 1996 was lower due to a substantially greater volume of ABL

23
<PAGE>

Program finance receivables outstanding during the nine month period ended
September 30, 1996, which have lower yields when compared to the finance
receivables in the AR Advance Program. Interest expense increased from
$253,360 for the nine month period ended September 30, 1995 to $2.3 million
for the comparable period in 1996. However, the Company's average cost of
borrowed funds decreased from 12.2% for the nine months ended September 30,
1995 to 10.2% for the nine months ended September 30, 1996. This increase in
interest expense was the result of higher average borrowings required to
support the Company's growth. Prior to March 1995, the Company's financing was
solely obtained through equity. The increase in leverage financed the
Company's growth after March 1995. Because of the Company's overall growth in
finance receivables and increased leverage, net fee and interest income
increased from $2.7 million for the nine months ended September 30, 1995 to
$6.0 million for the comparable period in 1996. The increased interest expense
from increased borrowings, combined with a lower yield on finance receivables,
resulted in a significant decrease in the annualized net interest margin from
24.1% for the nine months ended September 30, 1995 to 13.0% for the nine
months ended September 30, 1996.

The Company's provisions for losses on receivables increased from $217,388
for the nine month period ended September 30, 1995 to $613,116 for the nine
month period ended September 30, 1996. This increase is attributable to an
increase in outstanding finance receivables and an increase in the Company's
average client balances, which are among the factors considered by the Company
in assessing the adequacy of its allowance for losses on receivables. The
Company experienced no credit losses in either nine month period.

Operating expenses increased from $1.2 million for the nine month period
ended September 30, 1995 to $2.3 million for the comparable period in 1996, an
89.0% increase. This increase was the result of an 88.8% increase in
compensation and benefits due to hiring additional personnel a 28.7% increase
in rent due to leasing of additional space, an 85.9% increase in professional
fees due to growth in financing activities, and increases in other operating
expenses, all relating to the expansion of the Company's operations.

Other income for the nine month period decreased slightly from $186,512 for
the nine month period ended September 30, 1995 to $171,651 for the same period
in 1996, due to the termination of a servicing arrangement with a client.

Net income increased from $906,755 for the nine month period ended September
30, 1995 to $2.0 million for the comparable period in 1996, a 119.3% increase,
primarily as a result of the overall growth in the Company's finance
receivables as described above.

Year Ended December 31, 1995 Compared to Year Ended December 31, 1994

Total fee and interest income increased from $294,522 for the year ended
December 31, 1994 to $5.2 million for the year ended December 31, 1995. This
increase was principally the result of an $15.8 million increase in average
finance receivables during 1995. The increase in finance receivables was a
result of the Company's ability to attract new clients and the Company's
ability to acquire additional finance receivables from existing clients. The
Company initiated the ABL Program in the third quarter of 1995. The Company
had no clients in the ABL Program in 1994. By December 31, 1995, it had 13
clients participating in the ABL Program. The interest earned in the ABL
Program accounts for $383,752 of the $4.9 million growth in fee and interest
income for this period. Additionally the Company, through increased marketing
efforts, increased its client base in the AR Advance Program from 37 to 72
clients, a 94.6% increase. Acquisition of finance receivable also increased
during this period. Additionally, in September, 1995, the Company purchased
the receivables of certain clients of MediMax. The Company paid $7.5 million
for such receivables, net of a purchase discount of $430,000, which was
included in income in the fourth quarter of 1995. Since the annualized yield
on finance receivables increased from 21.6% at December 31, 1994 to 26.4% at
December 31, 1995, the increase in total fee and interest income was due to
both growth in finance receivables and increase in yield. Interest expense
increased from $3,975 for the year ended December 31, 1994 to $634,556 for the
year ended December 31, 1995. This increase in interest expense was the result
of the commencement of borrowings under the Bank Facility, beginning in March
1995, to support the Company's growth. The average cost of borrowed funds for
the year ended December 31, 1995 was 11.8%. Because of the Company's overall
growth and increased leverage, net fee

24
<PAGE>

and interest income increased from $290,547 for the period ended December 31,
1994, to $4.6 million for the period ended December 31, 1995. Despite this
increase in borrowings, and due to the increased yield on finance receivables,
the net interest margin increased from 21.5% for the year ended December 31,
1994, to 23.2% for the year ended December 31, 1995.

The Company's provision for credit losses decreased from $328,894 for the
year ended December 31, 1994 to $217,388 for the year ended December 31, 1995,
a 33.9% decrease. This decrease is primarily attributable to a decrease in the
Company's average client balances, one of the factors considered by the
Company in assessing the adequacy of its allowance for possible losses on
receivables. "See--Quarterly Financial Data." The Company experienced no
credit losses in either period.

Operating expenses increased from $485,831 for the year ended December 31,
1994 to $2.1 million for the year ended December 31, 1995, a 331.5% increase.
This increase was directly related to the expansion of the Company's
operations, and was the result of an increase of 510.2% in compensation and
benefits due to hiring additional personnel, 393.8% in professional fees due
to growth in financing activities, 121.4% in rent expense due to leasing of
additional space as well as increases in other operating expenses, all
relating to the expansion of the Company's operations.

Other income decreased from $289,994 for the year ended December 31, 1994 to
$224,691 for the year ended December 31, 1995, a 22.5% decrease, as a result
of reduced balances under a servicing arrangement with a client.

Net income increased from a loss of $234,184 for the year ended December 31,
1994 to net income of $1.5 million for the year ended December 31, 1995,
primarily as a result of the overall growth in the Company's finance
receivables described above.

QUARTERLY FINANCIAL DATA

The following table summarizes unaudited pro forma quarterly operating
results for the most recent seven fiscal quarters. The Pro Forma Quarterly
Financial Data reflect the Reorganization described on page 5 and are prepared
on the same basis as the Pro Forma Financial Information preceding.

<TABLE>
<CAPTION>
FOR THE QUARTERS ENDED
------------------------------------------------------------------------
MARCH JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30,
31, 1995 1995 1995 1995 1996 1996 1996
-------- -------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Fee and interest income
Fee income............ $707,666 $802,421 $1,304,704 $1,999,713 $1,869,433 $2,090,853 $2,117,004
Interest income....... 9,366 50,376 103,624 240,293 411,703 792,307 1,006,997
-------- -------- ---------- ---------- ---------- ---------- ----------
Total fee and
interest income.... 717,032 852,797 1,408,328 2,240,006 2,281,136 2,883,160 $3,124,001
Interest expense........ 3,883 108,895 140,582 381,196 580,030 801,126 923,175
-------- -------- ---------- ---------- ---------- ---------- ----------
Net fee and interest
income............... 713,149 743,902 1,267,746 1,858,810 1,701,106 2,082,034 2,200,826
Provision for losses on
receivables............ 217,388 343,155 53,646 216,315
-------- -------- ---------- ---------- ---------- ---------- ----------
Net fee and interest
income after
provision for losses
on receivables....... 713,149 526,514 1,267,746 1,858,810 1,357,951 2,028,388 1,984,511
Operating expenses...... 361,666 288,880 556,892 888,859 676,627 809,392 796,226
Other income............ 45,377 47,857 93,278 38,179 10,000 8,000 153,651
-------- -------- ---------- ---------- ---------- ---------- ----------
Income before income
taxes.................. 396,860 285,491 804,132 1,008,130 691,324 1,226,996 1,341,936
Income taxes............ 154,776 111,341 313,611 393,171 269,617 478,528 523,355
-------- -------- ---------- ---------- ---------- ---------- ----------
Pro forma net income.... $242,084 $174,150 $ 490,521 $ 614,959 $ 421,707 $ 748,468 818,581
======== ======== ========== ========== ========== ========== ==========
</TABLE>

25
<PAGE>

The Company's quarterly results of operations are not generally affected by
seasonal factors.

The Company's historical methodology for assessing the adequacy of its
allowance for possible losses on receivables focused, in significant part, on
the average per client amount of finance receivables outstanding. This caused
the quarterly provisions for losses on receivables to fluctuate as average
client balances varied due to the Company's growth and the mix of finance
receivables generated from the ABL Program and the AR Advance Program changed
over time. Given the current level of the allowance, the Company does not
anticipate that the provision for losses on receivables in future quarterly
periods will reflect the level of variability experienced historically. In
future periods, the Company anticipates that quarterly provisions will be made
primarily based on changes in overall portfolio size and composition, and, to
the extent required, based on analysis of credit risks in particular
transactions.

The results of operations for the quarter ended December 31, 1995 were
impacted by the Company's acquisition of certain assets from MediMax. See "--
Overview."

EXCESS COLLATERAL AND CLIENT HOLDBACKS

The Company's primary protection against credit losses is the Excess
Collateral, which consists of client accounts receivable due from third-party
payors which collateralize advances under the ABL Program and against which
the Company makes advances under the AR Purchase Program. The Company obtains
a first priority security interest in all of the client's accounts receivable,
including receivables not financed by the Company. As a result, amounts paid
or advanced to clients with respect to specific accounts receivable are cross-
collateralized by the Company's security interest in other accounts receivable
of the client. In addition, the Company frequently obtains a security interest
in other assets of a client and maintains a provision for losses on
receivables.

Under the ABL Program, the Company will extend credit only up to a maximum
percentage, ranging from 65% to 85%, of the estimated net collectible value of
the accounts receivable due from third-party payors. The Company obtains a
first priority security interest in all of a client's accounts receivable, and
may apply payments received with respect to the full amount of the client's
accounts receivable to offset any amounts due from the client. The estimated
net collectible value of a client's accounts receivable thus exceeds at any
time amounts advanced under the ABL Program secured by such accounts
receivable.

Under the AR Advance Program, the Company purchases a client's accounts
receivable at a discount from the estimated net collectible value of the
accounts receivable. The Company will advance only 65% to 85% of the purchase
price of any batch of accounts receivable purchased. The excess of the
purchase price for a batch of receivables over the amount advanced with
respect to such batch (a "client holdback") is treated as a reserve and
provides additional security to the Company, insofar as holdback amounts may
be applied to offset amounts due with respect to the related batch of client
receivables, or any other batch of client receivables. As is the case with the
ABL Program, the Company obtains a first priority security interest in all of
the client's accounts receivable.

In addition, under both programs the Company frequently obtains a security
interest in other assets of a client and may have recourse against personal
assets of the principals or parent company of a client. See "Risk Factors--
Dilution of Client Receivables; Government Right of Offset."

The Company's results of operations are affected by its collections of
client accounts receivable. The Company's turnover of its finance receivables,
calculated by dividing total collections of client accounts receivable for
each of the following quarters by the average month-end balance of finance
receivables during such quarter, was 3.7x for the quarter ended March 31,
1995, 2.5x for the quarter ended June 30, 1995, 2.8x for the quarter ended
September 30, 1995, 2.8x for the quarter ended December 31, 1995, 2.4x for the
quarter ended March 31, 1996, 2.4x for the quarter ended June 30, 1996, and
3.7x for the quarter ended September 30, 1996.

26
<PAGE>

PROVISION AND ALLOWANCE FOR POSSIBLE LOSSES ON RECEIVABLES

The Company regularly reviews its outstanding advances and purchased
accounts receivable to determine the adequacy of its allowance for possible
losses on receivables. To date, the Company has experienced no credit losses.
The allowance for possible losses on receivables is maintained at an amount
estimated to be sufficient to absorb future losses, net of recoveries,
inherent in the finance receivables. In evaluating the adequacy of the
allowance, management of the Company considers trends in healthcare sub-
markets, past-due accounts, historical charge-off and recovery rates, credit
risk indicators, economic conditions, on-going credit evaluations, overall
portfolio size, average client balances, Excess Collateral, and underwriting
policies, among other items. As of September 30, 1996, the Company's general
reserve was $1,035,992, or 1.3% of finance receivables. To the extent that
management deems specific finance receivable advances to be wholly or
partially uncollectible, the Company establishes a specific loss reserve equal
to any such amount. At September 30, 1996, the Company had no specific
reserves. In the opinion of management, based on a review of the Company's
portfolio, the reserve for losses on receivables is adequate at this time. See
"--Quarterly Financial Data."

LIQUIDITY AND CAPITAL RESOURCES

Cash flows resulting from operating activities have provided sources of cash
amounting to $185,016 and $3.8 million for the years ended December 31, 1994
and 1995, respectively; and $2.5 million and $3.0 million for the nine month
periods ended September 30, 1995 and 1996, respectively. The most significant
source of cash from operating activities is derived from the Company's
generation of net fee and interest income from its finance receivables, and
the more significant uses of cash from internal operating activities are
derived from cash payments for compensation and employee benefits, rent
expense, and professional fees. As the Company's number of clients and
resulting business opportunities have grown, the Company has primarily used
cash in the acquisition of finance receivables under its AR Advance Program
and ABL Program. The Company's financing activities have provided the
necessary source of funds for the acquisition of receivables. These financing
activities have occurred from both debt and equity sources. The debt financing
has been generated from draws on the Bank Facility. The sources of equity
financing have been primarily from limited partner capital contributions. The
Company increased its outstanding balances under the Bank Facility by $17.8
million during the year ended December 31, 1995, and increased these balances
by $10.0 million and $24.7 million during the nine month periods ended
September 30, 1995 and 1996, respectively. The Bank Facility was not available
during the year ended December 31, 1994 and the Company relied upon its equity
sources to provide the necessary funds to acquire finance receivables during
that year. The limited partners provided capital contributions of $5.4 million
and $7.6 million during the years ended December 31, 1994 and 1995,
respectively, and $6.7 million and $12.0 million during the nine month periods
ended September 30, 1995 and 1996, respectively. During such periods, the
limited partners also received cash distributions from their capital accounts
of $145,843 and $2.4 million during the years ended December 31, 1994 and
1995, respectively; and $1.2 million and $6.5 million during the nine month
periods ended September 30, 1995 and 1996, respectively. Recently, the Company
also received a commitment from ING for $100 million of financing under the
proposed CP Facility.

In conjunction with the Reorganization and in contemplation of the Offering,
at the request of the Company, Fleet increased the committed line of credit
under the Bank Facility from $35 million to $50 million. The Bank Facility is
a revolving line of credit. The interest rates payable by the Company under
the Bank Facility adjust, based on the prime rate of Fleet National Bank
("Fleet's prime rate"); however, the Company has the option to borrow any
portion of the Bank Facility over $500,000 based on the 30-day, three-month or
six-month LIBOR plus 3.0%. As of September 30, 1996, $42.6 million was
outstanding under the Bank Facility. The Bank Facility contains financial and
operating covenants, including the requirement that the Company maintain an
adjusted tangible net worth of not less than $5.0 million and a ratio of total
debt to equity of not more than 3.0 to 1.0. The Company anticipates that
intercreditor arrangements to be entered into in connection with the proposed
CP Facility will exclude borrowings under the proposed CP Facility from debt
for purposes of calculating the debt-to-equity ratio. At September 30, 1996,
the Company had an adjusted tangible net worth of approximately $23.2 million
and the Company's ratio of total debt to equity was approximately 1.8 to 1.0.
The expiration date for the Bank Facility is March 9, 1998, subject to
automatic renewal for one-year periods thereafter unless terminated by Fleet.
See "Risk Factors--Risk of Failure to Renew Funding Sources" and "Business--
Capital Resources."

27
<PAGE>

Under the terms of the proposed CP Facility, the Company will be able to
borrow up to $100 million. The proposed CP Facility will require the Company
to transfer advances and related receivables under its ABL Program or its AR
Advance Program which meet certain criteria to a bankruptcy remote, special
purpose subsidiary of the Company. The special purpose subsidiary will pledge
the finance receivables transferred by the Company to Holland Limited
Securitization Inc., a commercial paper conduit which is an affiliate of ING
(the "Conduit"). The Conduit will lend against such pledged assets through the
issuance of commercial paper. The proposed CP Facility will require the
maintenance of a minimum overcollateralization percentage of 125%. Under the
proposed CP Facility, ING can refuse to make any advances in the event the
Company fails to maintain a tangible net worth of at least $20 million and to
make advances in excess of $50 million in the event the Company fails to
maintain a tangible net worth of at least $25 million. The maturity date for
the proposed CP Facility will be five years from the closing of such facility.
However, after three years, the program may be terminated by the Company
without penalty. See "Risk Factors--Restrictive Debt Covenants" and
"Business--Capital Resources."

INTEREST RATE SENSITIVITY

Interest rate sensitivity refers to the change in interest spread between
the yield on the Company's portfolio and the cost of funds necessary to
finance the portfolio (i.e., the Bank Facility and the proposed CP Facility)
resulting from changes in interest rates. To the extent that interest income
and interest expense do not respond equally to changes in interest rates, or
that all rates do not change uniformly, earnings are affected. The interest
rates charged on the ABL Program adjust based upon changes in the prime rate.
The fees charged on the AR Advance Program are fixed at the time of any
advance against a batch of receivables, although such fees may increase
depending upon the timing of collections of receivables within the batch. The
interest rates on the Company's term loans are generally fixed at origination
for stated maturities generally of one year or less. The interest rates
payable by the Company under the Bank Facility adjust, based on Fleet's prime
rate; however, the Company has the option to borrow any portion of the Bank
Facility over $500,000 based on the 30-day, three-month or six-month LIBOR
plus 3.0%. The interest rate on the proposed CP Facility will adjust based
upon changes in commercial paper rates. Because the Company expects to finance
most of the ABL Program activity through the proposed CP Facility, there
exists some interest rate risk since the interest rate on advances to the
Company's clients under the ABL Program will adjust based on the prime rate,
and the interest rate on most of the Company's liabilities under the proposed
CP Facility will adjust based on commercial paper rates. Such limited interest
rate sensitivity on the ABL Program portfolio is not expected to have a
material effect on the Company's net interest income if interest rates change.
Additionally, because the AR Advance Program portfolio's fees are generally
fixed and will be financed with both the proposed CP Facility and the Bank
Facility which adjust with changes in commercial paper rates and the prime
rate, respectively, there exists interest rate sensitivity with respect to the
AR Advance portfolio which, if interest rates increase significantly, could
have a material adverse effect on the Company's net interest income. However,
this interest rate sensitivity is mitigated by the fact that the Company does
not make long-term commitments in the AR Advance Program and therefore retains
substantial flexibility to negotiate fees based on changes in interest rates.
Interest rate sensitivity also exists with respect to the Company's term loans
which at September 30, 1996 constituted less than 3.6% of the Company's
assets.

INFLATION

Inflation has not had a significant effect on the Company's operating
results to date.

28
<PAGE>

SELECTED HISTORICAL FINANCIAL DATA

The following table sets forth selected historical financial data. The
selected historical statements of operations and balance sheet data presented
below were derived from the combined financial statements of HealthCare
Financial Partners, Inc. and DEL as of and for the period from inception
(April 22, 1993) through December 31, 1993, the two years ended December 31,
1994 and 1995 and for the nine month periods ended September 30, 1995 and
1996, and of Funding as of and for the period from inception (September 12,
1994) through December 31, 1994, the year ended December 31, 1995, and for the
nine month periods ended September 30, 1995 and 1996. Operating results for
the nine months ended September 30, 1996 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1996. The data
set forth below should be read in conjunction with "Management's Discussion
and Analysis of Historical Financial Condition and Historical Results of
Operation" and the combined financial statements, including the notes thereto,
of HealthCare Financial Partners, Inc. and DEL, and the financial statements
of Funding, including the notes thereto, appearing elsewhere in this
Prospectus.

HEALTHCARE FINANCIAL PARTNERS, INC. AND DEL COMBINED

<TABLE>
<CAPTION>
AT OR FOR THE
AT OR FOR THE NINE MONTH
YEAR ENDED PERIOD ENDED
AT OR FOR THE PERIOD FROM DECEMBER 31, SEPTEMBER 30,
INCEPTION (APRIL 22, 1993) --------------------- ---------------------
THROUGH DECEMBER 31, 1993 1994 1995 1995 1996
-------------------------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA
Fee income............. $ 856 $ 13,036 $ 565,512 $ 395,780 $ 842,458
Interest expense....... -- 3,975 79,671 45,526 156,957
-------- --------- ---------- ---------- ---------
Net fee income......... 856 9,061 485,841 350,254 685,501
Provision for losses on
receivables........... 18,745 2,102 45,993 45,993 75,311
-------- --------- ---------- ---------- ---------
Net fee income after
provision for losses
on receivables........ (17,889) 6,959 439,848 304,261 610,190
Operating expenses..... 30,204 439,514 1,472,240 769,537 1,371,819
Other income (loss).... 23,772 106,609 1,221,837 652,092 1,007,987
-------- --------- ---------- ---------- ---------
Income (loss) before
income taxes.......... (24,321) (325,946) 189,445 186,816 246,358
Income taxes
(benefit)............. -- -- (5,892) -- (13,268)
-------- --------- ---------- ---------- ---------
Net income
(loss)(1)(2).......... $(24,321) $(325,946) $ 195,337 $ 186,816 $ 259,626
======== ========= ========== ========== =========
Pro forma provision for
income taxes(1)....... $ 73,884 $ 96,080
---------- ---------
Pro forma net
income(1)............. $ 115,561 $ 150,278
========== =========
BALANCE SHEET DATA
Finance receivables.... $115,454 $ 279,148 $2,552,441 $2,167,884 $ --
Allowance for losses on
receivables........... 18,475 20,847 66,840 66,840 --
Total assets........... 329,588 344,850 2,669,939 2,009,403 645,504
Client holdbacks....... 21,729 112,374 814,607 666,945 --
Line of credit......... -- -- 1,433,542 798,840 --
Total liabilities...... 203,534 558,759 2,795,404 2,036,495 1,316,150
Limited partners'
capital............... 155,410 144,857 415,305 465,177 47,187
Stockholders' deficit.. (29,356) (358,766) (540,770) (492,269) (717,833)
</TABLE>

29
<PAGE>

FUNDING

<TABLE>
<CAPTION>
AT OR FOR THE
NINE MONTH
AT OR FOR THE PERIOD ENDED
AT OF FOR THE PERIOD FROM YEAR ENDED SEPTEMBER 30,
INCEPTION (SEPTEMBER 12, 1994) DECEMBER 31, -----------------------
THROUGH DECEMBER 31, 1994 1995 1995 1996
------------------------------ ------------- ----------- -----------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA
Fee income............. $ 278,716 $ 4,248,992(3) $ 2,419,012 $ 5,234,832
Interest income........ 2,770 403,659 163,365 2,211,007
---------- ----------- ----------- -----------
Total fee and interest
income............... 281,486 4,652,651 2,582,377 7,445,839
Interest expense....... -- 554,885 207,834 2,147,374
---------- ----------- ----------- -----------
Net fee and interest
income............... 281,486 4,097,766 2,374,543 5,298,465
Provision for losses on
receivables........... 326,792 171,395 171,395 537,805
---------- ----------- ----------- -----------
Net fee and interest
income after
provision for losses
on receivables....... (45,306) 3,926,371 2,203,148 4,760,660
Operating expenses..... 166,317 1,024,057 737,901 1,226,393
---------- ----------- ----------- -----------
Net income (loss) (1)
(2)................... $ (211,623) $ 2,902,314 $ 1,465,247 $ 3,534,267
========== =========== =========== ===========
Pro forma provision for
income taxes (1)...... $ 1,131,902 $ 571,446 $ 1,378,364
----------- ----------- -----------
Pro forma net income
(1)................... $ 1,770,412 $ 893,801 $ 2,155,903
=========== =========== ===========
BALANCE SHEET DATA
Finance receivables.... $6,012,475 $37,164,708 $25,494,809 $79,566,908
Allowance for losses on
receivables........... 326,792 498,187 498,187 1,035,992
Total assets........... 7,754,522 38,979,184 27,669,229 81,749,526
Client holdbacks....... 2,362,800 8,175,870 5,131,116 16,212,360
Line of credit......... -- 16,374,318 9,178,359 42,607,630
Total liabilities...... 2,629,651 26,140,008 15,899,478 59,867,518
Partners' capital...... 5,124,871 12,839,176 11,769,751 21,882,008
</TABLE>
- --------
(1) Net income for HealthCare Financial Partners, Inc. and DEL combined is
presented with DEL on a partnership reporting basis for tax purposes and
net income for Funding is presented on a partnership reporting basis for
tax purposes (i.e. no provision for income tax included in their
historical financial statements). A pro forma tax rate of 39% was applied
to calculate the pro forma income tax provision and the pro forma net
income amounts.
(2) Historical earnings per share is not presented because it is not
meaningful due to the partnership reporting basis for DEL and Funding and
to the Reorganization. See "Pro Forma Financial Information" for pro forma
net income per share information.
(3) Includes $430,000 of fees resulting from the acquisition of certain
receivables from MediMax. See "Management's Discussion and Analysis of Pro
Forma Financial Condition and Pro Forma Results of Operations--Overview."

30
<PAGE>

MANAGEMENT'S DISCUSSION ANDANALYSIS OF HISTORICAL FINANCIAL CONDITION AND
HISTORICAL RESULTS OF OPERATIONS

Due to the structure of the Company's operations prior to the
Reorganization, the Company's historical financial condition and results of
operations will not be comparable to the Company's future operations following
the Reorganization and the Offering. The following discussion only pertains to
the Company's historical financial condition and results of operations, and
therefore should be read in conjunction with "Selected Historical Financial
Data," the combined financial statements, including the notes thereto of
HealthCare Financial Partners, Inc. and DEL, and the financial statements,
including the notes thereto of Funding. See "Pro Forma Financial Information"
and "Management's Discussion and Analysis of Pro Forma Financial Condition and
Pro Forma Results of Operations."

