----

----

**SECURITIES AND EXCHANGE COMMISSION****WASHINGTON, DC 20549**

----

**FORM 10-Q**

**(MarkOne)**
| **ý** | **QUARTERLY REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**  |
|------------|-----------------------------------------------------------------------------------------------|
|       | **For  the quarterly period ended June 30, 2001**                                             |
|       | **OR**                                                                                        |
| **o**      | **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 1-4923**

| **WESTMINSTER CAPITAL, INC.**                           |
|---------------------------------------------------------|
| ****                                                    |
| (EXACT NAME OF  REGISTRANT AS SPECIFIED IN ITS CHARTER) |

** **
| **Delaware**                     | **95-2157201**                      |
|----------------------------------|-------------------------------------|
| ****                             | ****                                |
| (State or other  jurisdiction of | (IRS. Employer  Identification No.) |
| incorporation or  organization)  |                                |

 
| **9665  Wilshire Boulevard, Suite M-10, Beverly Hills, CA** | **90212**  |
|-------------------------------------------------------------|------------|
| ****                                                        | ****       |
| (Address of principal  executive office)                    | (Zip Code) |

 

| 310 278-1930                                          |
|-------------------------------------------------------|
| ****                                                  |
| (Registrant's  Telephone Number, Including Area Code) |
|                                                  |
|                                                       |
| (Former name, former  address and former fiscal year, |
| if changed since last  report)                        |

                           Indicateby check mark whether the registrant (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. ýYes   oNo

                           Indicatethe number of shares outstanding of each of the issuer's classes of commonstock, as of the latest practicable date 8,124,607

----

----

**PART I - FINANCIAL INFORMATION**

 

**ITEM 1.  FINANCIALSTATEMENTS**

**WESTMINSTER CAPITAL, INC. AND SUBSIDIARIES**CONSOLIDATED STATEMENTS OFFINANCIAL CONDITION AS OFJUNE 30, 2001 (UNAUDITED) AND DECEMBER 31, 2000 (AUDITED)

| **ASSETS**                                                                                                                 | **June  30, 2001** |       | **December  31, 2000** |   |
|----------------------------------------------------------------------------------------------------------------------------|--------------------|------------|------------------------|--------|
| ****                                                                                                                       |               |
| Cash and cash  equivalents                                                                                                 | $                  | 7,113,000  |                   | $      | 6,227,000 |   |
| Securities  available-for-sale, at fair value                                                                              | 16,149,000         |       | 17,330,000             |   |
| Accounts receivable,  net of reserve of $338,000 in 2001 and $376,000 in 2000                                              | 4,275,000          |       | 4,305,000              |   |
| Loans receivable, net                                                                                                      | 5,409,000          |       | 5,224,000              |   |
| Investment in limited  partnerships that invest in securities                                                              | 2,114,000          |       | 1,899,000              |   |
| Other investments                                                                                                          | 490,000            |       | 490,000                |   |
| Accrued interest  receivable                                                                                               | 360,000            |       | 381,000                |   |
| Income tax receivable                                                                                                      | 96,000             |       | 780,000                |   |
| Inventories                                                                                                                | 506,000            |       | 462,000                |   |
| Property and  equipment, net                                                                                               | 5,565,000          |       | 5,763,000              |   |
| Goodwill, net                                                                                                              | 9,213,000          |       | 9,513,000              |   |
| Other assets                                                                                                               | 919,000            |       | 845,000                |   |
|                                                                                                                       |                    |       |                        |   |
| **Total Assets**                                                                                                           | $                  | 52,209,000 |                   | $      | 53,219,000 |   |
|                                                                                                                       |                    |       |                        |   |
| **LIABILITIES AND SHAREHOLDERS’  EQUITY**                                                                             |               |       |                   |   |
|                                                                                                                            |                    |
| **LIABILITIES:**                                                                                                           |               |       |                   |   |
| Accounts payable                                                                                                           | 1,841,000          |       | 2,264,000              |   |
| Accrued expenses                                                                                                           | 1,213,000          |       | 1,404,000              |   |
| Due to sellers                                                                                                             | —             |       | 510,000                |   |
| Other borrowings                                                                                                           | 3,711,000          |       | 4,262,000              |   |
| Deferred income taxes                                                                                                      | 2,055,000          |       | 1,831,000              |   |
| Minority interests                                                                                                         | 1,129,000          |       | 1,091,000              |   |
|                                                                                                                       |                    |       |                        |   |
| **Total Liabilities**                                                                                                      | 9,949,000          |       | 11,362,000             |   |
|                                                                                                                       |                    |       |                        |   |
| **COMMITMENTS AND CONTINGENCIES**                                                                                          |               |       |                   |   |
|                                                                                                                       |               |       |                   |   |
| **SHAREHOLDERS’ EQUITY:**                                                                                             |               |       |                   |   |
|                                                                                                                       |               |       |                   |   |
| Common stock, $1 par  value: 30,000,000 shares authorized:   8,125,000 shares issued and outstanding in 2001 and 2000 | 8,125,000          |       | 8,125,000              |   |
| Capital in excess of  par value                                                                                            | 56,223,000         |       | 56,223,000             |   |
| Accumulated deficit                                                                                                        | (22,091,000        | )          | (22,684,000            | )      |
| Accumulated other  comprehensive income                                                                                    | 3,000              |       | 193,000                |   |
|                                                                                                                       |                    |       |                        |   |
| **Total Shareholders’ Equity**                                                                                        | 42,260,000         |       | 41,857,000             |   |
|                                                                                                                       |                    |       |                        |   |
| **Total Liabilities and  Shareholders’ Equity**                                                                       | $                  | 52,209,000 |                   | $      | 53,219,000 |   |
|                                                                                                                       |                    |       |                        |   |

