<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: JUNE 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
COMMISSION FILE NUMBER: 0-21425
HEALTHCARE FINANCIAL PARTNERS, INC.
------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 52-1844418
-------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2 WISCONSIN CIRCLE, SUITE 320
CHEVY CHASE, MARYLAND 20815
---------------------------------------- ----------
(Address of principal executive offices) (Zip code)
(301) 961-1640
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all documents and
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock ($.01 par value) 9,664,991 as of June 30, 1997
<PAGE>
HEALTHCARE FINANCIAL PARTNERS, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at June 30, 1997
and December 31, 1996 (Unaudited)....................................................... 1
Condensed Consolidated Statements of Operations for the three
and six months ended June 30, 1997 and June 30, 1996 (Unaudited)........................ 2
Condensed Consolidated Statements of Equity for the
year and six months ended December 31, 1996 and June 30, 1997 (Unaudited)............... 3
Condensed Consolidated Statements of Cash Flows for the six months
ended June 30, 1997 and June 30, 1996 (Unaudited)....................................... 4
Notes to Condensed Consolidated Financial Statements (Unaudited)........................ 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations (Unaudited)............................... 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings....................................................................... 19
Item 2. Changes in Securities................................................................... 19
Item 3. Defaults Upon Senior Securities......................................................... 19
Item 4. Submission of Matters to a Vote of Security Holders..................................... 19
Item 5. Other Information....................................................................... 19
Item 6. Exhibits and Reports on Form 8-K........................................................ 19
SIGNATURES....................................................................................... 20
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HEALTHCARE FINANCIAL PARTNERS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS JUNE 30, DECEMBER 31,
1997 1996
------------- --------------
<S> <C> <C>
Cash and cash equivalents $ 10,987,915 $ 11,734,705
Finance receivables 152,379,847 89,328,928
Less:
Allowance for losses on receivables 1,738,992 1,078,992
Unearned fees 1,844,775 723,804
------------ ------------
Net finance receivables 148,796,080 87,526,132
Accounts receivable from related parties 5,576
Property and equipment 296,202 223,397
Prepaid expenses and other 5,080,416 1,783,279
------------ ------------
Total assets $165,160,613 $101,273,089
============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
Line of credit $ 18,000,000 $ 21,829,737
Commercial paper facility 49,597,715 37,209,098
Client holdbacks 9,979,524 11,739,326
Accounts payable to clients 1,215,138 1,020,131
Amounts due to related parties 317,993
Accounts payable and accrued expenses 3,634,448 1,925,504
Notes payable 141,042 126,389
Accrued interest 253,123 383,935
------------ ------------
Total liabilities 82,820,990 74,552,113
Stockholders' equity
Preferred stock, par value $.01 per share; 10,000,000 shares
authorized; none outstanding
Common stock, par value $.01 per share; 30,000,000 shares
authorized; 9,664,991 and 6,214,991 shares issued and
outstanding in 1997 and 1996, respectively 96,650 62,150
Paid-in-capital 79,717,538 26,704,234
Retained equity (deficit) 2,525,435 (45,408)
------------ ------------
Total stockholders' equity 82,339,623 26,720,976
------------ ------------
Total liabilities and equity $165,160,613 $101,273,089
============ ============
</TABLE>
See accompanying notes.
1
<PAGE>
HEALTHCARE FINANCIAL PARTNERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- ---------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Fee and interest income:
Discount fees $1,361,128 $1,671,881 $3,037,812 $3,131,885
Commitment fees 337,361 172,885 643,310 359,227
Other fees 748,963 238,811 1,336,741 469,174
Interest income 3,013,090 799,583 4,931,012 1,204,010
---------- ---------- ---------- ----------
Total fee and interest income 5,460,542 2,883,160 9,948,875 5,164,296
Interest expense 1,968,569 801,126 3,101,725 1,381,156
---------- ---------- ---------- ----------
Net fee and interest income 3,491,973 2,082,034 6,847,150 3,783,140
Provision for loss on receivables 250,000 53,646 400,000 396,801
---------- ---------- ---------- ----------
Net fee and interest income after
provision 3,241,973 2,028,388 6,447,150 3,386,339
for losses on receivables
Operating expenses:
Compensation and benefits 920,223 255,956 1,691,761 481,370
Commissions 42,162 151,692 72,583 223,478
Professional fees 112,545 137,481 285,962 243,232
Occupancy 55,526 60,981 103,035 98,663
Administrative and other 292,445 203,282 1,136,043 439,276
---------- ---------- ---------- ----------
Total operating expenses 1,422,901 809,392 3,289,384 1,486,019
Other income 380,723 8,000 810,122 18,000
---------- ---------- ---------- ----------
Income before deduction of
preacquisition earnings and income taxes 2,199,795 1,226,996 3,967,888 1,918,320
Deduction of preacquisition earnings 1,097,308 2,057,064
---------- ----------
Income (loss) before income taxes 2,199,795 129,688 3,967,888 (138,744)
Income taxes (benefit) 749,956 - 1,397,045 (13,268)
---------- ---------- ---------- ----------
Net income (loss) $1,449,839 $ 129,688 $2,570,843 $ (125,476)
========== ========== ========== ==========
Net income per share $ 0.21 $ 0.40
Weighted average shares outstanding 6,745,760 6,481,842
Fully diluted net income per share $ 0.21 $ 0.38
Fully diluted weighted average
shares outstanding 6,976,223 6,712,305
</TABLE>
See accompanying notes.
