<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: March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number: 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 400
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) 13,342,215 as of March 31, 1998
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<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 March 31, 1998
and December 31, 1997 (Unaudited).......................................................... 1
Condensed Consolidated Statements of Income for the three
months ended March 31, 1998 and March 31, 1997 (Unaudited)................................. 2
Condensed Consolidated Statements of Equity for the
year and three months ended December 31, 1997 and March 31, 1998 (Unaudited)............... 3
Condensed Consolidated Statements of Cash Flows for the three months
ended March 31, 1998 and March 31, 1997 (Unaudited)........................................ 4
Notes to Condensed Consolidated Financial Statements (Unaudited)........................... 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.............................................. 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.......................................................................... 13
Item 2. Changes in Securities...................................................................... 13
Item 3. Defaults Upon Senior Securities............................................................ 13
Item 4. Submission of Matters to a Vote of Security Holders........................................ 13
Item 5. Other Information.......................................................................... 13
Item 6. Exhibits and Reports on Form 8-K........................................................... 13
SIGNATURES......................................................................................... 14
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HEALTHCARE FINANCIAL PARTNERS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS March 31, December 31,
1998 1997
------------- -------------
<S> <C> <C>
Cash and cash equivalents $ 22,535,761 $ 18,668,703
Finance receivables 302,367,986 250,688,138
Less:
Allowance for losses on receivables 3,305,128 2,654,114
Unearned fees 3,579,675 3,161,237
------------ ------------
Net finance receivables 295,483,183 244,872,787
Deferred income taxes 1,284,665 1,041,520
Property and equipment, net 1,120,125 416,284
Goodwill 1,696,441 1,740,097
Prepaid expenses and other assets 6,957,920 5,615,555
------------ ------------
Total assets $329,078,095 $272,354,946
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Line of credit $ 19,384,923 $ 40,157,180
Commercial paper facility 19,126,743 101,179,354
Warehouse facility 44,767,800 27,932,520
Client holdbacks 5,862,486 6,173,260
Accounts payable to clients 695,714 834,367
Income taxes payable 2,585,226 5,138,144
Due to related parties 1,673,889 -
Accounts payable and accrued expenses 4,196,462 2,217,947
Notes payable 92,414 115,286
Accrued interest 846,983 776,700
------------ ------------
Total liabilities 99,232,640 184,524,758
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; 13,342,215 and 9,670,291 shares issued and
outstanding, respectively 133,422 96,703
Paid-in-capital 218,019,114 79,784,045
Retained equity 11,570,002 7,949,440
Unrealized holding gain on investment securities
available-for-sale, net of tax 122,917
------------ ------------
Total stockholders' equity 229,845,455 87,830,188
------------ ------------
Total liabilities and stockholders' equity $329,078,095 $272,354,946
============ ============
</TABLE>
See accompanying notes.
1
<PAGE>
HEALTHCARE FINANCIAL PARTNERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended
------------------
March 31,
---------
1998 1997
----------- -----------
Fee and interest income:
Fee income $ 4,108,204 $2,570,411
Interest income 8,196,576 1,917,922
----------- ----------
Total fee and interest income 12,304,780 4,488,333
Interest expense 3,800,254 1,133,156
----------- ----------
Net fee and interest income 8,504,526 3,355,177
Provision for losses on receivables 651,014 150,000
----------- ----------
Net fee and interest income after provision
losses on receivables 7,853,512 3,205,177
Operating expenses:
Compensation and benefits 1,116,334 771,538
Commissions 48,206 30,421
Professional fees 178,081 173,417
Occupancy 123,669 47,509
Other 1,147,367 843,598
----------- ----------
Total operating expenses 2,613,657 1,866,483
Other income 821,478 429,399
----------- ----------
Income before income taxes 6,061,333 1,768,093
Income taxes 2,440,771 647,089
----------- ----------
Net income $ 3,620,562 $1,121,004
=========== ==========
Basic earnings per share $ .35 $ .18
=========== ==========
Weighted average shares outstanding 10,283,279 6,214,991
=========== ==========
Diluted earnings per share $ .34 $ .18
=========== ==========
Diluted weighted average shares outstanding 10,668,910 6,320,482
=========== ==========
See accompanying notes.
2
<PAGE>
HEALTHCARE FINANCIAL PARTNERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Accumulated
Retained Other
Common Paid-in Earnings Comprehensive Total
Stock Capital (Deficit) Income Equity
----- ------- --------- ------ ------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $ 62,150 $ 26,704,234 $ (45,408) $ 26,720,976
Net and Comprehensive Income 7,994,848 7,994,848
Issuance of 3,450,000 shares of $.01
par value common stock 34,500 53,005,310 53,039,810
Common stock issuable under
directors' option plan 15,989 15,989
Common stock issued under
employee option plans 53 58,512 58,565
-------- ------------ ----------- ------------- ------------
Balance at December 31, 1997 96,703 79,784,045 7,949,440 87,830,188
------------
Net income 3,620,562 3,620,562
Unrealized holding gain on investment
securities available-for-sale, net of
tax 122,917 122,917
------------
Comprehensive Income 3,743,479
------------
Issuance of 3,657,500 shares of $.01
par value common stock 36,575 137,895,839 137,932,414
Common stock issuable under
directors' option plan 3,990 3,990
Common stock issued under employee
option plans 144 335,240 335,384
-------- ------------ ----------- ------------- ------------
Balance at March 31, 1998 $133,422 $218,019,114 $11,570,002 $ 122,917 $229,845,455
======== ============ =========== ============= ============
</TABLE>
See accompanying notes.