HEALTHCARE FINANCIAL PARTNERS, INC. AND DEL COMBINED RESULTS OF OPERATIONS

Nine Months Ended September 30, 1996 Compared to Nine Months Ended September
30, 1995

Total fee income increased from $395,780 for the nine month period ended
September 30, 1995 to $842,458 for the nine month period ended September 30,
1996, a 112.9% increase. This increase was the result of an increase of $2.3
million in average finance receivables for the nine month period ended
September 30, 1996, compared to the nine month period ended September 30,
1995. This increase in finance receivables was due to increased marketing
efforts to new clients and acquisition of additional finance receivables from
existing clients during this period. Since the annualized yield on finance
receivables increased from 14.7% at September 30, 1995 to 31.6% at September
30, 1996, the increase in total fee and interest income was due to growth in
finance receivables and an increase in yield. Interest expense increased from
$45,526 for the nine month period ended September 30, 1995 to $156,957 for the
comparable period in 1996, a 244.8% increase. This increase in interest
expense was the result of higher average borrowings to support the growth of
HealthCare Financial Partners, Inc. and DEL. Prior to March 1995, HealthCare
Financial Partners, Inc. and DEL financed their operations solely through
equity. The use of borrowings financed the growth of HealthCare Financial
Partners, Inc. and DEL after March 1995. The average cost of funds decreased
from 11.3% for the nine months ended September 30, 1995 to 9.3% for the nine
months ended September 30, 1996. Because of the overall growth of HealthCare
Financial Partners, Inc. and DEL and increased leverage, net fee and interest
income increased from $350,254 for the nine month period ended September 30,
1995 to $685,501 for the nine month period ended September 30, 1996, a 95.7%
increase. The increase in the yield on finance receivables coupled with a
lower cost of funds resulted in an increase of 280 basis points in the
annualized net interest margin from 22.9% for the nine months ended September
30, 1995 to 25.7% for the nine months ended September 30, 1996.

The provision for losses on receivables increased from $45,993 for the nine
month period ended September 30, 1995 to $75,311 for the nine month period
ended September 30, 1996, a 63.7% increase. This increase is primarily
attributable to an increase in outstanding finance receivables. Neither
HealthCare Financial Partners, Inc. nor DEL experienced credit losses in
either nine month period.

Operating expenses increased from $769,537 for the nine month period ended
September 30, 1995 to $1.4 million for the comparable period in 1996, a 78.3%
increase. This increase was a result of increases of 88.8% in compensation and
benefits due to hiring additional personnel, 28.7% in rent expense due to the
leasing of additional space, 50.5% in professional fees due to growth in
financing activities, as well increases in other operating expenses which were
necessary to support the expansion of the operations of HealthCare Financial
Partners, Inc. and DEL.

Other income, consisting primarily of amounts paid by Funding as management
fees and partnership income, increased from $652,092 for the nine month period
ended September 30, 1995 to $1.0 million for the nine month period ended
September 30, 1996, an increase of 54.6%, as a result of the expansion of
Funding's operations.

Net income increased from $186,816 for the nine month period ended September
30, 1995 to net income of $259,626 for the comparable period in 1996, a 39.0%
increase, primarily as a result of the growth in finance receivables and other
income as set forth above.

31
<PAGE>

Year Ended December 31, 1995 Compared to Year Ended December 31, 1994

Total fee income increased from $13,036 for the year ended December 31, 1994
to $565,512 for the year ended December 31, 1995. This increase was the result
of a $1.4 million increase in the average outstanding finance receivables for
1995 compared to 1994 due to increased marketing efforts to new clients and
the acquisition of additional finance receivables from existing clients during
this period. Additionally, the annualized yield on finance receivables
increased from 11.5% in 1994 to 36.9% in 1995. Thus, the growth in total fee
and interest income was due to both the growth in the average outstanding
finance receivables and the increase in the annualized yield. The increase in
interest expense from $3,975 for the year ended December 31, 1994 to $79,671
for the year ended December 31, 1995, was the result of the commencement of
borrowings to support growth. Net fee and interest income increased from
$9,061 for the year ended December 31, 1994 to $485,841 for the year ended
December 31, 1995. This increase was attributable both to the overall growth
in finance receivables, and to the increase in the net interest margin from
8.0% for the year ended December 31, 1994 to 31.7% for the year ended December
31, 1995. The average cost of funds for the year ended December 31, 1995 was
11.3%.

The provision for losses on receivables increased from $2,102 for the year
ended December 31, 1994 to $45,993 for the year ended December 31, 1995. This
increase is primarily attributable to the increase in its outstanding finance
receivables. Neither HealthCare Financial Partners, Inc. nor DEL experienced
credit losses in either period.

Operating expenses increased from $439,514 for the year ended December 31,
1994 to $1.5 million for the year ended December 31, 1995. These increases
were the direct result of the increased level of activity in the year ended
December 31, 1995. During that period, compensation and benefits increased
510.2%, due to hiring additional personnel, rent expense increased 121.4% due
to the leasing of additional space and professional fees increased 156.3% due
to growth in financing activities. Other operating expenses increased as well.

Other income increased from $106,609 for the year ended December 31, 1994 to
$1.2 million for the year ended December 31, 1995, as a result of the
expansion of HealthCare Financial Partners, Inc., and DEL's operations.

Net income increased from a loss of $325,946 for the year ended December 31,
1994 to net income of $195,337, for the year ended December 31, 1995, a 159.9%
increase, primarily as a result of the growth in finance receivables and other
income described above.

Year Ended December 31, 1994 Compared to Period Ended December 31, 1993

Because HealthCare Financial Partners, Inc. and DEL had only limited
operations for the period ended December 31, 1993, period-to-period
comparisons are not meaningful.

FUNDING RESULTS OF OPERATIONS

Nine Months Ended September 30, 1996 Compared to Nine Months Ended September
30, 1995

Total fee and interest income increased from $2.6 million for the nine month
period ended September 30, 1995 to $7.4 million for the nine month period
ended September 30, 1996, a 188.3% increase. This increase was principally the
result of Funding's introduction of the ABL Program and the corresponding
increase of $21.8 million in average ABL Program finance receivables for the
nine month period ended September 30, 1996. At September 30, 1995, Funding had
recently initiated the ABL Program and had only 11 clients participating in
the program. By September 30, 1996, Funding had 37 clients participating in
the ABL Program. The interest earned in the ABL Program accounted for $2.0
million of the $4.8 million growth in fee and interest income. Additionally,
through increased marketing efforts, Funding increased its client base in the
AR Advance Program during this period from 63 to 73 clients, a 15.9% increase.
Acquisition of finance receivables from existing clients also increased during
this period. Since the annualized yield on finance receivables declined from
24.9% to 17.2%, the increase in fee and interest income was due to growth in
finance receivables, somewhat offset by the decrease in yield. Interest
expense increased from $207,834 for the nine month period ended September 30,
1995 to $2.1 million for the comparable period in 1996. This increase in
interest expense was the result of higher average borrowings required to
support Funding's growth. The average cost of funds decreased from 12.5% for
the nine months ended September 30, 1995, to 10.3% for the nine months ended
September 30, 1996. Prior to March,

32
<PAGE>

1995, Funding financed its operations solely through equity. The use of
borrowings financed Funding's growth after March 1995. Because of Funding's
overall growth and increased leverage, net fee and interest income increased
from $2.4 million for the nine month period ended September 30, 1995 to $5.3
million for the nine month period ended September 30, 1996, a 123.1% increase.
The increase in borrowings, combined with a lower yield on finance
receivables, resulted in a decrease in the annualized net interest margin,
from 22.9% for the nine months ended September 30, 1995 to 12.2% for the nine
months ended September 30, 1996.

Funding's provision for losses on receivables increased from $171,395 for
the nine month period ended September 30, 1995 to $537,805 for the nine month
period ended September 30, 1996, a 213.8% increase. This increase is
principally attributable to an increase in outstanding finance receivables.
Funding experienced no credit losses in either nine month period.

Operating expenses increased from $737,901 for the nine month period ended
September 30, 1995 to $1.2 million for the comparable period in 1996, a 66.2%
increase. This increase was the result of an increase of 107.5% in
professional fees due to growth in financing activities and a 32.5% increase
in licensing fees as well as increases in other operating expenses, all
relating to the expansion of Funding's operations.

Net income increased from $1.5 million for the nine month period ended
September 30, 1995 to $3.5 million for the comparable period in 1996, a 141.2%
increase. This increase was a direct result of overall growth in Funding's
finance receivables described above, as well as Funding's purchase of DEL's
assets. See "Certain Transactions".

Year Ended December 31, 1995 Compared to Period Ended December 31, 1994

Total fee and interest income increased from $281,486 for the period
December 31, 1994 to $4.7 million for the year ended December 31, 1995.
Average outstanding finance receivables for 1995 increased by $14.4 million as
compared with 1994. Several factors contributed to this increase: (i) Funding
commenced operations in September, 1994; (ii) the partner's invested capital
in Funding grew from $5.1 million at December 31, 1994 to $12.8 million at
December 31, 1995; (iii) Funding initiated the ABL Program in 1995; and (iv)
in September 1995, Funding purchased certain receivables of MediMax. See
"Management's Discussion and Analysis of Pro Forma Financial Condition and Pro
Forma Results of Operations--Overview." The annualized yield on finance
receivables increased from 21.9% in 1994 to 25.6% in 1995. Thus, the increase
in total fee and interest income can be attributed to increases in both yield
and volume. Prior to March 1995, Funding financed its operations solely
through equity. The use of borrowings financed the Company's growth after
March, 1995. As a result, interest expense increased from $0 for the period
ended December 31, 1994 to $554,885 for the year ended December 31, 1995. The
average cost of funds for the year ended December 31, 1995 was 11.9%. Net fee
and interest income increased from $281,486 for the period ended December 31,
1994 to $4.1 million for the year ended December 31, 1995. Although Funding
did not have any interest expense in 1994, the annualized net interest margin
increased slightly from 21.9% in 1994 to 22.5% in 1995. This increase in net
interest margin was due to the increase in the yield on finance receivables.
The increase in net fee and interest income can be attributed to growth in
both volume and yield.

Funding's provision for losses on receivables decreased from $326,792 for
the period ended December 31, 1994 to $171,395 for the year ended December 31,
1995. This decrease is primarily attributable to a decrease in average client
balances. Funding experienced no credit losses in either period.

Operating expenses increased from $166,317 for the period ended December 31,
1994 to $1.0 million for the year ended December 31, 1995. This increase
resulted from Funding's commencement of operations in September 1994 and to
the increase in expenses necessary to support the increase in Funding's
operations. Funding experienced an increase of 233.3% in management fees,
1,364.6% in professional fees due to growth in financing activities, 559.0% in
licensing fees and increases in other operating costs, all related to the
expansion of Funding's operations. Funding only operated for four months in
1994.

Net income increased from a loss of $211,623 for the period ended December
31, 1994 to net income of $2.9 million for the year ended December 31, 1995, a
direct result of overall growth in Funding's finance receivables described
above.

OTHER INFORMATION

For other information regarding the financial condition and results of
operations of HealthCare Financial Partners, Inc., DEL and Funding see
"Management's Discussion and Analysis of Pro Forma Financial Condition and Pro
Forma Results of Operations."

33
<PAGE>

BUSINESS

GENERAL

The Company is a specialty finance company offering asset-based financing to
healthcare service providers, with a primary focus on clients operating in
sub-markets of the healthcare industry, including long-term care, home
healthcare and physician practices. The Company also provides asset-based
financing to clients in other sub-markets of the healthcare industry,
including pharmacies, durable medical equipment suppliers, hospitals, mental
health providers, rehabilitation companies and disease state management
companies. The Company targets small and middle market healthcare service
providers with financing needs in the $100,000 to $10 million range in
healthcare sub-markets which have favorable characteristics for working
capital financing, such as those where growth, consolidation or restructuring
appear likely in the near to medium term. Management believes that the
Company's healthcare industry expertise and specialized information systems,
combined with its responsiveness to clients, willingness to finance relatively
small transactions, and flexibility in structuring transactions, give it a
competitive advantage in its target markets over commercial banks, diversified
finance companies and traditional asset-based lenders. From its inception in
1993 through September 30, 1996, the Company has advanced $495.7 million to
its clients in 166 transactions, including $299.5 million advanced during the
nine months ended September 30, 1996. The Company had 102 clients as of
September 30, 1996, of which 35 were affiliates of one or more other clients.
The average amount outstanding per client at September 30, 1996 was
approximately $863,000. For the year ended December 31, 1995, the Company's
pro forma net income was $1.5 million, and for the nine month period ended
September 30, 1996 the Company's pro forma net income was $2.0 million. See
"Pro Forma Financial Information." For the nine months ended September 30,
1996, the Company's annualized yield on finance receivables was 18.0%.

HEALTHCARE INDUSTRY

According to Healthcare Financing Administration ("HCFA") estimates, total
domestic healthcare expenditures for 1995 exceeded $1.0 trillion, or 14.2% of
gross domestic product, compared to expenditures of $428.2 billion or 10.2% of
gross domestic product in 1985. The annual compound growth rate of healthcare
expenditures from 1985 to 1995 was 8.9%. The breakdown of estimated healthcare
expenditures for 1995 is as follows (dollars in billions):

<TABLE>
<CAPTION>
HEALTHCARE INDUSTRY SEGMENT ESTIMATED 1995 EXPENDITURES
--------------------------- ---------------------------
<S> <C>
Acute Care (hospitals)........................... $ 364.5
Physician Services............................... 198.0
Other Medical Non-Durables....................... 84.7
Long-Term Care (nursing homes)................... 80.2
Other Professional Services...................... 62.9
Insurance--net of healthcare costs............... 51.9
Dental Services.................................. 42.9
Home Healthcare.................................. 27.9
Government Public Health......................... 27.9
Other Personal Care.............................. 22.7
Research......................................... 15.9
Construction..................................... 14.2
Vision Products and Other Medical Durables....... 13.9
--------
Total.......................................... $1,007.6
========
</TABLE>
- --------
Source: HCFA, Office of the Actuary.

The Company believes that there are several distinct trends that will
continue to fuel the demand for and the dollar value of healthcare services in
the United States and the demand for the Company's services, including: (i)
dramatic change driven by governmental and market forces which have put
pressure on healthcare service providers to reduce healthcare delivery costs
and increase efficiency, often resulting in short-term working capital
requirements by such providers as their businesses grow; (ii) favorable
demographic trends, including both the general increase in the U.S. population
and the aging of the U.S. population, which should increase the size of the
Company's principal target markets; (iii) growth, consolidation and
restructuring of

34
<PAGE>

fragmented sub-markets of healthcare, including long-term care, home
healthcare and physician services; and (iv) advances in medical technology,
which have increased demand for healthcare services by expanding the types of
diseases that can be effectively treated and by extending the population's
life expectancy.

According to HCFA, total annual expenditures in the long-term care market
grew from $30.7 billion in 1985 to an estimated $80.2 billion in 1995, and are
projected to grow to $121.2 billion by the year 2000. The Company's long-term
care clients include single nursing home operators (1-2 homes), small nursing
home chains (3-10 homes) and regional nursing home chains (11-50 homes).
According to the Guide to the Nursing Home Industry published by HCIA, Inc.,
the long-term care industry remains widely diversified and fragmented, with
all nursing home chains controlling only 34.5% of the market, and the largest
20 chains constituting only 18.0% of the market.

According to HCFA, total annual home healthcare expenditures grew from $5.6
billion in 1985 to an estimated $27.9 billion in 1995, and are projected to
grow to $45.9 billion by the year 2000. According to the National Association
of Health Care, the number of Medicare certified home health agencies has
grown from 5,983 in 1985 to 9,120 in 1995. The home healthcare business
remains highly fragmented, with only a small percentage of such companies
having any significant market share.

According to HCFA, the physician services market grew from $83.6 billion in
1985 to an estimated $198.0 billion in 1995, and is projected to grow to
$309.8 billion by the year 2000. The American Medical Association ("AMA")
reports that approximately 562,000 physicians are actively involved in patient
care in the U.S., with a growing number participating in multi-specialty or
single-specialty groups. According to the AMA, as of 1995, there were 19,787
physician groups with three or more physicians, while over two-thirds of all
physicians still work in practices of one or two persons.

MARKET FOR HEALTHCARE RECEIVABLES FINANCING

Businesses generally utilize working capital or accounts receivable
financing to bridge the shortfall between the turnover of current assets and
the maturity of current liabilities. A business will often experience this
shortfall during periods of revenue growth because cash flow from new revenues
lags behind cash outlays required to produce new revenues. For example, a
growing labor intensive business will often need to fund payroll obligations
before payments are received on new services provided or products produced.
Many of the Company's clients are labor intensive and growing and therefore
require accounts receivable financing to fund their growth.

In addition to the Company, working capital financing for small and middle
market healthcare service providers is currently provided by several different
sources. Some commercial banks and diversified finance companies have formed
groups or divisions to provide working capital financing for healthcare
service providers. Such groups or divisions generally focus on providing
financing to companies with borrowing needs in excess of $5 million, and often
require more extensive collateral in addition to accounts receivable to secure
such financing. As a general matter, these lenders typically have been less
willing to provide financing to healthcare service providers of the types
served by the Company because such lenders have not developed the healthcare
industry expertise needed to underwrite smaller healthcare service companies
or the specialized systems necessary for tracking and monitoring healthcare
receivables transactions, which are different from traditional accounts
receivable finance transactions. Several independent healthcare finance
companies that have raised funds through securitization programs also provide
financing to healthcare service providers. However, many of the financing
programs offered by such securitization companies are often rigid and
cumbersome for healthcare service providers to implement because, among other
things, securitization programs typically impose more stringent and inflexible
qualification requirements on borrowers and also impose concentration and
other limitations on the asset portfolio, as a result of rating agency and
other requirements.

Management believes that the growth in healthcare expenditures, the
consolidation of certain segments of the healthcare market, and the
reorganization of the healthcare delivery system (caused by both cost
containment pressures and the introduction of new products and services), will
have positive effects on the demand for the Company's services since they in
many cases will increase the working capital needs of the Company's clients.
Historically, these trends have affected different sub-markets of the
healthcare industry at different times. The Company expects these trends to
continue, thereby providing the Company with long-term growth opportunities.

35
<PAGE>

STRATEGY

The Company's goal is to be the leading finance company in its targeted sub-
markets of the healthcare services industry. The Company's strategy for growth
is based on the following key elements:

Target sub-markets within the healthcare industry that have favorable
characteristics for working capital financing, such as fragmented sub-markets
experiencing growth, consolidation or restructuring. At September 30, 1996,
58.7% of the Company's portfolio consisted of finance receivables from
businesses in the long-term care and home healthcare sub-markets, and
management believes that growth, consolidation and restructuring in these sub-
markets will continue to provide opportunities for the Company to expand. By
continuing to focus on these sub-markets and by expanding its financing of the
physician practice sub-market, the Company seeks to achieve attractive returns
while controlling overall credit risk. In the future different healthcare sub-
markets may experience increased demand for working capital, and the Company
intends to be in a position to move into these new markets as opportunities
arise.

Focus on healthcare service providers with financing needs of between
$100,000 and $10 million, a market that has been under served by commercial
banks, diversified finance companies, traditional asset-based lenders and
other competitors of the Company. Most commercial banks, diversified finance
companies and traditional asset-based lenders have typically focused on
providing financing to companies with borrowing needs in excess of $5 million.
While actively pursuing healthcare service providers with borrowing needs of
between $5 and $10 million, the Company primarily targets for its ABL Program
clients that desire to borrow less than $5 million, and for its AR Advance
Program clients that desire to borrow less than $1 million. The Company
believes that its target market is much larger, in terms of the number of
available financing opportunities, and is less competitive than the market
servicing larger borrowing needs, thereby producing growth opportunities at
attractive rates.

Seek to introduce new financial products to leverage the Company's existing
expertise in healthcare finance and its origination, underwriting and
servicing capabilities within its target sub-markets. The Company employs
significant resources in the origination, underwriting and servicing of
clients in its target sub-markets. To further deepen its penetration of these
sub-markets and to meet the changing financial needs of new and existing
clients with a broader array of financial products, the Company intends to
offer additional financing products such as cash flow loans and loans secured
by equipment, inventory, real estate or stock. The Company has not designed or
set the terms of any of such new products, but will attempt to structure them
to meet the needs of particular clients. The Company intends to originate
these products directly as an adjunct to its existing ABL Program and AR
Advance Program relationships, or as part of cooperative arrangements with
other lenders where the origination and servicing relationship will remain
with the Company. The Company will seek to selectively introduce such products
to existing and new clients beginning in the first quarter of 1997, depending
upon the needs of its clients, general economic conditions, the Company's
resources and other relevant factors. The Company's objective in offering
these new products is to diversify its revenue stream and enhance its growth
opportunities.

Enhance the Company's credit risk management and improve servicing
capabilities through continued development of information management systems,
which can also be used to assist the Company's clients in managing the growth
of their businesses. The Company has developed proprietary information systems
that effectively monitor its assets and which also serve as valuable tools to
the Company's smaller less sophisticated clients in managing their working
capital resources and streamlining their billing and collection efforts. The
Company believes that this "servicing" capability provides a competitive
advantage by strengthening relationships with clients, providing early
identification of dilution of client accounts receivable, and increasing the
Company's understanding of its clients' operational needs.

FINANCING PROGRAMS

General. The Company provides asset-based financing to healthcare service
providers primarily through the AR Advance Program and ABL Program.

36
<PAGE>

Accounts Receivable Advance Program. Under the AR Advance Program, the
Company purchases, on a revolving basis, a specified batch of a client's
accounts receivable owed to such client from third-party payors. The purchase
price for each batch of receivables is the estimated net collectible value of
such batch less a purchase discount, comprised of funding and servicing fees.
The purchase discount can be either a one-time fee for each batch of
receivables purchased or a periodic fee based on the average outstanding
balance of a batch of receivables ranging from one to five percent of the net
collectible value of such batch. With each purchase of a batch of receivables,
the Company advances to the client 65%-85% (exclusive of the purchase
discount) of the purchase price of such batch. The Company assigns a
collection period to batches of receivables purchased which period generally
ranges from 60 to 120 days from the purchase date depending on the type of
receivables purchased. The excess of the purchase price for a batch of
receivables over the amount advanced with respect to such batch (a "client
holdback") is treated as a reserve and provides additional security to the
Company. The Company targets smaller healthcare service providers for its AR
Advance Program, for which commitments are generally less than $1 million and
terms are generally for one year with renewal options. The average annualized
yield on the AR Advance Program for the nine months ended September 30, 1996
was 19.7%. As of September 30, 1996, the Company was financing 75 clients in
its AR Advance Program.

Asset-Based Lending Program. Under the ABL Program, the Company offers
healthcare service providers revolving lines of credit secured by accounts
receivable. The terms of the Company's ABL Program permit a client to borrow,
on a revolving basis, 65%-85% (exclusive of interest and fees) of the
estimated net collectible value of the client's accounts receivable due from
third-party payors, which are pledged to the Company. The Company charges its
clients a base floating interest rate ranging from one to three percent (above
the then applicable prime rate) and a variety of other fees which may include
a loan management fee, a commitment fee, a set-up fee, and an unused line fee,
which fees collectively range from one to four percent. The Company targets
larger healthcare service providers for its ABL Program, for which the minimum
commitment amount is $1 million and the maximum commitment amount is $10
million. The Company's advances under its ABL Program are recourse to the
client and generally have a term of one to three years. The average annualized
yield on the ABL Program for the nine months ended September 30, 1996 was
15.3%. As of September 30, 1996, the Company was financing 37 clients in its
ABL Program, and the ABL Program constituted 42.1% of total finance
receivables. At September 30, 1996, 10 clients were in both the ABL Program
and AR Advance Program. The ABL Program has grown rapidly since inception,
and, based on the Company's analysis of the needs of its clients, the Company
expects that it will comprise an increasing percentage of the Company's total
assets within the next several years. ABL Program loans are characterized by
lower overall yields, but provide the Company with the opportunity to expand
the range of potential clients while reducing costs as a percentage of finance
receivables.

Term Loans. To a lesser degree, from time to time the Company also provides
its clients with fixed rate term loans secured by their receivables or other
assets, generally in conjunction with either an ABL Program or AR Advance
Program. At September 30, 1996, the Company had approximately $2.9 million in
term loans outstanding, issued under 14 separate term loans, which amount
outstanding represented less than 3.6% of the Company's assets. The average
annualized yield on such term loans for the nine months ended September 30,
1996 was 14.1%.

37
<PAGE>

The following table sets forth on a pro forma basis the Company's portfolio
activity at or for the periods indicated:
PORTFOLIO ACTIVITY

<TABLE>
<CAPTION>
AS OF AND FOR THE QUARTER ENDED
-----------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30,
1995 1995 1995 1995 1996 1996 1996
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Finance Receivables--AR
Advance Program........ $11,461,264 $14,603,602 $22,588,760 $33,446,520 $36,664,745 $39,989,071 $46,064,079
Finance Receivables--ABL
Program................ -- 1,581,478 5,073,933 6,270,629 20,783,045 25,924,458 33,502,829
Total Clients--AR
Advance Program........ 37 52 63 72 68 74 75
Number of New Clients--
AR Advance Program..... 9 18 21 16 14 12 2
Total Clients--ABL
Program................ -- 4 11 13 22 24 37
Number of New Clients--
ABL Program............ -- 4 7 2 9 2 13
Average Finance
Receivables Outstanding
Per Client:
AR Advance Program..... $ 309,764 $ 280,839 $ 358,552 $ 464,535 $ 539,187 $ 540,393 $ 614,188
ABL Program............ -- 395,370 461,267 482,356 864,684 1,080,186 905,482
</TABLE>

OPERATIONS

Marketing. The Company has developed low cost means of marketing its
services on a nationwide basis to selected healthcare sub-markets. The Company
primarily markets its services by telemarketing to prospective clients
identified by the Company, advertising in industry specific periodicals and
participating in industry trade shows. While the healthcare industry is large
and diverse, the Company has been able to identify prospective clients through
the retention of experienced marketing personnel with specific industry
expertise and through analyses of selective information on the healthcare
industry. At September 30, 1996, the Company employed a staff of eight sales
and marketing representatives. The Company maintains a satellite marketing
office in Boca Raton, Florida. Marketing personnel are compensated with a base
salary plus performance bonuses. The Company's clients also assist the
Company's marketing efforts by providing referrals and references. The Company
has and will continue to rely primarily on direct marketing efforts to
generate new clients for its services.