2
<PAGE>
HEALTHCARE FINANCIAL PARTNERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
STOCKHOLDERS' EQUITY
-------------------------------------------------------------------
LIMITED RETAINED TOTAL
PARTNER'S COMMON PAID-IN EARNINGS EQUITY
CAPITAL STOCK CAPITAL (DEFICIT) TOTAL (DEFICIT)
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995
(combined) $ 415,305 $ 34,200 $ (574,970) $ (540,770) $ (125,465)
Issuance of 2,415,000 shares
of $.01 par value common stock 24,150 $26,708,034 26,732,184 26,732,184
Conversion of common stock
warrants to 379,998 shares of $.01
par value common stock 3,800 (3,800)
Net distributions to partners (415,305) (415,305)
Net income 529,562 529,562 529,562
----------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 1996
(consolidated) 62,150 26,704,234 (45,408) 26,720,976 26,720,976
Issuance of 3,450,000 shares of $.01
par value common stock 34,500 53,005,310 53,039,810 53,039,810
Common stock issuable under
performance option plan 7,994 7,994 7,994
Net income 2,570,843 2,570,843 2,570,843
----------- ----------- ----------- ----------- ----------- -----------
Balance at June 30, 1997
(consolidated) $ 96,650 $79,717,538 $2,525,435 $82,339,623 $82,339,623
=========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
3
<PAGE>
HEALTHCARE FINANCIAL PARTNERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
------------------------------
1997 1996
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 2,570,843 $ (125,476)
Adjustments to reconcile net income (loss) to
net cash provided by operations:
Depreciation 52,777 13,835
Stock compensation plan 7,994
Provision for losses on receivables 400,000 396,801
Deferred income taxes 473,410
Preacquisition earnings 2,057,064
Changes in assets and liabilities:
Decrease (increase) in accounts receivable
from related parties 5,576 (204,779)
Increase in prepaid expenses
and other (2,126,202) (194,171)
Decrease in cash overdraft (29,364)
(Decrease) increase in accrued interest (130,812) 257,674
Increase (decrease) in accounts payable and accrued expenses 1,188,861 (274,612)
------------- -------------
Net cash provided by operating activities 2,442,447 1,896,972
INVESTING ACTIVITIES
Increase in finance receivables, net (49,158,748) (24,592,159)
Addition of net cash from Funding 2,140,316
Purchase of property and equipment, net (125,582) (73,209)
Purchase of limited partnership interest, net of cash acquired (15,200,257)
------------- -------------
Net cash used in investing activities (64,484,587) (22,525,052)
FINANCING ACTIVITIES
Net (repayments) borrowings under line of credit (3,829,737) 17,598,383
Net borrowings under commercial paper facility 12,388,617
Issuance of common stock, net of expenses 53,039,810
Increase (decrease) in notes payable 14,653 (12,931)
(Distributions to) contributions from limited partners, net (317,993) 5,331,382
------------- -------------
Net cash provided by financing activities 61,295,350 22,916,834
------------- -------------
Net increase (decrease) in cash and cash equivalents (746,790) 2,288,754
Cash and cash equivalents at beginning of period 11,734,705
-------------
Cash and cash equivalents at end of period $ 10,987,915 $ 2,288,754
============ ============
Supplemental disclosure of cash flow information:
Cash payments for interest $ 3,232,537 $ 1,123,482
============ ============
</TABLE>
See accompanying notes.
4
<PAGE>
HEALTHCARE FINANCIAL PARTNERS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
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 issued 2,415,000 shares of common stock, in an initial
public offering (offering) in November 1996. In connection with 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. Effective upon the
completion of the offering, the Company used the proceeds of the offering to
acquire, using the purchase method of accounting, all the limited partnership
interests in HealthPartners Funding, L.P. (Funding) and Funding was liquidated
(the acquisition) (See Note 4). The amount paid to acquire the limited
partnership interest approximated both the fair value and the book value of
Funding at the date of the acquisition. Prior to the offering and the
acquisition of Funding by the Company, the Company owned a 1% general partner
interest in HealthPartners DEL, L.P. (DEL) and Funding. In addition, the
majority owners of the Company owned all of the limited partnership interests of
DEL. Prior to the offering, the Company's principal activity was its interest in
Funding. Additionally, the Company provided operational and management support
to Funding for a fee. Funding's principal activities were, and now the Company'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 financial statements of the Company for 1996 are consolidated assuming the
acquisition of Funding occurred as of January 1, 1996 under the provisions of
Accounting Research Bulletin No. 51. The deduction of preacquisition earnings
reflects the operations of Funding and DEL allocated to the limited partners of
Funding and DEL prior to the acquisition.