3
<PAGE>
HEALTHCARE FINANCIAL PARTNERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months Ended March 31,
------------------------------
1998 1997
-------------- --------------
<S> <C> <C>
Operating activities
Net income $ 3,620,562 $ 1,121,004
Adjustments to reconcile net income to
net cash provided by operations:
Depreciation 43,023 22,414
Amortization of goodwill 43,656
Stock compensation plan 3,990
Provision for losses on receivables 651,014 150,000
Deferred income taxes (243,145) (97,845)
Changes in assets and liabilities:
Increase in accounts payable to related parties 1,673,889 8,029,700
Increase in prepaid expenses and other (165,122) (512,433)
Decrease in income taxes payable (2,384,036)
Increase (decrease) in accrued interest 70,282 (99,408)
Increase (decrease) in accounts payable and accrued expenses 1,839,862 (916,243)
------------ ------------
Net cash provided by operating activities 5,153,975 7,697,189
Investing activities
Increase in net finance receivables (51,958,843) (26,051,168)
Increase in investment in limited partnership (499,872)
Purchase of property and equipment, net (746,864) (61,124)
Purchase of investment securities (167,794)
------------ ------------
Net cash used in investing activities (53,373,373) (26,112,292)
Financing activities
Net (payments) borrowings under line of credit (20,772,257) 11,709,028
Net (payments) borrowings under
commercial paper facility (82,052,611) 7,560,407
Net borrowings under warehouse facility 16,835,280
Issuance of common stock 138,098,916
(Decrease) increase in notes payable (22,872) 7,042
Distributions to limited partners, net (317,993)
------------ ------------
Net cash provided by financing activities 52,086,456 18,958,484
------------ ------------
Net increase in cash and cash equivalents 3,867,058 543,381
Cash and cash equivalents at beginning of period 18,668,703 11,734,705
------------ ------------
Cash and cash equivalents at end of period $ 22,535,761 $ 12,278,086
============ ============
Supplemental disclosure of cash flow information
Cash payments for interest $ 3,729,971 $ 1,232,564
============ ============
Cash payments for income taxes $ 5,067,952 $ 470,263
============ ============
</TABLE>
See accompanying notes.
4
<PAGE>
HEALTHCARE FINANCIAL PARTNERS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Presentation
The condensed consolidated financial statements of HealthCare Financial
Partners, Inc. (the "Company") for 1997 include the accounts of the Company and
the accounts of its wholly-owned subsidiaries, HCFP Funding, Inc., HCFP Funding
II, Inc., HCFP Funding III, Inc., Wisconsin Circle Funding Corporation,
Wisconsin Circle II Funding Corporation, and HealthCare Analysis Corporation.
For 1998, they also included a newly formed wholly-owned subsidiary, HCFP REIT
Management, Inc. Significant intercompany accounts and transactions have been
eliminated in consolidation. The Company's principal activity is providing
financing to healthcare providers and to businesses in sub-markets of the
healthcare industry throughout the United States.
On February 9, 1998, the Company announced the formation of HealthCare
Financial Partners REIT, Inc., an entity that will elect to be taxed as a real
estate investment trust (the "HCFP REIT"). Effective March 1998, the Company
formed HCFP REIT Management, Inc., a wholly owned subsidiary. This subsidiary
was formed to manage the HCFP REIT, and will be compensated on a fee basis for
management services. The Company's management believes that the HCFP REIT
represents an effective means for the Company to enhance its client
relationships by referring such clients' long-term real estate financing needs
to the HCFP REIT.
The HCFP REIT will initially fund its operations with the net proceeds of a
private offering (the "REIT Offering") which closed on May 6, 1998. The
proceeds were $136,950,000. The Company purchased a 9.2% ownership position in
the REIT Offering. The Company's management anticipates that the HCFP REIT will
invest in financing products not offered by the Company, which include permanent
(long-term) mortgage loans, real estate, purchase-leaseback transactions and
other income-producing real estate-related assets in the healthcare industry.
On March 17, 1998, the Company closed an equity offering in which it sold
3,657,500 shares of common stock and raised $137,932,414 (after underwriters'
discount and offering expenses).
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 ended March
31, 1998 are not necessarily indicative of the results for the year ending
December 31, 1998. The notes to the consolidated financial statements contained
in the Company's Annual Report on Form 10-K for the year ended December 31, 1997
should be read in conjunction with these condensed consolidated financial
statements.
5
<PAGE>
HEALTHCARE FINANCIAL PARTNERS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"),
replacing the presentation required under Accounting Principles Board Opinion
No. 15, "Earnings Per Share." Under SFAS 128, basic earnings per share is based
on the weighted average number of common shares outstanding excluding any
dilutive effects of options, warrants and other dilutive securities, while
diluted earnings per share reflects the assumed conversion of all dilutive
securities. For the periods presented herein, all dilutive shares were
attributable to outstanding options. All prior period earnings per share have
been restated to conform with SFAS 128.
3. Borrowings
In February 1998, the Company and HCFP Funding II, Inc. increased the
limits on its financing agreement with Credit Suisse First Boston Mortgage
Capital, LLC under which it securitizes certain loans under the Company's
Secured Term Loan Program from $50 million to $100 million.
4. Recent Accounting Pronouncements
As of January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130").