See accompanying notes to consolidatedfinancial statements.
**WESTMINSTER CAPITAL, INC. AND SUBSIDIARIES**CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
 Six  months ended June 30, 2001 Six  months ended   June 30, 2000 Three  months ended   June 30, 2001 Three  months ended   June 30, 2000      REVENUES:                 Sales to packaging  customers$7,228,000 $5,573,000 $4,273,000 $2,767,000 Equipment rental and  sales4,717,000 5,468,000 2,288,000 3,195,000 Group purchasing  revenues795,000 650,000 425,000 349,000 Finance and secured  lending revenues1,113,000 1,799,000 270,000 529,000      Total Revenues13,853,000 13,490,000 7,256,000 6,840,000      COSTS  AND EXPENSES:                 Cost of sales –  packaging4,434,000 3,497,000 2,638,000 1,837,000 Cost of sales –  equipment rental and sales2,817,000 2,864,000 1,232,000 1,649,000 Selling, general and  administrative5,077,000 5,962,000 2,701,000 2,987,000 Depreciation and  amortization474,000 493,000 202,000 245,000 Interest expense172,000 96,000 77,000 53,000      Total Expenses12,974,000 12,912,000 6,850,000 6,771,000      INCOME BEFORE  INCOME  TAXES & MINORITY INTERESTS879,000 578,000 406,000 69,000          INCOME TAX PROVISION(464,000)(391,000)(216,000)(87,000)         MINORITY INTERESTS(139,000)(173,000)(90,000)(90,000)     INCOME (LOSS) FROM  CONTINUING OPERATIONS BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE276,000 14,000 100,000 (108,000)         DISCONTINUED  OPERATIONS— 693,000 — —      INCOME (LOSS) BEFORE  CUMULATIVE EFFECT OF ACCOUNTING CHANGE276,000 707,000 100,000 (108,000)         CUMULATIVE EFFECT OF  ACCOUNTING CHANGE NET OF INCOME TAXES317,000 — — —      NET INCOME (LOSS)$593,000 $707,000 $100,000 $(108,000)     
See accompanying notes to consolidatedfinancial statements.

**WESTMINSTER CAPITAL, INC. AND SUBSIDIARIES**CONSOLIDATED STATEMENTSOF CASH FLOWS (UNAUDITED)
 Six  months ended   June 30, 2001 Six  months ended June 30, 2000    **CASH FLOWS FROM OPERATING  ACTIVITIES:**    Net income from  continuing operations before cumulative effect of accounting change and  before discontinued operations$276,000 $14,000 Cumulative effect of  accounting change(530,000)  Adjustments to  reconcile net income to net cash provided by (used in) operating activities:    Provisions for loan  losses (recoveries) and doubtful receivables, net(38,000)— Depreciation,  amortization, and accretion, net1,185,000 937,000 Loss on sales of  securities available-for-sale17,000 27,000 Gain on sale of other  investments— (450,000)Appreciation of  derivative instruments(107,000)— Disposal of rental  equipment128,000 — Net change in deferred  income taxes679,000 — Unrealized gains on  limited partnerships that invest in securities(215,000)(136,000)Gain from equity  investment(68,000)(209,000)Loss from write-down  of investment— 48,000 Change in assets and  liabilities, net effects from acquisitions of subsidiaries:     Decrease (increase) in  accounts receivable68,000 (871,000) Decrease (increase) in  accrued interest receivable21,000 (48,000) Net change in current  income taxes684,000 (780,000) Increase in other  assets(6,000)(175,000) Increase in  inventories(44,000)(249,000) (Decrease) increase in  accounts payable(423,000)316,000  (Decrease) increase in  accrued expenses(191,000)267,000  Net change in minority interests38,000 20,000    **Net cash provided by (used  in) operating activities**1,474,000 (1,289,000)   **CASH FLOWS FROM INVESTING  ACTIVITIES:**    Purchase of securities(64,346,000)(22,388,000)Proceeds from sales  and maturities of securities65,821,000 27,827,000 Purchases of property  and equipment(816,000)(1,439,000)Loan originations(386,000)— Principal collected on  loan receivables200,000 — Proceeds from  liquidation of limited partnership interest— 125,000 Proceeds from  liquidation of other investments— 750,000    **Net cash provided by  investing activities**473,000 4,875,000    **CASH FLOWS FROM FINANCING  ACTIVITIES:**    Seller financing  repayments(510,000)(1,749,000)Repayment of  installment debt and capital lease obligations(705,000)(694,000)Proceeds from exercise  of stock options— 570,000 Installment and bank  debt proceeds154,000 2,177,000    **Net cash (used in) provided  by financing activities**(1,061,000)304,000    **Net cash provided by  continuing operations**886,000 3,890,000 **Net cash provided by  discontinued operations**— 957,000    **Net change in cash and cash  equivalents**886,000 4,847,000 **Cash and cash equivalents,  beginning of period**6,227,000 1,406,000    **Cash and cash equivalents,  end of period**$7,113,000 $6,253,000    
See accompanying notes to consolidatedfinancial statements.
** 

**WESTMINSTER CAPITAL, INC. AND SUBSIDIARIES**CONSOLIDATED STATEMENTSOF COMPREHENSIVE INCOME (UNAUDITED)
 Six  months   ended   June 30, 2001 Six  months ended   June 30, 2000           Net income$593,000 $707,000    Other comprehensive  income, net of tax:          Unrealized gains on  securities:     Unrealized  holding (losses) gains arising during period(13,000)66,000  Less:  reclassification adjustment for gains included in net income(177,000)(1,000)   Other comprehensive  (loss) income(190,000)65,000    Comprehensive income$403,000 $772,000    
See accompanying notes to consolidatedfinancial statements.
** 

**WESTMINSTER CAPITAL, INC.  AND SUBSIDIARIES**

NOTES TO CONSOLIDATED FINANCIALSTATEMENTS

JUNE 30, 2001

**1.**          **BASIS OF PRESENTATION AND CUMULATIVE EFFECT OFACCOUNTING CHANGE**

Inthe opinion of Westminster Capital, Inc. and consolidated entities (the"Corporation"), the accompanying unaudited consolidated financialstatements, prepared from the Corporation's books and records, contain alladjustments (consisting of only normal recurring accruals) necessary for a fairpresentation of the Corporation's financial condition as of June 30, 2001 andDecember 31, 2000, and the results of operations, statements of cash flows andstatements of comprehensive income for the three and six month periods endedJune 30, 2001 and 2000.