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 $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 in March 1997, the Company formed HealthCare Financial Partners-
Funding II, L.P. (Funding II, L.P.), a limited partnership in which HCFP Funding
II, Inc., a wholly owned subsidiary of the Company (Funding II), became the
General Partner. Funding II, L.P. was established to expand the Company's
secured term lending program. On June 17, 1997, the Company sold 3,450,000
shares of common stock to the public in a secondary offering. The proceeds of
this offering were $53 million. Subsequent to this offering, utilizing the
purchase method of accounting, Funding II acquired all of the limited
partnership interest in Funding II, L.P. for a purchase price of $15.5 million,
paying $15.2 million net of cash acquired, and Funding II, L.P. was then
liquidated. This payment reflected the fair value of the business and exceeded
the book value by $1.6 million, which was recorded as goodwill.
5
<PAGE>
HEALTHCARE FINANCIAL PARTNERS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
1. BASIS OF PRESENTATION (CONTINUED)
Effective April 1, 1997, the Company formed HealthCare Analysis Corporation, a
wholly owned subsidiary, to perform due diligence services and ongoing audits on
the Company's clients.
The accompanying unaudited condensed consolidated financial statements of the
Company have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete consolidated financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. The preparation of
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. Operating results for the three months ended
June 30, 1997 are not necessarily indicative of the results for the year ending
December 31, 1997. The notes to the consolidated financial statements contained
in the Company's Annual Report on Form 10-K for the year ended December 31, 1996
should be read in conjunction with these condensed consolidated financial
statements.
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.
EARNINGS PER SHARE
Earnings per share are based on the weighted average number of common and
common equivalent shares outstanding, including dilutive stock options. Fully
diluted earnings per share is computed using the higher of the average or the
period end stock price in the dilutive stock option calculation. Earnings per
share are not presented for periods prior to December 31, 1996 because they are
not meaningful due to the partnership reporting basis of DEL and Funding and to
the reorganization and offering described in Note 1.
3. BORROWINGS
On June 7, 1997, the Company and Funding II entered into a financing
agreement with Credit Suisse First Boston Mortgage Capital, LLC ("CSFB") to
securitize certain loans under the Company's Secured Term Loan ("STL") Program.
The Company has total borrowing capacity under the agreement of $50,000,000.
6
<PAGE>
HEALTHCARE FINANCIAL PARTNERS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
3. BORROWINGS (CONTINUED)
In connection with this agreement, Funding II formed a wholly owned
subsidiary, Wisconsin Circle II Funding Corporation (Wisconsin II), a single
purpose bankruptcy remote corporation, to purchase qualifying receivables from
Funding II, which are subsequently securitized. The amount outstanding under the
financing agreement may not exceed 88% of the principal amount of the STL
Program loans securitized. Interest will accrue under the financing agreement
at a rate of LIBOR plus 3.75%. The facility is in place until June 27, 1999.
Subsequent to that date, no new loans may be securitized under the existing
agreement, however previous loans securitized will remain outstanding until they
have been fully repaid. Additionally, under the terms of the agreement,
Wisconsin II has the right to repurchase any assets securitized at a price equal
to the fair market value of such assets. At June 30, 1997, the Company had not
borrowed under this facility.
4. PURCHASE OF FUNDING
Effective upon the completion of its initial public offering described in Note
1, the Company acquired, using the purchase method of accounting, the limited
partnership interest in Funding, consisting primarily of finance receivables and
related borrowings. The amount paid to acquire Funding, net of cash acquired,
of $16.2 million approximated both the fair value and book value of Funding at
the date of acquisition.
The financial statements of the Company for 1996 are consolidated assuming the
acquisition of Funding occurred as of January 1, 1996 under the provisions of
Accounting Research Bulletin No. 51. The pro forma results of operations
following reflect the operating results of the Company for the three and six
months ended June 30, 1997 and 1996 as if the acquisition of Funding had
occurred on January 1, 1996, and Funding's operations were included with the
Company.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net fee and interest income $3,491,973 $2,082,034 $6,847,150 $3,783,140
Provision for losses on receivables 250,000 53,646 400,000 396,801
Net operating expenses 1,792,134 1,279,920 3,876,307 2,216,164
---------- ---------- ---------- ----------
Net income $1,449,839 $ 748,468 $2,570,843 $1,170,175
========== ========== ========== ==========
</TABLE>
7
<PAGE>
HEALTHCARE FINANCIAL PARTNERS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
4. PURCHASE OF FUNDING (CONTINUED)
The stand-alone results of operations of Funding for the three and six
months ended June 30, 1996 were as follows:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, 1996 ENDED JUNE 30, 1996
-------------------- -------------------
<S> <C> <C>
Net fee and interest income $1,812,495 $3,288,087
Provision for losses on receivables 321,490
Net operating expenses 387,542 828,051
---------- ----------
Income before income taxes and deduction
of preacquisition earnings $1,424,953 $2,138,546
========== ==========
</TABLE>
5. RECENT ACCOUNTING PRONOUNCEMENTS
In February, 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share", which is
effective for the year ended December 31, 1997 for the Company. The SFAS
changes the way primary and fully diluted earnings per share will be computed.
