**SECURITIESAND EXCHANGE COMMISSION**

**WASHINGTON, DC 20549**

 

----

** **

**FORM10-Q**

 
| **(Mark  One**) |   |                                                                                         |
|-----------------|--------|----------------------------------------------------------------------------------------------|
|            |   |                                                                                         |
| ý          |   | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |

 

**For the quarterly period ended September 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.**

(Exactname of registrant as specified in its charter)

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

 

(Formername, former address and former fiscal year, if changed since last report)

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.ý  Yes   o  No

 

Indicate the number ofshares outstanding of each of the issuer's classes of common stock, as of thelatest practicable date 8,124,607

 

 

**PART I - FINANCIAL INFORMATION**

 

**ITEM 1.  FINANCIALSTATEMENTS**

 

**WESTMINSTER CAPITAL, INC. AND SUBSIDIARIES**

CONSOLIDATED STATEMENTS OF FINANCIALCONDITION AS OF

SEPTEMBER 30, 2001 (UNAUDITED) ANDDECEMBER 31, 2000 (AUDITED)

** **
| **ASSETS**                                                                                                                |   | **September  30, 2001** |       | **December  31, 2000** |   |
|---------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|------------|------------------------|--------|
| Cash  and cash equivalents                                                                                                |   | $                       | 19,177,000 |                   | $      | 6,227,000 |   |
| Securities  available-for-sale, at fair value                                                                             |   | 4,938,000               |       | 17,330,000             |   |
| Accounts  receivable, net of reserve of $471,000 in 2001 and $376,000 in 2000                                             |   | 4,769,000               |       | 4,305,000              |   |
| Loans  receivable, net                                                                                                    |   | 276,000                 |       | 5,224,000              |   |
| Investment  in limited partnerships that invest in securities                                                             |   | 1,818,000               |       | 1,899,000              |   |
| Other  investments                                                                                                        |   | 400,000                 |       | 490,000                |   |
| Accrued  interest receivable                                                                                              |   | 178,000                 |       | 381,000                |   |
| Income  tax receivable                                                                                                    |   | 0                       |       | 780,000                |   |
| Inventories                                                                                                               |   | 429,000                 |       | 462,000                |   |
| Property  and equipment, net                                                                                              |   | 5,100,000               |       | 5,763,000              |   |
| Real  estate acquired through foreclosure                                                                                 |   | 4,416,000               |       | 0                      |   |
| Goodwill,  net                                                                                                            |   | 5,968,000               |       | 9,513,000              |   |
| Other  assets                                                                                                             |   | 914,000                 |       | 845,000                |   |
| **Total  Assets**                                                                                                         |   | $                       | 48,383,000 |                   | $      | 53,219,000 |   |
|                                                                                                                      |   |                    |       |                   |   |
| **LIABILITIES  AND SHAREHOLDERS’ EQUITY**                                                                            |   |                    |       |                   |   |
| **LIABILITIES:**                                                                                                          |   |                    |       |                   |   |
| Accounts  payable                                                                                                         |   | 2,262,000               |       | 2,264,000              |   |
| Accrued  expenses                                                                                                         |   | 1,233,000               |       | 1,404,000              |   |
| Due  to sellers                                                                                                           |   | 0                       |       | 510,000                |   |
| Other  borrowings                                                                                                         |   | 3,463,000               |       | 4,262,000              |   |
| Deferred  income taxes                                                                                                    |   | 2,016,000               |       | 1,831,000              |   |
| Minority  interests                                                                                                       |   | 833,000                 |       | 1,091,000              |   |
| **Total  Liabilities**                                                                                                    |   | 9,807,000               |       | 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                                                                                                      |   | (25,771,000             | )          | (22,684,000            | )      |
| Accumulated  other comprehensive (loss) income                                                                            |   | (1,000                  | )          | 193,000                |   |
| **Total  Shareholders’ Equity**                                                                                      |   | 38,576,000              |       | 41,857,000             |   |
| **Total  Liabilities and Shareholders’ Equity**                                                                      |   | $                       | 48,383,000 |                   | $      | 53,219,000 |   |

 

Seeaccompanying notes to consolidated financial statements.

 

**WESTMINSTER CAPITAL, INC. AND SUBSIDIARIES**

CONSOLIDATED STATEMENTS OF INCOME(UNAUDITED)

** **
|                                                                                     |   | **Nine  months ended September 30,** |       | **Nine  months ended September 30,** |   | **Three  months ended September 30,** |   | **Three  months ended September 30,** |       |
|------------------------------------------------------------------------------------------|--------|--------------------------------------|------------|--------------------------------------|--------|---------------------------------------|--------|---------------------------------------|------------|
|                                                                                     |   | **2001**                             |       | **2000**                             |   | **2001**                              |   | **2000**                              |       |
| REVENUES**:**                                                                            |   |                                 |       |                                 |   |                                  |   |                                  |       |
| Sales  to packaging customers                                                            |   | $                                    | 12,231,000 |                                 | $      | 9,294,000                             |   | $                                     | 5,004,000  |   | $ | 3,721,000 |   |
| Equipment  rental and sales                                                              |   | 6,224,000                            |       | 7,731,000                            |   | 1,506,000                             |   | 2,263,000                             |       |
| Group  purchasing revenues                                                               |   | 1,202,000                            |       | 1,077,000                            |   | 407,000                               |   | 380,000                               |       |
| Finance  and secured lending revenues                                                    |   | 1,236,000                            |       | 2,329,000                            |   | 123,000                               |   | 530,000                               |       |
| Total  Revenues                                                                          |   | 20,893,000                           |       | 20,431,000                           |   | 7,040,000                             |   | 6,894,000                             |       |
|                                                                                     |   |                                 |       |                                 |   |                                  |   |                                  |       |
| COSTS  AND EXPENSES:                                                                     |   |                                 |       |                                 |   |                                  |   |                                  |       |
| Cost  of sales – packaging                                                          |   | 7,756,000                            |       | 5,730,000                            |   | 3,322,000                             |   | 2,074,000                             |       |
| Cost  of sales – equipment rental and sales                                         |   | 4,002,000                            |       | 4,396,000                            |   | 1,236,000                             |   | 1,532,000                             |       |
| Selling,  general and administrative                                                     |   | 8,196,000                            |       | 7,790,000                            |   | 3,069,000                             |   | 1,948,000                             |       |
| Depreciation  and amortization                                                           |   | 3,762,000                            |       | 2,076,000                            |   | 3,288,000                             |   | 1,575,000                             |       |
| Interest  expense                                                                        |   | 241,000                              |       | 163,000                              |   | 69,000                                |   | 67,000                                |       |
| Total  Expenses                                                                          |   | 23,957,000                           |       | 20,155,000                           |   | 10,984,000                            |   | 7,196,000                             |       |
|                                                                                     |   |                                 |       |                                 |   |                                  |   |                                  |       |
| (LOSS)  INCOME BEFORE INCOME  TAXES &  MINORITY INTERESTS                       |   | (3,064,000                           | )          | 276,000                              |   | (3,944,000                            | )      | (302,000                              | )          |
|                                                                                     |   |                                 |       |                                 |   |                                  |   |                                  |       |
| INCOME  TAX (PROVISION) BENEFIT                                                          |   | (436,000                             | )          | 6,513,000                            |   | 28,000                                |   | 6,904,000                             |       |
|                                                                                     |   |                                 |       |                                 |   |                                  |   |                                  |       |
| MINORITY  INTERESTS                                                                      |   | 96,000                               |       | (180,000                             | )      | 236,000                               |   | (7,000                                | )          |
|                                                                                     |   |                                 |       |                                 |   |                                  |   |                                  |       |
| (LOSS)  INCOME FROM CONTINUING OPERATIONS BEFORE CUMULATIVE EFFECT OF ACCOUNTING  CHANGE |   | (3,404,000                           | )          | 6,609,000                            |   | (3,680,000                            | )      | 6,595,000                             |       |
|                                                                                     |   |                                 |       |                                 |   |                                  |   |                                  |       |
| DISCONTINUED  OPERATIONS                                                                 |   | 0                                    |       | 693,000                              |   | 0                                     |   | 0                                     |       |
|                                                                                     |   |                                 |       |                                 |   |                                  |   |                                  |       |
| (LOSS)  INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE                             |   | (3,404,000                           | )          | 7,302,000                            |   | (3,680,000                            | )      | 6,595,000                             |       |
|                                                                                     |   |                                 |       |                                 |   |                                  |   |                                  |       |
| CUMULATIVE  EFFECT OF ACCOUNTING CHANGE, NET OF INCOME TAXES                             |   | 317,000                              |       | 0                                    |   | 0                                     |   | 0                                     |       |
|                                                                                     |   |                                 |       |                                 |   |                                  |   |                                  |       |
| NET  (LOSS) INCOME                                                                       |   | $                                    | (3,087,000 | )                                    | $      | 7,302,000                             |   | $                                     | (3,680,000 | ) | $ | 6,595,000 |   |

 

Seeaccompanying notes to consolidated financial statements.