The Company also markets its services by developing referral relationships
with accountants, lawyers, venture capital firms, billing and collection
companies and investment banks (which typically are professionals focusing on
the healthcare industry and who have a pre-existing relationship with a
prospective client). The Company usually does not pay a fee for referrals from
professional firms. However, the Company has closed transactions with clients
through referrals from independent brokers that generally specialize in the
healthcare industry, which brokers have been paid a one-time brokerage
commission upon the closing of a transaction. While not a primary focus of its
marketing efforts, the Company expects to continue to generate referrals
through independent brokers.

Underwriting and Monitoring. The Company follows written underwriting and
credit policies, and its credit committee, consisting of senior officers of
the Company, must unanimously approve a transaction before the Company enters
into either an ABL Program, AR Advance Program or term loan with a prospective
client. The Company's underwriting policies require a due diligence review of
the prospective client, its principals, its financial condition and strategic
position, including a review of all available financial statements and other
financial information, legal documentation and operational matters, as well as
a detailed examination of its accounts receivable, accounts payable, billing
and collection systems and procedures and management information systems. Such
a review is conducted after the Company and the prospective client execute a
non-binding term sheet, which requires the prospective client to pay a due
diligence deposit to defray the Company's expenses. The Company's due
diligence review is supervised by the sponsoring member of the credit
committee, and is conducted by either an in-house field auditor or third-party
consulting underwriters that have been approved by the credit committee. Such
third-party underwriters are either certified public accountants or
consultants with healthcare industry experience. The Company independently
confirms certain matters with respect to the prospective client's business and
the collectibility of its accounts receivable and any other collateral

38
<PAGE>

by conducting public record searches, and, where appropriate, by contacting
third-party payors about the prospective client's receivables.

In order to determine its estimate of the net collectible value of a
prospective client's accounts receivable, the Company works with third-party
claim verifiers, who conduct extensive due diligence to evaluate the
receivables likely to be received within a defined collection period. Net
collectible value due diligence typically includes: a review of historical
collections by type of third-party payor; a review of remittance advice and
information relating to claim denials (including explanations of benefits); a
review of claims files and related medical records; and an analysis of billing
and collections staff and procedures. In addition, third-party payors are
contacted. Such third-party claim verifiers are also generally used on a
periodic basis to determine the net collectible value of a client's accounts
receivable. Claim verifiers include healthcare billing and collection
companies, healthcare accounting firms with expertise in reviewing cost
reports filed with Medicaid and Medicare, and specialized consultants with
expertise in certain sub-markets of the healthcare industry. Claim verifiers
are pre-approved by the Company's credit committee. When deemed necessary by
the Company for credit approval, the Company may obtain corporate or personal
guaranties or other collateral in connection with the closing of a
transaction.

The Company monitors the collections of client accounts receivable and its
finance receivables on a daily basis. Each client is assigned an account
manager, who receives draw and advance requests, posts collections and serves
as the primary contact between the Company and the client. All draw or advance
requests must be approved by the Company's senior credit officer or a member
of the Company's credit committee. At September 30, 1996, the Company employed
seven account managers in its Chevy Chase, Maryland headquarters. The
Company's proprietary information systems enable the Company to monitor each
client's account, as well as permit management to evaluate and mitigate
against risks on a portfolio basis. See "--Information Systems." In addition,
the Company conducts audits of the client's billing and collection procedures,
financial condition and operating strategies at least annually, and more
frequently if warranted, particularly with respect to the ABL Program, where
audits are usually conducted on a quarterly basis. Such audits are conducted
by in-house field auditors or by third-party consulting underwriters.

Documentation. The Company's documentation for the ABL Program and AR
Advance Program is described below.

ABL Program. Advances under the ABL Program are made pursuant to a loan and
-----------
security agreement ("ABL Agreement"), a note, and ancillary documents. ABL
Agreements generally have stated terms of one year, with automatic one-year
extensions, and provide for payment of liquidated damages to the Company in
the event of early termination by the client. Under the ABL Program, the
Company generally advances only 65% to 85% of the Company's estimate of the
net collectible value of client receivables from third-party payors. As
security for such advances, the Company is granted a first priority security
interest in all of the client's then-existing and future accounts receivable,
and frequently obtains a security interest in inventory, goods, general
intangibles, equipment, deposit accounts, cash, other assets and proceeds (the
"Collateral").

Clients who borrow under the ABL Program are subject to a number of negative
covenants set forth in the ABL Agreement, including covenants limiting
additional borrowings, restricting the client's ability to pledge assets,
prohibiting payment by the client of dividends or management fees or returning
capital to investors, and imposing minimum net worth and, if applicable,
minimum census requirements. In the event of a client default, all debt owing
under the ABL Agreement may be accelerated and the Company may exercise its
rights, including foreclosing on the Collateral.

AR Advance Program. Advances under the AR Advance Program are made pursuant
------------------
to a Receivables Purchase and Sale Agreement (the "AR Agreement") and are
structured as purchases of eligible accounts receivable designated from time
to time on a "batch" basis. AR Agreements provide for the Company's purchase
of eligible accounts receivable offered by the client from time to time to the
Company. AR Agreements generally have stated terms of one to three years, with
automatic one-year extensions. The client is required to

39
<PAGE>

sell to the Company a minimum amount of eligible accounts receivable each
month during the term of an AR Agreement; however, the Company's total
investment in eligible accounts receivable under an AR Agreement is limited to
a specified "commitment" amount. The Company may accept or reject in its
discretion any portion of eligible accounts receivable offered for sale by the
client to the Company. Although accounts receivable purchased by the Company
under the AR Advance Program are assigned to the Company pursuant to the AR
Agreement, the client retains its rights to receive payment and to make claims
with respect to Government Program-related receivables.

The purchase price for each batch of eligible accounts receivable under the
AR Advance Program is the estimated net collectible value of the such
receivables less a purchase discount, comprised of funding and servicing fees.
An amount equal to 65% to 85% of the purchase price is paid to the client; the
Company retains the balance of the purchase price as a reserve, held as
additional security for the client's obligations under the AR Agreement. The
reserve is released to the client (i) upon receipt by the Company of payments
relating to the receivables in an amount equal to the estimated net
collectible value of the receivables or (ii) upon expiration of the collection
period assigned to the respective batch of receivables, except that if the
Company has not received payments at least equal to the purchase price for the
receivables, then the Company may at its option either (x) offset any
shortfall against reserves relating to any other batch or from amounts due to
the client from the sale of other batches, or (y) require the client to
replace the uncollected receivables with substitute eligible accounts
receivable.

The AR Agreement also contemplates that the client may grant to the Company
a security interest in other assets of the client as may be mutually agreed.
In addition, pursuant to the AR Agreement, the client agrees to indemnify the
Company for all losses arising out of or relating to the AR Agreement.

Under the AR Agreement, the client covenants to notify payors of the sale of
accounts receivable to the Company and to assist the Company in collecting
payments on the purchased receivables and causing such payments to be remitted
to the Company. The client agrees to instruct all payors that payments are to
be made to such lockbox or other account as the Company may direct.

Collection Procedures. The Company's cash collection procedures vary by (i)
the type of program provided by the Company, either the AR Advance Program or
the ABL Program, and (ii) the type of accounts receivable due and owing to
clients from either insurance companies and health maintenance organizations
("Commercial Insurers"), Government Programs, or in certain limited
circumstances, other healthcare service providers.

Receivables due and owing from Government Programs are subject to certain
laws and regulations not applicable to commercial insurers. Except in certain
limited cases, Medicare and Medicaid laws and regulations provide that
payments for services rendered under Government Programs can only be made to
the healthcare service provider that has rendered the services. See "Risk
Factors--Inability to Collect Healthcare Receivables Directly From Medicare
and Medicaid."

With respect to the ABL Program, clients continue to bill and collect
accounts receivable in the ordinary course of business. Clients are required
to maintain a lockbox account and a related depository account. If Government
Program-related receivables are involved, the lockbox is maintained in the
name of the client and the depository account is maintained in the name of the
Company. If no such receivables are involved, both the lockbox and the
depository account are maintained in the name of the Company. In each case,
all of the client's collections are required to be directed to the lockbox,
and all items of payment received in the lockbox are deposited daily into the
depository account. The Company applies funds received in the depository
account on a daily basis to reduce outstanding indebtedness under the ABL
Agreement. Collections received directly by clients are required to be
immediately remitted to the lockbox.

With respect to the AR Advance Program, clients continue to bill and collect
accounts receivable in the ordinary course of business; provided, however,
that subject to certain limitations applicable to Government

40
<PAGE>

Program-related receivables, the Company retains the right to assume the
billing and collection process upon notice to the client. The Company
maintains a general lockbox in the Company's name into which payments with
respect to all receivables purchased from clients in the AR Advance Program,
other than Government Program-related receivables, are required to be
remitted. If a client in the AR Advance Program generates Government Program-
related receivables, the client is required to establish a lockbox in the
client's name into which payments on such receivables are to be directed.
Balances from all lockboxes maintained in connection with the AR Advance
Program are swept on a daily basis to the Company.

The following table sets forth the percentages of the Company's finance
receivables in the AR Advance Program and the ABL Program as of September 30,
1996 by type of third-party payor.

FINANCE RECEIVABLES BY THIRD-PARTY PAYOR TYPE

<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1996
---------------------------
AR
ADVANCE ABL TOTAL
PROGRAM PROGRAM RECEIVABLES
------- ------- -----------
<S> <C> <C> <C>
Third Party
Payors
- -----------
Commercial Insurers/Contract Claims................ 60.5% 31.8% 49.7%
Government Programs:
Medicare......................................... 18.0 32.6 23.5
Medicaid......................................... 12.3 35.6 21.1
---- ---- ----
Total Government Programs...................... 30.3 68.2 44.6
Other Healthcare Service Providers................. 9.2 -- 5.7
</TABLE>

CLIENTS

The Company's client base is diversified. As of September 30, 1996, the
Company was servicing clients located in 33 states across the country, in a
number of different sub-markets of the healthcare industry, with a
concentration in the long-term care and home healthcare industries.

PORTFOLIO ANALYSIS

<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1996
--------------------------------------------
NUMBER OF PERCENT OF FINANCE PERCENT OF
CLIENTS(1) CLIENTS RECEIVABLES PORTFOLIO
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Industry Group
- --------------
Home Healthcare .................. 36 35.2% $17,846,755 22.4%
Long-Term Care.................... 24 23.5 24,057,407 30.2
Physician Practice................ 12 11.8 2,595,417 3.3
Mental Health..................... 11 10.8 10,249,922 12.9
Rehabilitation.................... 7 6.8 4,815,458 6.1
Durable Medical Equipment......... 6 5.9 1,582,061 2.0
Diagnostic........................ 2 2.0 187,531 0.2
Hospital.......................... 2 2.0 13,621,889 17.1
Other............................. 2 2.0 4,610,468 5.8
--- ----- ----------- -----
Total........................... 102 100.0% $79,566,908 100.0%
=== ===== =========== =====
Program Breakdown
- -----------------
AR Advance Program................ 75 67.0% $46,064,079 57.9%
ABL Program....................... 37 33.0 33,502,829 42.1
--- ----- ----------- -----
Total........................... 112 100.0% $79,566,908 100.0%
=== ===== =========== =====
</TABLE>
- --------
(1) At September 30, 1996, ten clients were in both the AR Advance Program
and ABL Program.

41
<PAGE>

CAPITAL RESOURCES

Sources of capital available to the Company to fund advances under the ABL
Program and advances against accounts receivable under the AR Advance Program
have included the Bank Facility, partnership equity, stockholders' equity, and
upon the closing of the proposed CP Facility, will include the CP Facility.

Bank Facility. The Bank Facility is a revolving line of credit for up to $50
million. The interest rates payable by the Company under the Bank Facility
adjust, based on Fleet's prime rate; however, the Company has the option to
borrow any portion of the Bank Facility over $500,000 based on the 30-day,
three-month or six-month LIBOR plus 3.0%. The Bank Facility contains certain
financial covenants which must be maintained by the Company in order to obtain
funds. The expiration date for the Bank Facility is March 9, 1998, subject to
automatic renewal for one-year periods thereafter unless terminated by Fleet.
See "Risk Factors--Risk of Failure to Renew Funding Sources."

Proposed CP Facility. Under the terms of the proposed CP Facility, the
Company will be able to borrow up to $100 million. The Company will form a
bankruptcy remote, special purpose corporation to which the Company will
transfer loans and receivables which meet certain conditions and as to which
the Company will make certain representations and warranties. The special
purpose corporation will pledge the loans and receivables to a commercial
paper conduit sponsored by ING which will lend against such assets through the
issuance of commercial paper. The maturity date for the proposed CP Facility
will be five years from closing. However, after three years, the program may
be terminated by ING without penalty. See "Management's Discussion and
Analysis of Pro Forma Financial Condition and Pro Forma Results of
Operations--Liquidity and Capital Resources." See "Risk Factors--Risk of
Failure to Renew Funding Sources."

CREDIT LOSS POLICY AND EXPERIENCE

The Company regularly reviews its outstanding loan advances and purchased
accounts receivable to determine the adequacy of its allowance for credit
losses. To date, the Company has experienced no credit losses. The allowance
for credit losses on receivables is maintained at the amount estimated to be
sufficient to absorb future losses, net of recoveries, inherent in the finance
receivables. In evaluating the adequacy of the allowance, management of the
Company considers trends in past-due accounts, historical charge-off and
recovery rates, credit risks indicators, economic conditions, on-going credit
evaluations, overall portfolio size, average client balances, Excess
Collateral, and underwriting policies, among other items. As of September 30,
1996, the Company's general reserve was $1,035,992 or 1.3% of finance
receivables. To the extent that management deems specific advances to be
wholly or partially uncollectible, the Company establishes a specific loss
reserve equal to any such amount. The Company has not established any specific
reserves. Based on a review of the Company's portfolio, management believes
that the Company's reserve for losses on receivables is adequate at this time.

INFORMATION SYSTEMS

The Company owns a proprietary information system to monitor both the ABL
Program and the AR Advance Program which it refers to as the Receivables
Tracking System (the "RTS"). The RTS was developed by Creative Information
Systems, Inc., a stockholder of the Company. The RTS gives the Company the
ability to track and reconcile both asset-based loans under the ABL Program
and receivables that the Company advances against under the AR Advance
Program.

With respect to the ABL Program, the amount of any advances, collections and
adjustments are entered manually into the RTS by the Company's account
managers on a daily basis. With respect to the AR Advance Program, certain
client parameters are entered manually into the RTS, and more detailed
information on each batch of receivables is generally entered electronically
based on pre-established formats tailored to the client's software systems.
Upon the collection of funds advanced under the AR Advance Program,
information about such collections are entered into the RTS by the Company's
account managers who then apply the funds by directing the RTS to search its
data base to locate the receivable and batch that has received a payment.

The RTS generates daily, weekly and monthly reports summarizing the current
status of each batch of receivables in the AR Advance Program, and indicating
draws and collections, trend analysis, and interest and

42
<PAGE>

fee charges for management's review. The RTS is also able to generate reports
for the Company's lenders with respect to pledged loans and batches of
receivables, along with concentrations in the Company's ABL Program and AR
Advance Program portfolios by client and third-party payor type.

Certain reports generated through the RTS, including cash application
detail, batch summary and trend analysis reports, can also be used to assist
the Company's clients in monitoring changes in their cash flow and managing
the growth of their businesses. These reports are provided to all of the
Company's clients on a weekly basis, and are generally relied upon as a
management tool more frequently by smaller clients in the AR Advance Program,
which tend to have less sophisticated management information systems.

The RTS utilizes a Compaq Proliant 1500 production server, with RAID 5 back-
up technology (three hard disk back-ups) and other redundant back-up systems,
on a Novell netware operating system. The Company also operates a second
server with Novell netware supporting certain accounting and administrative
functions.

COMPETITION

The Company encounters significant competition in its healthcare finance
business from numerous commercial banks, diversified finance companies, asset-
based lenders and specialty healthcare finance companies. Additionally,
healthcare service providers often seek alternative sources of financing from
a number of sources, including venture capital firms, small business
investment companies, suppliers and individuals. As a result, the Company
competes with a significant number of local and regional sources of financing
and several large national competitors. Many of these competitors have greater
financial and other resources than the Company and may have significantly
lower cost of funds. Competition can take many forms, including, among others,
the pricing of financing, transaction structuring (e.g., securitization vs.
portfolio lending), timeliness and responsiveness in processing a client's
financing application, and customer service.

GOVERNMENT REGULATION

The Company's healthcare finance business is subject to federal and state
regulation and supervision and is required to be licensed or registered in
various states. In addition, the Company is subject to applicable usury and
other similar laws in the jurisdictions where the Company operates. These laws
generally limit the amount of interest and other fees and charges that a
lender may contract for, charge or receive in connection with a loan.
Applicable local law typically establishes penalties for violations of these
laws in that jurisdiction. These penalties could include the forfeiture to the
lender of usurious interest contracted for, charged or received and, in some
cases, all principal as well as all interest and other charges that the lender
has charged or received.

In addition to the inability of the Company to directly collect receivables
under Government Programs and the right of payors under such programs to
offset against unrelated receivables, the Company's healthcare finance
business is indirectly affected by healthcare regulation to the extent that
any of its clients' failure to comply with such regulation affects such
clients' ability to collect receivables or repay loans made by the Company.
See "Risk Factors--Dilution of Receivables; Government Right of Offset." The
most significant healthcare regulations that could potentially affect the
Company are: (i) certificate of need regulation, which many states require
upon the provision of new health services, particularly for long-term care and
home healthcare companies; (ii) Medicare-Medicaid fraud and abuse statutes,
which prohibit, among other things, the offering, payment, solicitation, or
receipt of remuneration, directly or indirectly, as an inducement to refer
patients to facilities owned by physicians if such facilities receive
reimbursement from Medicare or Medicaid; and (iii) other prohibitions of
physician self-referral that have been promulgated by the states.

Certificate of Need Regulation. Many states regulate the provision of new
health care service or acquisition of healthcare equipment through Certificate
of Need or similar programs. The Company believes these requirements have had
a limited effect on its business, although there can be no assurance that
future changes in those laws will not adversely affect the Company.
Additionally, repeal of existing regulations of this type in jurisdictions
where the Company's customers have met the specific requirements could
adversely affect the

43
<PAGE>

Company since such customers could face increased competition. In addition,
there is no assurance that expansion of the Company's health care financing
business within the nursing home and home care industries will not be
increasingly affected by regulations of this type.

Medicare-Medicaid Fraud and Abuse Statutes. The Department of Health and
Human Services ("HHS") has increased its enforcement efforts under the
Medicare-Medicaid fraud and abuse statutes in cases where physicians own an
interest in a facility to which they refer their patients for treatment or
diagnosis. These statutes prohibit the offering, payment, solicitation or
receipt of remuneration, directly or indirectly, as an inducement to refer
patients for services reimbursable in whole or in part by the Medicare-
Medicaid programs. HHS has taken the position that distributions of profits
from corporations or partnerships to physician investors who refer patients to
the entity for a procedure which is reimbursable under Medicare or Medicaid
may be prohibited by the statute. Since the Company's clients often rely on
prompt payment from the Government Program to satisfy their obligations to the
Company, reduced or denied payments under the Government Programs could have
an adverse effect on the Company's business. See "Risk Factors--Reliance on
Reimbursements by Third-Party Payors."

Further Regulation of Physician Self-Referral. Additional regulatory
attention has been directed toward physician-owned healthcare facilities and
other arrangements whereby physicians are compensated, directly or indirectly,
for referring patients to such healthcare facilities. In 1988, legislation
entitled the "Ethics in Patient Referrals Act" (H.R. 5198) was introduced
which would have prohibited Medicare payments for all patient services
performed by an entity which a patient's referring physician had an investment
interest. As enacted, the law prohibited only Medicare payments for patient
services performed by a clinical laboratory. The Comprehensive Physician
Ownership and Referral Act (H.R. 345), which was enacted by Congress in 1993
as part of the Deficit Reduction Package, is more comprehensive than H.R. 5198
and covers additional medical services including medical imaging radiation
therapy, physical rehabilitation and others. A variety of existing and pending
state laws currently limit the extent to which a physician may profit from
referring patients to a facility in which that physician has a proprietary or
ownership interest. Many states also have laws similar to the Medicare fraud
and abuse statute which are designed to prevent the receipt or payment of
consideration in connection with the referral of a patient. Finance
receivables resulting from a referral in violation of these laws could be
denied from payment which could adversely affect the Company. See "Risk
Factors--Reliance on Reimbursements by Third Party Payors."

LEGAL PROCEEDINGS

The Company is currently not a party to any material litigation although it
is involved from time to time in routine litigation incidental to its
business.

EMPLOYEES

As of September 30, 1996, the Company employed 26 people on a full-time
basis. The Company believes that its relations with employees are good.

PROPERTY

The Company's headquarters occupy approximately 7,000 square feet at 2
Wisconsin Circle, Chevy Chase, Maryland. This space is provided under the
terms of a lease that expires in April, 2001, with a five-year renewal option.
The current cost is approximately $14,000 per month. In addition, the Company
leases a small satellite office in Boca Raton, Florida. The Company believes
that its current facilities are adequate for its existing needs and that
additional suitable space will be available as required.

44
<PAGE>

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The executive officers and directors of the Company and their ages as of
September 30, 1996 are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
John K. Delaney................ 33 Chairman of the Board, Chief Executive
Officer, President and Director
Ethan D. Leder................. 33 Vice-Chairman of the Board, Executive Vice
President and Director
Edward P. Nordberg, Jr......... 36 Senior Vice President--Legal and Financial
Affairs, Secretary and Director
Hilde M. Alter................. 55 Treasurer
Michael G. Gardullo............ 38 Vice President and Senior Credit Officer
Steven M. Curwin............... 38 Vice President and General Counsel
Jeffrey P. Hoffman............. 35 Vice President and Portfolio Manager
John F. Dealy (1)(2)(3)........ 57 Director
Geoffrey E. D. 40
Brooke (1)(2)(3).............. Director
</TABLE>
- --------
(1) Member of Compensation Committee.
(2) Member of Audit Committee.
(3) Nominated Director.

John K. Delaney serves as Chairman of the Board, Chief Executive Officer,
President and Director of the Company. Mr. Delaney co-founded the Company in
1993 and has served as Chairman of the Board, Chief Executive Officer and
President since the formation of the Company. From 1990 through 1992, Mr.
Delaney co-owned and operated American Home Therapies, Inc., a provider of
home care and home infusion therapy services, which was sold in 1992. Prior to
1990, Mr. Delaney was a practicing attorney with Shaw, Pittman, Potts &
Trowbridge in Washington, D.C. Mr. Delaney received his A.B. degree from
Columbia University in 1985 and his J.D. degree from the Georgetown University
Law Center in 1988.

Ethan D. Leder serves as Vice-Chairman of the Board, Executive Vice
President and Director of the Company. Mr. Leder co-founded the Company in
1993 and has served as Vice-Chairman of the Board and Executive Vice President
since the formation of the Company. From 1993 through September, 1996, Mr.
Leder also served as Treasurer to the Company. From 1990 through 1992, Mr.
Leder co-owned and operated American Home Therapies, Inc., a provider of home
care and home infusion therapy services, which was sold in 1992. Prior to
1990, Mr. Leder was engaged in the private practice of law in Baltimore,
Maryland and Washington, D.C. Mr. Leder received his B.A. degree from Johns
Hopkins University in 1984 and his J.D. degree from the Georgetown University
Law Center in 1987.

Edward P. Nordberg, Jr. serves as Senior Vice President-Legal and Financial
Affairs, Secretary and Director of the Company. Mr. Nordberg co-founded the
Company in 1993 and has served as Senior Vice President and Secretary of the
Company since the formation of the Company. From 1993 through April 1996, Mr.
Nordberg also served as General Counsel of the Company. Prior to 1993, Mr.
Nordberg was a practicing attorney with Williams & Connolly in Washington,
D.C. Mr. Nordberg received his B.A. degree from Washington College in 1982,
his M.B.A. degree from Loyola College in 1985, and his J.D. degree from the
Georgetown University Law Center in 1989.

Hilde M. Alter serves as Treasurer of the Company. Ms. Alter joined the
Company in September, 1996. From 1981 to joining the Company, Ms. Alter was a
partner with the accounting firm of Keller, Bruner & Co. in Bethesda,
Maryland. Ms. Alter is a certified public accountant. Ms. Alter received her
B.A. degree from American University in 1966.

45
<PAGE>

Michael G. Gardullo serves as Vice President and Senior Credit Officer of
the Company. Mr. Gardullo joined the Company in February, 1996. From June,
1995 to joining the Company, Mr. Gardullo was a Senior Account
Executive/Manager at The FINOVA Group in King of Prussia, Pennsylvania. From
1993 to 1995, Mr. Gardullo was Vice President and Regional Credit Manager at
LaSalle Business Credit, an affiliate of ABN AMRO Bank, N.V., in Baltimore,
Maryland. From 1991 to 1993, Mr. Gardullo was Vice President and Manager,
respectively, at StanChart Business Credit in Baltimore, Maryland and London,
England. From 1982 through 1991, Mr. Gardullo held various management and
operational positions at several asset-based lending institutions. Mr.
Gardullo received his B.S. degree from Seton Hall University in 1981 and his
M.B.A. degree from Rutgers University in 1982.