The Company does not believe the SFAS will have a material impact on the
Company's earnings per share information.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
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
targets small and middle market healthcare service providers with financing
needs in the $100,000 to $10 million range in those healthcare sub-markets where
growth, consolidation or restructuring appear likely in the near to medium term.
The Company had 154 clients as of June 30, 1997, of which 69 were affiliates of
one or more clients. The average amount outstanding per client or affiliated
client group at June 30, 1997 was approximately $1.4 million. For the three and
six month periods ended June 30, 1996, the Company's pro forma net income was
$748,468 and $1,170,175, respectively, and for the three and six month periods
ended June 30, 1997, the Company's net income was $1.4 and $2.6 million,
respectively. (The Company used the proceeds of its initial public offering on
November 21, 1996 (the "Offering") to acquire limited partnership interests in
partnerships it formerly managed for a fee. As a result, the Company believes
that net income for the three and six month periods ended June 30, 1996 is more
accurately presented on a pro forma basis. See --"The Reorganization".) On June
17, 1997 the Company completed a secondary stock offering (the "Secondary
Offering"), and raised an addition $53 million of capital.
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) term
loans secured by real estate accounts receivable and other assets as well as
senior debt with warrants (the "STL Program"), often in conjunction with
financing provided under either the ABL Program or the AR Advance Program. The
yield on finance receivables generated under each of the ABL Program, AR Advance
Program and STL Program for the three and six month periods ended June 30, 1997,
was 17.5% and 16.9%, 17.5% and 16.9%, and 23.1% and 23.1%, respectively. The
yield on finance receivables generated under the ABL Program and AR Advance
Program for the three and six month periods ended June 30, 1996, was 17.3% and
16.4%, and 19.5% and 19.8%, respectively. The Company had no STL Program
finance receivables outstanding for the three and six month periods ended June
30, 1996. By June 30, 1997, the finance receivables originated through the
Company's ABL Program had grown to 57.1% of total finance receivables, as the
Company focused its marketing efforts on larger balance, prime-rate based ABL
Program advances to more creditworthy borrowers. The Company anticipates that
finance receivables generated under the ABL Program will account for a
significant majority of its finance receivables in future periods. Based upon
the Company's introduction of new financial products, STL Program loans, which
comprised 10.2% of finance receivables as of March 31, 1997 grew to 21.9% of
finance receivables at June 30, 1997, and may comprise an increasing percentage
of the Company's assets within the foreseeable future. While base interest
rates on such loans are expected to be less than the yields generated from both
the AR Advance Program and ABL Program, term loans under the STL Program may
also include warrants or success fees that could enhance the effective yields on
such loans.
In March 1997, in order to fund the Company's expansion of the STL Program,
the Company formed HCFP Funding II, Inc., ("Funding II"), a wholly owned
subsidiary, to serve as general partner in HealthCare Financial Partners-Funding
II, L.P. ("Funding II, L.P.") and obtained a $20.0 million commitment from
Farallon Capital Management, LLC ("Farallon") to fund secured term loans made by
Funding II, L.P. to healthcare providers. Affiliates of Farallon are
shareholders of the Company. See --"The Reorganization". Utilizing funds
available from this partnership to make STL Program loans provided liquidity to
the Company for the initial stages of the STL Program without requiring the
Company to incur significant additional credit risk. Subsequent to the
Secondary Offering, Funding II, utilizing the purchase method of accounting,
9
<PAGE>
acquired all of the limited partnership interest in Funding II, L.P. for a
purchase price of $15.5 million, by paying $15.2 million, net of cash acquired
and Funding II, L.P. was then liquidated. The cash payment to the limited
partner reflected the fair value of the business purchased, and exceeded the
book value of the limited partners interest by $1.6 million, which was recorded
as goodwill, and is the principal reason for the increase in prepaid expenses
and other assets.
THE REORGANIZATION
Prior to the Offering, the Company conducted its operations principally in its
capacity as the general partner of two limited partnerships it formerly managed
for a fee, 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 and the transactions
described below (the "Reorganization") were effected by the Company prior to or
simultaneously with the Offering.
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.
Effective upon completion of the Offering, the Company acquired from
HealthPartners Investors, L.L.C. ("HP Investors"), the sole limited partner of
Funding, all of the limited partnership interests in Funding and paid the $21.8
million purchase price for such assets from the proceeds of the Offering. Such
purchase price represented the limited partner's interest in the net assets of
Funding and approximated both the fair value and book value of the net assets.
Funding was subsequently 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 were transferred to the Company.
In connection with the liquidation of Funding, Farallon and RR Capital
Partners, L.P. ("RR Partners"), the only two members of HP Investors, exercised
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 was 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 November 1996, Fleet Capital Corporation ("Fleet") made available to the
Company a line of credit which prior to such time had been available to Funding.
This line of credit currently enables the Company to borrow from Fleet up to $35
million. See "--Liquidity and Capital Resources."
FINANCIAL INFORMATION
The following discussion should be read in conjunction with the condensed
consolidated financial statements, including the notes thereto, of HealthCare
Financial Partners, Inc.