Theconsolidated financial statements include the accounts of Westminster Capital,Inc. and its subsidiaries, including a 100% interest in Westland Associates,Inc. (“Westland”), an 80% interest in One Source Industries, LLC (“OneSource”), a 70% interest in Physician Advantage, LLC (“Physician Advantage”)and a 68% interest in Logic Technology Group, Inc., dba Matrix Visual Solutions(“Matrix”).

Thesale of Global Telecommunications on January 31, 2000 is reflected as adiscontinued operation in these consolidated financial statements.

Theaccompanying unaudited consolidated financial statements have been prepared inaccordance with the instructions to Form 10-Q and, therefore, do not includeall information and footnotes necessary to present the financial position,results of operations, statements of cash flows and statements of comprehensiveincome in conformity with accounting principles generally accepted in theUnited States of America.  The materialset forth below under the heading "Management's Discussion and Analysis ofFinancial Condition and Results of Operations" is written with thepresumption that the users of the interim financial statements have read orhave access to the most recent report on Form 10-K for the year ended December31, 2000, which contains the latest audited consolidated financial statementsand notes thereto, together with Management's Discussion and Analysis ofFinancial Condition and Results of Operations as of December 31, 2000 and forthe year then ended.

Statementof Financial Accounting Standards (SFAS) No. 133, *Accounting for Derivative Instruments and Hedging Activities*,is effective for all fiscal years beginning after June 15, 2000.  SFAS No. 133, as amended, establishesaccounting and reporting standards for derivative instruments, includingcertain derivative instruments embedded in other contracts and for hedgingactivities.  Under SFAS No. 133, certaincontracts that were not formerly considered derivatives may now meet thedefinition of a derivative.

TheCorporation has adopted SFAS No. 133 effective January 1, 2001.  The Corporation may receive or invest instock warrants in connection with its various finance and secured lendingactivities.  The adoption of SFAS No.133 has resulted in a $317,000 cumulative effect transition adjustment to netincome relating to warrants held at December 31, 2000, which qualify asderivatives.  The cumulative effecttransition adjustment net of income tax is shown as a cumulative effectaccounting change in the Statement of Operations and was determined using theBlack Scholes pricing model.  The computedfair value of these warrants using this valuation methodology results in anappreciation that is $155,000 greater than the intrinsic value underlyingcommon stock represented by these warrants, net of the exercise price.  Prior to January 1, 2001, appreciation ofthese warrants was included in other comprehensive income. Appreciation ofthese warrants since January 1, 2001 of $107,000 is recognized in the Statementof Operations under “Finance and secured lending revenues.”

OnJune 29, 2001, the Financial Accounting Standards Board (FASB) approved SFASNo. 141, “Business Combinations”. SFAS No. 141 requires that the purchasemethod of accounting be used for all business combinations initiated after June30, 2001. Goodwill and certain intangible assets will remain on the balancesheet and not be amortized. The Corporation is required to implement SFAS No.141 beginning July 1, 2001.  TheCorporation has not yet determined the impact that this statement will have onits consolidated financial position or results of operations.

OnJune 29, 2001, SFAS No. 142, "Goodwill and Other Intangible Assets"was approved by the FASB.  SFAS No. 142changes the accounting for goodwill from an amortization method to animpairment-only approach. Amortization of goodwill, including goodwill recordedin past business combinations, will cease upon adoption of this statement. Onan annual basis, and when there is reason to suspect that their values havebeen diminished or impaired, these assets must be tested for impairment, andwrite-downs may be necessary. The Corporation is required to implement SFAS No.142 on January 1, 2002.  The Corporationhas not yet determined the impact that this statement will have on itsconsolidated financial position or results of operations.

 

 

**2.**          **SECURITIES AVAILABLE-FOR-SALE**

Securitiesavailable-for-sale are carried at estimated fair value.  The amortized cost and estimated fair valueof securities available for sale at June 30, 2001 and December 31, 2000 are asfollows (in thousands):
   Gross Gross      Unrealized Unrealized Estimated  Amortized  Cost Gains Losses Fair  Value      June 30, 2001:        U.S. Treasury and  Agency Securities$15,492 $2 $— $15,494 Equity and Debt  Securities639 16 — 655       Total$16,131 $18 $— $16,149      December 31, 2000:            U.S. Treasury and  Agency Securities$16,983 $24 $— $17,007 Equity and Debt  Securities— 323 — 323       Total$16,983 $347 $— $17,330      
 

Maturitiesof U.S. Treasury and Agency Securities were as follows at June 30, 2001 (inthousands):

 
 Amortized  Cost Fair Value    Due within one year$12,992 $12,994      Due after one year through  five years2,500 2,500     $15,492 $15,494    
 

**3.**          **LOANS RECEIVABLE**

TheCorporation’s loans receivable outstanding at June 30, 2001 and December 31,2000 were comprised of the following (in thousands):

 
 June  30, 2001 December  31, 2000    Loans, net of loan  fees, secured by trust deeds or mortgages$5,023 $5,224 Loans secured by other  collateral386 —     Total$5,409 $5,224    
 

**4.**          **GOODWILL**

TheCorporation’s investments in operating businesses include purchased goodwillrecorded as follows (in thousands):
 Purchased    goodwill Accumulated amortization   at 1/1/01 Amortization    for six months ended 6/30/01 Net unamortized   cost at 6/30/01        June 30, 2001:         One Source Industries$5,825 $(509)$(150)$5,166  Matrix Visual  Solutions3,411 (189)(84)3,138  Westland Associates888 (277)(44)567  Touch Controls456 (92)(22)342       Total$10,580 $(1,067)$(300)$9,213      
 
 Purchased    goodwill Accumulated amortization at 1/1/00 Amortization    for 12 months   ended 12/31/00 Net    unamortized   cost at 12/31/00      December 31, 2000:         One Source Industries$5,825 $(240)$(269)$5,316  Matrix Visual  Solutions3,411 (18)(171)3,222  Physician Advantage1,577 (99)(1,478)—  Westland Associates888 (188)(89)611  Touch Controls456 (46)(46)364       Total$12,157 $(591)$(2,053)$9,513      
** **

**5.**          **OTHER BORROWINGS**

Otherborrowings include bank credit facilities comprised of a term loan and tworevolving lines of credit provided to Matrix. The term loan is in the principal amount of $750,000 and requiresmonthly principal and interest payments amortizing over a five-year termbeginning April 2000.  The outstandingprincipal balance at June 30, 2001 was $516,000.