 

**WESTMINSTER CAPITAL, INC. AND SUBSIDIARIES**

CONSOLIDATED STATEMENTS OF CASH FLOWS(UNAUDITED)

 
|                                                                                                                            |   | **Nine  months ended**  |       | **Nine  months ended**  |   |
|---------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|------------|-------------------------|--------|
|                                                                                                                            |   | **September  30, 2001** |       | **September  30, 2000** |   |
| **CASH  FLOWS FROM OPERATING ACTIVITIES:**                                                                                      |   |                    |       |                    |   |
| Net  (loss) income from continuing operations before cumulative effect of  accounting change and before discontinued operations |   | $                       | (3,404,000 | )                       | $      | 6,609,000 |   |
| Cumulative  effect of accounting change                                                                                         |   | (530,000                | )          | 0                       |   |
| Adjustments  to reconcile net (loss) income to net cash provided by (used in) operating  activities:                            |   |                    |       |                    |   |
| Provisions  for loan losses (recoveries) and doubtful receivables, net                                                          |   | (35,000                 | )          | (209,000                | )      |
| Depreciation,  amortization, and accretion, net                                                                                 |   | 4,927,000               |       | 2,673,000               |   |
| Loss  on sales of securities available-for-sale                                                                                 |   | 27,000                  |       | 44,000                  |   |
| Gain  on sale of other investments                                                                                              |   | 0                       |       | (450,000                | )      |
| Appreciation  of derivative instruments                                                                                         |   | (87,000                 | )          | 0                       |   |
| Accumulated  depreciation on disposal of rental assets                                                                          |   | 68,000                  |       | 602,000                 |   |
| Net  change in deferred income taxes                                                                                            |   | 642,000                 |       | 0                       |   |
| Unrealized  losses (gains) on limited partnerships that invest in securities                                                    |   | 81,000                  |       | (87,000                 | )      |
| Gain  from equity investment                                                                                                    |   | (104,000                | )          | (264,000                | )      |
| Loss  from investment write-down                                                                                                |   | 90,000                  |       | 48,000                  |   |
| Change  in assets and liabilities, net of effects from acquisitions of subsidiaries:                                            |   |                    |       |                    |   |
| Increase  in accounts receivable                                                                                                |   | (559,000                | )          | (1,061,000              | )      |
| Decrease  in accrued interest receivable                                                                                        |   | 111,000                 |       | 191,000                 |   |
| Net  change in current income taxes                                                                                             |   | 780,000                 |       | (7,896,000              | )      |
| Net  change in other assets                                                                                                     |   | 35,000                  |       | (35,000                 | )      |
| Net  change in inventories                                                                                                      |   | 33,000                  |       | (932,000                | )      |
| (Decrease)  increase in accounts payable                                                                                        |   | (2,000                  | )          | 1,676,000               |   |
| Decrease  in accrued expenses                                                                                                   |   | (171,000                | )          | (1,106,000              | )      |
| Net  change in minority interests                                                                                               |   | (258,000                | )          | 26,000                  |   |
| **Net  cash provided by (used in) operating activities**                                                                        |   | 1,644,000               |       | (171,000                | )      |
|                                                                                                                            |   |                    |       |                    |   |
| **CASH  FLOWS FROM INVESTING ACTIVITIES:**                                                                                      |   |                    |       |                    |   |
| Purchase  of securities                                                                                                         |   | (104,471,000            | )          | (40,868,000             | )      |
| Purchase  of other investments                                                                                                  |   | 0                       |       | (124,000                | )      |
| Proceeds  from sales of investment securities                                                                                   |   | 117,131,000             |       | 43,923,000              |   |
| Purchases  of property and equipment                                                                                            |   | (798,000                | )          | (3,206,000              | )      |
| Loan  originations and purchases                                                                                                |   | (386,000                | )          | 0                       |   |
| Principal  collected on loans receivable                                                                                        |   | 1,139,000               |       | 500,000                 |   |
| Proceeds  from liquidation of limited partnership interest                                                                      |   | 0                       |       | 125,000                 |   |
| Proceeds  from liquidation of other investments                                                                                 |   | 0                       |       | 750,000                 |   |
| **Net  cash provided by investing activities**                                                                                  |   | 12,615,000              |       | 1,100,000               |   |
|                                                                                                                            |   |                    |       |                    |   |
| **CASH  FLOWS FROM FINANCING ACTIVITIES:**                                                                                      |   |                    |       |                    |   |
| Seller  financing repayments                                                                                                    |   | (510,000                | )          | (1,749,000              | )      |
| Repayment  of installment debt and capital lease obligations                                                                    |   | (953,000                | )          | (829,000                | )      |
| Proceeds  from exercise of stock options                                                                                        |   | 0                       |       | 570,000                 |   |
| Installment  and bank debt proceeds                                                                                             |   | 154,000                 |       | 2,978,000               |   |
| **Net cash (used in) provided by financing activities**                                                                         |   | (1,309,000              | )          | 970,000                 |   |
| **Net  cash provided by continuing operations**                                                                                 |   | 12,950,000              |       | 1,899,000               |   |
| **Net  cash provided by discontinued operations**                                                                               |   | 0                       |       | 957,000                 |   |
| **Net  change in cash and cash equivalents**                                                                                    |   | 12,950,000              |       | 2,856,000               |   |
| **Cash  and cash equivalents, beginning of period**                                                                             |   | 6,227,000               |       | 1,406,000               |   |
| **Cash  and cash equivalents, end of period**                                                                                   |   | $                       | 19,177,000 |                    | $      | 4,262,000 |   |
|                                                                                                                                 |        |                         |            |                         |        |  |  |  |

 

Seeaccompanying notes to consolidated financial statements

 

**WESTMINSTER CAPITAL, INC. AND SUBSIDIARIES**

CONSOLIDATED STATEMENTS OF COMPREHENSIVE(LOSS) INCOME (UNAUDITED)

 
|                                                                |   | **Nine  months ended** |       | **Nine  months ended**  |   |
|---------------------------------------------------------------------|--------|------------------------|------------|-------------------------|--------|
|                                                                |   | **September 30, 2001** |       | **September  30, 2000** |   |
| Net  (loss) income                                                  |   | $                      | (3,087,000 | )                       | $      | 7,302,000 |   |
|                                                                |   |                   |       |                    |   |
| Other  comprehensive income, net of tax:                            |   |                   |       |                    |   |
|                                                                |   |                   |       |                    |   |
| Unrealized  gains on securities:                                    |   |                   |       |                    |   |
| Unrealized  holding (losses) gains arising during period            |   | (16,000                | )          | 277,000                 |   |
| Less:  reclassification adjustment for gains included in net income |   | (178,000               | )          | (10,000                 | )      |
|                                                                |   |                   |       |                    |   |
| Other  comprehensive (loss) income                                  |   | (194,000               | )          | 267,000                 |   |
|                                                                |   |                   |       |                    |   |
| Comprehensive  (loss) income                                        |   | $                      | (3,281,000 | )                       | $      | 7,569,000 |   |

 

Seeaccompanying notes to consolidated financial statements.

 

**WESTMINSTER CAPITAL, INC. AND SUBSIDIARIES**

 

NOTES TO CONSOLIDATED FINANCIALSTATEMENTS

 

SEPTEMBER 30, 2001

 

**1.             BASIS OFPRESENTATION AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE**

 

In the opinion ofWestminster 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 September 30, 2001and December 31, 2000, and the results of operations, cash flows andcomprehensive income for the three and nine-month periods ended September 30,2001 and 2000.

 

The consolidatedfinancial statements include the accounts of Westminster Capital, Inc. and itssubsidiaries, including a 100% interest in Westland Associates, Inc.(“Westland”), an 80% interest in One Source Industries, LLC (“One Source”), a70% interest in Physician Advantage, LLC (“Physician Advantage”) and a 68%interest in Logic Technology Group, Inc., dba Matrix Visual Solutions(“Matrix”).

 

The sale of GlobalTelecommunications on January 31, 2000 is reflected as a discontinued operationin these consolidated financial statements.

