SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q
                                    ---------
              [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                  For the quarterly period ended September 30, 1999
                                                 ------------------
                                       OR
              [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                 For the transition period from ______ to ______

                         Commission file number 0-27736

                         POINT WEST CAPITAL CORPORATION
                         -------------------------------
             (Exact name of registrant as specified in its charter)

                   Delaware                           94-3165263
                   --------                           ----------
              (State or other jurisdiction of       (I.R.S. Employer
              incorporation or organization)      Identification Number)

          1700 Montgomery Street, Suite 250
          ---------------------------------
            San Francisco, California                       94111
            -------------------------                     ---------
        (Address of principal executive offices)          (Zip Code)


                             (415) 394-9467
                             --------------
            (Registrant's telephone number, including area code)


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes [X] No [ ]

At October 31, 1999,  there were  3,350,624  shares of the  registrant's  Common
Stock outstanding.


<PAGE>




                         POINT WEST CAPITAL CORPORATION
                         ------------------------------


                                      INDEX
                                      -----


Part I    Financial Information                                        Page #
------                                                                 ------

Item 1.   Consolidated Financial Statements (unaudited):

          Consolidated Balance Sheets
            September 30, 1999 and December 31, 1998                     1

          Consolidated Statements of Operations and
            Comprehensive Income (Loss) for the Three and
            Nine Months Ended September 30, 1999 and 1998                2

          Consolidated Statements of Cash Flows for the
            Nine Months Ended September 30, 1999 and 1998                3

          Condensed Notes to Consolidated Financial Statements          4-15

Item 2.   Management's Discussion and Analysis of Financial
            Condition and Results of Operations                        16-30

Item 3.   Quantitative and Qualitative Disclosures
            About Market Risk                                           31


Part II   Other Information
-------

Item 1.   Legal Proceedings                                             32

Item 5.   Other Information                                             33

Item 6.   Exhibits and Reports on Form 8-K                              33

Signatures                                                              35

                                      (i)


<PAGE>

                         POINT WEST CAPITAL CORPORATION
                           CONSOLIDATED BALANCE SHEETS
                    September 30, 1999 and December 31, 1998

<TABLE>
<CAPTION>



                                                                               September 30,          December 31,
                                 ASSETS                                             1999                  1998
                                                                             -------------------   --------------------
<S>                                                                             <C>                       <C>



Cash and cash equivalents                                                  $          8,957,720  $           6,668,126
Restricted cash                                                                       1,688,191              3,153,513
Investment securities

           Held-to-maturity                                                           4,479,856                     --
           Available-for-sale                                                        10,795,110              2,113,034
Matured policies receivable                                                             279,295                 12,000
Loans receivable, net of unearned income of $479,073 and
           $117,709, respectively, and net of an allowance for
           loan losses of $135,000 and $50,000, respectively                         29,110,446             10,187,590
Purchased life insurance policies                                                    31,861,707             33,893,017
Non-marketable securities                                                             4,665,126              5,396,607
Deferred financing costs, net of accumulated amortization
           of $1,293,858 and $907,848, respectively                                     717,817                810,545
Furniture and equipment, net of accumulated depreciation of
           $10,403 and $4,469, respectively                                              33,710                 25,365
Other assets                                                                          2,490,143                182,964
                                                                             -------------------   --------------------

           Total assets                                                    $         95,079,121  $          62,442,761
                                                                             ===================   ====================

                  LIABILITIES AND STOCKHOLDERS' EQUITY

Accrued interest expense                                                   $            288,981  $             263,805
Accounts payable                                                                        337,720                192,436
Accrued compensation payable                                                            423,164                222,000
Accrued litigation settlement                                                         3,150,000                     --
Revolving certificates                                                                       --              5,400,045
Term certificates                                                                    24,635,000                     --
Long term notes payable                                                              38,528,914             38,528,914
Debentures                                                                            3,000,000              3,000,000
Deferred income taxes                                                                   739,005                  6,000
                                                                             -------------------   --------------------