Therevolving line of credit for working capital purposes in the nominal principalamount of $750,000 has a maturity date of March 2004 and requires monthlypayments of interest only.  At June 30,2001, the outstanding principal balance was $395,000.

Therevolving line of credit for equipment purchases in the nominal amount of$2,200,000 has a maturity of April 2005, requires monthly payments of interestonly through March 2001 and thereafter amortizes in 48 equal monthly paymentsof principal plus accrued interest.  AtJune 30, 2001, the outstanding principal balance on the equipment line ofcredit was $2,064,000.

Eachloan is secured by Matrix’ assets and bears interest at the bank’s prime rate(6.75% at June 30, 2001).

Inaddition to Matrix’ bank lines of $2,975,000, other borrowings are comprised ofvarious capitalized leases and other installment debt of $736,000.

TheMatrix credit facilities require compliance with three covenants.  Matrix was not in compliance with one of thecovenants at June 30, 2001, which non-compliance has been waived by the bankuntil September 30, 2001.

 

**6.          SUPPLEMENTALCASH FLOW INFORMATION**
 Six  months ended June 30, 2001 Six  months ended June 30, 2000    Supplemental schedule  of cash flow information:    Interest paid$172,000 $96,000    Income taxes paid$54,000 $1,582,000    Supplemental schedule  of non-cash investing  and financing  activities:         Tax effect of  unrealized gains  on securities  available-for-sale$(9,000)$47,000    
 

**7.          SEGMENTINFORMATION**

Revenues,gross profit and other financial data for continuing operations of theCorporation’s industry segments for the three and six months ended June 30,2001 and 2000, are set forth below.  Allrevenues are earned in the United States of America.  (Dollars in thousands)
 Point-of- Purchase Display and Packaging Equipment Rentals and Sales Group Purchasing Services Finance   and Secured Lending Total Reportable Segment Totals       **Six months ended June 30**          **2001**                     Revenues$7,228 $4,717 $795 $1,113 $13,853 Gross  Profit2,794 1,900 795 1,113 6,602 Selling,  general and administrative1,646 1,625 764 1,042 5,077 Depreciation,  amortization, accretion, net (1)220 145 78 31 474 Interest  expense27 137 8 0 172 Income  (loss) before income taxes  (2)901 (7)(55)40 879 Total  assets9,506 9,603 1,577 31,523 52,209            **2000**                     Revenues$5,573 $5,468 $650 $1,799 $13,490 Gross  Profit2,076 2,604 650 1,799 7,129 Selling,  general and administrative1,723 1,780 1,316 1,143 5,962 Depreciation,  amortization, accretion, net (1)216 97 164 16 493 Interest  expense12 73 11 0 96 Income  (loss) before income taxes  (2)125 654 (841)640 578 Total  assets8,587 5,959 3,080 34,344 51,970            **Three months ended June 30**         ** ****2001**                     Revenues$4,273 $2,288 $425 $270 $7,256 Gross  Profit1,635 1,056 425 270 3,386 Selling,  general and administrative914 944 379 464 2,701 Depreciation,  amortization, accretion, net (1)108 41 37 16 202 Interest  expense12 60 5 0 77 Income  (loss) before income taxes  (2)601 11 4 (210)406 Total  assets9,506 9,603 1,577 31,523 52,209            **2000**                     Revenues$2,767 $3,195 $349 $529 $6,840 Gross  Profit930 1,546 349 529 3,354 Selling,  general and administrative959 980 526 522 2,987 Depreciation,  amortization, accretion, net (1)114 56 80 (5)245 Interest  expense7 39 7 0 53 Income  (loss) before income taxes  (2)(150)471 (264)12 69 Total  assets8,587 5,959 3,080 34,344 51,970             (1)Excludes  depreciation and amortization charges to cost of sales. (2)Income  (loss) before taxes represents income before taxes and minority interests.
 

**8.**          **NET INCOME PER COMMON SHARE**

Netincome per common share is calculated on the basis of the weighted averagenumber of common shares outstanding during each period plus the additionaldilutive effect of common stock equivalents. The dilutive effect of outstanding stock options is calculated using thetreasury stock method. Diluted earnings per common share exclude incrementalshares related to employee stock options due to their antidilutive effect forthe quarter ended June 30, 2000.

 
 Three  months   ended June 30, 2001 Three  months   ended June 30, 2000 Six  months   ended   June 30, 2001 Six  months ended June 30, 2000      Net Income (Loss) Per  Common Share:        Basic:        Income  (loss) from continuing operations before   cumulative effect of accounting change            $.01 $(.01)$.03 $— Cumulative effect of  accounting change— — .04 — Income from  discontinued operations— — — $.09      Net income (loss) per  common share$.01 $(.01)$.07 $.09      Diluted:        Income (loss) from  continuing operations before   cumulative effect of accounting change            $.01 $(.01)$.03 $— Cumulative effect of  accounting change— — .04 — Income from  discontinued operations— — — $.09      Net income (loss) per  common share$.01 $(.01)$.07 $.09      Weighted Average  Shares Outstanding:         Basic8,125,000 8,125,000 8,125,000 7,980,000  Diluted8,125,000 8,132,000 8,125,000 8,035,000 
 

 

 