 

The accompanyingunaudited consolidated financial statements have been prepared in accordancewith the instructions to Form 10-Q and, therefore, do not include allinformation and footnotes necessary to present the financial position, resultsof operations, statements of cash flows and statements of comprehensive incomein conformity with accounting principles generally accepted in the UnitedStates of America.  The material setforth 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.

 

Statement of FinancialAccounting Standards (SFAS) No. 133, *Accountingfor Derivative Instruments and Hedging Activities*, is effective forall fiscal years beginning after June 15, 2000.  SFAS No. 133, as amended, establishes accounting and reportingstandards for derivative instruments, including certain derivative instrumentsembedded in other contracts and for hedging activities.  Under SFAS No. 133, certain contracts thatwere not formerly considered derivatives may now meet the definition of aderivative.

 

The Corporation adoptedSFAS No. 133 effective January 1, 2001. The Corporation may receive or invest in stock warrants in connectionwith its various finance and secured lending activities.  The adoption of SFAS No. 133 has resulted ina $317,000 cumulative effect transition adjustment to net income relating towarrants held at December 31, 2000, which qualify as derivatives.  The cumulative effect transition adjustmentnet of income tax is shown as a cumulative effect accounting change in theStatement of Operations and was determined using the Black Scholes pricingmodel.  The computed fair value of thesewarrants using this valuation methodology results in an appreciation that is$146,000 greater than the intrinsic value underlying common stock representedby these warrants, net of the exercise price. Prior to January 1, 2001, appreciation of these warrants was included inother comprehensive income. Appreciation of these warrants since January 1,2001 of $87,000 is recognized in the Statement of Operations under “Finance andsecured 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.  TheCorporation is required to implement SFAS No. 141 beginning July 1, 2001.  The Corporation has not yet determined theimpact that this statement will have on its consolidated financial position orresults 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.  Amortizationof goodwill, including goodwill recorded in past business combinations, willcease upon adoption of this statement. On an annual basis, and when there is reason to suspect that theirvalues have been diminished or impaired, these assets must be tested forimpairment, and write-downs may be necessary. The Corporation is required to implement SFAS No. 142 on January 1,2002. Application of the provisions of SFAS No. 142 is expected to result in anincrease in net income of approximately $400,000 per year. The Corporation willperform the first of the required impairment tests of goodwill using themethodology prescribed by SFAS No. 142 in 2002, but does not believe that theeffect of these tests will be material on the earnings and financial positionof the Corporation.

 

InAugust 2001, the FASB issued Statement No. 143 (“SFAS 143”) "Accountingfor Asset Retirement Obligations", which establishes financial accountingand reporting requirements for obligations associated with the retirement oftangible long-lived assets and the associated asset retirement costs. Theprovisions of SFAS No. 143 apply to legal obligations associated with theretirement of long-lived assets that result from the acquisition, construction,development and/or the normal operation of a long-lived asset, except forcertain obligations of lessees. This statement is effective for financialstatements issued for fiscal years beginning after June 15, 2002. The Companyis currently evaluating the impact that the adoption of this statement willhave on its consolidated financial position or results of operations.

 

The FASB issuedStatement No. 144 (“SFAS 144”) "Accounting for the Impairment or Disposalof Long-Lived Assets", in October 2001. SFAS 144 addresses the recognitionof impairment losses on long-lived assets to be held and used or to be disposedof by sale. This statement supersedes FASB Statement No. 121, "Accountingfor the Impairment of Long-Lived Assets and for Long-Lived Assets to BeDisposed Of", and the accounting and reporting provisions of AccountingPrincipals Board Opinion No. 30, "Reporting the Results of Operations -Reporting the Effects of Disposal of a Segment of a Business, andExtraordinary, Unusual and Infrequently Occurring Events andTransactions".  The statement iseffective for financial statements issued for fiscal years beginning afterDecember 15, 2001.  The Company iscurrently evaluating the impact that the adoption of this statement will haveon its consolidated financial position or results of operations.

 

REAL ESTATE ACQUIREDTHROUGH FORECLOSURE – Real estate acquired through foreclosure is recorded atthe lower of estimated fair value or the carrying value of the loan at the timeof the foreclosure.  Any subsequentoperating expenses or income, reduction in estimated values, and gains orlosses on disposition of such property are included in current operations.

 

**2.             SECURITIESAVAILABLE-FOR-SALE**

 

Securitiesavailable-for-sale are carried at estimated fair value.  The amortized cost and estimated fair valueof securities available for sale at September 30, 2001 and December 31, 2000are as follows (in thousands):

 
|                                 |   |                |   | **Gross**      |   | **Gross**      |   |            |   |
|--------------------------------------|--------|---------------------|--------|----------------|--------|----------------|--------|-----------------|--------|
|                                 |   |                |   | **Unrealized** |   | **Unrealized** |   | **Estimated**   |   |
|                                 |   | **Amortized  Cost** |   | **Gains**      |   | **Losses**     |   | **Fair  Value** |   |
| September 30, 2001**:**              |   |                |   |           |   |           |   |            |   |
| U.S.  Treasury and Agency Securities |   | $                   | 4,309  |           | $      | 13             |   | $               | — |   | $ | 4,322 |   |
| Equity  Securities                   |   | 637                 |   | —         |   | (21            | )      | 616             |   |
| Total                                |   | $                   | 4,946  |           | $      | 13             |   | $               | (21    | ) | $ | 4,938 |   |
|                                 |   |                |   |           |   |           |   |            |   |
| December  31, 2000:                  |   |                |   |           |   |           |   |            |   |
| U.S.  Treasury and Agency Securities |   | $                   | 16,983 |           | $      | 24             |   | $               | — |   | $ | 17,007 |   |
| Equity  Securities                   |   | —              |   | 323            |   | —         |   | 323             |   |
| Total                                |   | $                   | 16,983 |           | $      | 347            |   | $               | — |   | $ | 17,330 |   |

 

Maturities of U.S.Treasury and Agency Securities were as follows at September 30, 2001 (inthousands):

 
|                 |   | **Amortized** |   | **Fair**  |   |
|----------------------|--------|---------------|--------|-----------|--------|
|                 |   | **Cost**      |   | **Value** |   |
| Due  within one year |   | $             | 4,309  |      | $      | 4,322 |   |
|                      |        |               |        |           |        |  |  |

 

**3.             LOANSRECEIVABLE**

 

The Corporation’s loansreceivable outstanding at September 30, 2001 and December 31, 2000 werecomprised of the following (in thousands):

 
|                                                          |   | **September  30, 2001** |   | **December  31, 2000** |   |
|---------------------------------------------------------------|--------|-------------------------|--------|------------------------|--------|
| Loans,  net of loan fees, secured by trust deeds or mortgages |   | $                       | — |                   | $      | 5,244 |   |
| Loans  secured by other collateral                            |   | 276                     |   | —                 |   |
| Total                                                         |   | $                       | 276    |                   | $      | 5,244 |   |

 

**4.             REALESTATE ACQUIRED THROUGH FORECLOSURE**

 

On September 6, 2001,the Corporation received title to certain real property through a trustee saleas a result of foreclosure proceedings commenced in December 2000 in connectionwith a defaulted loan.  The propertyconsists of a 25,000 square foot office building in Irvine, California, whichhad secured a loan made by the Corporation in the principal amount of$4,218,500 plus accrued interest of $197,000, representing accrued interest andpenalties through December 31, 2000. This real estate was recorded at the carrying value of the loan at thetime of the foreclosure, which value is lower than the appraised value of theforeclosed property and other collateral. The Corporation expects the fair market value of the foreclosedproperties to be sufficient to provide a full recovery of the Corporation’sinvestment.  In addition to the propertydescribed above, the Corporation is seeking and expects to foreclose on threeother parcels of improved real property provided as collateral for thedefaulted loan.