SFAS 130 establishes new rules for the reporting and display of comprehensive
income and its components; however, the adoption of SFAS 130 had no impact on
the Company's net income or shareholders' equity. SFAS 130 requires unrealized
gains or loses on the Company's investment securities available-for-sale, which
prior to adoption were reported separately in shareholders' equity, to be
included in other comprehensive income. Prior year financial statements have
been reclassified to conform to the requirements of SFAS 130.
During the first quarters of 1998 and 1997, total comprehensive income
amounted to $3,743,479 and $1,121,004, respectively.
6
<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 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 that
range from $100,000 to $10 million in healthcare sub-markets where growth,
consolidation or restructuring appear likely in the near to medium term. The
Company had 206 clients as of March 31, 1998, of which 80 were affiliates of one
or more clients. The average amount outstanding per client or affiliated client
group at March 31, 1998 was approximately $2.0 million. For the three month
period ended March 31, 1998, the Company's net income was $3.6 million and for
the three month period ended March 31, 1997, the Company's net income was $1.1
million.
The Company currently provides financing to its client through (i) revolving
lines of credit secured by, and advances against, accounts receivable (the
"Accounts Receivable Program"), and (ii) term loans (accompanied, in certain
cases, by warrants) secured by first or second liens on real estate, accounts
receivable or other assets (the "STL Program"). Loans under the STL Program are
often made in conjunction with financing provided under the Accounts Receivable
Program. To date, the Company has not incurred any credit losses in either
program, although it periodically makes provisions for possible future losses in
the ordinary course of its business.
The Company has implemented a plan designed to ensure that all software used
by the Company in connection with its services will manage and manipulate data
involving the transition of dates from 1999 to 2000 without functional or data
abnormality and without inaccurate results related to such data. The Company
does not anticipate that execution of this plan will have a material effect on
its operating results. However, the Company believes that some of its clients
and payors may not have implemented such programs. The failure by clients and
payors to implement necessary software changes may disrupt client billing and
reimbursement cycles and adversely affect clients' cash flow and collectibility
of pledged accounts receivable. The Company is unable to predict the effects
that any such failure may have on the financial condition and results of the
operations of the Company.
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.
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.
7
<PAGE>
Results of Operations
Three Month Period ended March 31, 1998 Compared to the Three Month Period Ended
March 31, 1997
Total fee and interest income increased from $4.5 million for the three
month period ended March 31, 1997 to $12.3 million for the three month period
ended March 31, 1998, an increase of 174.2%. The increase principally resulted
from an increase of $184.2 million in average finance receivables outstanding
due to the Company's growth in the Accounts Receivable and STL Programs during
the period. Interest earned from the Accounts Receivable and STL Programs
increased from $1.9 million for the three month period ended March 31, 1997 to
$8.2 million for the three month period ended March 31, 1998, which accounted
for $6.3 million of the $7.8 million growth in total fee and interest income
between the periods. The Company increased its client base in the Accounts
Receivable Program from 129 clients at March 31, 1997 to 188 clients at March
31, 1998. Additionally, existing clients increased their average borrowings from
the Company in three month period ended March 31, 1998 as compared to the prior
year. The yield on finance receivables decreased slightly from 17.2% for the
three month period ended March 31, 1997 to 17.1% for the three month period
ended March 31, 1998. Therefore, the increase in fee and interest income was due
to growth in the volume of finance receivables.
The yields on the Accounts Receivable Program for the three month periods
ended March 31, 1998 and 1997 were 16.8% and 16.5%, respectively. The yields on
the STL Program for the same periods were 17.6% and 23.2%, respectively. The
decrease of 560 basis points for the STL Program noted for the periods being
compared stems from the composition of the STL Program during these periods; at
March 31, 1997, there were 20 clients in the program, and the majority had loans
with terms of less than six months, resulting in a higher proportion of the
yield being generated from commitment fee amortization. At March 31, 1998,
there were 46 clients in the STL Program with the average loan term being two
years, and commitment fees were being amortized over this longer average loan
term. The Company generally expects the yields under the Accounts Receivable
Program to be greater than STL Program yields; however, for the first quarter of
1998, the yields for the respective programs were 16.8% and 17.6%. The higher
than expected STL Program yield was attributable to the acceleration in the
recognition of deferred commitment fees on loans that paid off prior to their
maturity date.
Interest expense increased from $1.1 million for the three month period
ended March 31, 1997 to $3.8 million for the three month period ended March 31,
1998, and the Company's average cost of borrowed funds decreased from 8.2% for
the three month period ended March 31, 1997 to 8.1% for the three month period
ended March 31, 1998, as a result of utilizing a lower-cost commercial paper
facility for a greater proportion of the borrowings for the 1998 period. See
"Liquidity and Capital Resources". The 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, net fee and
interest income increased 153.5%, from $3.4 million for the three month period
ended March 31, 1997 to $8.5 million for the three month period ended March 31,
1998. The decreased yield on finance receivables resulted in a decrease in the
annualized net interest margin from 12.8% for the three month period ended March
31, 1997 to 11.8% for the three month period ended March 31, 1998.
The Company's provision for losses on receivables increased from $150,000
for the three month period ended March 31, 1997 to $651,014 for the three month
period ended March 31, 1998. This increase is attributable to the growth of the
Company's finance receivables and the size of the Company's average client
balance, which increased to approximately $2.0 million, which are among the
factors considered by the Company in assessing the adequacy of its allowance for
losses on receivables. In addition, this increase included a $100,000 in a
specific reserve with respect to one loan that the Company is currently
liquidating. The Company experienced no credit losses in either period.