 
**ITEM  2.****MANAGEMENT’S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**
*             Thisreport contains forward-looking statements regarding various aspects of theCorporation's business and affairs, including statements about the adequacy ofcollateral for loans in default and the future cash needs of theCorporation.  The words"expect," “estimate," "believe" and similarexpressions and variations are intended to identify forward-lookingstatements.  These forward-lookingstatements involve substantial risks and uncertainties.  The actual results could differ materiallyfrom those discussed in the forward-looking statements.  Statements about future earnings andrevenues and the adequacy of cash resources for future needs are uncertainbecause of the unpredictability of future events affecting suchstatements.  Statements about theadequacy of real estate collateral involve predictions as to what a buyer willbe willing to pay for the property in the future, which cannot be known withcertainty.  Readers are cautioned not toput undue reliance on such forward-looking statements.  The Corporation undertakes no obligation topublicly revise these forward-looking statements to reflect events orcircumstances that arise after the date hereof.*

**RESULTS OF OPERATIONS**

*Forthe Three Months Ended June 30, 2001 and 2000*

*Revenues*

             Ourrevenues increased by $416,000 or 6% from $6,840,000 for the quarter ended June30, 2000 to $7,256,000 for the quarter ended June 30, 2001. Revenues increaseddue to an increase in revenues in the sales to packaging customers segment of$1,506,000 and an increase in group purchasing revenues of $76,000, offset byreductions in equipment rental and sales revenues of $907,000 and finance andsecured lending revenues of $259,000.

             Revenuesof One Source, reported under “Sales to packaging customers” in theConsolidated Statements of Operations, were $4,273,000 during the quarter endedJune 30, 2001, compared to $2,767,000 during the quarter ended June 30, 2000.  This increase of 54% is due to increasedsales of display packaging to consumer product manufacturers.

             Revenuesof Matrix, reported under “Equipment rental and sales” in the ConsolidatedStatements of Operations, were $2,288,000 during the quarter ended June 30,2001, compared to $3,195,000 during the quarter ended June 30, 2000.  Revenues decreased by $907,000 or 28%, duein part to a shift in business emphasis from lower margin product sales tohigher margin rental business.  Productsales represented approximately 11% of its revenues for the quarter ended June30, 2001, compared to 22% of its revenues for the quarter ended June 30,2000.    The decline in product salesrepresents approximately 50% of the decline in revenues for the quarter.  We believe the remaining decline of revenuesreflects a decrease in equipment rentals due to a more competitive businessenvironment and a general economic slowdown.

             Revenuesof Westland represented by gross sales less cost of sales, reported on a netbasis under “Group purchasing revenues” in the Consolidated Statements ofOperations, were $250,000 in 2001 compared to $218,000 in 2000.  Revenues increased by 15% due to expandedproduct offerings from new and existing vendor relationships and a decrease incost of sales attributable to management’s focus on improving its net salesresults.

 

             Revenuesof Physician Advantage, reported on a net basis under “Group purchasingrevenues” in the Consolidated Statements of Operations, were $175,000 in 2001compared to $130,000 in 2000.  This$45,000 increase is due to increased commissions earned from third partydistributors on greater sales.

             Financeand secured lending revenues were $270,000 for the quarter ended June 30, 2001compared to $529,000 for the quarter ended June 30, 2000. The net decline infinance and secured lending revenues of $259,000 is attributable to thefollowing:
 •During  the quarter ended June 30, 2000, we recorded a gain of $450,000 from the sale  of an equity investment with no such gain in the current quarter. •The  gain on our equity interest in Touch Controls was $60,000 in the quarter  ended June 30, 2001, compared to a gain of $142,000 in the quarter ended June  30, 2000. •Interest  on loans was $169,000 lower in the current quarter.
              Significant countervailing impacts to the netdecline in finance and secured lending revenues in the current quarter were:
 •The  receipt of $154,000 in legal settlement revenues with no such revenues in the  corresponding prior year quarter. •Unrealized  losses on limited partnerships that invest in securities were $59,000 lower  in the current quarter.
             Intereston loans was $8,000 for the quarter ended June 30, 2001, as compared to$177,000 for the quarter ended June 30, 2000, due mainly to the non-accrual ofinterest on a non-performing loan in the quarter ended June 30, 2001 (see LoansReceivable and Past Due Loans below). Interest on securities available-for-sale and money market funds was$258,000 during the quarter ended June 30, 2001 as compared to $314,000 duringthe quarter ended June 30, 2000, due to a decrease in average invested fundsand a lower interest rate environment.

             Duringthe quarter ended June 30, 2001, we recorded unrealized losses on limitedpartnerships that invest in securities of $51,000 compared to unrealized lossesof $110,000 during the quarter ended June 30, 2000.  The unrealized loss for 2001 includes a permanent impairmentwrite-down of $136,000 on one such investment. These limited partnershipsinvest in equity and debt securities and we record gains and losses on theseinvestments based upon the equity method of accounting.

*Gross Profit*

             Grossprofit generated by One Source was $1,635,000 or 38.3% of its revenues in 2001,compared to $930,000 or 33.6% of its revenues in 2000.  Cost of sales for this segment of $2,638,000for 2001 and $1,837,000 for 2000 is included under the caption “Cost ofsales.”  Gross profit as a percentage ofrevenues increased due to greater sales of higher margin types of packaging.

             Grossprofit generated by Matrix was $1,056,000 or 46.2% of its revenues in 2001,compared to $1,546,000 or 48.4% of its revenues in 2000.  Cost of sales for this segment of $1,232,000for 2001 and $1,649,000 for 2000 is included under the caption “Cost ofsales.”  Gross profit is lower in 2001despite the emphasis toward higher margin rental business and away from lowermargin product sales, due to the change in mix of rental revenues toward lowermargin but more sustainable trade show and staging product lines. Direct laborand other costs are generally higher for the trade show and staging productlines.

             Grouppurchasing revenues of $425,000, representing revenues of $250,000 and $175,000generated by Westland and Physician Advantage, respectively, are net revenuesearned from group purchasing activities and, as such, represent the grossprofits earned by these entities.