 

**5.             GOODWILL**

 

TheCorporation’s investments in operating businesses include purchased goodwillrecorded as follows (in thousands):

 
|                     |   |          |   | **Accumulated**  |   | **Amortization**     |   | **Net**              |   |
|--------------------------|--------|---------------|--------|------------------|--------|----------------------|--------|----------------------|--------|
|                     |   | **Purchased** |   | **amortization** |   | **for  nine months** |   | **unamortized**      |   |
|                     |   | **goodwill**  |   | **at  1/1/01**   |   | **ended  9/30/01**   |   | **cost  at 9/30/01** |   |
| September 30, 2001**:**  |   |          |   |             |   |                 |   |                 |   |
| One  Source Industries   |   | $             | 5,825  |             | $      | (509                 | )      | $                    | (224   | ) | $ | 5,092 |   |
| Matrix  Visual Solutions |   | 3,411         |   | (189             | )      | (3,222               | )      | —               |   |
| Westland  Associates     |   | 888           |   | (277             | )      | (66                  | )      | 545                  |   |
| Touch  Controls          |   | 456           |   | (92              | )      | (33                  | )      | 331                  |   |
| Total                    |   | $             | 10,580 |             | $      | (1,067               | )      | $                    | (3,545 | ) | $ | 5,968 |   |

 
|                     |   |          |   | **Accumulated**  |   | **Amortization**   |   | **Net**              |   |
|--------------------------|--------|---------------|--------|------------------|--------|--------------------|--------|----------------------|--------|
|                     |   | **Purchased** |   | **amortization** |   | **for 12 months**  |   | **unamortized**      |   |
|                     |   | **goodwill**  |   | **at 1/1/00**    |   | **ended 12/31/00** |   | **cost at 12/31/00** |   |
| December  31, 2000:      |   |          |   |             |   |               |   |                 |   |
| One  Source Industries   |   | $             | 5,825  |             | $      | (240               | )      | $                    | (269   | ) | $ | 5,316 |   |
| Matrix  Visual Solutions |   | 3,411         |   | (18              | )      | (171               | )      | 3,222                |   |
| Physician  Advantage     |   | 1,577         |   | (99              | )      | (1,478             | )      | —               |   |
| Westland  Associates     |   | 888           |   | (188             | )      | (89                | )      | 611                  |   |
| Touch  Controls          |   | 456           |   | (46              | )      | (46                | )      | 364                  |   |
| Total                    |   | $             | 12,157 |             | $      | (591               | )      | $                    | (2,053 | ) | $ | 9,513 |   |

 

At September 30, 2001,management concluded that the goodwill related to the acquisition of Matrix waspermanently impaired for the remaining unamortized value of $3,094,000, afterconsideration of all factors including the recent historical operatingperformance and expected future performance of the company in an uncertain andworsening economy.  Matrix’ businessconsists of audio/visual rental and presentation services for trade shows,conventions and conferences.  Thebusiness is dependent on travel and attendance at conventions, trade shows andconferences.  Given the current statusof the economy and declines in travel and attendance at these types of events,management believes the market value of this company is significantly impaired.

 

Hence, the Corporationhas evaluated the carrying value of these assets in relation to their estimatedfair market value, and believes that all goodwill should be written off atSeptember 30, 2001.

 

**6.             OTHERBORROWINGS**

 

Other borrowings includebank credit facilities comprised of two term loans and a revolving line ofcredit provided to Matrix.  One termloan is in the principal amount of $750,000 and requires monthly principal andinterest payments amortizing over a five-year term beginning April 2000.  The outstanding principal balance atSeptember 30, 2001was $468,750.

 

The second term loan forequipment purchases in the nominal amount of $2,200,000 has a maturity date ofApril 2005, requires monthly payments of interest only through March 2001 andthereafter amortizes in 48 equal monthly payments of principal plus accruedinterest.  At September 30, 2001**,**the outstanding principal balance on theequipment term loan was $1,927,500.

 

The revolving line ofcredit for working capital purposes in the nominal principal amount of $750,000has a maturity date of March 2004 and requires monthly payments of interestonly.  At September 30, 2001**,**the outstanding principal balance was$395,000.

 

Each loan is secured byMatrix’ assets and bears interest at the bank’s prime rate (5.5% at September30, 2001),except for therevolving line of credit for working capital purposes which bears interest atprime plus 1%.

 

In addition to Matrix’bank lines with an outstanding aggregate balance of $2,791,250 at September 30,2001, other borrowings are comprised of various capitalized leases and otherinstallment debt of $671,750.

 

The Matrix creditfacilities require compliance with three covenants.  See Note 9 for details of amendments to the bank lines subsequentto September 30, 2001.

 

**7.             SUPPLEMENTALCASH FLOW INFORMATION**

** **
|                                                                      |       | **Nine  months ended**  |       | **Nine  months ended**  |       |
|---------------------------------------------------------------------------|------------|-------------------------|------------|-------------------------|------------|
|                                                                      |       | **September  30, 2001** |       | **September  30, 2000** |       |
| Supplemental schedule of cash flow information:                           | ** ** |                    | ** ** |                    | ** ** |
|                                                                      |       |                    |       |                    |       |
| Interest paid                                                             |       | $                       | 241,000    |                    | $          | 163,000 |   |
| Income taxes paid                                                         |       | $                       | 54,000     |                    | $          | 1,812,000 |   |
|                                                                      |       |                    |       |                    |       |
| Supplemental schedule of non-cash investing and  financing activities:    |       |                    |       |                    |       |
|                                                                      |       |                    |       |                    |       |
| Tax effect of unrealized (losses) gains on  securities available-for-sale |       | $                       | (11,000    | )                  | $          | 194,000 |   |
|                                                                      |       |                    |       |                    |       |
| Real estate acquired through foreclosure                                  |       | $                       | 4,416,000  |                    | $          | - |   |

 

**8.             SEGMENTINFORMATION**

 

Revenues, gross profitand other financial data for continuing operations of the Corporation’sindustry segments for the three and nine months ended September 30, 2001 and2000 are set forth below.  All revenuesare earned in the United States of America. (Dollars in thousands)

 
|                                           |   | **Point-of-**   |       |            |       |           |       | **Finance** |       | **Total**      |       |
|------------------------------------------------|--------|-----------------|------------|-----------------|------------|----------------|------------|-------------|------------|----------------|------------|
|                                           |   | **Purchase**    |       | **Equipment**   |       | **Group**      |       | **and**     |       | **Reportable** |       |
|                                           |   | **Display and** |       | **Rentals and** |       | **Purchasing** |       | **Secured** |       | **Segment**    |       |
|                                           |   | **Packaging**   |       | **Sales**       |       | **Services**   |       | **Lending** |       | **Totals**     |       |
| **Nine months ended September 30**             |   |            |       |            |       |           |       |        |       |           |       |
| **2001**                                       |   |            |       |            |       |           |       |        |       |           |       |
| Revenues                                       |   | $               | 12,231     |            | $          | 6,224          |       | $           | 1,202      |           | $          | 1,236 |   | $ | 20,893 |   |
| Gross profit                                   |   | 4,475           |       | 2,222           |       | 1,202          |       | 1,236       |       | 9,135          |       |
| Selling, general and administrative            |   | 2,641           |       | 2,909           |       | 1,102          |       | 1,544       |       | 8,196          |       |
| Depreciation, amortization, accretion, net (1) |   | 335             |       | 3,270           |       | 117            |       | 40          |       | 3,762          |       |
| Interest expense                               |   | 41              |       | 190             |       | 10             |       | 0           |       | 241            |       |
| Income (loss) before income taxes  (2)    |   | 1,458           |       | (4,147          | )          | (27            | )          | (348        | )          | (3,064         | )          |
| Total assets                                   |   | 10,196          |       | 5,252           |       | 1,552          |       | 31,383      |       | 48,383         |       |
|                                           |   |            |       |            |       |           |       |        |       |           |       |
| **2000**                                       |   |            |       |            |       |           |       |        |       |           |       |
| Revenues                                       |   | $               | 9,294      |            | $          | 7,731          |       | $           | 1,077      |           | $          | 2,329 |   | $ | 20,431 |   |
| Gross profit                                   |   | 3,564           |       | 3,335           |       | 1,077          |       | 2,329       |       | 10,305         |       |
| Selling, general and administrative            |   | 2,551           |       | 2,808           |       | 1,939          |       | 492         |       | 7,790          |       |
| Depreciation, amortization, accretion, net (1) |   | 313             |       | 159             |       | 1,605          |       | (1          | )          | 2,076          |       |
| Interest expense                               |   | 28              |       | 124             |       | 12             |       | (1          | )          | 163            |       |
| Income (loss) before income taxes  (2)    |   | 672             |       | 244             |       | (2,479         | )          | 1,839       |       | 276            |       |
| Total assets                                   |   | 9,570           |       | 9,774           |       | 1,590          |       | 31,523      |       | 52,457         |       |
|                                           |   |            |       |            |       |           |       |        |       |           |       |
| **Three months ended September 30**            |   |            | ** ** |            | ** ** |           | ** ** |        | ** ** |           | ** ** |
| **2001**                                       |   |            |       |            |       |           |       |        |       |           |       |
| Revenues                                       |   | $               | 5,004      |            | $          | 1,506          |       | $           | 407        |           | $          | 123 |   | $ | 7,040 |   |
| Gross profit                                   |   | 1,682           |       | 270             |       | 407            |       | 123         |       | 2,482          |       |
| Selling, general and administrative            |   | 996             |       | 1,234           |       | 339            |       | 500         |       | 3,069          |       |
| Depreciation, amortization, accretion, net (1) |   | 115             |       | 3,125           |       | 39             |       | 9           |       | 3,288          |       |
| Interest expense                               |   | 14              |       | 53              |       | 2              |       | 0           |       | 69             |       |
| Income (loss) before income taxes  (2)    |   | 557             |       | (4,142          | )          | 27             |       | (386        | )          | (3,944         | )          |
| Total assets                                   |   | 10,196          |       | 5,252           |       | 1,552          |       | 31,383      |       | 48,383         |       |
|                                           |   |            |       |            |       |           |       |        |       |           |       |
| **2000**                                       |   |            |       |            |       |           |       |        |       |           |       |
| Revenues                                       |   | $               | 3,721      |            | $          | 2,263          |       | $           | 380        |           | $          | 530 |   | $ | 6,894 |   |
| Gross profit                                   |   | 1,647           |       | 731             |       | 380            |       | 530         |       | 3,288          |       |
| Selling, general and administrative            |   | 987             |       | 1,036           |       | 576            |       | (651        | )          | 1,948          |       |
| Depreciation, amortization, accretion, net (1) |   | 97              |       | 54              |       | 1,441          |       | (17         | )          | 1,575          |       |
| Interest expense                               |   | 16              |       | 51              |       | 1              |       | (1          | )          | 67             |       |
| Income (loss) before income taxes  (2)    |   | 547             |       | (410            | )          | (1,638         | )          | 1,199       |       | (302           | )          |
| Total assets                                   |   | 9,570           |       | 9,774           |       | 1,590          |       | 31,523      |       | 52,457         |       |