8
<PAGE>
Operating expenses increased from $1.9 million for the three month period
ended March 31, 1997 to $2.6 million for the three month period ended March 31,
1998, a 40% increase. This increase was the result of a 44.7% increase in
compensation and benefits due to hiring additional personnel to support the
Company's growth, as well as to prepare for the management of the HCFP REIT.
The large increase in personnel resulted in the need to lease additional office
space. As a result, occupancy costs increased by 160.3%. The Company also
experienced an increase of 36.0% in other operating costs, all as a result of
the expansion of the Company's operations.
Other income increased from $429,399 for the three month period ended March
31, 1997 to $821,478 for the three month period ended March 31, 1998. The
increase in other income was largely attributable to partnership income of
$499,873 in 1998. This partnership income resulted from the foreclosure on, and
subsequent sale of, a mortgage held by HCFP Funding III, L.P. ("Funding III,
L.P."). Funding III, L.P. is a limited partnership in which HCFP Funding III,
Inc., a wholly-owned subsidiary of the Company (Funding III), is the General
Partner. Funding III, L.P. participated in a Department of Housing & Urban
Development auction of a distressed mortgage loan portfolio, from which it
purchased four loans. Funding III holds a 1% general and a 49% limited
partnership interest in Funding III, L.P., and receives 60% of the income from
the partnership's activities, which is included in other income.
In 1997, documentation and closing fees were also included in other income.
Beginning in 1998, these internal legal fees are being offset against direct
legal expenses, and the net amount is being amortized over the terms of the
associated finance receivables as an element of yield on the loans. Thus,
documentation and closing fees are no longer included in other income beginning
in 1998.
Net income increased from $1.1 million for the three month period ended
March 31, 1997 to $3.6 million for the three month period ended March 31, 1998 a
223.0% increase, primarily as a result of the overall growth in the Company's
finance receivables as described above.
Excess Collateral
The Company's primary protection against credit losses on its Accounts
Receivable Program is the excess collateral that it takes which consists of
client accounts receivable due from third-party payors which collateralize
revolving lines of credit secured by, and advances against, accounts receivable.
The Company obtains a first priority security interest in all of the clients'
accounts receivable, including receivables not financed by the Company. As a
result, amounts loaned 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 clients.
With respect to revolving lines of credit secured by accounts receivable,
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 the clients' accounts receivable, and may apply payments received with
respect to the full amount of the clients' accounts receivable to offset any
amounts due from the clients. The estimated net collectible value of the
clients' accounts receivable thus exceeds at any time balances under lines of
credit secured by such accounts receivable.
With respect to advances against accounts receivable, the Company purchases
the clients' 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 (which is equal to aggregate net collectible value
minus a purchase discount) of any batch of accounts receivable purchased. The
excess of the purchase price for a
9
<PAGE>
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 revolving lines of credit, the
Company obtains a first priority security interest in all of the clients'
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
first or second lien on various types of collateral, such as real estate,
accounts receivable, equipment, inventory and stock, depending on the
circumstances of each loan and the availability of collateral.
Turnover
The Company's results of operations are affected by its collections of
client accounts receivable. The Company's turnover of its finance receivables in
its Accounts Receivable Program, 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 2.6x for both
the quarters ended March 31, 1998 and 1997.
Liquidity and Capital Resources
Cash flows resulting from operating activities provided sources of cash
amounting to $5.2 million for the three month period ended March 31, 1998. This
compares to operating cash flows of $7.7 million for the three month period
ended March 31, 1997. 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 include cash payments for compensation and
employee benefits, rent expense, and other administrative expenses. 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 Accounts Receivable and STL Programs.
The Company's financing activities have provided the necessary source of
funds for the acquisition of receivables. Financing has been obtained from both
debt and equity sources. The debt financing has been generated from draws on the
a $40 million revolving line of credit (the "Bank Facility"), with Fleet Capital
Corporation ("Fleet"), the sale of commercial paper through an investment grade
asset-backed commercial paper facility (the "CP Facility") with ING Baring (US)
Capital Markets ("ING") which enables the Company to borrow up to $200 million,
and a $100 million revolving warehouse line of credit (the "Warehouse Facility")
with Credit Suisse First Boston Mortgage Capital, LLC. The source of equity
financing during the first three months of 1998 was the sale of 3,657,500 shares
of common stock to the public, which raised $137.9 million. During 1997 the
Company sold 3,450,000 shares of common stock to the public and raised $53.4
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 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 March 31, 1998 and December 31, 1997, $19.4 and $40.2 million, respectively,
were 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.
10
<PAGE>
In addition, under the Bank Facility the Company is not allowed to have at any
time a cumulative negative cash flow (as defined by the Bank Facility agreement)
in excess of $1.0 million. The inter-creditor 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 March 31, 1998,
the Company was in compliance with all of its covenants under the Bank Facility.
The expiration date for the Bank Facility is March 29, 2002, subject to
automatic renewal for one-year periods thereafter unless terminated by either
party which requires six months prior written notice.