Steven M. Curwin serves as Vice President and General Counsel of the
Company. Mr. Curwin joined the Company in August, 1996, and has served as a
full-time consultant to the Company since May, 1996. From September, 1994 to
joining the Company, Mr. Curwin was a practicing attorney with Shulman,
Rogers, Gandal, Pordy & Ecker, P.A. in Rockville, Maryland. From January, 1989
to August, 1994, Mr. Curwin was a practicing attorney with Dewey Ballantine in
Washington, D.C. Mr. Curwin received his B.A. degree from Franklin & Marshall
College in 1980 and his J.D. degree from the Boston University School of Law
in 1985.

Jeffrey P. Hoffman serves as Vice President and Portfolio Manager of the
Company. Mr. Hoffman joined the Company in September, 1996. From 1994 to
joining the Company, Mr. Hoffman was a Vice President-Senior Loan Officer and
from 1990 to 1993, Mr. Hoffman was a Vice President-Senior Underwriter at
Fleet Capital Corporation and its predecessor companies, Shawmut Capital
Corporation and Barclays Business Credit, in Glastonbury, Connecticut and New
York, New York. From 1988 through 1990, Mr. Hoffman was an assistant vice
president with Bankers Trust Company in New York, New York. From 1982 through
1988, Mr. Hoffman held various management positions with Bank of Boston, in
New York, New York. Mr. Hoffman received his B.A. degree from the State
University of New York at Albany in 1982 and his M.B.A. degree from Adelphi
University in 1987.

John F. Dealy has agreed to become a Director of the Company upon completion
of the Offering. Mr. Dealy has been President of The Dealy Strategy Group, a
management consulting firm, since 1983. In addition, Mr. Dealy has been Senior
Counsel to Shaw, Pittman, Potts & Trowbridge in Washington, D.C. since 1982,
as well as a professor in the Georgetown University School of Business since
1982. Mr. Dealy is currently a director of the First Maryland Bancorp. From
1976 to 1982, Mr. Dealy was President of Fairchild Industries, Inc. Prior to
1976, Mr. Dealy held a number of management positions at Fairchild Industries,
Inc. Mr. Dealy received his B.S. degree from Fordham College in 1961 and his
L.L.B. degree from the New York University School of Law in 1964.

Geoffrey E. D. Brooke has agreed to become a Director of the Company upon
completion of the Offering. Dr. Brooke is Senior Member, Rothschild Bioscience
Unit, a division of Rothschild Asset Management Limited, and is responsible
for its venture capital operations in the Asian Pacific region. Mr. Brooke
resides in Australia. Prior to joining Rothschild, from June, 1992 to
September, 1996, Dr. Brooke was the President of MedVest, Inc., a healthcare
venture capital firm in Washington, D.C. which he co-founded with Johnson &
Johnson, Inc. Prior to co-founding MedVest, Inc., Dr. Brooke managed the life
sciences portfolio of a publicly traded group of Australian venture capital
funds. Dr. Brooke is licensed in clinical medicine by the Medical Board of
Victoria, Australia. Dr. Brooke earned his medical degree from the University
of Melbourne, Australia and a M.B.A. from IMD in Lausanne, Switzerland.

Pursuant to the Company's Amended and Restated Certificate of Incorporation,
the Board of Directors has been divided into three classes. Class I will
consist of Messrs. Nordberg and Brooke whose terms will expire at the annual
meeting of stockholders in 1997; Class II will consist of Mr. Leder whose term
will expire at the annual meeting of stockholders in 1998; and Class III will
consist of Messrs. Delaney and Dealy whose terms will expire at the annual
meeting of stockholders in 1999.

46
<PAGE>

COMMITTEES OF THE BOARD OF DIRECTORS

Upon consummation of the Offering, the Board of Directors will establish a
Compensation Committee and an Audit Committee. The Compensation Committee,
which will be comprised of Messrs. Dealy and Brooke, will have the authority
to determine compensation for the Company's executive officers and to
administer the Incentive Plan. Messrs. Dealy and Brooke are "disinterested
persons" within the meaning of Rule 16b-3, as amended from time to time, under
the Exchange Act and "outside directors" within the meaning of Section 162(m)
of the Internal Revenue Code of 1986, as amended (the "Code"). The Audit
Committee, which will be comprised of Messrs. Dealy and Brooke, will have the
authority to make recommendations concerning the engagement of independent
public accountants, review with the independent public accountants the plan
and results of the audit engagement, review the independence of the
independent public accountants, consider the range of audit and non-audit fees
and review the adequacy of the Company's internal accounting controls.

DIRECTOR COMPENSATION

Outside directors are paid $2,000 per meeting. Upon election to the Board of
Directors, outside directors are granted options to purchase 10,000 shares of
Common Stock at the then-prevailing fair market value, and are granted options
to purchase 5,000 shares of Common Stock at the then-prevailing fair market
value annually thereafter. See "--Director Plan" for a description of the
material terms of these options.

EXECUTIVE COMPENSATION

The following table presents certain information concerning compensation
earned for services rendered in all capacities to the Company for the year
ended December 31, 1995 by the Chief Executive Officer and each of the other
executive officers whose salary and bonus exceeded $100,000.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------------------------------------
OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION(S) SALARY(1) BONUS COMPENSATION(2) COMPENSATION (2)
- ------------------------------ --------- ------- --------------- ----------------
<S> <C> <C> <C> <C>
John K. Delaney............. $196,538 $94,166 $-- $--
Chairman, Chief Executive
Officer and President
Ethan D. Leder.............. 196,539 94,166 -- --
Vice Chairman of the Board
and Executive Vice
President
Edward P. Nordberg, Jr...... 169,038 94,166 -- --
Senior Vice President and
Secretary
</TABLE>
- --------
(1) Includes $60,000, $60,000 and $30,000 paid to Messrs. Delaney, Leder and
Nordberg, respectively, pursuant to a certain Support Services Agreement
described in "Certain Transactions."
(2) Certain of the Company's executive officers receive benefits in addition
to salary and cash bonuses. The aggregate amount of such benefits,
however, do not exceed the lesser of $50,000 or 10% of the total annual
salary and bonus of such executive officer.

No options to purchase the Company's Common Stock were granted under the
Incentive Plan prior to September 13, 1996. See "--Stock Incentive Plan." An
option to purchase 38,381 shares of Common Stock was granted to a consultant
of the Company on November 1, 1995 outside of the Incentive Plan at an
exercise price of $2.61 per share.

EMPLOYMENT AND NON-COMPETITION AGREEMENTS

Mr. Delaney serves as Chairman of the Board, President and Chief Executive
Officer of the Company pursuant to the terms of an employment agreement which
continues in effect until January 1, 2001. On the first

47
<PAGE>

anniversary of the date of the employment agreement, and on each anniversary
date thereafter, the employment period is extended for an additional one-year
period, unless the Company or Mr. Delaney notifies the other of its or his
intention not to extend the employment period. Under the terms of the
employment agreement, Mr. Delaney presently receives an annual salary of
$240,000. Commencing January 1, 1997, Mr. Delaney will receive an annual
salary which is not less than the greater of (i) $300,000 or (ii) any
subsequently established base salary, in either case increased annually by not
less than 50% of the annual increase in the Consumer Price Index for Urban
Wage Earners and Clerical Workers ("CPI-W"). Commencing on March 31, 1997, and
on the last day of each calendar quarter thereafter during the term of the
employment agreement, Mr. Delaney will be paid a quarterly bonus of $25,000,
provided that the Company has achieved profitability for such quarter. In the
event the Company has not achieved profitability in a quarter in any calendar
year but the Company's profits in any subsequent quarter of that year are
equal to the losses in all prior quarters of that year plus one dollar,
Mr. Delaney will be paid his then current quarterly bonus, plus any bonus
amount not paid for any prior unprofitable quarter of that year. In the event
the Company terminates Mr. Delaney's employment without cause, Mr. Delaney
will be entitled to receive his compensation and benefits for the remainder of
the term of the employment agreement. The first three years of such payments
of compensation and benefits is guaranteed and not subject to reduction or
offset. In the event Mr. Delaney's employment is terminated, he will be
restricted from competing with the Company for 18 months.

Mr. Leder serves as Vice-Chairman of the Board and Executive Vice President
of the Company pursuant to the terms of an employment agreement which
continues in effect until January 1, 2001. On the first anniversary of the
date of the employment agreement, and on each anniversary date thereafter, the
employment period is extended for an additional one-year period, unless the
Company or Mr. Leder notifies the other of its or his intention not to extend
the employment period. Under the terms of the employment agreement, Mr. Leder
presently receives an annual salary of $240,000. Commencing January 1, 1997,
Mr. Leder will receive an annual salary which is not less than the greater of
(i) $275,000 or (ii) any subsequently established base salary, in either case
increased annually by not less than 50% of the annual increase in the CPI-W.
Commencing on March 31, 1997, and on the last day of each calendar quarter
thereafter during the term of the employment agreement, Mr. Leder will be paid
a quarterly bonus of $25,000, provided that the Company has achieved
profitability for such quarter. In the event the Company has not achieved
profitability in a quarter in any calender year but the Company's profits in
any subsequent quarter of that year are equal to the losses in all prior
quarters of that year plus one dollar, Mr. Leder will be paid his then current
quarterly bonus, plus any bonus amount not paid for any prior unprofitable
quarter of that year. In the event the Company terminates Mr. Leder's
employment without cause, Mr. Leder will be entitled to receive his
compensation and benefits for the remainder of the term of the employment
agreement. The first three years of such payments of compensation and benefits
is guaranteed and not subject to reduction or offset. In the event Mr. Leder's
employment is terminated, he will be restricted from competing with the
Company for 18 months.

Mr. Nordberg serves as Senior Vice President--Legal and Financial Affairs
and Secretary of the Company pursuant to the terms of an employment agreement
which continues in effect until January 1, 2001. On the first anniversary of
the date of the employment agreement, and on each anniversary date thereafter,
the employment period is extended for an additional one-year period, unless
the Company or Mr. Nordberg notifies the other of its or his intention not to
extend the employment period. Under the terms of the employment agreement, Mr.
Nordberg presently receives an annual salary of $210,000. Commencing January
1, 1997, Mr. Nordberg will receive an annual salary which is not less than the
greater of (i) $250,000 or (ii) any subsequently established base salary, in
either case increased annually by not less than 50% of the annual increase in
the CPI-W. In the event the Company terminates Mr. Nordberg's employment
without cause, Mr. Nordberg will be entitled to receive his compensation and
benefits for the remainder of the term of the employment agreement. The first
three years of such payments of compensation and benefits is guaranteed and
not subject to reduction or offset. In the event Mr. Nordberg's employment is
terminated, he will be restricted from competing with the Company for 18
months.

48
<PAGE>

STOCK INCENTIVE PLAN

The Company maintains the HealthCare Financial Partners, Inc. 1996 Stock
Incentive Plan (the "Incentive Plan"). The Board of Directors has reserved
750,000 shares of Common Stock for issuance pursuant to awards that may be
made under the Incentive Plan, subject to adjustment as provided therein.

Awards under the Incentive Plan are determined by a committee of no less
than two members of the Board of Directors (the "Committee"), the members of
which are selected by the Board of Directors. Upon consummation of the
Offering, Messrs. Dealy and Brooke will serve as members of the Committee. The
full membership of the Board of Directors currently serves as the Committee.

Key employees, officers, directors and consultants of the Company or an
affiliate are eligible for awards under the Incentive Plan. The Incentive Plan
permits the Committee to make awards of shares of Common Stock, awards of
derivative securities related to the value of the Common Stock and certain
cash awards to eligible persons. These discretionary awards may be made on an
individual basis, or pursuant to a program approved by the Committee for the
benefit of a group of eligible persons. The Incentive Plan permits the
Committee to make awards of a variety of equity-based incentives, including
(but not limited to) stock awards, options to purchase shares of Common Stock
and to sell shares of Common Stock back to the Company, stock appreciation
rights, so-called "cash-out" or "limited stock appreciation rights" (which the
Committee may make exercisable in the event of certain changes in control of
the Company or other events), phantom shares, performance incentive rights,
dividend equivalent rights and similar rights (together, "Stock Incentives").
The number of shares of Common Stock as to which a Stock Incentive is granted
and to whom any Stock Incentive is granted, and all other terms and conditions
of a Stock Incentive, is determined by the Committee, subject to the
provisions of the Incentive Plan. The terms of particular Stock Incentives may
provide that they terminate, among other reasons, upon the holder's
termination of employment or other status with respect to the Company and any
affiliate, upon a specified date, upon the holder's death or disability, or
upon the occurrence of a change in control of the Company. Stock Incentives
may also include exercise, conversion or settlement rights to a holder's
estate or personal representative in the event of the holder's death or
disability. At the Committee's discretion, Stock Incentives that are held by
an employee who suffers a termination of employment may be cancelled,
accelerated, paid or continued, subject to the terms of the applicable Stock
Incentive agreement and to the provisions of the Incentive Plan. Stock
Incentives generally are not transferable or assignable during a holder's
lifetime.

The maximum number of shares of Common Stock with respect to which options
or stock appreciation rights may be granted during any fiscal year of the
Company as to certain eligible recipients shall not exceed 100,000, to the
extent required by Section 162(m) of the Code for the grant to qualify as
qualified performance-based compensation.

The number of shares of Common Stock reserved for issuance in connection
with the grant or settlement of Stock Incentives or to which a Stock Incentive
is subject, as the case may be, and the exercise price of each option are
subject to adjustment in the event of any recapitalization of the Company or
similar event, effected without the receipt of consideration. In the event of
certain corporate reorganizations and similar events, Stock Incentives may be
substituted, cancelled, accelerated, cashed-out or otherwise adjusted by the
Committee, provided such adjustment is not inconsistent with the express terms
of the Incentive Plan or the applicable Stock Incentive agreement.

On September 13, 1996, the Company granted incentive stock options to
purchase an aggregate of 189,000 shares of Common Stock at an exercise price
of $11.05 per share. All current, full-time employees, other than Messrs.
Delaney, Leder and Nordberg, were granted these options. Each option is
subject to a maximum ten-year term, but becomes vested and exercisable only on
and after the seventh anniversary of the date of grant; however, if the
Offering is successfully consummated, these options will vest and become
exercisable in 25% increments on each anniversary of the grant date,
commencing on September 13, 1997. In addition, on September 13, 1996, each of
Messrs. Delaney, Leder and Nordberg was granted incentive stock options to
purchase 37,000 shares of Common Stock at an exercise price equal to the
initial public offering price of the Common Stock in the

49
<PAGE>

Offering. These options are contingent upon the consummation of the Offering
and will vest and become exercisable in 20% increments on each anniversary of
the grant date, commencing on September 13, 1997.

DIRECTOR PLAN

The Company maintains the HealthCare Financial Partners, Inc. 1996 Director
Incentive Plan (the "Director Plan"). The Board of Directors has reserved
100,000 shares of Common Stock for issuance pursuant to awards that may be
made under the Director Plan, subject to adjustment as provided therein.

Awards under the Director Plan are determined by the express terms of the
Director Plan. Rules, regulations and interpretations necessary for the
ongoing administration of the Director Plan will be made by the full
membership of the Board of Directors.

Only non-employee directors of the Company are eligible to participate in
the Director Plan. The Director Plan contemplates three types of non-statutory
option awards: (a) initial appointment awards that are granted upon a non-
employee director's initial appointment to the Board of Directors providing an
option to purchase 10,000 shares of Common Stock at a per share exercise price
equal to the then fair market value of a share of Common Stock; (b) annual
service awards that are granted to each non-employee director who continues to
serve as a non-employee director as of each annual meeting of the stockholders
of the Company following his or her initial appointment providing an option to
purchase 5,000 shares of Common Stock at a per share exercise price equal to
the then fair market value of a share of Common Stock; and (c) discount awards
under which each non-employee director also has the opportunity to elect
annually, subject to rules established by the Board of Directors, to forego
receipt of cash retainer and fees for scheduled meetings of the Board of
Directors and committees thereof that would otherwise be paid during each
fiscal year of the Company, and in lieu thereof that director be granted an
option to acquire shares of Common Stock with an exercise price per share
equal to 50% of the then fair market value of a share of Common Stock. The
number of shares of Common Stock subject to any option of this type granted
for a fiscal year is determined by taking the amount of cash foregone by the
director for the fiscal year in question and dividing that amount by the per
share option exercise price.

Each option granted pursuant to the Director Plan is immediately vested;
becomes exercisable 12 months following the date of grant; and expires upon
the earlier to occur of the tenth anniversary of the grant date or 18 months
following the director's termination of service upon the Board of Directors
for any reason. The options generally are not transferable or assignable
during a holder's lifetime.

The number of shares of Common Stock reserved for issuance upon exercise of
options granted under the Director Plan, the number of shares of Common Stock
subject to outstanding options and the exercise price of each option are
subject to adjustment in the event of any recapitalization of the Company or
similar event, effected without the receipt of consideration. The number of
shares of stock subject to options granted in connection with initial
appointments or as annual service awards are also subject to adjustment in
such events. In the event of certain corporate reorganizations and similar
events, the options may be adjusted or cashed-out, depending upon the nature
of the event.

As of the date of this Prospectus, no options had been granted under the
Director Plan, but each of Messrs. Dealy and Brooke will receive initial
appointment grants upon their election to the Board of Directors.

INDEMNIFICATION ARRANGEMENTS

The Company has entered into indemnification agreements pursuant to which it
has agreed to indemnify certain of its directors and officers against
judgments, claims, damages, losses and expenses incurred as a result of the
fact that any director or officer, in his capacity as such, is made or
threatened to be made a party to any suit or proceeding. Such persons will be
indemnified to the fullest extent now or hereafter permitted by the Delaware
General Corporation Law (the "DGCL"). The indemnification agreements also
provide for the advancement of certain expenses to such directors and officers
in connection with any such suit or proceeding. The Company's Amended and
Restated Certificate of Incorporation and Amended and Restated Bylaws provide
for the indemnification of the Company's directors and officers to the fullest
extent permitted by the DGCL. See "Description of Capital Stock--Special
Provisions of the Certificate of Incorporation and Bylaws."

50
<PAGE>

CERTAIN TRANSACTIONS

Effective as of September 1, 1996, Funding acquired all of the assets of DEL
consisting principally of client receivables, for $486,630 in cash, which
amount approximated the fair value of DEL's net assets, and assumed all of
DEL's liabilities. DEL subsequently distributed the remaining proceeds from
the sale pro-rata (i) to John K. Delaney, Ethan D. Leder and Edward P.
Nordberg, Jr., the sole limited partners of DEL and each a director and
officer of the Company, in the amounts of $197,044, $197,044 and $98,522,
respectively, in respect of their limited partnership interests, and (ii)
$1,188 to the Company in respect of its general partnership interest. DEL was
subsequently dissolved.

The amount paid by Funding for the assets of DEL was equal to the book value
or net investment of DEL in the assets transferred, consisting principally of
client receivables. The objective was for DEL to recognize no gain or loss on
the transaction. The purpose of the transaction was to consolidate the assets
of DEL and Funding in anticipation of the Offering and the acquisition by the
Company of the limited partnership interests of Funding described below. The
cost to the Company and each of Messrs. Delaney, Leder and Nordberg for their
interests in DEL were $7,869, $427,735, $426,897 and $81,400, respectively,
and the Company and such persons each had received, prior to the sale,
distributions from DEL in respect of their interests in the amounts of $6,681,
$230,661, $229,823, and $82,878, respectively.

Effective upon completion of the Offering, the Company will acquire from HP
Investors, the sole limited partner of Funding, all of the limited partnership
interests in Funding. The purchase price for such limited partnership
interests will be $21.8 million which will be paid from the proceeds of the
Offering. Such purchase price approximates both the fair value and book value
of the net assets. See "Use of Proceeds." HP Investors paid $24.8 million in
cash for its limited partnership interests and, through September 30, 1996 had
received income distributions in respect of its limited partnership interests
aggregating $5.4 million and limited partner capital distributions of $2.5
million. HP Investors will also receive its limited partner share of
undistributed profits of Funding through the date of transfer of its limited
partnership interest to the Company.

Effective upon the acquisition of the limited partnership interests of
Funding, the Company will cause Funding to be liquidated and dissolved and all
of its net assets at the date of transfer, consisting principally of advances
made under the ABL Program and the ABL Advance Program ($79.6 million at
September 30, 1996), will be transferred to the Company. The principal
purposes of the Company's acquisition of Funding are (i) to consolidate
ownership of such assets and related business operations in the Company, a
single entity with greater access to the public and private capital markets,
(ii) to simplify the corporate and management structures of the Company by
eliminating its general partnership interest in Funding and the concomitant
management responsibilities of the Company as a general partner of Funding,
and (iii) to allow the Company to realize the return on the assets transferred
to the Company which otherwise would have been paid to HP Investors as the
limited partner of Funding prior to the transfer of the ownership of such
assets to the Company.

In connection with the liquidation of Funding, Farallon and RR Partners will
exercise warrants for the purchase of 379,998 shares of Common Stock, which
warrants were acquired by Farallon and a predecessor of RR Partners on
December 28, 1994 for an aggregate payment of $500, and subsequently assigned
to HP Investors. HP Investors transferred the warrants to Farallon and RR
Partners in contemplation of the liquidation of Funding. No additional
consideration will be paid in connection with the exercise of such warrants.
There is no affiliation between the Company and Farallon and RR Partners other
than the ownership of the warrants and 169,495 shares of Common Stock. The
warrants were issued to provide equity ownership in the Company to the warrant
holders and as a means of further strengthening the business relationship
between the parties.

Pursuant to a Software License Agreement (the "Software License Agreement"),
dated as of August 31, 1993, by and between Ampro Financial Corporation
("Ampro") and the Company, Ampro granted to the Company a non-exclusive
perpetual license to use the RTS. In October, 1995, Ampro sold and assigned
its rights and obligations in the Software License Agreement to Creative
Information Systems, LLC ("Creative"), a stockholder of the Company. Ampro is
controlled by the spouse of the principal member of Creative. See "Principal
Stockholders." For the fiscal year ended December 31, 1995, the Company paid
an aggregate of

51
<PAGE>

$100,000 in license fees pursuant to the Software License Agreement, or $8,333
per month. From January 1, 1996 through August 31, 1996, the Company has
continued to license the RTS from Creative for $8,333 per month. Pursuant to a
Software Purchase and License Agreement, dated as of September 1, 1996, by and
between the Company and Creative, the Company acquired the RTS from Creative
for $25,000 in cash, payable in three equal consecutive monthly installments,
and granted back to Creative a non-exclusive perpetual license to use the RTS.

Pursuant to a Support Services Agreement (the "Support Services Agreement"),
dated as of October 1, 1994, by and between the Company and The Leddel Group,
a general partnership ("Leddel") (the sole partners of which are Messrs.
Delaney, Leder and Nordberg), Leddel: (i) leased to the Company approximately
2,500 square feet of office space in Washington, D.C. for $7,500 per month;
(ii) rented to the Company the use of certain office equipment for $2,500 per
month; and (iii) provided to the Company certain professional services,
including legal and consulting services, for a fee of $2,500 per month. For
the fiscal year ended December 31, 1995, the Company paid an aggregate of
$150,000 to Leddel. Although not the result of arms-length negotiation, the
amounts paid to Leddel represented the parties' best estimates of market rates
for such office space, equipment and services. The Support Services Agreement
expired on December 31, 1995.

On September 15, 1996, the Company entered into an Advisory Services
Agreement with The Dealy Strategy Group ("DSG"), a consulting firm controlled
by John F. Dealy, who will become a director of the Company upon completion of
the Offering, for DSG to provide business advisory services to the Company for
the period from January 1, 1997 through December 31, 1998. In consideration of
such services, the Company will pay DSG $50,000 per year, payable quarterly,
and granted DSG options to purchase 15,000 shares of Common Stock at a price
of $11.05 per share. Such options vest in increments of 1,875 shares at the
end of each quarter while DSG is furnishing business advisory services,
commencing with the quarter ending March 31, 1997, and are exercisable for a
period of ten years from the date of grant.

Although not dissatisfied with the performance of McGladrey & Pullen, LLP,
the Company's Board of Directors determined that, in contemplation of becoming
a publicly-owned company, the Company would be better served by the engagement
of a big-six accounting firm. Accordingly, on June 21, 1996, the Company
dismissed McGladrey & Pullen, LLP, and subsequently decided to engage Ernst &
Young LLP, as the Company's independent accountants for the year beginning
January 1, 1996. The reports of McGladrey & Pullen, LLP, for the years ended
December 31, 1995 and 1994 did not contain an adverse opinion or disclaimer of
opinion and were not qualified as to uncertainty, audit scope or accounting
principles. During such years and for the period January 1, 1996 through June
21, 1996 there was no disagreement with McGladrey & Pullen, LLP on any matter
of accounting principles or practices, financial statement disclosure or
auditing scope or procedure. During the Company's two most recent fiscal years
and during the current fiscal year prior to its engagement, neither the
Company nor anyone acting on its behalf consulted Ernst & Young LLP, regarding
either the application of accounting principles to a specified transaction
(either completed or proposed) or the type of audit opinion that might be
rendered on the Company's financial statements.