 

----

(1)           Excludes depreciation andamortization charges to cost of sales.

(2)           Income (loss) before taxes representsincome before taxes and minority interests.

 

**9.             NETINCOME (LOSS) PER COMMON SHARE**

 

Netincome (loss) per common share is calculated on the basis of the weightedaverage number of common shares outstanding during each period plus theadditional dilutive effect of common stock equivalents.  The dilutive effect of outstanding stockoptions is calculated using the treasury stock method.

 
|                                                                                     |   | **Three  months ended** |   | **Three  months ended** |   | **Nine  months ended**  |   | **Nine  months ended**  |   |
|------------------------------------------------------------------------------------------|--------|-------------------------|--------|-------------------------|--------|-------------------------|--------|-------------------------|--------|
|                                                                                     |   | **September  30, 2001** |   | **September  30, 2000** |   | **September  30, 2001** |   | **September  30, 2000** |   |
| Net Income (Loss) Per Common Share:                                                      |   |                    |   |                    |   |                    |   |                    |   |
| Basic:                                                                                   |   |                    |   |                    |   |                    |   |                    |   |
| Income  (loss) from continuing operations before cumulative effect of accounting  change |   | $                       | (0.45  | )                       | $      | .81                     |   | $                       | (0.42  | ) | $ | .82 |   |
| Cumulative  effect of accounting change                                                  |   | —                  |   | —                  |   | .04                     |   | —                  |   |
| Income  from discontinued operations                                                     |   | —                  |   | —                  |   | —                  |   | $                       | .09    |   |
| Net  income (loss) per common share                                                      |   | $                       | (0.45  | )                       | $      | .81                     |   | $                       | (0.38  | ) | $ | .91 |   |
|                                                                                     |   |                    |   |                    |   |                    |   |                    |   |
| Diluted:                                                                                 |   |                    |   |                    |   |                    |   |                    |   |
| Income  (loss) from continuing operations before cumulative effect of accounting  change |   | $                       | (0.45  | )                       | $      | .81                     |   | $                       | (0.42  | ) | $ | .81 |   |
| Cumulative  effect of accounting change                                                  |   | —                  |   | —                  |   | .04                     |   | —                  |   |
| Income  from discontinued operations                                                     |   | —                  |   | —                  |   | —                  |   | .09                     |   |
| Net  income (loss) per common share                                                      |   | $                       | (0.45  | )                       | $      | .81                     |   | $                       | (0.38  | ) | $ | .90 |   |
| Weighted  Average Shares Outstanding:                                                    |   |                    |   |                    |   |                    |   |                    |   |
| Basic                                                                                    |   | 8,125,000               |   | 8,125,000               |   | 8,125,000               |   | 8,036,000               |   |
| Diluted                                                                                  |   | 8,125,000               |   | 8,127,000               |   | 8,125,000               |   | 8,083,000               |   |

 

**10.          SUBSEQUENTEVENTS**

 

On October 15, 2001, theCorporation sold its 50% equity interest in Touch Controls for $1,654,000 paidat closing plus a holdback amount of approximately $450,000.  The Corporation will record a gain from thesale of this equity interest of approximately $650,000 during the quarter endedDecember 31, 2001.

 

On November 6, 2001, theshareholders of Matrix (of which the Corporation owns 68%) agreed to makeadditional capital contributions of $600,000 to Matrix in proportion to theirshareholding percentages, as part of a debt restructuring arrangement with the bank.  This $600,000 was used to repay anoutstanding term loan of $468,750, and reduce the outstanding balance of theworking capital line.  The shareholdersof Matrix further agreed to a permanent reduction in the working capitalfacility from $750,000 to $500,000, which debt is now being guaranteed by theCorporation as part of the restructuring agreement.  In consideration for these amendments, the bank has agreed tocertain modifications to the debt covenants, including lowering of future debtcovenant requirements and waiving non-compliance with the debt covenants atSeptember 30, 2001.

 

 
| **ITEM 2.** | **MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION  AND RESULTS OF** |
|-------------|--------------------------------------------------------------------------------------|
|        | **OPERATIONS**                                                                       |

 

* *

*This report contains forward-looking statements regardingvarious aspects of the Corporation's business and affairs, including statementsabout the adequacy of collateral for loans in default and the future cash needsof the Corporation.  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.*

 

**RESULTSOF OPERATIONS**

 

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

 

*Revenues*

 

Our revenues increasedby $146,000 or 2% from $6,894,000 for the quarter ended September 30, 2000 to$7,040,000 for the quarter ended September 30, 2001. Revenues increased due toan increase in revenues in the sales to packaging customers segment of$1,283,000 and an increase in group purchasing revenues of $27,000, offset byreductions in equipment rental and sales revenues of $757,000 and finance andsecured lending revenues of $407,000.

 

Revenues of One Source,reported under “Sales to packaging customers” in the Consolidated Statements ofIncome, were $5,004,000 during the quarter ended September 30, 2001, comparedto $3,721,000 during the quarter ended September 30, 2000.  This increase of 35% is due to increasedsales of display packaging to consumer product manufacturers.

 

Revenues of Matrix,reported under “Equipment rental and sales” in the Consolidated Statements ofIncome, were $1,506,000 during the quarter ended September 30, 2001, comparedto $2,263,000 during the quarter ended September 30, 2000.  Revenues decreased by $757,000 or 34%.  Product sales represented approximately 29%of Matrix’ revenues for the quarter ended September 30, 2001, compared to 41%of its revenues for the quarter ended September 30, 2000.    The decline in product sales representsapproximately 66% of the decline in revenues for the quarter.  The decline of revenues reflects a decreasein equipment rentals and product sales due to the general economic slowdownduring the entire quarter, which slowdown has been exacerbated by the terroristattacks of September 11, 2001 and the subsequent cancellations and/or delays ofconventions, trade shows and other events.

 

Revenues of Westlandrepresented by gross sales less cost of sales, reported on a net basis under“Group purchasing revenues” in the Consolidated Statements of Income, were$279,000 in 2001 compared to $248,000 in 2000. Revenues increased by 13% due to expanded product offerings from new andexisting vendor relationships and a decrease in cost of sales attributable tomanagement’s focus on improving its net sales results.

 

Revenues of PhysicianAdvantage, reported on a net basis under “Group purchasing revenues” in theConsolidated Statements of Income, were $128,000 in 2001 compared to $132,000in 2000.