In December 1996, the Company entered into an agreement with ING for $100
million commitment under the CP Facility. On December 30, 1997, that commitment
was increased to $200 million. As of March 31, 1998, $19.1 million of commercial
paper was outstanding under the CP Facility. As of December 31, 1997, $101.2
million of commercial paper was outstanding under the CP Facility. The CP
Facility requires the Company to transfer advances and related receivables under
its Accounts Receivable 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. The CP Facility generally 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 $50 million. At March 31, 1998, the Company was
in compliance with all of its covenants under the CP Facility. The maturity date
for the CP Facility is December 5, 2001. However, the CP Facility may be
terminated by the Company at any time after December 5, 1999, without penalty.
On June 27, 1997, the Company entered into an agreement with CSFB under the
Warehouse Facility. Under the terms of the Warehouse Facility, the Company is
able to securitize certain loans under the Company's STL Program. The Company
had a total borrowing capacity under the agreement of $50 million as of December
31, 1997. In February 1998, the commitment was raised to $100 million. As of
March 31, 1998, the Company had $44.8 million outstanding under the Warehouse
Facility. The Warehouse Facility requires that 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% on the first $50 million and Libor plus 3.0% on the
second $50 million. The Warehouse Facility requires that the loans advanced by
the Company do not exceed 95% of the appraised value of the real estate or a
multiple of the underwritten cash flow of the borrower, that the weighted
average yield of advances under the Warehouse Facility must exceed the prime
rate of interest plus 3%, that the maximum weighted average loan to value of
advances under the Warehouse Facility must be no greater than 85%, and that no
loan in the portfolio has a life greater than five years. Additionally, the
Warehouse Facility requires that, to the extent that the Company makes advances
in amounts greater than $7.5 million to any borrower, that excess is advanced by
the Company through other sources. The commitment to make advances under the
Warehouse Facility terminates on 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, the Company has the right to
repurchase any assets securitized at a price equal to the fair market value of
such assets. At March 31, 1998, the Company was in compliance with all of the
covenants of the agreement.
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. The Company
expects to fund its future financing activities principally from (i) the CP
Facility, which expires on December 5, 2001, (ii) the Bank Facility, which
expires on March 29, 2002, subject to automatic renewals for one-year periods
thereafter unless terminated by either party and (iii) the Warehouse Facility,
which expires on June 27, 1999. While the Company expects to be able to obtain
new financing facilities or renew these
11
<PAGE>
existing financing facilities and to have continued access to other sources of
credit after 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.
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, the CP Facility and the Warehouse 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 revolving lines of credit secured by accounts receivable adjust
based upon changes in the prime rate. The fees charged on advances against
accounts receivable 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 generally adjust based on the prime rate. 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 CP Facility
adjusts based upon changes in commercial paper rates. Because the Company
finances most of the Accounts Receivable Program's activity through the CP
Facility, there exists some interest rate risk since the interest rate on
advances to the Company's clients under the Accounts Receivable 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 Accounts Receivable Program
portfolio is not expected to have a material effect on the Company's net
interest income if interest rates change. Additionally, because advances against
accounts receivable are generally fixed and financed with the CP Facility, which
has rates that adjust with changes in commercial paper rates, there exists
interest rate sensitivity with respect to advances against accounts receivable,
and if interest rates increase significantly, such an increase could have an
adverse effect on the Company's net interest income. However, this interest rate
sensitivity is mitigated by the fact that (i) advances against accounts
receivable comprise only 7.9% of the finance receivables in the Accounts
Receivable Program as of March 31, 1998, and (ii) the Company does not make
long-term commitments with respect to advances against accounts receivable and
therefore, retains substantial flexibility to negotiate fees based on changes in
interest rates.
Inflation
Inflation has not had a significant effect on the Company's operating results
to date.
12
<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
Supplementary Exhibits
----------------------
99. Supplementary Data:
Additional financial and statistical information
10.1 Amendment to Employment Agreement of Steven I. Silver dated as
of April 1, 1998
10.2 Letter Agreement with Howard Widra re: Stock Options, dated as
of September 27, 1997
13
<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: /s/ Edward P. Nordberg, Jr.
----------------- -----------------------------------
By: Edward P. Nordberg, Jr.
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
14
<PAGE>
AMENDMENT NO. 2 TO
EMPLOYMENT AGREEMENT
--------------------
This Amendment No. 2 to Employment Agreement ("Amendment") is effective as
of April 1, 1998, and is made by and between HEALTHCARE FINANCIAL PARTNERS,
INC., a Delaware corporation (the "Corporation") and STEVEN I. SILVER
("Employee").
W I T N E S S E T H:
- - - - - - - - - -
A. Employee and the Corporation have entered into an Employment Agreement
dated as of October 1, 1996, and amended as of July 1, 1997 (as so amended,
"Agreement").
B. The Corporation desires to further recognize Employee's contribution to
the growth and success of the Corporation by amending certain terms of the
Agreement.
NOW, THEREFORE, in consideration of the foregoing premises, and of the
mutual covenants and representations contained in this Amendment, and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
1. Section 4.2 of the Agreement is hereby amended and restated in its
entirety to read as follows:
"4.2 Termination of Employment.
-------------------------
(a) Employee may terminate his employment under this Agreement upon
30 days prior written notice to the Corporation. During the 30-day period
following Employee's notice of termination, and if so requested by the
Corporation, Employee will perform his regular duties and, in addition, will
perform those consulting services that may be requested by the Corporation to
assist in the orderly transition of Employee's duties to another person or
persons and/or assist in the training of Employee's replacement.
(b) The Corporation may terminate the employment of the Employee
for Cause (as defined in paragraph 4.4(a)) upon written notice to Employee of
the termination ("Notice of Termination for Cause") and, upon such termination,
the Corporation will have no further obligation to the Employee.