           Total                                                                     71,102,784             47,613,200
           liabilities
                                                                             -------------------   --------------------

Stockholders' equity:
           Common  stock,  $0.01  par  value;   15,000,000   authorized  shares,
                4,389,124 and 4,291,824 shares, respectively, issued
                3,350,624 and 3,253,324 shares, respectively, outstanding               43,891                 42,918
           Additional paid-in-capital                                               29,823,503             29,496,720
           Accumulated comprehensive income-- net unrealized
                investment gains (losses)                                            3,209,176                (188,966)
           Retained deficit                                                          (6,226,201)           (11,647,079)
           Treasury stock, 1,038,500 shares                                          (2,874,032)            (2,874,032)
                                                                             -------------------   --------------------

           Total stockholders' equity                                               23,976,337             14,829,561
                                                                             -------------------   --------------------

           Total liabilities and stockholders' equity                      $        95,079,121  $          62,442,761
                                                                             ===================   ====================
<FN>

     See accompanying condensed notes to consolidated financial statements.
</FN>
</TABLE>
                                       1

<PAGE>


                         POINT WEST CAPITAL CORPORATION
             CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
    INCOME (LOSS) For the Three and Nine Months Ended September 30, 1999 and
     1998


<TABLE>
<CAPTION>


                                                                 Three Months Ended                      Nine Months Ended
                                                                    September 30,                          September 30,
                                                               1999              1998                 1999               1998
                                                         -----------------  ----------------    -----------------  -----------------
<S>                                                       <C>                <C>                 <C>                 <C>


 Income:
     Earned discounts on matured policies              $           76,201 $          65,167   $          187,202 $          430,819
     Interest income                                            1,074,238           350,218            2,144,709          1,049,373
     Gain on assets sold                                               --            14,820                7,751            165,346
     Gain on sale of securities                                 5,946,723           109,691           11,706,942            109,691
     Other                                                         41,985            64,299              352,574            233,187
                                                         -----------------  ----------------    -----------------  -----------------
          Total income                                          7,139,147           604,195           14,399,178          1,988,416

Expenses:
     Interest expense                                           1,313,165           925,545            3,520,312          2,697,587
     Compensation and benefits                                    585,117           414,984            1,368,897          1,110,322
     Other general and administrative expenses                    394,097           409,101            2,597,382          1,256,920
     Amortization                                                 134,039            71,406              386,010            196,718
     Depreciation                                                   2,258             1,240                5,934              2,443
     Loss on non-marketable securities                                 --         1,073,494              535,000          1,073,494
                                                         -----------------  ----------------    -----------------  -----------------
          Total expenses                                        2,428,676         2,895,770            8,413,535          6,337,484
                                                         -----------------  ----------------    -----------------  -----------------

          Gain (loss) before income taxes and net loss
              in wholly owned financing subsidiary
              charged to reserve for equity interest            4,710,471        (2,291,575)           5,985,643        (4,349,068)

Income tax expense                                                547,265                --              564,765                 --

Net loss in wholly owned financing subsidiary charged
     to reserve for equity interest                                    --           407,324                   --          2,300,037

                                                         -----------------  ----------------    -----------------  -----------------
          Net income (loss)                                     4,163,206       (1,884,251)            5,420,878        (2,049,031)

Comprehensive income -- net unrealized
     investment gains (losses)                               (11,762,998)       (2,326,692)            3,398,142        (2,407,344)
                                                         -----------------  ----------------    -----------------  -----------------
Total comprehensive income (loss)                      $      (7,599,792) $     (4,210,943)   $        8,819,020 $      (4,456,375)
                                                         =================  ================    =================  =================

Basic earnings (loss) per share                        $             1.24            (0.58)   $             1.63 $           (0.63)
Diluted earnings (loss) per share                                    1.17            (0.58)                 1.49             (0.63)