10
<PAGE>
RESULTS OF OPERATIONS
Three Month Period ended June 30, 1997 Compared to the Three Month Period Ended
June 30, 1996
Total fee and interest income increased from $2.9 million for the three month
period ended June 30, 1996 to $5.5 million for the three month period ended June
30, 1997, an increase of 89.4%. The increase principally resulted from an
increase of $60.5 million in average finance receivables outstanding due to the
Company's growth in the ABL Program and its introduction of the STL Program
during the last quarter of 1996. Interest earned from the STL and ABL Programs
increased from $799,583 for the three month period ended June 30, 1996 to $3.0
million for the three month period ended June 30, 1997, which accounted for $2.2
million of the $2.6 million growth in total fee and interest income between the
periods. The Company increased its client base in the ABL Program from 24
clients at June 30, 1996 to 87 clients at June 30, 1997. Additionally, existing
clients increased their average borrowings from the Company in three month
period ended June 30, 1997 as compared to the prior year. Because the yield on
finance receivables declined from 18.7% for the three month period ended June
30, 1996 to 17.9% for the three month period ended June 30, 1997, 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 on
finance receivables for the three month period ended June 30, 1997 was lower due
to a substantially greater volume of ABL Program finance receivables outstanding
during the three month period ended June 30, 1997, which have lower yields when
compared to the finance receivables historically generated in the AR Advance
Program. Interest expense increased from $801,126 for the three month period
ended June 30, 1996 to $2.0 million for the three month period ended June 30,
1997. However the Company's average cost of borrowed funds decreased from 11.2%
for the three month period ended June 30, 1996 to 9.77% for the three month
period ended June 30, 1997, as a result of utilization of the commercial paper
facility for the majority of the borrowings for 1997 through June 30. This
increase in interest expense was the result of higher average borrowings
required to support the Company's growth. Because of the Company's overall
growth in finance receivables and lower interest cost, net fee and interest
income increased 67.7%, from $2.1 million for the three month period ended June
30, 1996 to $3.5 million for the three month period ended June 30, 1997. The
increased borrowings, combined with a lower yield on finance receivables,
resulted in a decrease in the annualized net interest margin from 13.5% for the
three month period ended June 30, 1996 to 11.4% for the three month period
ended June 30, 1997.
The Company's provisions for losses on receivables increased from $53,646 for
the three month period ended June 30, 1996 to $250,000 for the three month
period ended June 30, 1997. This increase is attributable to the growth of the
Companys finance receivables and the size of the Company's average client
balance which increased to approximately $1.4 million, 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
period.
Operating expenses increased from $809,392 for the three month period ended
June 30, 1996 to $1.4 million for the three month period ended June 30, 1997, a
75.8% increase. This increase was the result of a 259.5% increase in
compensation and benefits due to hiring additional personnel, as well as
increases in other operating expenses, all relating to the expansion of the
Company's operations.
Other income increased from $8,000 for the three month period ended June 30,
1996 to $380,723 for the three month period ended June 30, 1997, mainly
attributable to the Company charging clients for legal functions performed
internally as a result of hiring personnel to perform these previously
outsourced functions, as well as to reflect income of $82,757 from partnership
activities of Funding II, L.P. prior to the purchase of Funding II, L.P. by the
Company. During the three month period ended June 30, 1996, the Company
outsourced all legal activities.
11
<PAGE>
Net income increased, on a historical basis, from $129,688 for the three month
period ended June 30, 1996, to net income of $1.4 million for the three month
period ended June 30, 1997. However, in recognition of the Company's
Reorganization, management believes a discussion and analysis of the Company's
net income is most effectively presented on a pro forma basis.
The following table summarizes unaudited pro forma operating results for the
three month period ended June 30, 1996 and the unaudited historical operating
results for the three month period ended June 30, 1997. The pro forma three
month quarterly financial data reflects the Reorganization and is prepared as if
the Reorganization had occurred on January 1, 1996. The proforma adjustments
for the three month period ended June 30, 1996 are the elimination of the
deduction for preacquisition earnings to limited partners and the proforma
provision for income taxes because earnings attributable to DEL and Funding are
presented on a partnership reporting basis for tax purposes (i.e., no provision
for income tax is included in the historical financial statements in the limited
partners allocation of earnings). A pro forma tax rate of 39% was applied to
calculate the proforma income tax provision and the proforma net income amounts.
<TABLE>
<CAPTION>
HISTORICAL PROFORMA
---------- ----------
JUNE 30, JUNE 30,
1997 1996
---------- ----------
<S> <C> <C>
Fee and interest income
Fee income $2,447,452 $2,090,853
Interest income 3,013,090 792,307
---------- ----------
Total fee and interest income 5,460,542 2,883,160
Interest expense 1,968,569 801,126
---------- ----------
Net fee and interest income 3,491,973 2,082,034
Provision for losses on
receivables 250,000 53,646
---------- ----------
Net fee and interest income after provision
for losses on receivables 3,241,973 2,028,388
Operating expenses 1,422,901 809,392
Other income 380,723 8,000
---------- ----------
Income before income taxes 2,199,795 1,226,996
Income taxes 749,956 478,528
---------- ----------
Pro forma net income $1,449,839 $ 748,468
========== ==========
</TABLE>
Net income increased from $748,468 income (as shown on a proforma basis in
1996) for the three month period ended June 30, 1996 to $1.4 million for the
three month period ended June 30, 1997, a 93.7% increase, primarily as a result
of the overall growth in the Company's finance receivables as described above.