(c) The Corporation shall not be entitled to terminate the
employment of the Employee without Cause. In the event, however that the
Corporation or any successor upon a Sale of the Corporation (as defined in
paragraph 5(e)) terminates Employee's employment without Cause (as defined in
paragraph 5(e)), Employee shall be paid a lump sum payment in cash, immediately
upon the termination without Cause, equal to the aggregate compensation and
benefits as calculated pursuant to paragraph 1.2 at the annual salary rate in
effect at the time of termination, with such lump sum payment to be equal to the
aggregate
<PAGE>
compensation that would otherwise be payable to Employee for the remaining
portion of the Employment Period (i.e. two (2) years and four (4) months if
terminated without Cause on June 1, 1998). If the successor upon a Sale of the
Corporation fails to make such lump sump payment upon a termination of Employee
without Cause, the Corporation shall be obligated to immediately make such
payment.
(d) The employment of Employee will be automatically
terminated by his death or Total Disability. If Employee dies or suffers a Total
Disability while this Agreement is in effect, the Corporation will pay to
Employee's spouse (or if he is not married at the time of his death, to his
estate) compensation under paragraph 1.2 as would be accrued through the end of
the month in which his employment terminated."
2. Except as expressly modified by this Amendment, the Agreement
remains in full force and effect.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first above written.
ATTEST: THE CORPORATION:
HEALTHCARE FINANCIAL
PARTNERS, INC.
a Delaware corporation
By:
- ------------------------- ------------------------------
Name:
Its:
WITNESS: EMPLOYEE:
- ------------------------- ------------------------------
Steven I. Silver
<PAGE>
[LOGO OF HEALTHCARE FINANCIAL APPEARS HERE]
September 26, 1997
Mr. Howard Widra
3003 Van Ness Street, N.W.
Apt. 1019W
Washington, DC 20008
Dear Howard:
In connection with the granting of 25,000 options with an exercise price of
$28.25 on September 24, 1997 (the "Options"), Healthcare Financial Partners
("HCFP") hereby agrees with you as follows:
If on the date that you exercise all or any portion of the Options the
closing price of HCFP Common Stock is greater than $24.00 per share. HCFP
will pay you, in cash, an amount equal to the lesser of (a) the difference
between the closing price of HCFP Common Stock on the date of exercise and
$24.00, or (b) $4.25, which amount shall be multiplied by the number of
Options exercised on that date.
The provision described above applies to all or any part of the Options without
regard to any prior exercise of the foregoing provision.
Notwithstanding anything in this agreement to the contrary, this agreement
should be interpreted so that the economic effect of the Options, when combined
with the foregoing provision, is that the Options were granted at an exercise
price of $24.00 per share as opposed to $28.25 per share.
This letter agreement shall be binding on HCFP, its successors and assigns.
Very truly yours,
HEALTHCARE FINANCIAL PARTNERS, INC.
By: /s/ Edward P. Nordberg, Jr.
-------------------------------
Edward P. Nordberg, Jr.
Executive Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
EPS FOR THE THREE MONTHS ENDED MARCH 31, 1997 DID NOT CHANGE AS A RESULT OF THE
ADOPTION OF SFAS 128, SO NO AMENDED DATA SCHEDULE HAS BEEN FILED.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 22,535,761
<SECURITIES> 0
<RECEIVABLES> 298,788,311
<ALLOWANCES> 3,305,128
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,366,086
<DEPRECIATION> 245,962
<TOTAL-ASSETS> 329,078,095
<CURRENT-LIABILITIES> 99,232,640
<BONDS> 0
0
0
<COMMON> 133,422
<OTHER-SE> 229,712,033
<TOTAL-LIABILITY-AND-EQUITY> 329,078,095
<SALES> 12,304,780
<TOTAL-REVENUES> 13,126,258
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,613,657
<LOSS-PROVISION> 651,014
<INTEREST-EXPENSE> 3,800,254
<INCOME-PRETAX> 6,061,333
<INCOME-TAX> 2,440,771
<INCOME-CONTINUING> 3,620,562
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,620,562
<EPS-PRIMARY> .35
<EPS-DILUTED> .34
</TABLE>
<PAGE>
Supplementary Data
For the Three Months Ended March 31,1998
1) CONDENSED BALANCE SHEETS (UNAUDITED):
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1998 1997 (1)
------------- -------------
<S> <C> <C>
Cash and cash equivalents $ 22,535,761 $ 18,668,703
Finance receivables 302,367,986 250,688,138
Less:
Allowance for losses on receivables 3,305,128 2,654,114
Unearned fees 3,579,675 3,161,237
------------- -------------
Net finance receivables 295,483,183 244,872,787
Property and equipment, net 1,120,125 416,284
Goodwill 1,696,441 1,740,097
Prepaid expenses and other assets 3,963,414 3,405,497
Investment securities 1,727,390 1,442,814
Deferred income taxes 1,284,665 1,041,520
Investment in limited partnership 1,267,116 767,244
------------- -------------
Total assets $ 329,078,095 $ 272,354,946
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Line of credit $ 19,384,923 $ 40,157,180
Commercial paper facility 19,126,743 101,179,354
Warehouse facility 44,767,800 27,932,520
Client holdbacks 5,862,486 6,173,260
Accounts payable to clients 695,714 834,367
Income taxes payable 2,585,226 5,138,144
Due to related parties 1,673,889
Accounts payable and accrued expenses 4,196,462 2,217,947
Notes payable 92,414 115,286
Accrued interest 846,983 776,700
------------- -------------
Total liabilities 99,232,640 184,524,758
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;
13,342,215 and 9,670,291 shares
issued and outstanding, respectively 133,422 96,703
Paid-in-capital 218,019,114 79,784,045
Retained equity 11,692,919 7,949,440
------------- -------------
Total stockholders' equity 229,845,455 87,830,188
------------- -------------
Total liabilities and equity $ 329,078,095 $ 272,354,946
============= =============
</TABLE>
(1) The balance sheet as of December 31,1997 has been derived from audited