Weighted average number of shares of common stock
     outstanding                                                3,350,624         3,253,324            3,321,888          3,253,324
Weighted average number of shares of common stock
     and common stock equivalents outstanding                   3,549,536         3,253,324            3,648,029          3,253,324

<FN>

     See accompanying condensed notes to consolidated financial statements.
</FN>
</TABLE>


                                       2


<PAGE>

                         POINT WEST CAPITAL CORPORATION
                  CONSOLIDATED STATEMENTS OF CASH FLOWS
              For the Nine Months Ended September 30, 1999 and 1998
<TABLE>
<CAPTION>


                                                                           Nine Months Ended
                                                                             September 30,
                                                                        1999               1998
                                                                  -----------------   ---------------
<S>                                                                   <C>                      <C>


Cash flows from operating activities:
    Net income (loss)                                           $        5,420,878 $      (2,049,031)
    Adjustments to reconcile net income (loss) to net cash
         used in operating activities:
        Depreciation and amortization                                      391,944            199,161
        Gain on assets sold                                                (7,751)          (165,346)
        Gain on sale of securities                                    (11,706,942)                 --
        Earned discounts on policies                                     (187,202)          (430,819)
        Collections on matured life insurance policies                   1,950,863          3,082,440
        Increase in reserve for loans receivable                            85,000                 --
        Increase in other assets                                         (121,265)            (1,729)
        Increase (decrease) in accrued interest expense                     25,176            (8,335)
        Increase (decrease) in accounts payable                            145,284            (8,208)
        Increase (decrease) in accrued compensation payable                201,164           (30,000)
        Increase in deferred taxes                                         516,885                 --
        Decrease in reserve for equity interest in wholly
                 owned financing subsidiary                                     --        (2,128,989)
        Increase in non-marketable securities received                   (624,918)                 --
        Loss on non-marketable securities                                  535,000          1,073,494
        Loss on loan                                                       140,000                 --
        Increase in accrued litigation settlement                          945,000                 --
                                                                  -----------------   ----------------
                 Net cash used in operating activities                 (2,290,884)          (467,362)
                                                                  -----------------   ----------------

Cash flows from investing activities:
    Proceeds from sale of other assets                                      27,126            229,067
    Purchase of furniture and equipment                                    (14,279)           (22,630)
    Decrease in restricted cash                                          1,465,322            323,015
    Purchase of investments and non-marketable securities             (11,699,821)         (6,708,504)
    Proceeds from sale of investments and non-marketable
    securities                                                         14,755,627          2,028,000
    Additions to loans receivable                                     (19,631,409)        (3,111,990)
    Principal payments on loans receivable                                 483,553            109,008
                                                                  -----------------   ----------------
                 Net cash used in investing activities                (14,613,881)        (7,154,034)
                                                                  -----------------   ----------------

Cash flows from financing activities:
    Proceeds from debentures                                                    --          3,000,000
    Principal payments on long term notes payable                               --          (275,193)
    Proceeds from revolving certificates                                19,708,039                 --
    Principal payments on revolving certificates                      (25,108,084)                 --
    Proceeds from term certificates                                     24,635,000                 --
    Increase in financing costs                                          (293,282)          (187,501)
    Proceeds from options exercised                                        252,686                 --
                                                                  -----------------   ----------------
                 Net cash provided by financing activities              19,194,359          2,537,306
                                                                  -----------------   ----------------

                 Net increase (decrease) in cash and cash
                 equivalents                                             2,289,594        (5,084,090)

Cash and cash equivalents, beginning of period                           6,668,126         10,039,560
                                                                  -----------------   ----------------

Cash and cash equivalents, end of period                        $        8,957,720 $        4,955,470
                                                                  =================   ================