52
<PAGE>

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information with respect to
beneficial ownership of the Company's Common Stock as of September 30, 1996,
and as adjusted to reflect the Reorganization and completion of the Offering,
by: (i) each person or entity known by the Company to own beneficially five
percent or more of the outstanding Common Stock, (ii) each member and proposed
member of the Board of Directors of the Company, (iii) each executive officer
of the Company, and (iv) all executive officers of the Company and all members
and proposed members of the Board of Directors as a group. Unless otherwise
indicated, the address of the stockholders as beneficially owing more than
five percent of the Common Stock listed below is that of the Company's
principal executive offices. Except as indicated in the footnotes to the
table, the persons and entities named in the table have sole voting and
investment power with respect to all shares beneficially owned.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR OWNED AFTER
TO THE OFFERING THE OFFERING
NAME OF --------------------------------------------
BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT
---------------- ----------- --------------------- ----------
<S> <C> <C> <C> <C>
John K. Delaney.................... 731,113 19.24% 731,113 12.39%
Ethan D. Leder..................... 731,113 19.24 731,113 12.39
Edward P. Nordberg, Jr............. 731,113 19.24 731,113 12.39
John F. Dealy(1)................... -- -- -- --
Geoffrey E. D. Brooke(2)........... -- -- -- --
JMR Capital Partners, Inc.(3)...... 506,319 13.32 506,319 8.58
Creative Information Systems,
LLC(4)............................ 506,319 13.32 506,319 8.58
Farallon Capital Partners,
L.P.(5)........................... 466,237 12.27 466,237 7.90
RR Capital Partners, L.P.(5)....... 83,256 2.19 83,256 1.41
All directors and executive
officers as a group
(9 persons)(6).................... 2,193,339 57.72 2,193,339 37.18
</TABLE>
- --------
(1) The business address of Mr. Dealy is 2300 N Street, N.W., Washington, D.C.
20037.
(2) The business address of Mr. Brooke is 1568 Springhill Road, McLean,
Virginia 22102.
(3) The business address of JMR Capital Partners, Inc. is 3201 Broad Branch
Terrace, N.W., Washington D.C. 20008.
(4) The business address of Creative Information Systems, LLC is 5151 Beltline
Road, Suite 1201, Dallas, Texas 75240.
(5) The business address of each of these entities is One Maritime Plaza,
Suite 1325, San Francisco, California 94111.
(6) For information concerning options granted to the directors and executive
officers of the Company, see "Management--Stock Incentive Plan" and
"Management--Director Plan."

53
<PAGE>

DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company consists of 30,000,000 shares of
Common Stock, par value $.01 per share, and 10,000,000 shares of blank check
preferred stock, par value $.01 per share. As of the date of this Prospectus,
there are 3,799,991 shares of Common Stock outstanding and held of record by
14 stockholders and no shares of preferred stock are issued and outstanding.

COMMON STOCK

General

Holders of shares of Common Stock are entitled to share ratably in such
dividends as may be declared by the Board of Directors and paid by the Company
out of funds legally available therefor, subject to prior rights of
outstanding shares of any preferred stock and certain restrictions under
agreements governing the Company's indebtedness. See "Dividend Policy,"
"Management's Discussion and Analysis of Pro Forma Financial Condition and Pro
Forma Results of Operations--Liquidity and Capital Resources," and "Business--
Capital Resources." In the event of any dissolution, liquidation or winding up
of the Company, holders of shares of Common Stock are entitled to share
ratably in assets remaining after payment of all liabilities and liquidation
preferences, if any.

Except as otherwise required by law, the holders of Common Stock are
entitled to one vote per share on all matters voted on by stockholders,
including the election of directors. The holders of a majority of Common Stock
represented at a meeting of stockholders can elect all of the directors to be
elected at such meeting.

Holders of shares of Common Stock have no preemptive, cumulative voting,
subscription, redemption or conversion rights. The currently outstanding
shares of Common Stock are fully paid and nonassessable, and the shares of
Common Stock to be outstanding upon completion of the Offering will be fully
paid and nonassessable. The rights, preferences and privileges of holders of
Common Stock are subject to the rights of any series of preferred stock which
the Company may issue in the future.

Transfer Agent and Registrar

Upon consummation of the Offering, the registrar and transfer agent for the
Common Stock will be First Union National Bank of North Carolina.

PREFERRED STOCK

The Board of Directors may, without further action by the Company's
stockholders, from time to time, authorize the issuance of shares of preferred
stock in one or more classes or series and may, at the time of issuance,
determine the powers, rights, preferences, qualifications and limitations of
any such class or series. Satisfaction of any dividend preferences on
outstanding shares of preferred stock would reduce the amount of funds
available for the payment of dividends on Common Stock. Also, holders of
preferred stock would be entitled to receive a preference payment in the event
of any liquidation, dissolution or winding up of the Company before any
payment is made to the holders of Common Stock. Under certain circumstances,
the issuance of such preferred stock may render more difficult or tend to
discourage a merger, tender offer or proxy contest, the assumption of control
by a holder of a large block of the Company's securities or the removal of
incumbent directors.

SPECIAL PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND BYLAWS.

The Amended and Restated Certificate of Incorporation (the "Certificate of
Incorporation") and the Amended and Restated Bylaws ("Bylaws") of the Company
include certain provisions that could have anti-takeover effects. The
provisions are intended to enhance the likelihood of continuity and stability
in the composition of, and in the policies formulated by, the Board of
Directors. These provisions also are intended to help ensure that the Board of
Directors, if confronted by an unsolicited proposal from a third party that
has

54
<PAGE>

acquired a block of stock of the Company, will have sufficient time to review
the proposal, to develop appropriate alternatives to the proposal, and to act
in what the Board of Directors believes to be the best interests of the
Company and its stockholders. The foregoing provisions of the Certificate of
Incorporation may not be amended or repealed by the stockholders of the
Company except upon the vote, at a regular or special stockholders' meeting,
of the holders of at least a majority of the outstanding shares of each class
of the Company's capital stock then entitled to vote thereon.

The following is a summary of the provisions of the Certificate of
Incorporation and Bylaws and is qualified in its entirety by reference to such
documents in the respective forms filed as exhibits to the Registration
Statement of which this Prospectus forms a part.

Amendment of Bylaw Provisions

The Certificate of Incorporation provides that Bylaw provisions may be
adopted, altered, amended or repealed only by the affirmative vote of (i) at
least a majority of the members of the Board of Directors who are elected by
the holders of Common Stock or (ii) at least a majority of the outstanding
shares of each class of the Company's capital stock then entitled to vote
thereon.

Classified Board of Directors

The Certificate of Incorporation provides for a Board of Directors divided
into three classes of directors serving staggered three-year terms. The
classification of directors has the effect of making it more difficult for
stockholders to change the composition of the Board of Directors in a short
period of time. At least two annual meetings of stockholders, instead of one,
will generally be required to effect a change in a majority of the Board of
Directors. See "Management."

Number of Directors; Filling Vacancies; Removal

The Certificate of Incorporation provides that the Board of Directors will
consist of at least three and no more than ten members (plus such number of
directors as may be elected from time to time pursuant to the terms of any
series of preferred stock that may be issued and outstanding from time to
time). The number of directors constituting the entire Board of Directors may
be changed only by an amendment to the applicable provision of the Certificate
of Incorporation (which will require the vote of the holders of at least a
majority of each class of the Company's outstanding voting securities then
entitled to vote thereon). The Bylaws provide that the Board of Directors,
acting by a majority vote of the directors then in office, may fill any newly
created directorships or vacancies on the Board of Directors.

Under Delaware law, in the case of a corporation having a classified board,
stockholders may remove a director only for cause. This provision, when
coupled with the provision of the Bylaws authorizing the Board of Directors to
fill vacant directorships, will preclude a stockholder from removing incumbent
directors without cause and simultaneously gaining control of the Board of
Directors by filling the vacancies created by such removal with its own
nominees.

Special Meetings of Stockholders

The Bylaws and Certificate of Incorporation provide that special meetings of
stockholders may be called by a majority of the Board of Directors, the
Chairman of the Board or any holder or holders of at least 40% of any class of
the Company's outstanding capital stock then entitled to vote at the meeting.

Advance Notice Requirements for Stockholder Proposals and Director Nominees

The Bylaws establish an advance notice procedure with regard to business
proposed to be submitted by a stockholder at any annual or special meeting of
stockholders of the Company, including the nomination of candidates for
election as directors. The procedure provides that a notice of proposed
stockholder business must

55
<PAGE>

be timely given in writing to the Secretary of the Company prior to the
meeting. In all cases, to be timely, notice relating to an annual meeting must
be received at the principal executive office of the Company not less than 120
days before the first anniversary of the prior year's annual meeting.

Notice to the Company from a stockholder who proposes to nominate a person
at a meeting for election as a director must contain all information relating
to such person that is required to be disclosed in solicitations of proxies
for election of directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, including such
person's written consent to being named in the proxy statement as a nominee
and to serving as a director if elected.

The chairman of a meeting of stockholders may determine that a person is not
nominated in accordance with the nomination procedure, in which case such
person's nomination will be disregarded. If the chairman of a meeting of
stockholders determines that other business has not been properly brought
before such meeting in accordance with the Bylaw procedures, such business
will not be conducted at the meeting. Nothing in the nomination procedure or
the business will preclude discussion by any stockholder of any nomination or
business properly made or brought before the annual or any other meeting in
accordance with the foregoing procedures.

Limitations on Directors' Liability

The Company's Certificate of Incorporation provides that, to the fullest
extent permitted by Delaware law, no director shall be liable to the Company
or its stockholders for monetary damages for breach of fiduciary duty as a
director. By virtue of these provisions, a director of the Company is not
personally liable for monetary damages for a breach of such director's
fiduciary duty except for liability for (i) breach of the duty of loyalty to
the Company or to its stockholders, (ii) acts or omissions not in good faith
or that involve intentional misconduct or a knowing violation of law, (iii)
dividends or stock repurchases or redemptions that are unlawful under the DGCL
and (iv) any transaction from which such director receives an improper
personal benefit. In addition, the Certificate of Incorporation provides that
if the DGCL is amended to authorize the further elimination or limitation of
the liability of a director, then the liability of the directors will be
eliminated or limited to the fullest extent permitted by the DGCL, as amended.

Delaware Statute

The Company has elected to be subject to Section 203 of the DGCL ("Section
203"). Under Section 203, certain transactions and business combinations
between a corporation and an "interested stockholder" owning 15% or more of
the corporation's outstanding voting stock are restricted for a period of
three years from the date the stockholder becomes an interested stockholder.
Generally, Section 203 prohibits significant business transactions such as a
merger with, disposition of assets to, or receipt of disproportionate
financial benefits by, the interested stockholder, or any other transaction
that would increase the interested stockholder's proportionate ownership of
any class or series of the Company's capital stock unless: (i) the transaction
resulting in a person's becoming an interested stockholder, or the business
combination, has been approved by the Board of Directors before the person
becomes an interested stockholder, (ii) the interested stockholder acquires
85% or more of the outstanding voting stock of the Company in the same
transaction that makes it an interested stockholder, or (iii) on or after the
date the person becomes an interested stockholder, the business combination is
approved by the Board of Directors or by the holders of at least two-thirds of
the Company's outstanding voting stock at an annual or special meeting,
excluding shares owned by the interested stockholder.

56
<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of the Offering, 5,899,991 shares of Common Stock will be
outstanding. Of these shares, 2,100,000 shares sold in the Offering will be
freely tradeable without restriction or further registration under the
Securities Act, except that any shares purchased by "affiliates" of the
Company, as that term is defined in Rule 144 ("Affiliates"), may generally
only be sold in compliance with the limitations of Rule 144 described below.

SALES OF RESTRICTED SHARES

All of the remaining 3,799,991 shares of Common Stock held by existing
stockholders are deemed "Restricted Shares" under Rule 144. Subject to the 180
day lock-up agreement and the Rule 144 Sale Agreement, the Restricted Shares
will be eligible for sales pursuant to Rule 144 in the public market following
the consummation of the Offering.

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an Affiliate, who has beneficially
owned Restricted Shares for at least two years is entitled to sell, within any
three-month period, a number of such shares that does not exceed the greater
of 1% of the then outstanding shares of Common Stock (approximately 58,999
shares immediately after the Offering), or the average weekly trading volume
in the Common Stock in the Nasdaq National Market during the four calendar
weeks preceding the date on which notice of such sale is filed under Rule 144.
In addition, under Rule 144(k), a person who is not an Affiliate and has not
been an Affiliate for at least three months prior to the sale and who has
beneficially owned Restricted Shares for at least three years may resell such
shares without compliance with the foregoing requirements. In calculating the
two and three year holding periods described above, a holder of Restricted
Shares can include the holding periods of a prior owner who was not an
Affiliate.

However, the Company, all of its officers and directors and certain other
stockholders, who in the aggregate own 3,755,470 shares of Common Stock, have
agreed to sign the 180 day lock-up agreement. Further, five of the existing
stockholders of the Company, who in the aggregate own 3,205,977 shares of
Common Stock, have agreed that, without the prior written consent of the
Company, they will not effect any sales of Common Stock, for a period of 18
months after expiration of the 180 day lock-up agreement, in excess of the
volume limitations provided in Rule 144.

OPTIONS

Rule 701 under the Securities Act provides that shares of Common Stock
acquired on the exercise of outstanding options may be resold by persons other
than Affiliates, beginning 90 days after the date of this Prospectus, subject
only to the manner of sale provisions of Rule 144, and by Affiliates under
Rule 144 without compliance with its two-year minimum holding period, subject
to certain limitations. The Company intends to file one or more registration
statements on Form S-8 under the Securities Act to register all of the 850,000
shares of Common Stock subject to outstanding stock options and Common Stock
issuable pursuant to the Company's stock option plans which do not qualify for
an exemption under Rule 701 from the registration requirements of the
Securities Act. The Company expects to file these registration statements as
soon as practicable after the closing of the Offering, and such registration
statements are expected to become effective upon filing. Shares covered by
these registration statements will thereupon be eligible for sale in the
public markets, subject to the lock-up agreements described above, if
applicable.

REGISTRATION RIGHTS

Commencing six months after the completion of the Offering, holders of a
total of 3,755,470 shares of Common Stock will be entitled to certain rights
with respect to registration of such shares under the Securities Act.
Registration of such shares under the Securities Act would result in the
shares becoming freely tradeable without restriction under the Securities Act
(except for shares purchased by Affiliates of the Company) immediately upon
the effectiveness of such registration, subject to the 180 day lock-up
agreement and the Rule 144 Sale Agreement referenced above.

There has been no public market for the Common Stock of the Company and no
prediction can be made as to the effect, if any, that market sales of shares
or the availability of such shares for sale will have on the market price of
the Common Stock. Sales of substantial amounts of Common Stock in the public
market could adversely affect the market price of the Common Stock.

57
<PAGE>

UNDERWRITING

The Underwriters named below, represented by Montgomery Securities and
Stifel, Nicolaus & Company, Incorporated (the "Representatives"), have
severally agreed, subject to the terms and conditions contained in the
Underwriting Agreement, to purchase from the Company the number of shares of
Common Stock indicated below opposite their respective names at the initial
public offering price less the underwriting discount set forth on the cover
page of this Prospectus. The Underwriting Agreement provides that the
obligations of the Underwriters are subject to certain conditions precedent,
and that the Underwriters are committed to purchase all of such shares if any
are purchased.

<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
------------ ---------
<S> <C>
Montgomery Securities.............................................. 1,104,000
Stifel, Nicolaus & Company, Incorporated........................... 316,000
Bear, Stearns & Co., Inc........................................... 80,000
Alex. Brown & Sons Incorporated.................................... 80,000
Donaldson, Lufkin & Jenrette Securities Corporation................ 80,000
Hambrecht & Quist LLC.............................................. 80,000
Robertson, Stephens & Company LLC.................................. 80,000
Jefferies & Company................................................ 40,000
Legg Mason Wood Walker, Incorporated............................... 40,000
McDonald & Company Securities, Inc................................. 40,000
The Robinson-Humphrey Company, Inc................................. 40,000
Stephens Inc....................................................... 40,000
H.C. Wainwright & Co., Inc......................................... 40,000
Wheat First Butcher Singer......................................... 40,000
---------
Total............................................................ 2,100,000
=========
</TABLE>

The Representatives have advised the Company that the Underwriters propose
to initially offer the Common Stock to the public on the terms set forth on
the cover page of this Prospectus. The Underwriters may allow to selected
dealers a concession of not more than $0.50 per share, and the Underwriters
may allow, and such dealers may reallow, a concession of not more than $0.10
per share to certain other dealers. The concession to selected dealers and the
reallowances to other dealers may be changed by the Representatives and, after
the public offering, the offering price and other selling terms may be changed
by the Representatives. The Common Stock is offered subject to receipt and
acceptance by the Underwriters, and to certain other conditions, including the
right to reject an order in whole or in part.

The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to a
maximum of 315,000 additional shares of Common Stock to cover over-allotments,
if any, at the offering price less the underwriting discount set forth on the
cover page of this Prospectus. To the extent that the Underwriters exercise
this option, each of the Underwriters will be committed, subject to certain
conditions, to purchase such additional shares in approximately the same
proportion as set forth in the table above. The Underwriters may purchase such
shares only to cover over-allotments made in connection with the Offering.

The Underwriting Agreement provides that the Company will indemnify the
Underwriters against certain liabilities, including civil liabilities under
the Securities Act, or contribute to payments the Underwriters may be required
to make in respect thereof.

All of the Company's officers and directors and certain stockholders, who in
the aggregate hold 3,755,470 shares of Common Stock, have agreed that they
will not, without the prior written consent of the Representatives, directly
or indirectly offer to sell, sell or otherwise dispose of any shares of Common
Stock of the Company

58
<PAGE>

owned by them for a period of 180 days after the date of this Prospectus. In
addition, the Company has agreed that for a period of 180 days after the date
of this Prospectus, it will not, without the prior written consent of the
Representatives, directly or indirectly offer to sell, sell, issue, distribute
or otherwise dispose of any equity securities or securities convertible into
or exercisable for equity securities or any options, rights or warrants with
respect to any equity securities, except that the Company may, without such
consent, grant options and securities pursuant to employee benefit plans
described in this Prospectus and issue Common Stock upon the exercise of
outstanding options.

Prior to the Offering, there has been no public market for the Common Stock.
Consequently, the initial public offering price will be determined by
negotiations between management and the Underwriters. Among the factors to be
considered in such negotiation are the history of, and the prospects for, the
Company and the industry in which it competes, an assessment of management,
the Company's past and present operations, its past and present earnings and
the trend of such earnings, the prospects for future earnings of the Company,
the present state of the Company's development, the general condition of the
securities market at the time of the Offering and the market price of publicly
traded common stock of comparable companies in recent periods.

The Company has been advised by the Representatives that each of the
Representatives currently intends to make a market in the Common Stock.
However, the Representatives are not obligated to do so and may discontinue
any market making activities at any time without notice. Accordingly, no
assurance can be given with respect to the development or liquidity of any
trading market for the Common Stock.

LEGAL MATTERS

The validity of the Common Stock offered hereby will be passed upon for the
Company by Powell, Goldstein, Frazer & Murphy, Atlanta, Georgia. Certain legal
matters in connection with the Offering will be passed upon for the
Underwriters by Gibson, Dunn & Crutcher LLP, San Francisco, California.

EXPERTS

The combined financial statements of HealthCare Financial Partners, Inc. and
HealthPartners DEL, L.P. and the financial statements of HealthPartners
Funding, L.P., as of June 30, 1996 and for the six month period ended June 30,
1996 appearing in this Prospectus and Registration Statement have been audited
by Ernst & Young LLP, independent auditors, as set forth in their reports
thereon appearing elsewhere herein, and are included in reliance upon such
reports given upon the authority of such firm as experts in accounting and
auditing.

The combined financial statements of HealthCare Financial Partners, Inc. and
HealthPartners DEL, L.P. as of December 31, 1995 and 1994 and for the years
ended December 31, 1995 and 1994 and for the period from April 22, 1993 to
December 31, 1993 and the financial statements of HealthPartners Funding, L.P.
as of December 31, 1995 and 1994 and for the year ended December 31, 1995 and
for the period September 12, 1994 to December 31, 1994 included in this
Prospectus and Registration Statement have been audited by McGladrey & Pullen,
LLP, independent auditors, as indicated in their reports with respect thereto,
and are included herein in reliance upon the authority of said firm as experts
in accounting and auditing.

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (the "Registration
Statement," which term shall include all amendments, exhibits, annexes and
schedules thereto) under the Securities Act with respect to the shares of
Common Stock offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement. Certain items are omitted
in accordance with the rules and regulations of the Commission. For further
information with

59
<PAGE>

respect to the Company and the Common Stock offered hereby, reference is
hereby made to the Registration Statement, including exhibits, schedules and
reports filed as part thereof. Statements contained in this Prospectus as to
the contents of any contract or other document referred to are not necessarily
complete, and, in each instance, reference is made to the copy of such
contract or other document filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference. The
Registration Statement, including the exhibits and schedules thereto, may be
inspected without charge at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Judiciary Plaza, Room 1024, Washington,
D.C. 20549 and at the Commission's Regional Offices located at the
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and 7 World Trade Center, 13th Floor, New York, New York 10048.
Copies of such material may be obtained at prescribed rates by mail from the
public reference section of the Commission at 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549. The Commission maintains a web site
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with Commission, including the
Company. The address is http://www.sec.gov.

60
<PAGE>

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S> <C>
HEALTHCARE FINANCIAL PARTNERS, INC.
HEALTHPARTNERS DEL, L.P.
Report of Independent Auditors, Ernst & Young LLP........................ F-3
Report of Independent Auditors, McGladrey & Pullen, LLP.................. F-4
Combined Balance Sheets as of December 31, 1994 and 1995, and June 30,
1996.................................................................... F-5
Combined Statements of Operations for the period from April 22, 1993
(Date of Inception) through December 31, 1993, the years ended December
31, 1994 and 1995 and for the six month period ended June 30, 1996 and
for the six month period ended June 30, 1995 (unaudited)................ F-6
Combined Statements of Equity for the period from April 22, 1993 (Date of
Inception) through December 31, 1993, the years ended December 31, 1994
and 1995 and for the six month period ended June 30, 1996............... F-7
Combined Statements of Cash Flows for the period from April 22, 1993
(Date of Inception) through December 31, 1993, the years ended December
31, 1994 and 1995 and for the six month period ended June 30, 1996 and
for the six month period ended June 30, 1995 (unaudited)................ F-8
Notes to Financial Statements............................................ F-9
HEALTHPARTNERS FUNDING, L.P.
Report of Independent Auditors, Ernst & Young LLP........................ F-14
Report of Independent Auditors, McGladrey & Pullen, LLP.................. F-15
Balance Sheets as of December 31, 1994 and 1995, and June 30, 1996....... F-16
Statements of Operations for the period from September 12, 1994 (Date of
Inception) through December 31, 1994, the year ended December 31, 1995
and for the six month period ended
June 30, 1996 and for the six month period ended June 30, 1995
(unaudited)............................................................. F-17
Statements of Partners' Capital for the period from September 12, 1994
(Date of Inception) through December 31, 1994, the year ended December
31, 1995 and for the six month period ended
June 30, 1996 .......................................................... F-18
Statements of Cash Flows for the period from September 12, 1994 (Date of
Inception) through December 31, 1994, the year ended December 31, 1995
and for the six month period ended
June 30, 1996 and for the six month period ended June 30, 1995
(unaudited)............................................................. F-19
Notes to Financial Statements............................................ F-20
</TABLE>

F-1
<PAGE>

<TABLE>
<S> <C>
HEALTHCARE FINANCIAL PARTNERS, INC.
HEALTHPARTNERS DEL, L.P.
Unaudited Combined Balance Sheet as of September 30, 1996................ F-25
Unaudited Combined Statements of Operations for the nine month period
ended September 30, 1995 and 1996....................................... F-26
Combined Statements of Equity for the period from April 22, 1993 (Date of
Inception) through December 31, 1993, the years ended December 31, 1994
and 1995 and for the nine month period ended September 30, 1996
(unaudited)............................................................. F-27
Unaudited Combined Statements of Cash Flows for the nine month period
ended September 30, 1995 and 1996....................................... F-28
Unaudited Notes to Combined Financial Statements......................... F-29
HEALTHPARTNERS FUNDING, L.P.
Unaudited Balance Sheet as of September 30, 1996......................... F-34
Unaudited Statements of Operations for the nine month period
ended September 30, 1995 and 1996....................................... F-35
Statements of Partners' Capital for the period from September 12, 1994
(Date of Inception) through December 31, 1994, the year ended December
31, 1995 and for the nine month period ended September 30, 1996
(unaudited)............................................................. F-36
Unaudited Statements of Cash Flows for the nine month period ended
September 30, 1995 and 1996............................................. F-37
Unaudited Notes to Financial Statements.................................. F-38
</TABLE>

F-2
<PAGE>

REPORT OF INDEPENDENT AUDITORS

Board of Directors
HealthCare Financial Partners, Inc.
HealthPartners DEL, L.P.

We have audited the accompanying combined balance sheet of HealthCare
Financial Partners, Inc. and HealthPartners DEL, L.P. as of June 30, 1996 and
the related combined statements of operations, equity, and cash flows for the
six month period then ended. These financial statements are the responsibility
of management of the Company and the Partnership. Our responsibility is to
express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of HealthCare
Financial Partners, Inc. and HealthPartners DEL, L.P. as of June 30, 1996, and
the combined results of their operations and their cash flows for the six
month period then ended in conformity with generally accepted accounting
principles.

Washington, D.C. Ernst & Young LLP
September 13, 1996

F-3
<PAGE>

REPORT OF INDEPENDENT AUDITORS

Board of Directors
HealthCare Financial Partners, Inc.