financial statements at that date, but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
<PAGE>
2) KEY BALANCE SHEET DATA:
<TABLE>
<CAPTION>
As of March 31, As of Dec. 31, As of March 31,
1998 1997 1997
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Finance Receivables:
Accounts Receivable Program $ 221,241,435 73% $ 185,727,628 74% $ 104,865,371 90%
STL Program 81,126,551 27% $ 64,960,510 26% 11,922,789 10%
-----------------------------------------------------------------------------------
Total $ 302,367,986 100% $ 250,688,138 100% $ 116,788,160 100%
===================================================================================
Allowance for losses on receivables $ 3,305,128 $ 2,654,114 $ 1,228,992
===================== ===================== ===================
Total Assets $ 329,078,095 $ 272,354,946 $ 129,243,377
===================== ===================== ===================
Debt
Line of Credit $ 19,384,923 23% $ 40,157,180 24% $ 33,538,765 43%
Commercial Paper Facility 19,126,743 23% 101,179,354 60% 44,769,505 57%
Warehouse Facility 44,767,800 54% 27,932,520 16% - 0%
-----------------------------------------------------------------------------------
Total $ 83,279,466 100% $ 169,269,054 100% $ 78,308,270 100%
===================================================================================
Total Liabilities $ 99,232,640 $ 184,524,758 $ 101,401,397
===================== ===================== ===================
Client Holdbacks $ 5,862,486 $ 6,173,260 $ 12,621,653
===================== ===================== ===================
Total Debt $ 83,279,466 27% $ 169,269,054 66% $ 78,308,270 74%
Total Stockholders' Equity 229,845,455 73% 87,830,188 34% 27,841,980 26%
-----------------------------------------------------------------------------------
Capitalization $ 313,124,921 100% $ 257,099,242 100% $ 106,150,250 100%
===================================================================================
Book Value Per Share $ 17.23 $ 9.08 $ 4.48
===================== ===================== ===================
</TABLE>
Note: See attached Balance Sheets for additional information
3) CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
------------------------------
1998 1997
------------- -------------
<S> <C> <C>
Fee and interest income
Fee income................................................ $ 4,108,204 $ 2,570,411
Interest income........................................... 8,196,576 1,917,922
------------- -------------
Total fee and interest income..................... 12,304,780 4,488,333
Interest expense............................................... 3,800,254 1,133,156
------------- -------------
Net fee and interest income....................... 8,504,526 3,355,177
Provision for losses on receivables............................ 651,014 150,000
------------- -------------
Net fee and interest income after provision
for losses on receivables.................. 7,853,512 3,205,177
Operating expenses............................................. 2,613,657 1,866,483
Other income................................................... 821,478 429,399
------------- -------------
Income before income taxes..................................... 6,061,333 1,768,093
Income taxes................................................... 2,440,771 647,089
------------- -------------
Net income..................................................... $ 3,620,562 $ 1,121,004
============= =============
Basic earnings per share....................................... $ 0.35 $ 0.18
Weighted average shares outstanding............................ 10,283,279 6,214,991
Diluted earnings per share..................................... $ 0.34 $ 0.18
Diluted weighted average shares outstanding.................... 10,668,910 6,320,482
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
4) COMMON SHARES INFORMATION: As of and for the As of and for the As of and for the
Quarter Ended Quarter Ended Quarter Ended
March 31, Dec. 31, March 31,
1998 1997 1997
--------------------- --------------------- -------------------
<S> <C> <C> <C>
Total Shares Outstanding 13,342,215 9,670,291 6,214,991
Weighted Average Shares
Outstanding 10,283,279 9,669,793 6,214,991
Diluted Weighted Average Shares
Outstanding 10,668,910 10,015,643 6,320,482
<CAPTION>
5) SELECTED FINANCIAL DATA: As of or for the As of or for the As of or for the
Three months ended Three months ended Three months ended
March 31, December 31, March 31,
1998 1997 1997
---------------------------------------------------------------------
<S> <C> <C> <C>
Number of clients being financed (1) 206 174 152
Number of loans to clients 234 200 157
Yield Statistics:
- --------------------------
Yield on finance receivables 17.05% 17.28% 17.18%
Yield on Accounts Receivable Program receivables 16.81% 17.70% 16.49%
Yield on STL Program receivables 17.57% 16.32% 23.16%
Finance Spread and Margin:
- ----------------------------------------
Average yield on finance receivables 17.05% 17.28% 17.18%
Average cost of debt 8.09% 8.62% 8.24%
------------------ ------------------ ----------------
Net fee and interest spread 8.96% 8.66% 8.94%
Net fee and interest margin 11.78% 12.52% 12.84%
Year-to-Year Growth Statistics:
- ----------------------------------------
Finance Receivables 158.90% 180.63% 103.29%
Fee and interest income 174.15% 164.09% 96.76%
Net income (1996 data pro forma) 222.97% 204.23% 165.83%
Diluted earnings per share (1996 data pro forma) 91.34% 87.50% 148.27%
Other Operating Statistics:
- ----------------------------------------
Return on average working assets 5.02% 5.30% 4.29%
Finance receivable turnover ratio (# times) 2.6 2.7 2.6
Allowance for losses as a percentage of
finance receivables 1.09% 1.06% 1.05%
Total operating expenses as a percentage
of average earning assets 3.62% 4.03% 7.14%
Efficiency ratio (oper. exp./fee & interest income) 21.24% 22.94% 41.59%
Leverage ratio (debt/equity) 0.36 1.93 2.81
Equity/Assets 69.85% 32.25% 21.54%
</TABLE>
(1) Includes 80 and 64 clients who were affiliates of one or more clients in
1998 and 1997, respectively.