 

Finance and securedlending revenues were $123,000 for the quarter ended September 30, 2001compared to $530,000 for the quarter ended September 30, 2000. The net declinein finance and secured lending revenues of $407,000 is attributable tounrealized losses on limited partnerships that invest in securities; lossesfrom the sale of securities available-for-sale; a smaller gain on our equityinterest in Touch Controls in the quarter ended September 30, 2001, compared tothe quarter ended September 30, 2000; and less interest onsecurities-available-for sale in the current quarter.

 

Interest on loans was$201,000 for the quarter ended September 30, 2001, as compared to $171,000 forthe quarter ended September 30, 2000. The current quarter reflects greater interest income despite a loweraverage loan portfolio balance for the quarter due to the reversal of accruedinterest reserves of $105,000 on a non-performing loan, which was settled inthe quarter ended September 30, 2001 (see Loans Receivable and Past Due Loans,below).  Interest on securities available-for-saleand money market funds was $260,000 during the quarter ended September 30,2001, as compared to $330,000 during the quarter ended September 30, 2000, dueto a decrease in average invested funds and a lower interest rate environment.

 

During the quarter endedSeptember 30, 2001, we recorded unrealized losses on limited partnerships thatinvest in securities of $296,000, compared to unrealized losses of $49,000during the quarter ended September 30, 2000. These limited partnerships investin equity and debt securities and we record gains and losses on theseinvestments based upon the equity method of accounting.

 

*Gross Profit*

 

Gross profit generatedby One Source was $1,682,000 or 33.6% of its revenues in 2001, compared to$1,647,000 or 44% of its revenues in 2000. Cost of sales for this segment of $3,322,000 for the third quarter of2001 and $2,074,000 for the third quarter of 2000 is included under the caption“Cost of sales.”  Gross profit as apercentage of revenues decreased due to greater sales of lower margin types ofpackaging.

 

Gross profit generatedby Matrix was $270,000 or 17.9% of its revenues in 2001, compared to $731,000or 32.3% of its revenues in 2000.  Costof sales for this segment of $1,236,000 for 2001 and $1,532,000 for 2000 isincluded under the caption “Cost of sales.” Gross profit is lower in 2001 due to the change in mix of rentalrevenues toward lower margin but more sustainable trade show and stagingproduct lines. Direct labor and other costs are generally higher for the tradeshow and staging product lines. Depreciation charged to cost of salesattributable to the higher level of rental assets in 2001, has also contributedto the reduced gross profit. Depreciation charged to cost of sales was $311,000 in 2001, compared to$145,000 in 2000.

 

Group purchasing revenuesof $407,000, representing revenues of $279,000 and $128,000 generated byWestland and Physician Advantage, respectively, are net revenues earned fromgroup purchasing activities and, as such, represent the gross profits earned bythese entities.

 

*Selling, General and Administrative Expenses*

 

Selling, general andadministrative expenses increased $1,121,000 from $1,948,000 for the quarter ended September 30, 2000 to$3,069,000 for the quarter ended September 30, 2001.  The increase reflects increases in selling, general andadministrative expenses in all business segments, except the group-purchasingsegment, which had lower expenses.

 

Selling, general andadministrative expenses for One Source were $996,000 for the quarter endedSeptember 30, 2001, compared to $987,000 for the quarter ended September 30,2000.  The increase is attributable toincreased sales and marketing expenses.

 

Selling, general andadministrative expenses for Matrix were $1,234,000 for the quarter endedSeptember 30, 2001, compared to $1,036,000 for the quarter ended September 30,2000.  The $198,000 increase in expenseis attributable to increased bad debt expense of $86,000 during the quarter andincreased payroll and related costs attributable to higher staffing levels.

 

Selling, general andadministrative expenses for the group-purchasing segment were $339,000 for thequarter ended September 30, 2001, compared to $576,000 for the quarter endedSeptember 30, 2000.  This reduction inexpenses is attributable to lower payroll and marketing costs during thecurrent quarter resulting from various cost cutting initiatives and to web sitedevelopment costs incurred in the quarter ended September 30, 2000, which didnot recur in the quarter ended September 30, 2001.

 

Selling, general andadministrative expenses for the finance and secured lending segment were$500,000 for the quarter ended September 30, 2001, compared to a negative$651,000 for the quarter ended September 30, 2000.  The prior year quarter reflects a reversal of accrued expenses of$1,123,000 related to the reversal of legal settlement reserves in thatquarter.  Excluding this item, generaland administrative expenses are comparable between these periods.

 

*Depreciation and Amortization*

 

Depreciation andamortization increased from $1,575,000 for the quarter ended September 30, 2000to  $3,288,000 for the quarter endedSeptember 30, 2001.  The net increase ismainly due to an increase in permanent impairment write-downs on unamortizedgoodwill.  The current quarter includes anamount of $3,094,000 related to impairment write-off for Matrix, while theprior year quarter reflects a write-off of Physician Advantage goodwill of$1,360,000.

 

*Income Tax*

 

An income tax benefit of$28,000 was recorded for 2001, against pre-tax losses of $3,944,000.  A significant portion of the pre-tax lossesresulted from permanent differences related to non-deductible goodwill,including the permanent impairment write-down of $3,094,000 related to Matrix.  Additionally, no deferred tax benefit has beenreflected on losses exclusive of non-deductible goodwill amortization incurredby Matrix of $1,005,000 during the current quarter, because future utilizationof the deferred tax benefit cannot be reasonably assured.

 

In 2000, an income taxbenefit of $6,904,000 was recorded for the quarter ended September 30,2000.  This benefit included a reversalof $6,699,000 in deferred tax liabilities related to a previously establishedliability for deferred taxes on legal settlement revenues and a benefit of $205,000on the loss before taxes for the quarter ended September 30, 2000.

 

*Minority Interests*

 

The minority interestsreflect a net benefit of $236,000 during the quarter ended September 30,2001.  This net benefit is comprised ofthe minority interest share in the net losses of Matrix of $311,000, partiallyoffset by the minority interest share in net income of One Source of $75,000.

 

For the quarter endedSeptember 30, 2000, the minority interests reflect net income attributable tominority shareholders of $7,000.  Thisnet charge is comprised of the minority interest share in the net income of OneSource of $74,000, partially offset by the net losses attributable to theshareholders of Matrix of $67,000.

 

*Net Income*

 

During the quarter endedSeptember 30, 2001, we incurred a net loss of $3,680,000 compared to a netincome of $6,595,000 for the quarter ended September 30, 2000.  Basic earnings (loss) per share were ($0.45)in 2001 versus $0.81 in 2000.  Basicearnings (loss) per share from continuing operations before the cumulativeeffect of accounting change were ($0.45) in 2001 versus $0.81 in 2000.

 

*Forthe Nine Months Ended September 30, 2001 and 2000*

 

*Revenues*

 

Our revenues increasedby $462,000 or 2% from $20,431,000 for the nine months ended September 30, 2000to $20,893,000 for the nine months ended September 30, 2001. Revenues increaseddue to increased revenues of $2,937,000 from sales to packaging customers andincreased revenues of $125,000 from group purchasing, offset by reducedrevenues of $1,507,000 from equipment rental and sales and reduced revenues of$1,093,000 from finance and secured lending.

 

Revenues of One Source,reported under “Sales to packaging customers” in the Consolidated Statements ofIncome, were $12,231,000 during the nine months ended September 30, 2001,compared to $9,294,000 during the nine months ended September 30, 2000,reflecting an increase of 31.6% due to increased sales of display packaging toconsumer product manufacturers.

 

Revenues of Matrix,reported under “Equipment rental and sales” in the Consolidated Statements ofIncome, were $6,224,000 during the nine months ended September 30, 2001,compared to $7,731,000 during the nine months ended September 30, 2000.  Revenues decreased by $1,507,000 or 19.5%due mainly to a shift in business emphasis from product sales to rentalbusiness.  Product sales representedapproximately 20% of Matrix’ revenues for the nine months ended September 30,2001, compared to 30.6% of its revenues for the nine months ended September 30,2000.    The decline in product salesrepresents almost 74% of the decline in revenues for the period.  The remaining decline of revenues reflects adecrease in equipment rentals due to a general economic slowdown, morecompetitive pricing, and the cancellation of tradeshows, conventions andconferences in the latter part of the third quarter.

 

Revenues of Westlandrepresented by gross sales less cost of sales, reported on a net basis under“Group purchasing revenues” in the Consolidated Statements of Income, were$766,000 in 2001 compared to $740,000 in 2000. Revenues increased by 3.5% due to expanded product offerings from newand existing vendor relationships and a decrease in cost of sales attributableto management’s focus on improving its net sales results.