We have audited the accompanying combined balance sheets of HealthCare
Financial Partners, Inc. and HealthPartners DEL, L.P., a limited partnership,
as of December 31, 1995 and 1994 and the related combined statements of
operations, equity, and cash flows for each of the years in the two year
period ended December 31, 1995 and the period from inception April 22, 1993
through December 31, 1993. These financial statements are the responsibility
of management of the Company and the Partnership. Our responsibility is to
express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of HealthCare
Financial Partners, Inc. and HealthPartners DEL, L.P. as of December 31, 1995
and 1994, and the results of their operations and their cash flows for each of
the years in the two year period ended December 31, 1995, and the period from
inception April 22, 1993 through December 31, 1993, in conformity with
generally accepted accounting principles.

Richmond, Virginia McGladrey & Pullen, LLP
September 13, 1996

F-4
<PAGE>

HEALTHCARE FINANCIAL PARTNERS, INC.
HEALTHPARTNERS DEL, L.P.

COMBINED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- JUNE 30,
1994 1995 1996
--------- ---------- ----------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents................... $ 6,978
Finance receivables......................... 279,148 $2,552,441 $5,493,815
Less:
Allowance for losses on receivables....... 20,847 66,840 142,151
Unearned discount fees.................... 12,064 55,676 73,135
--------- ---------- ----------
Net finance receivables................. 246,237 2,429,925 5,278,529
Accounts receivable from related parties.... 129,696
Property and equipment...................... 47,814 76,140 135,514
Prepaid expenses and other.................. 43,821 34,178 99,197
--------- ---------- ----------
Total assets............................ $ 344,850 $2,669,939 $5,513,240
========= ========== ==========
LIABILITIES AND EQUITY
Cash overdraft.............................. $ 35,150 $ 5,786
Line of credit.............................. 1,433,542 3,529,776
Client holdbacks............................ $ 112,374 814,607 1,371,443
Amounts due to limited partnership.......... 256,891 149,537 296,472
Accounts payable to related parties......... 80,588 159,444 335,109
Accounts payable and accrued expenses....... 33,906 94,335 67,077
Notes payable to related parties............ 75,000 75,000
Notes payable............................... 21,198 83,267
Accrued interest............................ 12,591 26,959
--------- ---------- ----------
Total liabilities....................... 558,759 2,795,404 5,715,889
Equity
Limited partners' capital................. 144,857 415,305 463,598
Stockholders' deficit:
Common stock, par value $.01 per share;
30,000,000 shares authorized; 3,419,993
shares issued and outstanding............ 34,200 34,200 34,200
Retained deficit.......................... (392,966) (574,970) (700,447)
--------- ---------- ----------
Total stockholders' deficit............. (358,766) (540,770) (666,247)
--------- ---------- ----------
Total equity deficit.................... (213,909) (125,465) (202,649)
--------- ---------- ----------
Total liabilities and equity............ $ 344,850 $2,669,939 $5,513,240
========= ========== ==========
</TABLE>

See accompanying notes.

F-5
<PAGE>

HEALTHCARE FINANCIAL PARTNERS, INC.
HEALTHPARTNERS DEL, L.P.

COMBINED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
PERIOD FROM
APRIL 22, 1993
(DATE OF
INCEPTION) SIX MONTH PERIOD
THROUGH YEAR ENDED DECEMBER 31, ENDED JUNE 30,
DECEMBER 31, ------------------------ --------------------
1993 1994 1995 1995 1996
-------------- ----------- ----------- ----------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Fee income:
Discount fees......... $ 856 $ 12,460 $ 469,964 $117,411 $423,229
Origination fees...... 81,500
Other fees............ 576 95,548 47,181 102,420
-------- ----------- ----------- -------- --------
Total fee income........ 856 13,036 565,512 164,592 607,149
Interest expense........ 3,975 79,671 21,941 112,096
-------- ----------- ----------- -------- --------
Net fee income.......... 856 9,061 485,841 142,651 495,053
Provision for losses on
receivables............ 18,745 2,102 45,993 45,993 75,311
-------- ----------- ----------- -------- --------
Net fee income (loss)
after provision for
losses on receivables.. (17,889) 6,959 439,848 96,658 419,742
Operating expenses:
Compensation and bene-
fits................. 2,434 152,600 931,189 254,073 481,370
Occupancy............. 6,000 70,794 156,720 60,144 98,663
Professional fees..... 10,000 60,060 153,948 32,907 67,884
Other................. 11,770 156,060 230,383 115,829 210,052
-------- ----------- ----------- -------- --------
Total operating ex-
penses................. 30,204 439,514 1,472,240 462,953 857,969
Other income:
Income (loss) from
limited partnership.. (303,385) 597,146 18,730 392,770
Management fees from
affiliates........... 120,000 400,000 200,000 200,000
Management fees from
others............... 16,910 286,023 224,691 83,723
Other................. 6,862 3,971 9,511 18,000
-------- ----------- ----------- -------- --------
Total other income...... 23,772 106,609 1,221,837 311,964 610,770
-------- ----------- ----------- -------- --------
Income (loss) before
income taxes
(benefit).............. (24,321) (325,946) 189,445 (54,331) 172,543
Income taxes (benefit).. (5,892) (13,268)
-------- ----------- ----------- -------- --------
Net income (loss)....... $(24,321) $ (325,946) $ 195,337 $(54,331) $185,811
======== =========== =========== ======== ========
Unaudited pro forma da-
ta:
Income taxes.......... $ 73,884 $ 67,292
----------- --------
Net income............ $ 115,561 $105,251
=========== ========
</TABLE>

See accompanying notes.

F-6
<PAGE>

HEALTHCARE FINANCIAL PARTNERS, INC.
HEALTHPARTNERS DEL, L.P.

COMBINED STATEMENTS OF EQUITY

<TABLE>
<CAPTION>
STOCKHOLDERS' DEFICIT
--------------------------------------
LIMITED
PARTNERS' COMMON PAID-IN RETAINED TOTAL
CAPITAL STOCK CAPITAL DEFICIT TOTAL EQUITY
--------- ------- ------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Issuance of 1,710 shares
of $1.00 par value
common stock at April
22, 1993............... $ 1,710 $ (1,335) $ 375 $ 375
Capital contributions... $ 150,000 150,000
Net income (loss)....... 5,410 (29,731) (29,731) (24,321)
--------- ------- ------ --------- --------- ---------
Balance at December 31,
1993................... 155,410 1,710 (31,066) (29,356) 126,054
Issuance of 379,998
common stock warrants.. $ 500 500 500
Conversion of $1.00 par
value shares to $.01
par value shares....... (1,693) 1,693
Issuance of 3,418,283
shares of $.01 par
value common stock..... 34,183 (2,193) (24,494) 7,496 7,496
Capital contributions... 123,830 123,830
Net income (loss)....... 11,460 (337,406) (337,406) (325,946)
Distributions to
partners............... (145,843) (145,843)
--------- ------- ------ --------- --------- ---------
Balance at December 31,
1994................... 144,857 34,200 (392,966) (358,766) (213,909)
Capital contributions... 89,021 89,021
Net income (loss)....... 377,341 (182,004) (182,004) 195,337
Distributions to
partners............... (195,914) (195,914)
--------- ------- ------ --------- --------- ---------
Balance at December 31,
1995................... 415,305 34,200 (574,970) (540,770) (125,465)
Net income (loss)....... 311,288 (125,477) (125,477) 185,811
Distributions to
partners............... (262,995) (262,995)
--------- ------- ------ --------- --------- ---------
Balance at June 30,
1996................... $ 463,598 $34,200 $ -- $(700,447) $(666,247) $(202,649)
========= ======= ====== ========= ========= =========
</TABLE>

See accompanying notes.

F-7
<PAGE>

HEALTHCARE FINANCIAL PARTNERS, INC.
HEALTHPARTNERS DEL, L.P.

COMBINED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
PERIOD FROM
APRIL 22, 1993
(DATE OF
INCEPTION) SIX MONTH PERIOD
THROUGH YEAR ENDED DECEMBER 31, ENDED JUNE 30,
DECEMBER 31, ------------------------ ------------------------
1993 1994 1995 1995 1996
-------------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)...... $ (24,321) $ (325,946) $ 195,337 $ (54,331) $ 185,811
Adjustments to
reconcile net income
(loss) to net cash
provided by (used in)
operations:
Depreciation.......... 742 11,817 17,309 6,645 29,231
Provision for losses
on receivables....... 18,745 2,102 45,993 45,993 75,311
Losses (earnings) of
unconsolidated
limited partnership.. 303,385 (597,146) (18,730) (392,770)
Deferred income tax
benefit.............. (17,067)
Changes in assets and
liabilities:
Decrease (increase)
in accounts
receivable from
related parties..... (89,490) 89,490 (129,696) 129,696
Decrease (increase)
in prepaid expenses
and other........... (43,821) 26,710 (1,050) (65,019)
Increase (decrease)
in cash overdraft... 35,150 (29,364)
Increase (decrease)
accrued interest.... 12,591 14,368
Increase (decrease)
in accounts payable
to related parties.. 100,000 (19,412) 78,856 451,142 175,665
Increase (decrease)
in accounts payable
and accrued
expenses............ 1,547 32,359 60,429 28,637 (27,258)
--------- ----------- ----------- ----------- -----------
Net cash provided by
(used in) operating
activities........... 7,223 49,974 (271,534) 458,306 95,671
INVESTING ACTIVITIES....
Increase in finance
receivables, net...... (86,744) (67,966) (1,527,448) (1,535,443) (2,367,079)
Decrease (increase) in
investment in limited
partnership........... (46,494) 489,792 151,008 539,705
Purchase of property
and equipment, net.... (17,684) (42,689) (45,635) (5,153) (88,605)
--------- ----------- ----------- ----------- -----------
Net cash used in in-
vesting activities... (104,428) (157,149) (1,083,291) (1,389,588) (1,915,979)
FINANCING ACTIVITIES....
Net borrowings under
line of credit........ 1,433,542 936,353 2,096,234
Increase (decrease) in
notes payable to
related parties....... 75,000 250 (75,000)
Increase in notes
payable............... 21,198 62,069
Issuance of common
stock and warrants.... 375 7,996
(Distributions to)
contributions from
partners, net......... 150,000 (22,013) (106,893) 69,392 (262,995)
--------- ----------- ----------- ----------- -----------
Net cash provided by
(used in) financing
activities........... 225,375 (14,017) 1,347,847 1,005,995 1,820,308
--------- ----------- ----------- ----------- -----------
Net increase (decrease)
in cash and cash
equivalents........... 128,170 (121,192) (6,978) 74,713
Cash and cash
equivalents at
beginning of period... 128,170 6,978 6,978
--------- ----------- ----------- ----------- -----------
Cash and cash
equivalents at end of
period................ $ 128,170 $ 6,978 $ -- $ 81,691 $ --
========= =========== =========== =========== ===========
Supplemental disclosure
of cash flow
information:
Cash payments for
interest............. $ -- $ 3,975 $ 67,080 $ 21,941 $ 97,728
========= =========== =========== =========== ===========
</TABLE>

See accompanying notes.

F-8
<PAGE>

HEALTHCARE FINANCIAL PARTNERS, INC.
HEALTHPARTNERS DEL, L.P.

NOTES TO COMBINED FINANCIAL STATEMENTS

SIX MONTH PERIOD ENDED JUNE 30, 1996
AND YEARS ENDED DECEMBER 31, 1995 AND 1994
AND PERIOD FROM APRIL 22, 1993 (DATE OF INCEPTION)
THROUGH DECEMBER 31, 1993

1. NATURE OF BUSINESS

HealthCare Financial Partners, Inc. (Company), which was incorporated and
previously doing business as HealthPartners Financial Corporation from
inception to September 13, 1996, was formed in 1993 under the laws of the
state of Delaware. The Company owns a 1% general partner interest in Health
Partners DEL, L.P. (DEL) and HealthPartners Funding, L.P. (Funding). In
addition, the majority owners of the Company own all of the limited
partnership interests of DEL. The Company's principal activity is its interest
in Funding. Additionally, the Company provides operational and management
support to Funding for a fee. Funding's principal activities are purchasing
accounts receivable from health care providers throughout the United States
and providing financing to health care providers under asset-based lending
arrangements.

The combined financial statements include the accounts and operations of the
Company and DEL. The financial statements are combined as a result of common
control and management between the two entities. All transactions between the
Company and DEL have been eliminated in preparation of the combined financial
statements. The Company accounts for its investment in Funding on the equity
basis, as the Company does not have sufficient control to warrant
consolidation.

Under the terms of its partnership agreement, DEL will cease to exist
December 31, 2020, unless an event of dissolution shall occur prior to such
time (see Note 9). The limited partners' liability is limited to the capital
they have contributed.

2. SIGNIFICANT ACCOUNTING POLICIES

CASH AND CASH EQUIVALENTS

Cash and cash equivalents includes cash and other liquid financial
instruments with an original maturity of three months or less.

FINANCE RECEIVABLES

Purchased finance receivables are recorded at the contractual purchase
amount, less the discount fee (the "amount purchased"). The difference between
the amount purchased and the amount paid to acquire such receivables is
reflected as client holdbacks. In the event purchased receivables become
delinquent, DEL has certain rights of offset to apply client holdbacks (or
future fundings) against delinquent accounts receivable.

ALLOWANCE FOR LOSSES ON RECEIVABLES

The allowance for losses on receivables is maintained at the amount
estimated to be sufficient to absorb future losses, net of recoveries,
inherent in the finance receivables. The provision for losses on receivables
is the periodic cost of maintaining an adequate allowance. In evaluating the
adequacy of the allowance, management considers trends in past-due accounts,
historical charge-off and recovery rates, credit risk indicators, economic
conditions, on-going credit evaluations, overall portfolio size, average
client balances, excess collateral, and underwriting policies, among other
items.

Additionally, client holdbacks are available to offset losses on
receivables. And, under certain circumstances, credit losses can be offset
against client holdbacks related to other financings.

F-9
<PAGE>

HEALTHCARE FINANCIAL PARTNERS, INC.
HEALTHPARTNERS DEL, L.P.

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

PROPERTY AND EQUIPMENT

Property and equipment, principally computer and related peripherals, are
stated at cost less accumulated depreciation ($48,255, $29,868, and $12,559 at
June 30, 1996, December 31, 1995 and 1994, respectively). Depreciation expense
is computed primarily using the straight-line method.

CLIENT HOLDBACKS

Client holdbacks represent the excess of the net recorded amount of
purchased receivables over the amount advanced. In its purchase agreements
with clients, the Company retains the right to apply any past-due or
uncollectible amounts against these holdbacks. Holdbacks are assigned to
specific purchased receivables. The client holdbacks are payable upon
collection of the respective purchased receivable amount.

REVENUE RECOGNITION

Discount fees may be charged at closing or periodically based on the
outstanding receivable balance and are recognized in income under methods that
approximate the effective interest method.

Origination fees are charged at closing to cover the direct closing costs of
the contract, and are recognized in income under a method that approximates
the effective interest method.

INCOME TAXES

The Company uses the liability method of accounting for income taxes as
required by Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes." Under the liability method, deferred-tax assets and
liabilities are determined based on differences between the financial
statement carrying amounts and the tax basis of existing assets and
liabilities (i.e. temporary differences) and are measured at the enacted rates
that will be in effect when these temporary differences reverse. Net deferred
taxes are not material to the combined financial statements.

DEL has elected partnership reporting status under the Internal Revenue
Code. Accordingly, taxable income or loss is allocated to the partners in
accordance with the partnership agreement and is reported on the individual
partner's income tax return. Therefore, no provision for income tax is
included in the historical financial statements for DEL.

EARNINGS PER SHARE

Earnings per share is not presented because it is not meaningful due to the
partnership reporting basis of DEL and to the reorganization as described in
Note 9.

USE OF ESTIMATES

The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

PRO FORMA INCOME TAXES (UNAUDITED)

Federal and state income tax laws require that the income or loss of DEL, a
partnership, be included in the income tax returns of the partners.
Accordingly, income taxes for DEL are not included in the historical combined
financial statements of the Company. Assuming the completion of the proposed
initial public offering (see Note 9), the operations of DEL will be subject to
corporate income taxes. Accordingly, for informational purposes, the
statements of operations include disclosure of pro forma adjustments for
income taxes which would have been recorded if DEL had been a corporation,
based on the tax laws in effect during those periods.

UNAUDITED INTERIM FINANCIAL STATEMENTS

F-10
<PAGE>

HEALTHCARE FINANCIAL PARTNERS, INC.
HEALTHPARTNERS DEL, L.P.

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

results of operations and cash flows for the six-month period ended June 30,
1995. The results of operations for the six-month period ended June 30, 1995
are not necessarily indicative of the operating results of the Company for the
entire year.

FAIR VALUE OF FINANCIAL INSTRUMENTS

Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments," requires disclosure of fair value information
about financial instruments, whether or not recognized on the balance sheet,
for which it is practicable to estimate that value. Due to the short-term
nature and the variable rates of all the Company's financial instruments,
there are no significant differences between recorded values and fair values.

RECENT ACCOUNTING PRONOUNCEMENTS

In October 1995, the Financial Accounting Standards Board (FASB) issued FASB
Statement of Financial Accounting Standards No. 123, "Accounting for Stock
Based Compensation" (the Statement). The Statement encourages companies to
recognize expense for stock-based awards based on their fair value on the date
of grant, however, the Statement allows companies to continue the existing
intrinsic value method of accounting provided that pro forma disclosures are
made of what net income and earnings per share would have been had the fair
value method been used. The Company will continue with the intrinsic value
method of accounting for stock-based awards. As of June 30, 1996, there was no
impact to the Company's financial statements from the adoption of the
Statement.

3. ALLOWANCE FOR LOSSES ON RECEIVABLES

Activity in the allowance for losses on receivables was as follows:

<TABLE>
<CAPTION>
APRIL 22, 1993 YEAR ENDED SIX MONTHS ENDED
(DATE OF INCEPTION) DECEMBER 31, JUNE 30,
THROUGH --------------- --------------------
DECEMBER 31, 1993 1994 1995 1995 1996
------------------- ------- ------- ----------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Beginning of period..... $18,745 $20,847 $20,847 $ 66,840
Provision for losses on
receivables............ $18,745 2,102 45,993 45,993 75,311
------- ------- ------- ------- --------
End of period........... $18,745 $20,847 $66,840 $66,840 $142,151
======= ======= ======= ======= ========
</TABLE>

4. LINE OF CREDIT

DEL maintains a revolving line of credit with a bank. The line matures on
March 9, 1998; however, it will be automatically renewed each year for a one-
year period if not terminated by the bank, which requires six months notice,
or by DEL. The line of credit is collateralized by DEL's purchased finance
receivables.

DEL has the ability to borrow up to $3,750,000 as of June 30, 1996. The rate
of interest charged under the agreement is the bank's base rate of interest,
as defined, plus 1.5%, or the revolving credit LIBOR rate plus 3% determined
at the option of DEL upon each additional draw, subject to certain
limitations. As of June 30, 1996 and December 31, 1995, the weighted average
interest rate was 9.2% and 9.7%, respectively. DEL pays an unused line fee
monthly of one twelfth of 0.5% on the amount by which the facility cap
sublimit exceeds the average amount outstanding during the preceding month.
(See Note 9 for amendment to line of credit agreement subsequent to June 30,
1996.)

DEL is required to comply with certain financial covenants throughout the
year. DEL was not in compliance with the debt to adjusted tangible net worth
ratio requirement of ten-to-one at June 30, 1996. DEL has received a waiver
for this covenant as of June 30, 1996.

F-11
<PAGE>

HEALTHCARE FINANCIAL PARTNERS, INC.
HEALTHPARTNERS DEL, L.P.

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

5. EQUITY

On December 28, 1994, the Company issued warrants providing the right to
receive 379,998 shares of the Company's common stock for $500 of consideration
which, in the opinion of management, approximated the fair value of the
warrants at that date. The warrants will be exercised in connection with the
reorganization described in Note 9.

On November 1, 1995, the Company issued stock options to purchase 38,381
shares of the Company's common stock at an exercise price of $2.61 per share.
The stock options expire in 2005.

6. LEASE COMMITMENTS

The Company leases office space under noncancelable operating leases. The
future minimum lease payments as of June 30, 1996 were as follows:

<TABLE>
<S> <C>
1996.............................................................. $ 84,633
1997.............................................................. 160,494
1998.............................................................. 139,410
1999.............................................................. 143,471
2000.............................................................. 147,531
Thereafter........................................................ 49,628
--------
$725,167
========
</TABLE>

Rent expense for the six month period ended June 30, 1996, for the years
ended December 31, 1995 and 1994, and for the period from April 22, 1993
through December 31, 1993 was $ 69,000, $ 156,720, $ 70,794, and $ 6,000,
respectively.

7. RELATED PARTY TRANSACTIONS

The Company has an agreement with Funding, whereby Funding pays a monthly
management fee for operational and management support provided. Management
fees under this agreement were $200,000, $400,000 and $120,000 for the six
month period ended June 30, 1996, and the years ended December 31, 1995 and
1994, respectively.

Additionally, DEL has entered into an agreement with Funding whereby certain
purchased finance receivables of Funding are assigned to DEL with risks and
rewards of ownership. All purchased receivables outstanding as of June 30,
1996 were assigned from Funding under the agreement.

8. COMMITMENTS AND CONCENTRATIONS OF CREDIT RISK

Concentrations of credit as of the respective period ends were as follows:

<TABLE>
<CAPTION>
PERCENTAGE
OF FINANCE
NUMBER RECEIVABLES
OF CLIENTS OUTSTANDING
---------- -----------
<S> <C> <C>
June 30, 1996....................................... 5 48%
December 31, 1995................................... 2 35%
December 31, 1994................................... 3 71%
</TABLE>

Additionally, the Company earned fee revenue in excess of 10% of total fee
revenue from two customers, aggregating 22% of total revenue, for the six
month period ended June 30, 1996.

F-12
<PAGE>

HEALTHCARE FINANCIAL PARTNERS, INC.
HEALTHPARTNERS DEL, L.P.

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

9. REORGANIZATION AND INITIAL PUBLIC OFFERING

The Company expects to issue 2,100,000 shares of common stock in an initial
public offering (offering). In contemplation of the offering, the Company
increased its authorized common shares from 1,000,000 shares to 30,000,000 and
effected a 4.56-to-1 split of the common stock in the form of a stock
dividend, including outstanding warrants and options, on September 13, 1996.
Shares of common stock outstanding for all periods presented have been
retroactively restated to give effect to the stock split. The Company also
authorized 10,000,000 shares of preferred stock. The rights and preferences of
the preferred stock are established by the Board of Directors in its sole
discretion. The specific rights and preferences have not been established and
no preferred stock has been issued.

On September 13, 1996, the Company adopted the HealthCare Financial Partners
1996 Stock Incentive Plan (the Incentive Plan). The Company has reserved
750,000 shares for issuance under the Incentive Plan. Pursuant to the adoption
of the Incentive Plan, the Company granted options thereunder to all current,
full-time employees other than the senior executive officers of the Company to
purchase an aggregate of 189,000 shares of common stock at an exercise price
of $11.05 per share. The options are exercisable seven years after the grant
date and are subject to a maximum ten year term. If the offering is
successful, however, the options will vest and become exercisable in 25%
increments at each anniversary of the grant date, commencing on September 13,
1997. Also, under the Incentive Plan, the Company granted 37,000 options on
September 13, 1996 to each of the three senior executive officers of the
Company at an exercise price equal to the initial offering price. These
options are contingent upon the completion of the offering and will vest and
become exercisable in 25% increments on each anniversary date of the grant
date, commencing on September 13, 1997.

Also on September 13, 1996, the Company adopted the HealthCare Financial
Partners, Inc. 1996 Director Incentive Plan (the Director Plan). The Company
has reserved 100,000 shares of common stock for issuance pursuant to awards
under the Director Plan. No shares have been granted under the Director Plan.

Effective as of September 1, 1996, in contemplation of the offering, Funding
acquired, using the purchase method of accounting, the assets of DEL,
consisting principally of client receivables, by assuming DEL's liabilities
and paying $472,369 in cash. The cash payment approximated the fair value and
book value of DEL's net assets. Immediately following the acquisition, DEL was
dissolved.

Effective upon the completion of the offering, the Company will acquire from
proceeds of the offering, using the purchase method of accounting, all limited
partnership interests in Funding and the partnership will be liquidated. The
amount paid to acquire the limited partnership interest is expected to
approximate both the fair value and the book value of Funding at the date of
acquisition.

In anticipation of the offering and the liquidations of Funding and DEL, the
bank that had previously provided lines of credit to those entities has
consented to the assignment to the Company of the agreements related to those
lines of credit and agreed to increase the aggregate credit facilities from
$35 million to $50 million. In July 1996, the Company began negotiations with
an international financial institution for financing under an investment
grade, asset-backed commercial paper program and expects to finalize the terms
of the agreement prior to the closing of the initial public offering. Under
the proposed terms of the commercial paper program, the Company will be able
to borrow up to $100 million.

F-13
<PAGE>

REPORT OF INDEPENDENT AUDITORS

Partners
HealthPartners Funding, L.P.

We have audited the accompanying balance sheet of HealthPartners Funding,
L.P., a limited partnership, as of June 30, 1996 and the related statements of
operations, partners' capital, and cash flows for the six month period then
ended. These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of HealthPartners Funding,
L.P. as of June 30, 1996, and the results of its operations and its cash flows
for the six month period then ended in conformity with generally accepted
accounting principles.

Washington, D.C.
September 13, 1996 Ernst & Young LLP

F-14
<PAGE>

REPORT OF INDEPENDENT AUDITORS

Partners
HealthPartners Funding, L.P.

We have audited the accompanying balance sheets of HealthPartners Funding,
L.P, a limited partnership, as of December 31, 1995 and 1994 and the related
statements of operations, partners' capital, and cash flows for the year ended
December 31, 1995 and the period from inception September 12, 1994 through
December 31, 1994. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of HealthPartners Funding,
L.P. as of December 31, 1995 and 1994, and the results of its operations and
its cash flows for the year ended December 31, 1995 and the period from
inception September 12, 1994 through December 31, 1994, in conformity with
generally accepted accounting principles.