*Selling, General and Administrative Expenses*

             Selling,general and administrative expenses decreased by $286,000 from $2,987,000 forthe quarter ended June 30, 2000 to $2,701,000 for the quarter ended June 30,2001.  The decrease reflects reductionsin selling, general and administrative expenses in all business segments.

             Selling,general and administrative expenses for One Source were $914,000 for the quarterended June 30, 2001, compared to $959,000 for the quarter ended June 30,2000.  The decline is mainlyattributable to the absence of one-time moving expenses incurred in the prioryear quarter.

             Selling,general and administrative expenses for Matrix were $944,000 for the quarterended June 30, 2001, compared to $980,000 for the quarter ended June 30,2000.  This reduction is due to adecline in selling expenses attributable to lower commissions resulting fromlower revenues and the absence of certain non-recurring consulting and othercosts incurred in the quarter ended June 30, 2000.

             Selling,general and administrative expenses for the group purchasing segment were$379,000 for the quarter ended June 30, 2001, compared to $526,000 for thequarter ended June 30, 2000.  Thisreduction in expenses is attributable to lower payroll and marketing costsduring the current quarter resulting from various cost cutting initiatives andto web site development costs incurred in the quarter ended June 30, 2000, whichdid not recur in the quarter ended June 30, 2001.

             Selling,general and administrative expenses for the finance and secured lending segmentwere $464,000 for the quarter ended June 30, 2001, compared to $522,000 for thequarter ended June 30, 2000.  Thisdecrease relates mainly to lower legal and business consulting expenses.

*Depreciation and Amortization*

             Depreciationand amortization decreased from $245,000 for the quarter ended June 30, 2000to  $202,000 for the quarter ended June30, 2001.  The decrease reflects theabsence of goodwill amortization relating to Physician Advantage of $39,000 in2001 as compared to 2000, offset in part by an increased depreciable base ofoperating assets.  All remaining goodwillrelating to Physician Advantage was written off as a permanent impairmentwrite-down at September 30, 2000.

*Income Tax*

             Anincome tax provision of $216,000 was recorded for 2001.  This provision represents a combined federaland state effective tax rate of 53.2%. In 2000, an income tax provision of $87,000 was recorded, representing a126% effective tax rate.  The effectiverate is higher than the statutory tax rate due to permanent tax differences asa result of non-deductible costs.

*Minority Interests*

             Theminority interests share of net income was $90,000 for each of the quartersended June 30, 2001 and 2000.  NetIncome attributable to the minority shareholder of One Source increased by$90,000, while net income attributable to the minority shareholder of Matrixdecreased by $90,000.

*Net Income*

             Duringthe quarter ended June 30, 2001, we earned net income of $100,000, as comparedto a net loss of $108,000 for the quarter ended June 30, 2000.  Basic and diluted earnings (loss) per sharewere $0.01 in 2001 versus $(0.01) in 2000. Basic and diluted earnings (loss) per share from continuing operationsbefore the cumulative effect of accounting change were $0.01 in 2001 versus$(0.01) in 2000.

 

*Forthe Six Months Ended June 30, 2001 and 2000*

*Revenues*

             Ourrevenues increased by $363,000 or 3% from $13,490,000 for the six months endedJune 30, 2000 to $13,853,000 for the six months ended June 30, 2001. Revenuesincreased due to increased revenues of $1,655,000 from the sales to packagingcustomers segment and an increase in group purchasing revenues of $145,000,offset by reductions in equipment rental and sales revenues of $751,000 andfinance and secured lending revenues of $686,000.

             Revenuesof One Source, reported under “Sales to packaging customers” in theConsolidated Statements of Operations, were $7,228,000 during the six monthsended June 30, 2001, compared to $5,573,000 during the six months ended June30, 2000.  Revenues increased by$1,655,000 or 30% due to increased sales of display packaging to consumerproduct manufacturers.

             Revenuesof Matrix, reported under “Equipment rental and sales” in the ConsolidatedStatements of Operations, were $4,717,000 during the six months ended June 30,2001, compared to $5,468,000 during the six months ended June 30, 2000.  Revenues decreased by $751,000 or 14% due inpart to a shift in business emphasis from lower margin product sales to highermargin rental business.  Product salesrepresented approximately 17.2% of its revenues for the six months ended June30, 2001, compared to 26.2% of its revenues for the quarter ended June 30,2000.    The decline in product salesrepresents almost 83% of the decline in revenues for the quarter.  We believe the remaining decline of revenuesreflects a decrease in equipment rentals due to a more competitive businessenvironment and a general economic slowdown.

             Revenuesof Westland represented by gross sales less cost of sales, reported on a netbasis under “Group purchasing revenues” in the Consolidated Statements ofOperations, were $487,000 in 2001 compared to $446,000 in 2000.  Revenues increased by 9% due to expandedproduct offerings from new and existing vendor relationships and a decrease incost of sales attributable to management’s focus on improving its net sales results.

             Revenuesof Physician Advantage, reported on a net basis under “Group purchasingrevenues” in the Consolidated Statements of Operations, were $308,000 in 2001compared to $204,000 in 2000.  This$104,000 increase is due to increased commissions earned from third partydistributors on greater sales.

             Financeand secured lending revenues were $1,113,000 for the six months ended June 30,2001 compared to $1,799,000 for the six months ended June 30, 2000. The netdecline in finance and secured lending revenues of $686,000 is attributable tothe following:
 •During  the six months ended June 30, 2000, we recorded a gain of $450,000 from the  sale of an equity investment with no such gain in the current six months. •The  gain on our equity interest in Touch Controls was $68,000 in the six months  ended June 30, 2001 compared to a gain of $209,000 in the six months ended  June 30, 2000. •Interest  on loans was $350,000 lower in the six months ended June 30, 2001
             Significant countervailing impactsto the net decline in finance and secured lending revenues in the six monthsended June 30, 2001 were:
 •The  recording of a gain of $107,000 from the appreciation of derivative  instruments  with no such appreciation  in the corresponding prior year period. •The  receipt of $154,000 in legal settlement revenues with no such revenues in the  corresponding prior year period.
             Intereston loans was $10,000 for the six months ended June 30, 2001, as compared to$360,000 for the six months ended June 30, 2000, due mainly to the non-accrualof interest on a non-performing loan in the six months ended June 30, 2001 (seeLoans Receivable and Past Due Loans below). Interest on securities available-for-sale and money market funds was$566,000 during the six months ended June 30, 2001, as compared to $602,000during the six months ended June 30, 2000, due to a decrease in averageinvested funds and a lower interest rate environment.