 

Revenues of PhysicianAdvantage, reported on a net basis under “Group purchasing revenues” in theConsolidated Statements of Income, were $436,000 in 2001 compared to $337,000in 2000.  This $99,000 increase is due toincreased commissions earned from third party distributors on greater sales.

 

Finance and securedlending revenues were $1,236,000 for the nine months ended September 30, 2001compared to $2,329,000 for the nine months ended September 30, 2000. The netdecline in finance and secured lending revenues of $1,093,000 is attributableto the following:

 

•                                          Duringthe nine months ended September 30, 2000, we recorded a gain of $450,000 fromthe sale of an equity investment with no such gain in the current nine months.

•                                          Unrealizedlosses on limited partnerships that invest in securities were $168,000 higherin the nine months ended September 30, 2001.

•                                          Thegain on our equity interest in Touch Controls was $104,000 in the nine monthsended September 30, 2001 compared to a gain of $264,000 in the nine monthsended September 30, 2000.

•                                          Intereston loans was $320,000 lower in the nine months ended September 30, 2001.

•                                          Intereston securities available for sale was $106,000 lower in the nine months endedSeptember 30, 2001.

•                                          Losseson securities available-for-sale were $117,000 in 2001 compared to $44,000 in2000.  The current year loss includes apermanent impairment write-down of $90,000 on an equity investment.

 

Partially offsetting thenet decline in finance and secured lending revenues in the nine months endedSeptember 30, 2001 were:

 

•                                          Therecording of a gain of $87,000 from the appreciation of derivative instrumentswith no such appreciation in the corresponding prior year period.

•                                          Thereceipt of $154,000 in legal settlement revenues with no such revenues in thecorresponding prior year period.

 

Interest on loans was$211,000 for the nine months ended September 30, 2001, as compared to $531,000for the nine months ended September 30, 2000, due mainly to the non-accrual ofinterest on a non-performing loan in the nine months ended September 30, 2001.The current year includes the reversal of accrued interest reserves of $105,000on a non-performing loan, which was settled in the nine-month period endedSeptember 30, 2001 (see Loans Receivable and Past Due Loans, below).  Interest on securities available-for-saleand money market funds was $826,000 during the nine months ended September 30,2001, as compared to $932,000 during the nine months ended September 30, 2000,due to a decrease in average invested funds and a lower interest rateenvironment.

 

During the nine monthsended September 30, 2001, we recorded unrealized losses on limited partnershipsthat invest in securities of $81,000 compared to unrealized gains of $87,000during the nine months ended September 30, 2000.  Unrealized gains from these limited partnership investmentsinclude permanent impairment write-downs for 2001 and 2000 of $136,000 and$144,000, respectively, relating to one of these investments. These limitedpartnerships invest in equity and debt securities and we record gains andlosses on these investments based upon the equity method of accounting.

 

*Gross Profit*

 

Gross profit generatedby One Source was $4,475,000 or 36.6% of its revenues in 2001 compared to$3,564,000 or 38.4% of its revenues in 2000. Cost of sales for this segment of $7,756,000 for 2001 and $5,730,000 for2000 is included under the caption “Cost of sales.”  Gross profit as a percentage of revenues decreased due to greatersales of lower margin types of packaging.

 

Gross profit generatedby Matrix was $2,222,000 or 35.7% of its revenues in 2001 compared to$3,335,000 or 43.1% of its revenues in 2000. Cost of sales for this segment of $4,002,000 for 2001 and $4,396,000 for2000 is included under the caption “Cost of sales”.  Gross profit is lower in 2001 despite the emphasis toward highermargin rental business and away from lower margin product sales, due to thechange in mix of rental revenues toward lower margin but more sustainable tradeshow and staging product lines. Direct labor and other costs are generallyhigher for the trade show and staging product lines. Depreciation charged tocost of sales attributable to the higher level of rental assets in 2001 hasalso contributed to the reduced gross profit. Depreciation charged to cost of sales was $917,000 in 2001 compared to$588,000 in 2000.

 

 Group purchasing revenues of $1,202,000,representing revenues of $766,000 and $436,000 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 andadministrative expenses increased by $406,000 from $7,790,000 for the ninemonths ended September 30, 2000 to $8,196,000 for the nine months endedSeptember 30, 2001. The increase reflects increases in selling, general andadministrative expenses in all business segments, except the group-purchasingsegment, which had lower expenses.

 

Selling, general andadministrative expenses for One Source were $2,641,000 for the nine monthsended September 30, 2001 compared to $2,551,000 for the nine months endedSeptember 30, 2000. The increase is mainly attributable to increases in salesand marketing expenses.

 

Selling, general andadministrative expenses for Matrix were $2,909,000 for the nine months endedSeptember 30, 2001 compared to $2,808,000 for the nine months ended September30, 2000.  The increase in expense is attributableto increased bad debt expense and increased payroll and related costsattributable to higher staffing levels.

 

Selling, general andadministrative expenses for the group-purchasing segment were $1,102,000 forthe nine months ended September 30, 2001 compared to $1,939,000 for the ninemonths ended September 30, 2000.  Thisreduction in expense is attributable to lower payroll and marketing costsachieved through various cost cutting initiatives during the most recent nine-monthperiod, and to web site development costs incurred in the nine months endedSeptember 30, 2000, which did not recur in the nine months ended September 30,2001.

 

Selling, general andadministrative expenses for the finance and secured lending segment were$1,544,000 for the nine months ended September 30, 2001 compared to $492,000for the nine months ended September 30, 2000. The prior year period reflects a reversal of accrued expenses of$1,123,000 related to the reversal of legal settlement reserves in thisquarter.  Excluding this item, generaland administrative expenses are lower in the current year due mainly to lowerlegal and business consulting expenses.

 

*Depreciation and Amortization*

 

Depreciation andamortization increased from $2,076,000 for the nine months ended September 30,2000 to $3,762,000 for the nine months ended September 30, 2001. The netincrease is mainly due to an increase in permanent impairment write-downs onunamortized goodwill.  The current yearincludes an amount of $3,094,000 related to an impairment write-off for Matrix,while the prior year period reflects a write-off of Physician Advantage’sgoodwill of $1,360,000.

 

*Income Tax*

 

An income tax provisionof $436,000 was recorded for 2001 against pre-tax losses of $3,064,000.  A significant portion of the pre-tax lossesresulted from permanent differences related to non-deductible goodwill,including the permanent impairment write-down of $3,094,000 related toMatrix.  Additionally, no deferred taxbenefit has been reflected on losses exclusive of non-deductible goodwillamortization incurred by Matrix of $927,000 during the current year, becausefuture utilization of the deferred tax benefit cannot be reasonably assured.

 

An income tax benefit of$6,513,000 was recorded for the nine months ended September 30, 2000.  This benefit included a reversal of$6,699,000 in deferred tax liabilities related to a previously establishedliability for deferred taxes on legal settlement revenues and an income taxprovision of $186,000 on year to date income before taxes, representing a 67.4%effective tax rate.  The effective rateis higher than the statutory tax rate due to permanent tax differences as aresult of non-deductible costs.

 

*Minority Interests*

 

The minority interestsreflect a net benefit of $96,000 during the nine months ended September 30,2001.  This net benefit is comprised ofthe minority interest share in the net losses of Matrix of $297,000, partiallyoffset by the minority interest share in net income attributable to theshareholders of One Source of $201,000.

 

For the nine monthsended September 30, 2000, the minority interests reflect net incomeattributable to minority shareholders of $180,000.  This net charge is comprised of the minority interest share inthe net income attributable to the shareholders of One Source of $105,000 andthe minority interest share in the net income attributable to the shareholdersof Matrix of $75,000.

 

*Discontinued Operations*

 

On January 31, 2000,Global Telecommunications sold substantially all of its assets.  In connection with this sale, we recorded again of $693,000, net of estimated income taxes of $461,000, during the ninemonths ended September 30, 2000.

 

*Cumulative Effect of Accounting Change*

 

The adoption of SFAS No.133 resulted in a $317,000 cumulative effect transition adjustment to netincome relating to stock warrants which under SFAS 133 qualify asderivatives.  This one-time adjustmentto net income as of January 1, 2001, represents the appreciated value of thesewarrants at December 31, 2000, which appreciation was previously excluded fromthe measurement of net income, but was instead included in the measure ofcomprehensive income. The cumulative effect transition adjustment is shown as acumulative effect accounting change net of income taxes in the ConsolidatedStatements of Income.