<PAGE>
6) CLIENT ANALYSIS BY PROGRAM
<TABLE>
<CAPTION>
Mar-96 Jun-96 Sep-96 Dec-96 Mar-97 Jun-97 Sep-97 Dec-97 Mar-98
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Accounts Receivable Program:
- ----------------------------
Beginning Clients 85 90 98 112 129 137 145 171 161
New Clients 23 14 15 35 26 29 27 28 35
Clients Transferred to STL Program 8
Lost Clients 18 6 1 10 18 21 1 38 8
Ending Clients 90 98 112 129 137 145 171 161 188
- ------------------------------------------------------------------------------------------------------------------------------
STL Program:
- ------------
Beginning Clients 0 0 0 0 8 20 25 32 39
New Clients 0 0 0 0 14 8 9 10 11
Clients Transferred from AR Program 0 0 0 8 0
Lost Clients 0 0 0 0 2 3 2 3 4
Ending Clients 0 0 0 8 20 25 32 39 46
- ------------------------------------------------------------------------------------------------------------------------------
Total Company:
- --------------
Beginning Clients 85 90 98 112 137 157 170 203 200
New Clients 23 14 15 35 40 37 36 38 46
Lost Clients 18 6 1 10 20 24 3 41 12
Ending Clients 90 98 112 137 157 170 203 200 234
Less Clients in Both Programs 7 5 11 23 26 28
Ending Clients 90 98 112 130 152 159 180 174 206
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Includes 80 clients who were affiliates of one or more clients in March 1998.
<PAGE>
7) OTHER CORPORATE INFORMATION:
A) Corporate Headquarters:
HealthCare Financial Partners, Inc.
2 Wisconsin Circle, 4th Floor
Chevy Chase, MD 20815
Phone: 301-961-1640
Fax: 301-664-9860
B) Stock Exchange and Symbol:
NASDAQ National Market / HCFP
C) World Wide Web Home Page
www.hcfp.com
D) Corporate Officers:
John K. Delaney, Chairman of the Board, Chief Executive Officer and
Director
Ethan D. Leder, Vice Chairman of the Board, President and Director
Edward P. Nordberg, Jr., Executive Vice President, Chief Financial
Officer and Director
Hilde M. Alter, Treasurer and Chief Accounting Officer
Steven M. Curwin, Senior Vice President, General Counsel and Secretary
Michael G. Gardullo, Vice President and Senior Credit Officer
Jeffrey P. Hoffman, Vice President and Portfolio Manager
Steven I. Silver, Vice President, Portfolio Development
Debra M. Van Alstyne, Vice President, Deputy General Counsel and
Assistant Secretary
Howard T. Widra, Vice President, Portfolio Development
Chris J. Woods, Senior Vice President and Chief Administrative Officer
James L. Buxbaum, President of HealthCare Analysis Corporation (a
subsidiary of the Company)
Jay C. Beam, Vice President of HealthCare Analysis Corporation
Flint D. Besecker, Vice President of HealthCare Analysis Corporation
E) Board of Directors:
John K. Delaney, Chairman of the Board, Chief Executive Officer and
Director
Ethan D. Leder, Vice Chairman of the Board, President and Director
Edward P. Nordberg, Jr., Executive Vice President, Chief Financial
Officer and Director
John F. Dealy, President of The Dealy Strategy Group, a management
consulting firm
Geoffrey E.D. Brooke, Director, Rothschild Bioscience Unit, responsible
for venture capital operations in the Asian Pacific region
F) Professional Affiliations:
Independent Accountants
-------------------------------------
Ernst & Young LLP
1225 Connecticut Avenue, N. W.
Washington, DC 20036
Transfer Agent
------------------------
First Union National Bank of North Carolina
230 South Tryon Street, 11th Floor
Charlotte, North Carolina 28288-1153
G) Analysts Providing Research Coverage on HealthCare Financial
Partners, Inc.
<TABLE>
<S> <C>
Montgomery Securities Joseph A. Jolson (415-627-2216)
Lehman Brothers Angus L. MacDonald (617-342-4414)
ABN AMRO Incorporated Robert P. Napoli (312-855-2867)
Stifel, Nicolaus & Company, Inc. W. Coleman Bitting (314-342-2074)
Stephens Inc. Jerry L. Robinson (404-240-1258)
Piper Jaffray Inc. Steven R. Schroll (612-342-6451)
John G. Kinnard & Co. Keith A. Menzel (612-370-2546)
Legg Mason Wood Walker, Inc. David B. Sochol, CFA (410-454-4546)
</TABLE>