Richmond, Virginia McGladrey & Pullen, LLP
September 13, 1996

F-15
<PAGE>

HEALTHPARTNERS FUNDING, L.P.

BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- JUNE 30,
1994 1995 1996
---------- ----------- -----------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents.................... $1,963,089 $ 2,140,316 $ 2,288,754
Finance receivables.......................... 6,012,475 37,164,708 60,419,714
Less:
Allowance for losses on receivables...... 326,792 498,187 819,677
Unearned discount fees................... 141,228 388,010 407,245
---------- ----------- -----------
Net finance receivables................ 5,544,455 36,278,511 59,192,792
Accounts receivable from related parties..... 195,790 159,444 335,109
Prepaid expenses and other................... 51,188 400,913 530,065
---------- ----------- -----------
Total assets............................... $7,754,522 $38,979,184 $62,346,720
========== =========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Line of credit............................... $16,374,318 $31,876,467
Client holdbacks............................. $2,362,800 8,175,870 9,186,561
Accounts payable to related parties.......... 334,475
Accounts payable to clients.................. 239,032 1,045,043 920,693
Accounts payable and accrued expenses........ 27,819 71,530 87,299
Accrued interest............................. 138,772 243,306
---------- ----------- -----------
Total liabilities............................ 2,629,651 26,140,008 42,314,326
Partners' capital............................ 5,124,871 12,839,176 20,032,394
---------- ----------- -----------
Total liabilities and partners' capital.... $7,754,522 $38,979,184 $62,346,720
========== =========== ===========
</TABLE>

See accompanying notes.

F-16
<PAGE>

HEALTHPARTNERS FUNDING, L.P.

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
PERIOD FROM
SEPTEMBER 12,
1994
(DATE OF
INCEPTION) SIX MONTH PERIOD
THROUGH YEAR ENDED ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, ----------------------
1994 1995 1995 1996
------------- ------------ ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Fee and interest income:
Discount fees.............. $ 268,584 $3,472,592 $1,148,210 $2,708,656
Commitment fees............ 506,401 167,744 359,227
Other fees................. 10,132 269,999 29,541 285,254
Interest income............ 2,770 403,659 59,742 1,204,010
--------- ---------- ---------- ----------
Total fee and interest
income.................. 281,486 4,652,651 1,405,237 4,557,147
Interest expense............. 554,885 90,837 1,269,060
--------- ---------- ---------- ----------
Net fee and interest income.. 281,486 4,097,766 1,314,400 3,288,087
Provision for losses on
receivables................. 326,792 171,395 171,395 321,490
--------- ---------- ---------- ----------
Net fee and interest income
(loss) after provision for
losses on receivables....... (45,306) 3,926,371 1,143,005 2,966,597
Operating expenses:
Commissions................ 7,466 103,505 33,338 223,478
Management fees paid to
general partner........... 120,000 400,000 200,000 200,000
Professional fees.......... 14,692 215,178 53,524 175,348
Licensing fees............. 16,242 107,038 36,024 59,382
Other...................... 7,917 198,336 64,707 169,843
--------- ---------- ---------- ----------
Total operating expenses..... 166,317 1,024,057 387,593 828,051
--------- ---------- ---------- ----------
Net income (loss)............ (211,623) 2,902,314 755,412 2,138,546
Net income allocable to
limited partners............ 91,762 2,305,168 736,682 1,745,776
--------- ---------- ---------- ----------
Net income (loss) allocable
to general partner.......... $(303,385) $ 597,146 $ 18,730 $ 392,770
========= ========== ========== ==========
Unaudited pro forma data:
Income taxes............... $1,131,902 $ 834,033
---------- ----------
Net income................. $1,770,412 $1,304,513
========== ==========
</TABLE>

See accompanying notes.

F-17
<PAGE>

HEALTHPARTNERS FUNDING, L.P.

STATEMENTS OF PARTNERS' CAPITAL

<TABLE>
<CAPTION>
GENERAL LIMITED TOTAL
PARTNER PARTNERS PARTNERS' CAPITAL
---------- ----------- -----------------
<S> <C> <C> <C>
Capital contributions at September
12, 1994 (Date of Inception)...... $ 52,900 $ 5,290,000 $ 5,342,900
Net income (loss).................. (303,385) 91,762 (211,623)
Capital distributions.............. (6,406) (6,406)
---------- ----------- -----------
Balance at December 31, 1994....... (256,891) 5,381,762 5,124,871
Capital contributions.............. 75,000 7,500,000 7,575,000
Net income......................... 597,146 2,305,168 2,902,314
Capital distributions.............. (564,792) (2,198,217) (2,763,009)
---------- ----------- -----------
Capital at December 31, 1995....... (149,537) 12,988,713 12,839,176
Capital contributions.............. 70,000 7,000,000 7,070,000
Net income......................... 392,770 1,745,776 2,138,546
Capital distributions.............. (609,705) (1,405,623) (2,015,328)
---------- ----------- -----------
Capital at June 30, 1996........... $ (296,472) $20,328,866 $20,032,394
========== =========== ===========
</TABLE>

See accompanying notes.

F-18
<PAGE>

HEALTHPARTNERS FUNDING, L.P.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
PERIOD FROM
SEPTEMBER 12,
1994
(DATE OF
INCEPTION) SIX MONTH PERIOD
THROUGH YEAR ENDED ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, -------------------------
1994 1995 1995 1996
------------- ------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)...... $ (211,623) $ 2,902,314 $ 755,412 $ 2,138,546
Adjustments to reconcile
net income (loss) to
net cash provided by
operations:
Provision for losses
on receivables....... 326,792 171,395 171,395 321,490
Amortization of
organization costs... 1,870 18,857 9,429 8,786
Changes in assets and
liabilities:
Decrease (increase) in
accounts receivable
from related
parties.............. (195,790) 36,346 (336,540) (175,665)
Increase in prepaid
expenses and other... (53,058) (368,582) (194,629) (137,938)
Increase (decrease) in
accounts payable to
clients.............. 239,032 806,011 1,014,493 (124,350)
Increase (decrease) in
accounts payable to
related parties...... 334,475 (129,696)
Increase in accrued
interest............. 127,824 104,534
Increase (decrease) in
accounts payable and
accrued expenses..... 27,819 54,659 31,118 (189,010)
----------- ------------ ----------- ------------
Net cash provided by
operating activities.. 135,042 4,083,299 1,450,678 1,816,697
INVESTING ACTIVITIES
Increase in finance
receivables, net...... (3,508,447) (25,092,381) (7,287,476) (22,225,080)
FINANCING ACTIVITIES
Net borrowings under
line of credit........ 16,374,318 2,931,153 15,502,149
Partners' capital
contributions......... 5,342,900 7,575,000 2,727,000 7,070,000
Partners' capital
distributions......... (6,406) (2,763,009) (888,833) (2,015,328)
----------- ------------ ----------- ------------
Net cash provided by
financing activities.. 5,336,494 21,186,309 4,769,320 20,556,821
----------- ------------ ----------- ------------
Net increase (decrease)
in cash and cash
equivalents........... 1,963,089 177,227 (1,067,478) 148,438
Cash and cash
equivalents at
beginning of period... 1,963,089 1,963,089 2,140,316
----------- ------------ ----------- ------------
Cash and cash
equivalents at end of
period................ $ 1,963,089 $ 2,140,316 $ 895,611 $ 2,288,754
=========== ============ =========== ============
Supplemental disclosure
of cash flow
information
Cash payments for
interest............. $ -- $ 416,113 $ 90,837 $ 1,164,526
=========== ============ =========== ============
</TABLE>

See accompanying notes.

F-19
<PAGE>

HEALTHPARTNERS FUNDING, L.P.

NOTES TO FINANCIAL STATEMENTS

SIX MONTHS ENDED JUNE 30, 1996 AND
YEAR ENDED DECEMBER 31, 1995 AND
THE PERIOD FROM SEPTEMBER 12, 1994 (DATE OF INCEPTION)
THROUGH DECEMBER 31, 1994

1. NATURE OF BUSINESS

HealthPartners Funding, L.P., a limited partnership (the Partnership), was
formed as a limited partnership under the laws of the state of Delaware on
September 12, 1994. HealthCare Financial Partners, Inc., which was
incorporated and previously doing business as HealthPartners Financial
Corporation from inception to September 13, 1996, (Company), owns 1% of the
Partnership. The limited partners are Farallon Capital Partners, Limited
Partnership, which owns 84% of the Partnership and RR Capital Partners,
Limited Partnership, which owns 15% of the Partnership. On March 28, 1996, the
limited partners assigned their interest to HealthPartners Investors L.L.C.
The Partnership's principal activity is purchasing accounts receivable from
health care providers throughout the United States and providing financing to
health care providers under asset-based lending agreements.

The Partnership shall continue to operate until the earliest of the
following dates: (i) December 31, 1997, unless extended to December 31, 1998
at the election, prior to June 30, 1997, of Limited Partner having capital
accounts the aggregate value of which exceeds 50% of the value of all Limited
Partners capital accounts as of such date, or (ii) the date on which a
Partnership disabling event occurs. However, the General Partner may terminate
the Partnership on 90-days written notice to each of the Limited Partners.
(See Note 8.)

The Limited Partners' liability is limited to the capital they have
contributed to the Partnership.

2. SIGNIFICANT ACCOUNTING POLICIES

CASH AND CASH EQUIVALENTS

Cash and cash equivalents includes cash and other liquid financial
instruments with an original maturity of three months or less.

FINANCE RECEIVABLES

Purchased finance receivables are recorded at the contractual amount, less
the discount fee (the "amount purchased"). The difference between the amount
purchased and the amount paid to acquire such receivables is reflected as
client holdbacks. In the event purchased receivables become delinquent, the
Partnership has certain rights of offset to apply client holdbacks (or future
fundings) against delinquent accounts receivable.

Asset-based lending is provided in the form of either a term note or
revolving line of credit. The amount of credit granted is based on a
predetermined percentage of the customer's total accounts receivable, and the
notes are secured by the accounts receivable.

ALLOWANCE FOR LOSSES ON RECEIVABLES

The allowance for losses on receivables is maintained at the amount
estimated to be sufficient to absorb future losses, net of recoveries,
inherent in the finance receivables. The provision for credit losses is the
periodic cost of maintaining an adequate allowance. In evaluating the adequacy
of the allowance, management considers trends in past due accounts, historical
charge-off and recovery rates, credit risk indicators, economic conditions,
on-going credit evaluations, overall portfolio size, average client balances,
excess collateral, and underwriting policies, among other items.

Additionally, client holdbacks are available to offset losses on
receivables. And, under certain circumstances, credit losses can be offset
against client holdbacks related to other financings.

The Partnership performs a loan-by-loan review for all asset-based loans to
identify loans to be charged off.

F-20
<PAGE>

HEALTHPARTNERS FUNDING, L.P.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

CLIENT HOLDBACKS

Client holdbacks represent the excess of the net recorded amount of
purchased receivables over the amount advanced. In its purchase agreements
with clients, the Partnership retains the right to apply any past-due or
uncollectible amounts against these holdbacks. Holdbacks are assigned to
specific purchased receivables. The client holdbacks are payable upon
collection of the respective purchased receivable amount.

REVENUE RECOGNITION

Discount fees may be charged at closing or periodically based on the
outstanding receivable balance and are recognized in income under methods that
approximate the effective interest method.

Commitment fees are charged at closing to cover the direct closing costs of
the contract, and are recognized in income under a method that approximates
the effective interest method.

Accrual of interest income on asset-based loans is suspended when a loan is
contractually delinquent for 90 days or more. The accrual is resumed when the
loan becomes contractually current, and past due interest income is recognized
at that time.

NET INCOME ALLOCATION

Net income and loss are allocated between the General Partner and the
Limited Partners pursuant to the terms of the partnership agreement.
Generally, this results in an allocation of 20% to the General Partner, as a
preferred distribution, and the remaining 80% among the general and limited
partners pro rata, in accordance with their respective partnership
percentages. The 20% preferred distribution to the General Partner is
calculated on net income from operations excluding interest on overnight
investments. The preferred distribution may increase based upon the General
Partner's performance. Once the limited partners have received a 20% return on
their invested capital, net income is then distributed 40% to the General
Partner and 60% to the Limited Partners.

INCOME TAXES

The Partnership elected partnership reporting status under the Internal
Revenue Code. Accordingly, taxable income or loss, is allocated to the
partners in accordance with the partnership agreement and is reported on the
individual partner's income tax return. Therefore, no provision for income tax
is included in the historical financial statement.

EARNINGS PER SHARE
Earnings per share is not presented because it is not meaningful due to the
partnership reporting basis and to the planned initial public offering
described in Note 8.

USE OF ESTIMATES

UNAUDITED INTERIM FINANCIAL STATEMENTS

The unaudited interim financial statements furnished reflect all
adjustments, consisting solely of normal recurring accruals, which are, in the
opinion of management, necessary for a fair presentation of the Partnership's
results of operations and cash flows for the six-month period ended June 30,
1995. The results of operations for the six-month period ended June 30, 1995
are not necessarily indicative of the operating results of the Partnership for
the entire year.

F-21
<PAGE>

HEALTHPARTNERS FUNDING, L.P.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

PRO FORMA INCOME TAXES (UNAUDITED)

Federal and state income tax laws require that the income or loss of the
Partnership be included in the income tax returns of the partners.
Accordingly, income taxes are not included in the historical financial
statements. Assuming the completion of the proposed initial public offering
(see Note 8), the operations of the Partnership will be subject to corporate
income taxes. Accordingly, for informational purposes, the statement of
operations includes disclosure of pro forma adjustments for income taxes which
would have been recorded if the Partnership had been a corporation, based on
the tax laws in effect during those periods.

FAIR VALUE OF FINANCIAL INSTRUMENTS

Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments," requires disclosure of fair value information
about financial instruments, whether or not recognized on the balance sheet,
for which it is practicable to estimate that value. Due to the short-term
nature and the variable rates of all the Partnership's financial instruments,
there are no significant differences between recorded values and fair values.

3. FINANCE RECEIVABLES

Finance receivables consisted of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- JUNE 30,
1994 1995 1996
---------- ----------- -----------
<S> <C> <C> <C>
Purchased accounts receivable............... $5,957,515 $29,890,582 $34,495,256
Asset-based loans........................... 6,270,629 25,924,458
Advances to clients......................... 47,536 856,277
Other....................................... 7,424 147,220
---------- ----------- -----------
Total finance receivables................. $6,012,475 $37,164,708 $60,419,714
========== =========== ===========
</TABLE>

4. ALLOWANCE FOR LOSSES ON RECEIVABLES

Activity in the allowance for losses on receivables was as follows:

<TABLE>
<CAPTION>
PERIOD FROM
SEPTEMBER 12,
1994
(DATE OF
INCEPTION) YEAR ENDED SIX MONTHS
THROUGH DECEMBER 31, ENDED JUNE 30,
DECEMBER 31, ENDED --------------------
1994 1995 1995 1996
------------- ------------ ----------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Beginning of period........... $326,792 $326,792 $498,187
Provision for losses on
receivables.................. $326,792 171,395 171,395 321,490
-------- -------- -------- --------
End of period................. $326,792 $498,187 $498,187 $819,677
======== ======== ======== ========
</TABLE>

5. LINE OF CREDIT

The Partnership maintains a revolving line of credit with a bank. The line
matures on March 9, 1998, however, it will be automatically renewed each year
for a one-year period if not terminated by the bank, which requires six months
notice, or by the Partnership. The line of credit is collateralized by the
finance receivables of the Partnership.

F-22
<PAGE>

HEALTHPARTNERS FUNDING, L.P.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

The Partnership has the ability to borrow up to $31,250,000 as of June 30,
1996. As of June 30, 1996, the Partnership was granted a one day overline
accomodation up to $32,000,000 from the bank. The rate of interest charged
under the agreement is the bank's base rate of interest, as defined, or the
revolving credit LIBOR rate plus 3% determined at the option of the
Partnership upon each additional draw, subject to certain limitations. As of
June 30, 1996 and December 31, 1995, the weighted average interest rate was
8.8% and 9.6%, respectively. The Partnership pays an unused line fee monthly
of one twelfth of 0.5% on the amount by which the facility cap sublimit
exceeds the average amounts outstanding during the preceding month. (See Note
8 for amendment to line of credit agreement subsequent to June 30, 1996.)

The Partnership is required to comply with certain financial covenants
throughout the year. The Partnership was in compliance with all financial
covenants at June 30, 1996.

6. RELATED PARTY TRANSACTIONS

The Partnership has an agreement with the General Partner whereby the
Partnership pays a monthly management fee for operational and management
support provided. Management fees under this agreement were $200,000, $400,000
and $120,000 for the six month period ended June 30, 1996, the year ended
December 31, 1995 and the period from September 12, 1994 through December 31,
1994, respectively. The General Partner is required to maintain a 1% capital
account balance in the Partnership. The General Partner was not in compliance
with this requirement. However, the Partnership has granted a waiver to the
General Partner as of June 30, 1996.

The Partnership pays a licensing fee to a stockholder of the General Partner
for use of computer software. Amounts paid for the six month period ended June
30, 1996, the year ended December 31, 1995, and the period from September 12,
1994 through December 31, 1994 were $47,000, $63,000, and $16,000,
respectively.

7. COMMITMENTS AND CONCENTRATIONS OF CREDIT RISK

At June 30, 1996, the Partnership has committed lines of credit to its
customers of $37,850,000 of which approximately $13,200,000 was unused. The
Partnership extends credit based upon qualified client receivables outstanding
and is subject to contractual collateral and loan-to-value ratios.

Concentrations of credit as of the respective period ends were as follows:

<TABLE>
<CAPTION>
PERCENTAGE
OF FINANCE
NUMBER RECEIVABLES
OF CLIENTS OUTSTANDING
---------- -----------
<S> <C> <C>
June 30, 1996....................................... 3 39%
December 31, 1995................................... 3 38%
December 31, 1994................................... 4 73%
</TABLE>

The number of clients generating fee revenue in excess of 10% of the total
fee revenue, and the respective aggregate percentages of fee revenue earned
from those clients, were as follows:

<TABLE>
<CAPTION>
AGGREGATE
PERCENTAGE
NUMBER OF TOTAL FEE
OF CLIENTS REVENUE
---------- ------------
<S> <C> <C>
June 30, 1996...................................... 2 23%
December 31, 1995.................................. 2 25%
December 31, 1994.................................. 4 64%
</TABLE>

F-23
<PAGE>

HEALTHPARTNERS FUNDING, L.P.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

8. SUBSEQUENT EVENTS AND INITIAL PUBLIC OFFERING

Effective upon the completion of the offering, the Company will acquire from
proceeds of the offering, using the purchase method of accounting, all limited
partnership interests in Funding and the partnership will be liquidated. The
amount paid to acquire the limited partnership interest is expected to
appropriate both the fair value and the book value of Funding at the date of
the acquisition.

In anticipation of the offering and the liquidations of Funding and DEL, the
bank that had previously provided lines of credit to those entities has
consented to the assignment to the Company of the agreements related to these
lines of credit and agreed to increase the aggregate credit facility from $35
million to $50 million. In July 1996, the Company began negotiations with an
international financial institution for financing under an investment grade,
asset-backed commercial paper program and expects to finalize the terms of the
agreement in conjunction with the closing of the initial public offering.
Under the proposed terms of the commercial paper program, the Company will be
able to borrow up to $100 million.

F-24
<PAGE>

HEALTHCARE FINANCIAL PARTNERS, INC.
HEALTHPARTNERS DEL, L.P.

COMBINED BALANCE SHEET
UNAUDITED

<TABLE>
<CAPTION>
SEPTEMBER 30,
1996
-------------
<S> <C>
ASSETS
Property and equipment........................................... $ 210,682
Prepaid expenses and other....................................... 434,822
---------
Total assets................................................. $ 645,504
=========
LIABILITIES AND EQUITY
Cash overdraft................................................... $ 11,171
Amounts due to limited partnership............................... 432,654
Accounts payable to related parties.............................. 593,745
Accounts payable and accrued expenses............................ 144,099
Notes payable.................................................... 134,481
---------
Total liabilities............................................ 1,316,150
Equity
Limited partners' capital...................................... 47,187
Stockholders' deficit:
Common stock, par value $.01 per share; 30,000,000 shares
authorized; 3,419,993 shares issued and outstanding........... 34,200
Retained deficit............................................... (752,033)
---------
Total stockholders' deficit.................................. (717,833)
---------
Total equity deficit......................................... (670,646)
---------
Total liabilities and equity................................. $ 645,504
=========
</TABLE>

See accompanying notes.

F-25
<PAGE>

HEALTHCARE FINANCIAL PARTNERS, INC.
HEALTHPARTNERS DEL, L.P.

COMBINED STATEMENTS OF OPERATIONS
UNAUDITED

<TABLE>
<CAPTION>
NINE MONTH PERIOD
ENDED SEPTEMBER
30,
------------------
1995 1996
-------- ---------
<S> <C> <C>
Fee income:
Discount fees............................................ $312,090 $ 589,194
Origination fees......................................... 124,000
Other fees............................................... 83,690 129,264
-------- ---------
Total fee income........................................... 395,780 842,458
Interest expense........................................... 45,526 156,957
-------- ---------
Net fee income............................................. 350,254 685,501
Provision for losses on receivables........................ 45,993 75,311
-------- ---------
Net fee income after provision for losses on receivables... 304,261 610,190
Operating expenses:
Compensation and benefits................................ 437,444 826,059
Occupancy................................................ 92,194 118,656
Professional fees........................................ 54,452 81,970
Other.................................................... 185,447 345,134
-------- ---------
Total operating expenses................................... 769,537 1,371,819
Other income:
Income from limited partnership.......................... 165,580 520,369
Management fees from affiliates.......................... 300,000 315,967
Management fees from others.............................. 137,146
Other.................................................... 49,366 171,651
-------- ---------
Total other income......................................... 652,092 1,007,987
-------- ---------
Income before income taxes (benefit)....................... 186,816 246,358
Income taxes (benefit)..................................... (13,268)
-------- ---------
Net income................................................. $186,816 $ 259,626
======== =========
Unaudited pro forma data:
Income taxes............................................. $ 96,080
---------
Net income............................................... $ 150,278
=========
</TABLE>

See accompanying notes.

F-26
<PAGE>

HEALTHCARE FINANCIAL PARTNERS, INC.
HEALTHPARTNERS DEL, L.P.

COMBINED STATEMENTS OF EQUITY

<TABLE>
<CAPTION>
STOCKHOLDERS' DEFICIT
--------------------------------------
LIMITED
PARTNERS' COMMON PAID-IN RETAINED TOTAL
CAPITAL STOCK CAPITAL DEFICIT TOTAL EQUITY
--------- ------- ------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Issuance of 1,710 shares
of $1.00 par value
common stock at April
22, 1993............... $ 1,710 $ (1,335) $ 375 $ 375
Capital contributions... $ 150,000 150,000
Net income (loss)....... 5,410 (29,731) (29,731) (24,321)
--------- ------- ------ --------- --------- ---------
Balance at December 31,
1993................... 155,410 1,710 (31,066) (29,356) 126,054
Issuance of 379,998
common stock warrants.. $ 500 500 500
Conversion of $1.00 par
value shares to $.01
par value shares....... (1,693) 1,693
Issuance of 3,418,283
shares of $.01 par
value common stock..... 34,183 (2,193) (24,494) 7,496 7,496
Capital contributions... 123,830 123,830
Net income (loss)....... 11,460 (337,406) (337,406) (325,946)
Distributions to
partners............... (145,843) (145,843)
--------- ------- ------ --------- --------- ---------
Balance at December 31,
1994................... 144,857 34,200 (392,966) (358,766) (213,909)
Capital contributions... 89,021 89,021
Net income (loss)....... 377,341 (182,004) (182,004) 195,337
Distributions to
partners............... (195,914) (195,914)
--------- ------- ------ --------- --------- ---------
Balance at December 31,
1995................... 415,305 34,200 (574,970) (540,770) (125,465)
Net income (loss)
(unaudited)............ 436,689 (177,063) (177,063) 259,626
Distributions to
partners (unaudited)... (804,807) (804,807)
--------- ------- ------ --------- --------- ---------
Balance at September 30,
1996 (unaudited)....... $ 47,187 $34,200 $ -- $(752,033) $(717,833) $(670,646)
========= ======= ====== ========= ========= =========
</TABLE>

See accompanying notes.

F-27
<PAGE>

HEALTHCARE FINANCIAL PARTNERS, INC.
HEALTHPARTNERS DEL, L.P.

COMBINED STATEMENTS OF CASH FLOWS UNAUDITED

<TABLE>
<CAPTION>
NINE MONTH PERIOD
ENDED SEPTEMBER 30,
----------------------
1995 1996
----------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net income ........................................... $ 186,816 $ 259,626
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation......................................... 10,264 50,135
Provision for losses on receivables.................. 45,993 75,311
Income from unconsolidated limited partnership....... (165,580) (520,369)
Changes in assets and liabilities:
Decrease in accounts receivable from related
parties............................................ 112,369
Increase in prepaid expenses and other.............. (15,528) (429,907)
Decrease in cash overdraft.......................... (23,979)
Decrease accrued interest........................... (12,591)
Increase in accounts payable to related parties..... 6,552 434,301
Increase in accounts payable and accrued expenses... 67,958 75,157
----------- ---------
Net cash provided by operating activities............ 136,475 20,053
INVESTING ACTIVITIES...................................
Increase in finance receivables, net.................. (1,296,664) (929,040)
Decrease in investment in limited partnership......... 362,859 803,486
Purchase of property and equipment, net............... (5,153) (184,677)
Sale of assets of DEL, net............................ 447,044
----------- ---------
Net cash provided by (used in) investing activities.. (938,958) 136,813
FINANCING ACTIVITIES...................................
Net borrowings under line of credit................... 798,840 609,658
Increase (decrease) in notes payable to related
parties.............................................. 250 (75,000)
Increase in notes payable............................. 113,283
(Distributions to) contributions from partners, net... 144,858 (804,807)
----------- ---------
Net cash provided by (used in) financing activities.. 943,948 (156,866)
----------- ---------
Net increase in cash and cash equivalents............. 141,465 --
Cash and cash equivalents at beginning of period...... 6,978
----------- ---------
Cash and cash equivalents at end of period............ $ 148,443 $ --
=========== =========
Supplemental disclosure of cash flow information:
Cash payments for interest........................... $ 49,053 $ 170,754
=========== =========
</TABLE>

See accompanying notes.