 

*Net Income*

 

During the nine monthsended September 30, 2001, we incurred a net loss of $3,087,000 compared to netincome of $7,302,000 for the nine months ended September 30, 2000.  Basic earnings (loss) per share were ($0.38)and $0.91 for the nine months ended September 30, 2001 and 2000,respectively.  In 2001, basic earnings(loss) per share were ($0.42) from continuing operations and $0.04 from thecumulative effect of accounting change. In 2000, basic earnings per share were$0.82 from continuing operations and $0.09 from discontinued operations.

 

**FINANCIALCONDITION**

 

*Loans Receivable and Past Due Loans*

 

The Corporation’s loansreceivable were $276,000 at September 30, 2001 and $5,224,000 at December 31,2000.  During the nine months endedSeptember 30, 2001, two new loans totaling $386,000 were made and principalrepayments of $1,139,000 were received on a defaulted loan pursuant to asettlement agreement.

 

We originated a loan inthe amount of $4,218,500 in December 1999, which went into default in November2000.  We ceased to accrue interest onthis loan as of December 31, 2000.  OnSeptember 6, 2001, we received title to certain real property collateral forthe defaulted loan through a trustee sale and are seeking foreclosure of theother collateral securing this loan. We expect the fair market value of theforeclosed property and the other collateral to be sufficient to provide a fullrecovery of the Corporation’s investment.

 

The Corporationoriginates and, from time to time, purchases loans that are secured by realestate, personal property or other collateral. In connection with each loan proposal, the Corporation considers thevalue and quality of the real estate or other collateral available to securethe loan compared to the loan amount requested, the proposed interest rate andrepayment terms and the quality of the borrower. Loan originations occur asopportunities arise which management believes to be attractive.  As a result, the volume of loans originatedmay vary from quarter to quarter, and new loan originations may not occur inevery quarter.

 

*Borrowings*

 

At September 30, 2001,$3,463,000 was owed under various debt agreements, of which $2,791,250represents amounts owed by Matrix to a bank under various credit facilities.Under these credit facilities, Matrix is required to meet three covenants, ofwhich two were not in compliance at September 30, 2001.

 

On November 6, 2001, theshareholders of Matrix (of which the Corporation owns 68%) agreed to make additionalcapital contributions of $600,000 to Matrix in proportion to their respectiveshareholding percentages, as part of a debt restructuring arrangement with thebank.  This $600,000 was used to repay aterm loan with an outstanding principal balance of $468,750, and the balance toreduce the outstanding balance of the working capital line.  The shareholders of Matrix further agreed toa permanent reduction in the working capital facility from $750,000 to$500,000, which facility is now being guaranteed by the Corporation as part ofthe restructuring agreement.  Inconsideration for these amendments, the bank has agreed to certainmodifications to the debt covenants, including lowering of future debt covenantrequirements and waiving non-compliance with the debt covenants at September30, 2001.

 

**LIQUIDITY**

 

The Corporation heldcash and cash equivalents, which include commercial paper investments of$19,177,000 and U.S. government and agency securities with a fair value of$4,938,000 at September 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 cashand cash equivalents increased by $12,950,000 during the nine months endedSeptember 30, 2001 due principally to a shift in investments to short term cashequivalents and an increase in cash flow from operating activities of$1,644,000, offset by a reduction in cash flows from financing activities of$1,309,000.

 

The Corporation’ssources of cash during the nine-month period were $12,615,000 from the net saleof investment securities, $1,644,000 from operations, $1,139,000 in collectionson notes receivable and $154,000 in installment debt financings.

 

The Corporation’s usesof cash during the nine months ended September 30, 2001 were $798,000 forpurchases of property and equipment, $953,000 in debt repayments, $510,000 inseller financing repayments and $386,000 in loan originations.

 

The Corporation intendsto pursue the acquisition of one hundred percent or substantial interests inadditional operating businesses. However, no assurances can be given that the Corporation will be able toidentify attractive opportunities or, if it does, that it will be able tocomplete acquisitions on acceptable terms. As the Corporation acquires interests in other operating businesses, itintends to liquidate securities available-for-sale as may be necessary toconsummate acquisitions.

 

In the opinion ofmanagement, the Corporation has sufficient cash and liquid assets to fund itsgrowth and operating plans for the foreseeable future.

 

*Market Risk*

 

The Corporation isexposed to certain market risks, which are inherent in the Corporation’sfinancial instruments and arise from transactions entered into in the normalcourse of business.  The Corporation hasnot entered into and does not enter into derivative financial instruments forspeculative purposes.  A discussion ofthe primary market risk of the Corporation’s financial instruments is presentedbelow and should be read in conjunction with the forward-looking statementincluded in the preamble to this Management Discussion and Analysis.

 

The Corporation issubject to interest rate risk on its marketable securities portfolio and loansreceivable.  The marketable securitiesportfolio matures in less than two years. The loans receivable portfolio is comprised of short-term fixed rateloans. The Corporation is subject to equity price risk on its investments inlimited partnerships that invest in securities.  At September 30, 2001, these investments represent less than 5%of total assets.

 

*Recently Issued Accounting Standards*

 

On June 29, 2001, SFASNo. 141, "Business Combinations," was approved by the FASB. SFAS No.141 requires that the purchase method of accounting be used for all businesscombinations initiated after June 30, 2001. Goodwill and certain intangibleassets will remain on the balance sheet and not be amortized.  The Corporation is required to implement SFASNo. 141 beginning July 1, 2001.  The Corporationhas not yet determined the impact that this statement will have on itsconsolidated financial position or results of operations.

 

On June 29, 2001, SFASNo. 142, "Goodwill and Other Intangible Assets," was approved by theFASB. SFAS No. 142 changes the accounting for goodwill from an amortizationmethod to an impairment-only approach. Amortization of goodwill, includinggoodwill recorded in past business combinations, will cease upon adoption ofthis statement.  On an annual basis, andwhen there is reason to suspect that their values have been diminished orimpaired, these assets must be tested for impairment, and write-downs may benecessary.  The Corporation is requiredto implement SFAS No. 142 on January 1, 2002. Application of the provisions of SFAS No. 142 is expected to result inan increase in net income of approximately $400,000 per year.  The Corporation will perform the first ofthe required impairment tests of goodwill using the methodology prescribed bySFAS No. 142 in 2002, but does not believe that the effect of these tests willbe material on the earnings and financial position of the Corporation.

 

In August 2001, the FASBissued Statement No. 143 (“SFAS 143”) "Accounting for Asset RetirementObligations", which establishes financial accounting and reportingrequirements for obligations associated with the retirement of tangiblelong-lived assets and the associated asset retirement costs. The provisions ofSFAS No. 143 apply to legal obligations associated with the retirement of long-livedassets that result from the acquisition, construction, development and/or thenormal operation of a long-lived asset, except for certain obligations oflessees. This statement is effective for financial statements issued for fiscalyears beginning after June 15, 2002. The Company is currently evaluating theimpact that the adoption of this statement will have on its consolidatedfinancial position or results of operations.

 

The FASB issuedStatement No. 144 (“SFAS 144”) "Accounting for the Impairment or Disposalof Long-Lived Assets", in October 2001. SFAS 144 addresses the recognitionof impairment losses on long-lived assets to be held and used or to be disposedof by sale. This statement supersedes FASB Statement No. 121, "Accounting forthe Impairment of Long-Lived Assets and for Long-Lived Assets to Be DisposedOf", and the accounting and reporting provisions of Accounting PrincipalsBoard Opinion No. 30, "Reporting the Results of Operations - Reporting theEffects of Disposal of a Segment of a Business, and Extraordinary, Unusual andInfrequently Occurring Events and Transactions".  The statement is effective for financial statements issued forfiscal years beginning after December 15, 2001.  The Company is currently evaluating the impact that the adoptionof this statement will have on its consolidated financial position or resultsof operations.

 

** **
| **ITEM  3.** | **QUANTITATIVE  AND QUALITATIVE DISCLOSURES** |
|--------------|-----------------------------------------------|
|         | **ABOUT  MARKET RISKS**                       |

 

 

The information requiredby this item is incorporated herein by reference to the section entitled“Market Risk” in Management’s Discussion and Analysis of Results of Operationsand Financial Condition (Part 1, Item 2).

 

**PART II-OTHER INFORMATION**

 

**ITEM 6.          EXHIBITSAND REPORTS ON FORM 8-K**

 

None

**SIGNATURES**

 

Pursuant to the requirementsof the Securities Exchange Act of 1934, the registrant has duly caused thisreport to be signed on its behalf by the undersigned thereunto duly authorized.

 
| Dated:  November 14, 2001 |   | WESTMINSTER 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 |
|                                |        |                            |  |  |  |  |  |  |