             Duringthe six months ended June 30, 2001, we recorded unrealized gains on limitedpartnerships that invest in securities of $216,000 compared to unrealized gainsof $136,000 during the six months ended June 30, 2000.  Unrealized gains from these limitedpartnership investments include permanent impairment write-downs for 2001 and2000 of $136,000 and $144,000 respectively, relating to one of theseinvestments. These limited partnerships invest in equity and debt securitiesand we record gains and losses on these investments based upon the equitymethod of accounting.

*Gross Profit*

             Gross profit generated by OneSource was $2,794,000 or 38.7% of its revenues in 2001 compared to $2,076,000or 37.3% of its revenues in 2000.  Costof sales for this segment of $4,434,000 for 2001 and $3,497,000 for 2000 isincluded under the caption “Cost of sales.” Gross profit as a percentage of revenues increased due to greater salesof higher margin types of packaging.

             Grossprofit generated by Matrix was $1,900,000 or 40.3% of its revenues in 2001compared to $2,604,000 or 47.6% of its revenues in 2000.  Cost of sales for this segment of $2,817,000for 2001 and $2,864,000 for 2000 is included under the caption “Cost ofsales”.  Gross profit is lower in 2001despite the emphasis toward higher margin rental business and away from lowermargin product sales, due to the change in mix of rental revenues toward lowermargin but more sustainable trade show and staging product lines. Direct laborand other costs are generally higher for the trade show and staging productlines.

              Group purchasing revenues of $795,000,representing revenues of $487,000 and $308,000 generated by Westland andPhysician Advantage respectively, are net revenues earned from group purchasingactivities and, as such, represent the gross profits earned by these entities.

*Selling, General and Administrative Expenses*

             Selling,general and administrative expenses decreased by $885,000 from $5,962,000 forthe six months ended June 30, 2000 to $5,077,000 for the six months ended June30, 2001.  The decrease reflectsreductions in selling, general and administrative expenses in all businesssegments.

             Selling,general and administrative expenses for One Source were $1,646,000 for the sixmonths ended June 30, 2001 compared to $1,723,000 for the six months ended June30, 2000. The decline is mainly attributable to the absence of one-time movingexpenses incurred in the earlier six-month period.

             Selling,general and administrative expenses for Matrix were $1,625,000 for the sixmonths ended June 30, 2001 compared to $1,780,000 for the six months ended June30, 2000.  The reduction in expensesduring the six months ended June 30, 2001 is due to a decline in expensesattributable to lower commissions resulting from lower revenues and the absenceof certain non-recurring consulting and other costs incurred in the six monthsended June 30, 2000.

             Selling,general and administrative expenses for the group purchasing segment were$764,000 for the six months ended June 30, 2001 compared to $1,316,000 for thesix months ended June 30, 2000.  Thisreduction in expense is attributable to lower payroll and marketing costsachieved through various cost cutting initiatives during the most recent sixmonth period, and to web site development costs incurred in the six monthsended June 30, 2000 which did not recur in the six months ended June 30, 2001.

             Selling,general and administrative expenses for the finance and secured lending segmentwere $1,042,000 for the six months ended June 30, 2001, compared to $1,143,000for the six months ended June 30, 2000. This decrease results mainly from lower legal and business consultingexpenses.

*Depreciation and Amortization*

             Depreciationand amortization decreased from $493,000 for the six months ended June 30, 2000to $474,000 for the six months ended June 30, 2001.  The decrease reflects the absence of goodwill amortization relatingto Physician Advantage of $78,000 in 2001 as compared to 2000, offset in partby an increased depreciable base of operating assets.  All remaining goodwill relating to Physician Advantage waswritten off as a permanent impairment write-down at September 30, 2000.

*Income Tax*

             Anincome tax provision of $464,000 was recorded for 2001.  This provision represents a combined federaland state effective tax rate of 52.8%. In 2000, an income tax provision of $391,000 was recorded, representinga 67.7% effective tax rate.  Theeffective rate is higher than the statutory tax rate due to permanent taxdifferences as a result of non-deductible costs.

*Minority Interests*

             Theminority interests in net income decreased from $173,000 for the six monthsended June 30, 2000 to $139,000 for the six months ended June 30, 2001. Netincome attributable to the minority shareholder of Matrix decreased by$129,000, while net income attributable to the minority shareholder of OneSource increased by $95,000.

*Discontinued Operations*

             OnJanuary 31, 2000 Global Telecommunications sold substantially all of itsassets.  In connection with this sale,we recorded a gain of $693,000, net of estimated income taxes of $461,000,during the six months ended June 30, 2000.

*Cumulative Effect of Accounting Change*

             Theadoption of SFAS No. 133 has resulted in a $317,000 cumulative effecttransition adjustment to net income relating to stock warrants which under SFAS133 now qualify as derivatives.  Thisone-time adjustment to net income as of January 1, 2001, represents theappreciated value of these warrants at December 31, 2000, which appreciationwas previously excluded from the measurement of net income, but was insteadincluded in the measure of comprehensive income. The cumulative effecttransition adjustment is shown as a cumulative effect accounting change net ofincome taxes in the Statement of Operations.

*Net Income*

             Duringthe six months ended June 30, 2001, we earned net income of $593,000 ascompared to net income of $707,000 for the six months ended June 30, 2000.  Basic and diluted earnings per share were$0.07 and $0.09 for the six months ended June 30, 2001 and 2000,respectively.  In 2001, basic anddiluted earnings per share were $0.03 from continuing operations and $0.04 fromthe cumulative effect of accounting change. In 2000, basic and diluted earningsper share of $0.09 were all derived from discontinued operations.