F-28
<PAGE>

HEALTHCARE FINANCIAL PARTNERS, INC.
HEALTHPARTNERS DEL, L.P.

NOTES TO COMBINED FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 1996 AND FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1996
AND 1995--UNAUDITED

1. NATURE OF BUSINESS

HealthCare Financial Partners, Inc. (Company), which was incorporated and
previously doing business as HealthPartners Financial Corporation from
inception to September 13, 1996, was formed in 1993 under the laws of the state
of Delaware. The Company owns a 1% general partner interest in Health Partners
DEL, L.P. (DEL) and a 1% general partner interest in HealthPartners Funding,
L.P. (Funding). In addition, the majority owners of the Company owns all of the
limited partnership interests of DEL. The Company's principal activity is its
interest in Funding. Additionally, the Company provides operational and
management support to Funding for a fee. Funding's principal activities are
purchasing accounts receivable from health care providers throughout the United
States and providing financing to health care providers under asset-based
lending arrangements.

Under the terms of its partnership agreement, DEL will cease to exist
December 31, 2020, unless an event of dissolution shall occur prior to such
time. Effective September 1, 1996, the net assets of DEL were sold to Funding
in contemplation of an initial public offering (see Note 9). The limited
partners' liability is limited to the capital they have contributed.

2. SIGNIFICANT ACCOUNTING POLICIES

CASH AND CASH EQUIVALENTS

Cash and cash equivalents includes cash and other liquid financial
instruments with an original maturity of three months or less.

FINANCE RECEIVABLES

ALLOWANCE FOR LOSSES ON RECEIVABLES

The allowance for losses on receivables is maintained at the amount estimated
to be sufficient to absorb future losses, net of recoveries, inherent in the
finance receivables. The provision for losses on receivables is the periodic
cost of maintaining an adequate allowance. In evaluating the adequacy of the
allowance, management considers trends in past-due accounts, historical charge-
off and recovery rates, credit risk indicators, economic conditions, on-going
credit evaluations, overall portfolio size, average client balances, excess
collateral, and underwriting policies, among other items.

Additionally, client holdbacks are available to offset losses on receivables.
And, under certain circumstances, credit losses can be offset against client
holdbacks related to other financings.

F-29
<PAGE>

HEALTHCARE FINANCIAL PARTNERS, INC.
HEALTHPARTNERS DEL, L.P.

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

PROPERTY AND EQUIPMENT

Property and equipment, principally computer and related peripherals, are
stated at cost less accumulated depreciation of $62,992 at September 30, 1996.
Depreciation expense is computed primarily using the straight-line method.

CLIENT HOLDBACKS

REVENUE RECOGNITION

Discount fees may be charged at closing or periodically based on the
outstanding receivable balance and are recognized in income under methods that
approximate the effective interest method.

Origination fees are charged at closing to cover the direct closing costs of
the contract, and are recognized in income under a method that approximates
the effective interest method.

INCOME TAXES

EARNINGS PER SHARE

Earnings per share is not presented because it is not meaningful due to the
partnership reporting basis of DEL and to the reorganization as described in
Note 9.

USE OF ESTIMATES

PRO FORMA INCOME TAXES

UNAUDITED INTERIM FINANCIAL STATEMENTS

F-30
<PAGE>

HEALTHCARE FINANCIAL PARTNERS, INC.
HEALTHPARTNERS DEL, L.P.

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

interim financial statements as of and for the nine-month periods ended
September 30, 1995 and 1996. The results of operations for the nine-month
periods ended September 30, 1995 and 1996 are not necessarily indicative of
the operating results of the Company for the entire year.

FAIR VALUE OF FINANCIAL INSTRUMENTS

RECENT ACCOUNTING PRONOUNCEMENTS

In October 1995, the Financial Accounting Standards Board (FASB) issued FASB
Statement of Financial Accounting Standards No. 123, "Accounting for Stock
Based Compensation" (the Statement). The Statement encourages companies to
recognize expense for stock-based awards based on their fair value on the date
of grant, however, the Statement allows companies to continue the existing
intrinsic value method of accounting provided that pro forma disclosures are
made of what net income and earnings per share would have been had the fair
value method been used. The Company will continue with the intrinsic value
method of accounting for stock-based awards. As of September 30, 1996, there
was no impact to the Company's financial statements from the adoption of the
Statement.

3. ALLOWANCE FOR LOSSES ON RECEIVABLES

Activity in the allowance for losses on receivables was as follows:

<TABLE>
<CAPTION>
NINE MONTH PERIOD ENDED
SEPTEMBER 30,
------------------------
1995 1996
----------- ------------
<S> <C> <C>
Beginning of period................................... $ 20,847 $ 66,840
Provision for losses on receivables................... 45,993 75,311
Sale of receivables (see note 9)...................... (142,151)
----------- ------------
End of period......................................... $ 66,840 $ --
=========== ============
</TABLE>

4. LINE OF CREDIT

Through August 31, 1996, DEL maintained a revolving line of credit with a
bank. The line of credit was collateralized by DEL's purchased finance
receivables. DEL had the ability to borrow up to $3,750,000. The rate of
interest charged under the agreement was the bank's base rate of interest, as
defined, plus 1.5%, or the revolving credit LIBOR rate plus 3% determined at
the option of DEL upon each additional draw, subject to certain limitations.
DEL paid an unused line fee monthly of one twelfth of 0.5% on the amount by
which the facility cap sublimit exceeded the average amount outstanding during
the preceding month.

In anticipation of the offering and the liquidations of Funding and DEL (see
note 9), the bank that had previously provided lines of credit to DEL has
consented to the assignment to the Company of the agreements related to the
lines of credit and agreed to increase the aggregate credit facilities from
$35 million to $50 million under substantially the same terms and conditions.

F-31
<PAGE>

HEALTHCARE FINANCIAL PARTNERS, INC.
HEALTHPARTNERS DEL, L.P.

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

5. EQUITY

On November 1, 1995, the Company issued stock options to purchase 38,381
shares of the Company's common stock at an exercise price of $2.61 per share.
The stock options expire in 2005. See Note 9 for additional equity
transactions in contemplation of the reorganization and initial public
offering.

6. LEASE COMMITMENTS

The Company leases office space under noncancelable operating leases. The
future minimum lease payments as of September 30, 1996 were as follows:

<TABLE>
<S> <C>
1996.............................................................. $ 42,317
1997.............................................................. 160,494
1998.............................................................. 139,410
1999.............................................................. 143,471
2000.............................................................. 147,531
Thereafter........................................................ 49,628
--------
$682,851
========
</TABLE>

Rent expense for the nine month periods ended September 30, 1996 and 1995
was $118,656 and $92,194, respectively.

7. RELATED PARTY TRANSACTIONS

The Company has an agreement with Funding, whereby Funding pays a monthly
management fee for operational and management support provided. Management
fees under this agreement were $315,967 and $300,000 for the nine month
periods ended September 30, 1996 and 1995, respectively.

Additionally, DEL entered into an agreement with Funding whereby certain
purchased finance receivables of Funding are assigned to DEL with risks and
rewards of ownership. All purchased receivables outstanding were assigned from
Funding under the agreement.

8. COMMITMENTS AND CONCENTRATIONS OF CREDIT RISK

The Company earned fee revenue in excess of 10% of total fee revenue from
two customers, aggregating 38% of total revenue, for the nine month period
ended September 30, 1995, and from one customer, comprising 10.5% of total
revenue, for the nine month period ended September 30, 1996.

F-32
<PAGE>

HEALTHCARE FINANCIAL PARTNERS, INC.
HEALTHPARTNERS DEL, L.P.

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

9. REORGANIZATION AND INITIAL PUBLIC OFFERING

On September 1, 1996, in contemplation of the offering, Funding acquired,
using the purchase method of accounting, the assets of DEL, consisting
principally of client receivables, by assuming DEL's liabilities and paying
$486,630 in cash. The cash payment approximated the fair value and book value
of DEL's net assets. Immediately following the acquisition, DEL ceased
operations. The limited partner capital remaining at September 30, 1996
represents amounts to be paid to the limited partners of DEL upon liquidation
of DEL.

In July 1996, the Company began negotiations with an international financial
institution for financing under an investment grade, asset-backed commercial
paper program and expects to finalize the terms of the agreement prior to the
closing of the initial public offering. The Company has received a lending
commitment from the international financial institution of $100 million under
the commercial paper program.

F-33
<PAGE>

HEALTHPARTNERS FUNDING, L.P.

BALANCE SHEET
UNAUDITED

<TABLE>
<CAPTION>
SEPTEMBER 30,
1996
-------------
<S> <C>
ASSETS
Cash and cash equivalents......................................... $ 2,464,578
Finance receivables............................................... 79,566,908
Less:
Allowance for losses on receivables........................... 1,035,992
Unearned discount fees........................................ 356,228
-----------
Net finance receivables..................................... 78,174,688
Accounts receivable from related parties.......................... 559,032
Prepaid expenses and other........................................ 551,228
-----------
Total assets.................................................... $81,749,526
===========
LIABILITIES AND PARTNERS' CAPITAL
Line of credit.................................................... $42,607,630
Client holdbacks.................................................. 16,212,360
Accounts payable to clients....................................... 645,067
Accounts payable and accrued expenses............................. 99,341
Accrued interest.................................................. 303,120
-----------
Total liabilities................................................. 59,867,518
Partners' capital................................................. 21,882,008
-----------
Total liabilities and partners' capital......................... $81,749,526
===========
</TABLE>

See accompanying notes.

F-34
<PAGE>

HEALTHPARTNERS FUNDING, L.P.

STATEMENTS OF OPERATIONS UNAUDITED

<TABLE>
<CAPTION>
NINE MONTH PERIOD ENDED
SEPTEMBER 30,
-----------------------
1995 1996
----------- -----------
<S> <C> <C>
Fee and interest income:
Discount fees....................................... $1,976,870 $ 4,516,217
Commitment fees..................................... 243,289 384,230
Other fees.......................................... 198,853 334,385
Interest income..................................... 163,365 2,211,007
----------- -----------
Total fee and interest income..................... 2,582,377 7,445,839
Interest expense...................................... 207,834 2,147,374
----------- -----------
Net fee and interest income........................... 2,374,543 5,298,465
Provision for losses on receivables................... 171,395 537,805
----------- -----------
Net fee and interest income after provision for losses
on receivables....................................... 2,203,148 4,760,660
Operating expenses:
Commissions......................................... 65,368 336,570
Management fees paid to general partner............. 300,000 315,967
Professional fees................................... 89,240 185,191
Licensing fees...................................... 75,788 100,418
Other............................................... 207,505 288,247
----------- -----------
Total operating expenses.............................. 737,901 1,226,393
----------- -----------
Net income............................................ 1,465,247 3,534,267
Net income allocable to limited partners.............. 1,299,667 3,013,898
----------- -----------
Net income allocable to general partner............... $ 165,580 $ 520,369
=========== ===========
Unaudited pro forma data:
Income taxes........................................ $ 1,378,364
-----------
Net income.......................................... $ 2,155,903
===========
</TABLE>

See accompanying notes.

F-35
<PAGE>

HEALTHPARTNERS FUNDING, L.P.

STATEMENTS OF PARTNERS' CAPITAL

<TABLE>
<CAPTION>
GENERAL LIMITED TOTAL
PARTNER PARTNERS PARTNERS' CAPITAL
---------- ----------- -----------------
<S> <C> <C> <C>
Capital contributions at September
12, 1994 (Date of Inception)...... $ 52,900 $ 5,290,000 $ 5,342,900
Net income (loss).................. (303,385) 91,762 (211,623)
Capital distributions.............. (6,406) (6,406)
---------- ----------- -----------
Balance at December 31, 1994....... (256,891) 5,381,762 5,124,871
Capital contributions.............. 75,000 7,500,000 7,575,000
Net income......................... 597,146 2,305,168 2,902,314
Capital distributions.............. (564,792) (2,198,217) (2,763,009)
---------- ----------- -----------
Capital at December 31, 1995....... (149,537) 12,988,713 12,839,176
Capital contributions (unaudited).. 120,000 12,000,000 12,120,000
Net income (unaudited)............. 520,369 3,013,898 3,534,267
Capital distributions (unaudited).. (923,486) (5,687,949) (6,611,435)
---------- ----------- -----------
Capital at September 30, 1996
(unaudited)....................... $ (432,654) $22,314,662 $21,882,008
========== =========== ===========
</TABLE>

See accompanying notes.

F-36
<PAGE>

HEALTHPARTNERS FUNDING, L.P.

STATEMENTS OF CASH FLOWS
UNAUDITED

<TABLE>
<CAPTION>
NINE MONTH PERIOD
ENDED SEPTEMBER 30,
-------------------------------
1995 1996
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income ................................... $ 1,465,247 $ 3,534,267
Adjustments to reconcile net income to net
cash provided by operations:
Provision for losses on receivables.......... 171,395 537,805
Amortization of organization costs........... 16,675 13,240
Changes in assets and liabilities:
Decrease (increase) in accounts receivable
from related parties........................ 195,790 (382,261)
Increase in prepaid expenses and other....... (133,486) (134,293)
Increase (decrease) in accounts payable to
clients..................................... 443,511 (399,976)
Increase (decrease) in accounts payable to
related parties............................. 13,556 (334,475)
Increase in accrued interest................. 164,347
Increase in accounts payable and accrued
expenses.................................... 151,084 2,418
------------ ------------
Net cash provided by operating activities..... 2,323,772 3,001,072
INVESTING ACTIVITIES
Increase in finance receivables, net.......... (16,140,245) (31,928,444)
Acquisition of assets of DEL, net............. (447,044)
------------ ------------
Net cash used in investing activities......... (16,140,245) (32,375,488)
FINANCING ACTIVITIES
Net borrowings under line of credit........... 9,178,359 24,190,112
Partners' capital contributions............... 6,565,000 12,120,000
Partners' capital distributions............... (1,385,367) (6,611,435)
------------ ------------
Net cash provided by financing activities..... 14,357,992 29,698,677
------------ ------------
Net increase in cash and cash equivalents..... 541,519 324,261
Cash and cash equivalents at beginning of
period....................................... 1,963,089 2,140,316
------------ ------------
Cash and cash equivalents at end of period.... $ 2,504,608 $ 2,464,577
============ ============
Supplemental disclosure of cash flow
information
Cash payments for interest................... $ 207,834 $ 1,983,027
============ ============
</TABLE>

See accompanying notes.

F-37
<PAGE>

HEALTHPARTNERS FUNDING, L.P.

NOTES TO FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 1996 AND FOR THE NINE MONTH PERIOD ENDEDSEPTEMBER 30, 1996
AND 1995--UNAUDITED

1. NATURE OF BUSINESS

The Partnership shall continue to operate until the earliest of the
following dates: (i) December 31, 1997, unless extended to December 31, 1998
at the election, prior to June 30, 1997, of Limited Partner interests having
capital accounts the aggregate value of which exceeds 50% of the value of all
Limited Partners capital accounts as of such date, or (ii) the date on which a
Partnership disabling event occurs. However, the General Partner may terminate
the Partnership on 90-days written notice to each of the Limited Partners.
(See Note 8.)

The Limited Partners' liability is limited to the capital they have
contributed to the Partnership.

2. SIGNIFICANT ACCOUNTING POLICIES

CASH AND CASH EQUIVALENTS

Cash and cash equivalents includes cash and other liquid financial
instruments with an original maturity of three months or less.

FINANCE RECEIVABLES

ALLOWANCE FOR LOSSES ON RECEIVABLES

The allowance for losses on receivables is maintained at the amount
estimated to be sufficient to absorb future losses, net of recoveries,
inherent in the finance receivables. The provision for credit losses is the
periodic cost of maintaining an adequate allowance. In evaluating the adequacy
of the allowance, management considers trends in past due accounts, historical
charge-off and recovery rates, credit risk indicators, economic conditions,
on-going credit evaluations, overall portfolio size, average client balances,
excess collateral, and underwriting policies, among other items.

Additionally, client holdbacks are available to offset losses on
receivables. And, under certain circumstances, credit losses can be offset
against client holdbacks related to other financings.

The Partnership performs a loan-by-loan review for all asset-based loans to
identify loans to be charged off.

F-38
<PAGE>

HEALTHPARTNERS FUNDING, L.P.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

CLIENT HOLDBACKS

REVENUE RECOGNITION

Discount fees may be charged at closing or periodically based on the
outstanding receivable balance and are recognized in income under methods that
approximate the effective interest method.

Commitment fees are charged at closing to cover the direct closing costs of
the contract, and are recognized in income under a method that approximates
the effective interest method.

NET INCOME ALLOCATION

INCOME TAXES

EARNINGS PER SHARE
Earnings per share is not presented because it is not meaningful due to the
partnership reporting basis and to the planned initial public offering
described in Note 8.

USE OF ESTIMATES

UNAUDITED INTERIM FINANCIAL STATEMENTS

The unaudited interim financial statements furnished reflect all
adjustments, consisting solely of normal recurring accruals, which are, in the
opinion of management, necessary for a fair presentation of the Partnership's
interim financial statements as of and for the nine-month periods ended
September 30, 1995 and 1996. The results of operations for the nine-month
periods ended September 30, 1995 and 1996 are not necessarily indicative of
the operating results of the Partnership for the entire year.

F-39
<PAGE>

HEALTHPARTNERS FUNDING, L.P.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

PRO FORMA INCOME TAXES

FAIR VALUE OF FINANCIAL INSTRUMENTS

Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments," requires disclosure of fair value information
about financial instruments, whether or not recognized on the balance sheet,
for which it is practicable to estimate that value. Due to the short-term
nature and the variable rates of all the Partnership's financial instruments,
there are no significant differences between recorded values and fair values.

3. FINANCE RECEIVABLES

Finance receivables consisted of the following:

<TABLE>
<CAPTION>
SEPTEMBER 30,
1996
-------------
<S> <C>
Purchased accounts receivable..................................... $46,064,079
Asset-based loans................................................. 33,502,829
-----------
Total finance receivables....................................... $79,566,908
===========
</TABLE>

4. ALLOWANCE FOR LOSSES ON RECEIVABLES

Activity in the allowance for losses on receivables was as follows:

<TABLE>
<CAPTION>
NINE MONTH PERIOD ENDED
SEPTEMBER 30,
-----------------------
1995 1996
-----------------------
<S> <C> <C>
Beginning of period.................................... $ 326,792 $ 498,187
Provision for losses on receivables.................... 171,395 537,805
---------- ------------
End of period.......................................... $ 498,187 $ 1,035,992
========== ============
</TABLE>

F-40
<PAGE>

HEALTHPARTNERS FUNDING, L.P.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

5. LINE OF CREDIT

Prior to September 1996, the Partnership maintained a revolving line of
credit with a bank, and had the ability to borrow up to $31,250,000. Effective
September 5, 1996, and in conjunction with the purchase of a limited
partnership (See Note 8), the aggregate credit facility under the line was
amended to $50,000,000 The rate of interest charged under the agreement is the
bank's base rate of interest, as defined, or the revolving credit LIBOR rate
plus 3% determined at the option of the Partnership upon each additional draw,
subject to certain limitations. As of September 30, 1996 the weighted average
interest rate was 9.1%. The Partnership pays an unused line fee monthly of one
twelfth of 0.5% on the amount by which the facility cap sublimit exceeds the
average amounts outstanding during the preceding month. The line of credit is
collateralized by the finance receivables of the Partnership.

The Partnership is required to comply with certain financial covenants
throughout the year. The Partnership was in compliance with all financial
covenants at September 30, 1996.

6. RELATED PARTY TRANSACTIONS

The Partnership has an agreement with the General Partner whereby the
Partnership pays a monthly management fee for operational and management
support provided. Management fees under this agreement were $315,967 and
$300,000 for the nine month periods ended September 30, 1996 and 1995,
respectively. The General Partner is required to maintain a 1% capital account
balance in the Partnership. The General Partner was not in compliance with
this requirement. However, the Partnership has granted a waiver to the General
Partner as of September 30, 1996.

The Partnership pays a licensing fee to a stockholder of the General Partner
for use of computer software. Amounts paid for the nine month periods ended
September 30, 1996 and 1995 were $100,418 and 75,788, respectively.

7. COMMITMENTS AND CONCENTRATIONS OF CREDIT RISK

At September 30, 1996, the Partnership has committed lines of credit to its
customers of $58,100,000 of which approximately $26,700,000 was unused. The
Partnership extends credit based upon qualified client receivables outstanding
and is subject to contractual collateral and loan-to-value ratios.

Concentration of credit as of the period end was:

<TABLE>
<CAPTION>
PERCENTAGE
OF FINANCE
NUMBER RECEIVABLES
OF CLIENTS OUTSTANDING
---------- -----------
<S> <C> <C>
September 30, 1996.................................. 3 31%
</TABLE>

The number of clients generating fee revenue in excess of 10% of the total
fee revenue, and the aggregate percentage of fee revenue earned from those
clients, was as follows:

<TABLE>
<CAPTION>
AGGREGATE
PERCENTAGE
NUMBER OF TOTAL FEE
OF CLIENTS REVENUE
---------- ------------
<S> <C> <C>
September 30, 1996................................. 1 13%
</TABLE>

F-41
<PAGE>

HEALTHPARTNERS FUNDING, L.P.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

8. PURCHASE ACQUISITION AND INITIAL PUBLIC OFFERING

In connection with a planned initial public offering (offering) of common
stock by the Company, effective as of September 1, 1996, Funding acquired,
using the purchase method of accounting, the assets of Health Partners DEL
L.P. ("DEL"), consisting principally of client receivables, by assuming DEL's
liabilities and paying $486,630 in cash. The cash payment approximated the
fair value and book value of DEL's net assets. The pro forma results of
operations reflect the results of the Partnership as if the Partnership had
purchased DEL as of the beginning of the respective periods and, accordingly,
DEL's operations were included with Funding:

<TABLE>
<CAPTION>
FOR THE NINE MONTH
PERIOD ENDED SEPTEMBER 30,
------------------------
1995 1996
----------- -----------
<S> <C> <C>
Net fee and interest income........................... $ 2,724,797 $ 5,983,966
Provision for loses on receivables.................... (217,388) (613,116)
Net operating expenses................................ (586,512) (1,127,879)
----------- -----------
Net income.......................................... $ 1,920,897 $ 4,242,971
=========== ===========
</TABLE>

Effective upon the completion of the offering, the Company will acquire from
proceeds of the offering, using the purchase method of accounting, all limited
partnership interests in Funding and the Partnership will be liquidated. The
amount paid to acquire the limited partnership interest is expected to
approximate both the fair value and the book value of Funding at the date of
the acquisition.

In July 1996, the Company began negotiations with an international
financial institution for financing under an investment grade, asset-backed
commercial paper program and expects to finalize the terms of the agreement in
conjunction with the closing of the initial public offering. The Company has
received a lending commitment from the international financial institution of
$100 million under the commercial paper program.

F-42
<PAGE>

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No dealer, sales representative or any other person has been authorized to
give any information or to make any representations other than those contained
in this Prospectus in connection with the offer made hereby and, if given or
made, such information or representations must not be relied upon as having
been so authorized by the Company or any of the Underwriters. This Prospectus
does not constitute an offer to sell or a solicitation of an offer to buy any
of the securities offered hereby to any person or by anyone in any jurisdiction
in which it is unlawful to make such offer or solicitation. Neither the deliv-
ery of this Prospectus nor any sale made hereunder shall, under any circum-
stances, create any implication that there has been no change in the affairs of
the Company or that the information contained herein is correct as of any time
subsequent to the date hereof.

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TABLE OF CONTENTS

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<TABLE>
<CAPTION>
Page
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<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 9
Use of Proceeds.......................................................... 16
Dividend Policy.......................................................... 16
Capitalization........................................................... 17
Dilution................................................................. 18
Pro Forma Financial Information.......................................... 19
Management's Discussion and Analysis of Pro Forma Financial Condition and
Pro Forma Results of Operations......................................... 22
Selected Historical Financial Data....................................... 29
Management's Discussion and Analysis of Historical Financial Condition
and Historical Results of Operations.................................... 31
Business................................................................. 34
Management............................................................... 45
Certain Transactions..................................................... 51
Principal Stockholders................................................... 53
Description of Capital Stock............................................. 54
Shares Eligible for Future Sale.......................................... 57
Underwriting............................................................. 58
Legal Matters............................................................ 59
Experts.................................................................. 59
Additional Information................................................... 59
Index to Financial Statements............................................ F-1
</TABLE>

Until December 16, 1996 (25 days after the date of this Prospectus), all
dealers effecting transactions in the shares offered hereby, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as Underwriters and with respect to their unsold allotments or
subscriptions.

2,100,000 SHARES

[LOGO OF HEALTHCARE FINANCIAL PARTNERS APPEARS HERE]

COMMON STOCK

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PROSPECTUS

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MONTGOMERY SECURITIES

STIFEL, NICOLAUS & COMPANY
Incorporated

November 21, 1996

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