RESULTS OF OPERATIONS
Six Month Period ended June 30, 1997 Compared to the Six Month Period Ended June
30, 1996
Total fee and interest income increased from $5.2 million for the six month
period ended June 30, 1996 to $9.9 million for the six month period ended June
30, 1997, an increase of 92.6%. The increase principally resulted from an
increase of $53.9 million in average finance receivables outstanding due in part
to the
12
<PAGE>
Company's growth in the ABL Program and its introduction of the STL Program
during the last quarter of 1996. Interest earned from the STL and ABL Programs
increased from $1.2 million for the six month period ended June 30, 1996 to $4.9
million for the six month period ended June 30, 1997, which accounted for $3.7
million of the $4.8 million growth in total fee and interest income between the
periods. The Company increased its client base in the ABL Program from 24
clients at June 30, 1996 to 87 clients at June 30, 1997. Additionally, existing
clients increased their average borrowings from the Company in six month period
ended June 30, 1997 as compared to the prior year. Because the yield on finance
receivables declined from 18.6% for the six month period ended June 30, 1996 to
17.6% for the six month period ended June 30, 1997, 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 on finance receivables for
the six month period ended June 30, 1997 was lower due to a substantially
greater volume of ABL Program finance receivables outstanding during the three
month period ended June 30, 1997, which have lower yields when compared to the
finance receivables historically generated in the AR Advance Program. Interest
expense increased from $1.4 million for the six month period ended June 30, 1996
to $3.1 million for the six month period ended June 30, 1997. However the
Company's average cost of borrowed funds decreased from 10.1% for the six month
period ended June 30, 1996 to 8.3% for the six month period ended June 30, 1997
as a result of utilization of the commercial paper facility for the majority of
the borrowings for 1997 through June 30. This increase in interest expense was
the result of higher average borrowings required to support the Company's
growth. Because of the Company's overall growth in finance receivables and lower
interest cost, net fee and interest income increased 81.0%, from $3.8 million
for the six month period ended June 30, 1996 to $6.8 million for the six month
period ended June 30, 1997. The increased borrowings, combined with a lower
yield on finance receivables, resulted in a decrease in the annualized net
interest margin from 13.7% for the six month period ended June 30, 1996 to 12.1%
for the six month period ended June 30, 1997.
The Company's provisions for losses on receivables increased from $396,811 for
the six month period ended June 30, 1996 to $400,000 for the six month period
ended June 30, 1997. This minor increase is attributable to the growth of the
Company's allowance for losses on receivables over the last two years, the
Company's lack of necessity for chargeoffs and the size of the Company's average
client balance which increased to $1.4 million, 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 period.
Operating expenses increased from $1.5 million for the six month period ended
June 30, 1996 to $3.3 million for the six month period ended June 30, 1997, a
121.4% increase. This increase was the result of a 251.4% increase in
compensation and benefits due to hiring additional personnel, a 17.6% increase
in professional fees, a 4.4% increase in rent expense as well as increases in
other operating expenses, all relating to the expansion of the Company's
operations.
Other income increased from $18,000 for the six month period ended June 30,
1996 to $810,122 for the six month period ended June 30, 1997, mainly
attributable to the Company charging clients for legal and due diligence
functions now performed internally as a result of hiring personnel to perform
these previously outsourced functions. Additionally, partnership income earned
by Funding II, L.P. accounted for $82,757 of other income in 1997.
Net income increased, on a historical basis, from a loss of $125,476 for the
six month period ended June 30, 1996, to net income of $2.6 million for the six
month period ended June 30, 1997. However, in recognition of the Company's
Reorganization, management believes a discussion and analysis of the Company's
net income is most effectively presented on a pro forma basis.
13
<PAGE>
The following table summarizes unaudited pro forma operating results for the
six month period ended June 30, 1996 and the unaudited historical operating
results for the six month period ended June 30, 1997. The pro forma six month
quarterly financial data reflects the Reorganization and is prepared as if the
Reorganization had occurred on January 1, 1996. The proforma adjustments for
the three month period ended June 30, 1996 are the elimination of the deduction
for preacquisition earnings to limited partners and the proforma provision for
income taxes because earnings attributable to DEL and Funding are presented on a
partnership reporting basis for tax purposes (i.e., no provision for income tax
is included in the historical financial statements in the limited partners
allocation of earnings). A pro forma tax rate of 39% was applied to calculate
the proforma income tax provision and the proforma net income amounts.