**FINANCIALCONDITION**

*Loans Receivable and Past Due Loans*

             TheCorporation’s loans receivable were $5,409,000 at June 30, 2001 and $5,224,000at December 31, 2000.  During the sixmonths ended June 30, 2001, two new loans totaling $386,000 were made andprincipal repayments of $142,000 were received on a defaulted loan pursuant toa settlement agreement.

             Weoriginated a loan in the amount of $4,218,500 in December 1999, which went intodefault in November 2000.  We ceased toaccrue interest on this loan as of December 31, 2000, and we are seekingforeclosure of the real property and other collateral securing this loan. Weexpect the collateral to be sufficient to provide a full recovery of theprincipal and accrued interest on this loan.

             TheCorporation originates and, from time to time, purchases loans that are securedby real estate, personal property or other collateral.  In connection with each loan proposal, theCorporation considers the value and quality of the real estate or othercollateral available to secure the loan compared to the loan amount requested,the proposed interest rate and repayment terms and the quality of the borrower.Loan originations occur as opportunities arise which management believes to beattractive.  As a result, the volume ofloans originated may vary from quarter to quarter, and new loan originationsmay not occur in every quarter.

*Borrowings*

             AtJune 30, 2001, $3,711,000 was owed under various debt agreements, of which$2,975,000 represents amounts owed by Matrix under various credit facilities.Under these credit facilities, Matrix is required to meet three covenants, ofwhich one was not in compliance at June 30, 2001.  The bank has waived the non-compliance of this debt covenantuntil September 30, 2001.

**LIQUIDITY**

             TheCorporation held cash and cash equivalents which include commercial paperinvestments of $7,113,000 and U.S. government and agency securities with a fairvalue of $16,149,000 at June 30, 2001, compared to cash and cash equivalents of$6,227,000 and U.S. government and agency securities with a fair value of$17,330,000 at December 31, 2000.

             The Corporation’s cash and cashequivalents increased by $886,000 during the six months ended June 30, 2001.This increase was due to an increase in cash flow from operating activities of$1,474,000 and an increase in cash flows from investing activities of $473,000,offset by a reduction in cash flows from financing activities of $1,061,000.

             The Corporation’s sources of cashduring the quarter were $1,475,000 from the net sale of investment securities,$1,474,000 from operations, $200,000 in collections on notes receivable and$154,000 in installment debt financings.

             TheCorporation’s uses of cash during the six months ended June 30, 2001 were$816,000 for purchases of property and equipment, $705,000 in debt repayments,$510,000 in seller financing repayments and $386,000 in loan originations.

             TheCorporation intends to pursue the acquisition of one hundred percent orsubstantial interests in additional operating businesses.  However, no assurances can be given that theCorporation will be able to identify attractive opportunities, or if it does,that it will be able to complete acquisitions on acceptable terms.  As the Corporation acquires interests inother operating businesses, it intends to liquidate securitiesavailable-for-sale as may be necessary to consummate acquisitions.

             Inthe opinion of management, the Corporation has sufficient cash and liquidassets to fund its growth and operating plans for the foreseeable future.

*Market Risk*

             TheCorporation is exposed to certain market risks, which are inherent in theCorporation’s financial instruments and arise from transactions entered into inthe normal course of business.  TheCorporation has not entered into and does not enter into derivative financialinstruments for speculative purposes.  Adiscussion of the primary market risk of the Corporation’s financialinstruments is presented below and should be read in conjunction with theforward-looking statement included in the preamble to this ManagementDiscussion and Analysis.

             TheCorporation is subject to interest rate risk on its marketable securitiesportfolio and loans receivable.  Themarketable securities portfolio matures in less than two years.  The loans receivable portfolio comprises ofshort-term fixed rate loans. The Corporation is subject to equity price risk onits investments in limited partnerships that invest in securities.  At June 30, 2001, these investmentsrepresent less than 5% of total assets.

*Recently Issued Accounting Standards*

             OnJune 29, 2001, SFAS No. 141, "Business Combinations," was approved bythe FASB. SFAS No. 141 requires that the purchase method of accounting be usedfor all business combinations initiated after June 30, 2001. Goodwill andcertain intangible assets will remain on the balance sheet and not beamortized. The Corporation is required to implement SFAS No. 141 beginning July1, 2001.  The Corporation has not yetdetermined the impact that this statement will have on its consolidatedfinancial position or results of operations.

             OnJune 29, 2001, SFAS No. 142, "Goodwill and Other Intangible Assets,"was approved by the FASB. SFAS No. 142 changes the accounting for goodwill froman amortization method to an impairment-only approach. Amortization ofgoodwill, including goodwill recorded in past business combinations, will ceaseupon adoption of this statement. On an annual basis, and when there is reasonto suspect that their values have been diminished or impaired, these assetsmust be tested for impairment, and write-downs may be necessary. TheCorporation is required to implement SFAS No. 142 on January 1, 2002.  The Corporation has not yet determined theimpact that this statement will have on its consolidated financial position orresults of operations.

 

**ITEM 3.**            **QUANTITATIVE AND QUALITATIVE DISCLOSURES                           ABOUTMARKET RISKS**

             Theinformation required by this item is incorporated herein by reference to thesection entitled “Market Risk” in Management’s Discussion and Analysis ofResults of Operations and Financial Condition (Part 1, Item 2).

 

 

**PART II-OTHER INFORMATION**

 

**ITEM 6.**            **EXHIBITS AND REPORTS ON FORM 8-K**

                                                      None

**SIGNATURES**

             Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.
Dated:  August 14, 2001WESTMINSTER  CAPITAL, INC. (Registrant) By/s/  William Belzberg     William  Belzberg,  Chairman  of the Board of  Directors  and Chief  Executive  Officer    By/s/  Rui Guimarais    Rui  Guimarais  Chief  Financial Officer
 

 

 ****