<TABLE>
<CAPTION>
HISTORICAL PROFORMA
----------- -----------
JUNE 30, JUNE 30,
1997 1996
----------- -----------
<S> <C> <C>
Fee and interest income
Fee income $5,017,863 $3,960,286
Interest income 4,931,012 1,204,010
---------- ----------
Total fee and interest income 9,948,875 5,164,296
Interest expense 3,101,725 1,381,156
---------- ----------
Net fee and interest income 6,847,150 3,783,140
Provision for losses on
receivables 400,000 396,801
---------- ----------
Net fee and interest income after
provision for losses on receivables 6,447,150 3,386,339
Operating expenses 3,289,384 1,486,019
Other income 810,122 18,000
---------- ----------
Income before income taxes 3,967,888 1,918,320
Income taxes 1,397,045 748,145
---------- ----------
Pro forma net income $2,570,843 $1,170,175
========== ==========
</TABLE>
Net income increased from $1.2 million income (as shown on a proforma basis in
1996) for the six month period ended June 30, 1996 to $2.6 million for the six
month period ended June 30, 1997, a 119.7% increase, primarily as a result of
the overall growth in the Company's finance receivables as described above.
EXCESS COLLATERAL AND CLIENT HOLDBACKS
The Company's primary protection against credit losses is its security
interest in 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 Advance Program. The Company obtains a first priority
security interest in all of the client's accounts receivable, including
receivables not financed by the Company ("Excess Collateral"). 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 an allowance 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
14
<PAGE>
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.
Under the STL Program, the Company's term loans to clients are secured by a
lien on various types of collateral, such as accounts receivable, real estate,
equipment, inventory and stock, depending on the circumstances of each loan and
the availability of collateral. Additionally, the Company issues senior debt
with warrants under this program.
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 2.4x for the quarter ended June 30, 1996,
3.7x for the quarter ended September 30, 1996, 3.5x for the quarter ended
December 31, 1996, 2.6x for the quarter ended March 31, 1997, and 2.8x for the
quarter ended June 30, 1997.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows resulting from operating activities have provided sources of cash
amounting to $1.9 million and $2.4 million for the six months ended June 30,
1996 and 1997, 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 and STL Programs. 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. As
of June 30, 1997, debt sources of capital available to the Company to fund
advances under the ABL Program, advances against accounts receivable under the
AR Advance Program and loans under the STL Program were a revolving line of
credit (the "Bank Facility") with Fleet, and an investment-grade asset backed
commercial paper program (the "CP Facility") with ING Baring (U.S.) Capital
Markets, Inc. ("ING"). At the end of the second quarter of 1997, the Company
closed a revolving warehouse line of credit with Credit Suisse First Boston
("Warehouse Facility") for $50 million to fund advances under its STL program.
The sources of equity financing were primarily from limited partner capital
contributions prior to the Reorganization and the Offering. See "The
Reorganization". Subsequent to the Offering, the limited partnership interest
(in Funding) was purchased using a significant portion of the Offering proceeds,
the limited partnership was
15
<PAGE>
dissolved and its assets transferred to the Company. The Company completed the
Secondary Offering in the second quarter of 1997, and raised $53 million.
Subsequently, the limited partnership interest in Funding II was purchased for
$15.5 million, the limited partnership was dissolved, and its assets transferred
to the Company. The Company increased its outstanding balances under the Bank
Facility by $17.6 million during the six months ended June 30, 1996. Using
proceeds form the secondary stock offering, the Company decreased its
outstanding balance under the Bank Facility by $3.8 million during the six
months ended June 30, 1997. On December 5, 1996, the Company entered into an
agreement with ING for $100 million of financing under the CP Facility. The
Company increased its outstanding balance under the CP Facility by $12.4 million
in the six months ended June 30, 1997. The CP Facility was not available in the
six months ended June 30, 1996. The limited partners provided capital
contributions of $7.0 million during the six months ended June 30, 1996 and the
limited partners also received cash distributions from their capital accounts of
$1.7 million during the six months ended June 30, 1996. Subsequent to the
Offering all of the limited partners' capital was returned to them.
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 in an integral multiple of $500,000
based on the one-month, two-month, three-month or six-month LIBOR plus 2.75%. As
of June 30, 1997, $18 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. 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. The intercreditor arrangements entered into in connection with
the CP Facility excludes borrowings under the CP Facility from debt for
purposes of calculating the debt-to-equity ratio. At June 30, 1997, the Company
was in compliance with all of its covenants under the Bank Facility. The
expiration date for the Bank Facility is March 9, 1998, subject to automatic
renewal for one-quarter periods thereafter unless terminated by Fleet, which
requires six months prior written notice.
Under the terms of the CP Facility, the Company is able to borrow up to $100
million. As of June 30, 1997, the Company maintained a $75 million borrowing
limit under the CP Facility which limit can be increased by the Company by $25
million to $100 million upon notice to ING. The CP Facility requires 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
pledges 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 lends against such pledged assets through the
issuance of commercial paper. As of June 30, 1997, $49.6 million of commercial
paper was outstanding under the CP Facility. The CP Facility requires the
maintenance of a minimum overcollateralization percentage of 125%. Under the 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 $75 million in the event the Company fails to maintain a tangible net
worth of at least $25 million. At June 30, 1997, the Company was in compliance
with all of its covenants under the CP Facility. The maturity date for the CP
Facility is March 5, 2001. However, the commercial paper program may be
terminated by the Company at anytime after March 5, 1999, without penalty.
On June 27, 1997, the Company and Funding, II effected the Warehouse Facility
by entering into a series of financing agreements with Credit Suisse First
Boston Mortgage Capital, LLC ("CSFB") and First Trust of New York, National
Association (the "Trustee") to securitize certain loans under the Secured Term
Loan Program ("STL Program"). In connection with these agreements, Funding II
formed a wholly owned subsidiary, Wisconsin Circle II Funding Corporation,
(Wisconsin II), a single purpose, bankruptcy remote
16
<PAGE>
corporation. Under these agreements, STL Program loans originated by the Funding
II which meet certain criteria set forth therein may be transferred to Wisconsin
II, and subsequently securitized. The amount outstanding under the financing
agreements may not exceed 88% of the principal amount of the loans securitized,
subject to a $50 million maximum. Interest will accrue under the financing
agreement at a rate equal to LIBOR plus 3.75%. The facility is in place until
June 27, 1997, at which time the Warehouse Facility expires as to new loans.
However, previous loans securitized will remain outstanding until they are fully
repaid or their terms expire. The Company had not borrowed under the Warehouse
Facility at June 30, 1997.
During the second quarter of 1997, funds committed by the limited partner in
Funding II, L.P. became available to make secured term loans by Funding II, L.P.
under the STL Program. Utilizing such capital under this partnership structure
to fund such loans allowed the Company to expand the STL Program without
incurring the credit risk associated with concentration of clients in the
inception of the program. Subsequent to the Secondary Offering, the Company
purchased the assets and assumed the liabilities of Funding II, L.P. for $15.2
million, net of cash acquired.
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 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 with the batch. The interest rates on the Company's
term loans historically were 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 in an integral multiple of
$500,000 based on the one-month, two-month, three-month or six-month LIBOR plus
2.75%. The interest rate on the Warehouse Facility adjusts based on LIBOR plus
3.75%. The interest rate on the CP Facility adjusts based upon changes in
commercial paper rates. Because the Company expects to finance most of the ABL
Program activity through the CP Facility, there exists some interest rate
sensitivity since the interest rate on advances to the Company's clients under
ABL Program will adjust based on the prime rate, and the interest rate on most
of the Company's liabilities under the 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 the 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 related to loans under the
STL Program exists to the extent that such loans have fixed interest rates;
however, fixed rate loans under the STL Program at June 30, 1997 constituted
less than 2.5% of the Company's assets. Such interest rate sensitivity with
respect to STL Program loans is expected to be minimized in the future as
adjustable rates are charged on most new loans.
17
<PAGE>
INFLATION
Inflation has not had a significant effect on the Company's operating results
to date.
18
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings -- Not Applicable
Item 2. Changes in Securities -- Not Applicable
Item 3. Defaults Upon Senior Securities -- Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders --Not Applicable
Item 5. Other Information -- Not Applicable
Item 6. Exhibits and Reports on Form 8-K
The Company filed a report on Form 8-K on March 13, 1997 under Item 5
of Form 8-K to report the organization of HealthCare Financial
Partners- Funding II, L.P.
The Company filed a report on Form 8-K on July 17, 1997 under Item 5
of Form 8-K to report the organization of Wisconsin Circle II Funding
Corporation, the securitization agreement with Credit Suisse First
Boston Mortgage Capital, L.L.C. and the acquisition of the limited
partnership interest in HealthCare Financial Partners-Funding II,
L.P.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
HEALTHCARE FINANCIAL PARTNERS, INC.
DATE: August 7, 1997 /s/ Edward P. Nordberg, Jr.
-------------------------------
By: EDWARD P. NORDBERG, JR.
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
20
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-START> APR-01-1997 JAN-01-1997
<PERIOD-END> JUN-30-1997 JUN-30-1997
<CASH> 10,987,915 10,987,915
<SECURITIES> 0 0
<RECEIVABLES> 152,379,847 152,379,847
<ALLOWANCES> 3,583,767 3,583,767
<INVENTORY> 0 0
<CURRENT-ASSETS> 159,783,995 159,783,995
<PP&E> 439,751 439,751
<DEPRECIATION> 143,549 143,549
<TOTAL-ASSETS> 165,160,613 165,160,613
<CURRENT-LIABILITIES> 82,820,990 82,820,990
<BONDS> 0 0
0 0
0 0
<COMMON> 96,650 96,650
<OTHER-SE> 82,242,973 82,242,973
<TOTAL-LIABILITY-AND-EQUITY> 165,160,613 165,160,613
<SALES> 0 0
<TOTAL-REVENUES> 5,841,265 10,758,997
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 1,422,901 3,289,384
<LOSS-PROVISION> 250,000 400,000
<INTEREST-EXPENSE> 1,968,569 3,101,725
<INCOME-PRETAX> 2,199,795 3,967,888
<INCOME-TAX> 749,956 1,397,045
<INCOME-CONTINUING> 1,449,839 2,570,843
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,449,839 2,570,843
<EPS-PRIMARY> .21 .40
<EPS-DILUTED> .21 .38
</TABLE>