Supplemental disclosures:
Supplemental disclosure of non-cash activities:
    Unrealized gain (loss) on securities available for sale     $        3,398,142 $      (2,407,344)
    Receipt of warrants                                         $          624,918 $               --
    Establishment of receivable from insurance company          $        2,205,000 $               --
    Accrued litigation settlement                               $        3,150,000 $               --
Supplemental disclosure of cash flow information:
    Taxes paid                                                  $           60,736         $   16,014

    Cash paid for interest                                      $        3,495,136 $        2,701,359
<FN>
     See accompanying condensed notes to consolidated financial statements.
</FN>
</TABLE>
                                      3
<PAGE>


                         POINT WEST CAPITAL CORPORATION
                         ------------------------------

              CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
              -----------------------------------------------------


1.        General Description
--        -------------------

         The unaudited  consolidated  financial statements of Point West Capital
Corporation  ("Point West") and its consolidated  entities (the "Company") as of
September 30, 1999 and for the three and nine month periods ended  September 30,
1999  and  1998  have  been  prepared  in  accordance  with  generally  accepted
accounting principles ("GAAP") for interim financial information,  in accordance
with Rule 10-01 of Regulation S-X.  Accordingly,  such statements do not include
all of the  information  and  notes  thereto  that are  included  in the  annual
consolidated financial statements. In the opinion of management, all adjustments
considered  necessary  for a fair  presentation  have been  included.  Operating
results for the three and nine month  periods  ended  September 30, 1999 are not
necessarily  indicative  of the results that may be expected for the year ending
December 31, 1999.  The  Consolidated  Balance Sheet as of December 31, 1998 has
been derived from the audited consolidated  financial statements of the Company.
The statements and notes thereto  included  herein should be read in conjunction
with the audited consolidated financial statements and notes thereto included in
the Company's  Annual  Report on Form 10-K for the year ended  December 31, 1998
(the "Form 10-K").

         Point West is a specialty  financial  services  company.  The Company's
financial  statements  consolidate  the assets,  liabilities  and  operations of
Dignity Partners Funding Corp. I ("DPFC"),  Point West Venture  Management,  LLC
(formerly  known as Fourteen Hill  Management,  LLC) ("Point West  Management"),
Point West  Ventures,  L.P.  (formerly  known as Fourteen  Hill  Capital,  L.P.)
("Point  West  Ventures"),   Allegiance  Capital,  LLC  ("Allegiance  Capital"),
Allegiance  Funding I, LLC ("Allegiance  Funding"),  Allegiance  Capital Trust I
("Allegiance Trust I"), Allegiance  Management Corp.  ("Allegiance  Management")
and Point West Securities,  LLC ("PWS").  References  herein to Ventures include
Point West Management and Point West Ventures.  References  herein to Allegiance
include  Allegiance  Capital,   Allegiance  Funding,   Allegiance  Trust  I  and
Allegiance Management.

         The principal  business  activity of the Company through  February 1997
was  to  provide   viatical   settlements   for  terminally  ill  persons.   See
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations   --  Overview."   Subsequently,   the  Company  has  become  a  more
broadly-based  specialty  financial  services company.  During 1997, the Company
expanded its financial  services  business  through the  operations of Ventures,
which invests in small businesses, and Allegiance,  which lends funds to funeral
home and cemetery  owners.  During 1998, the Company formed PWS, a broker-dealer
licensed by the National  Association  of Securities  Dealers,  Inc. The Company
continues  to service  the life  insurance  policies  held by its  wholly  owned
special purpose subsidiary, DPFC. The Company continues to evaluate new business
opportunities.

         The  Company  has  significant  net  operating  losses  (NOLs)  for tax
purposes. The NOLs are primarily related to losses incurred by DPFC. The Company
has established  valuation  allowances which offset  completely the deferred tax
assets  related  to NOLs  because  the  Company  and DPFC  have  been  unable to
consistently generate taxable earnings.  There has been no reduction made to the
valuation allowance in connection with the gain upon the anticipated  retirement
of  the  Securitized  Notes  discussed  in  Note 7 or the  unrealized  gains  on
investment  securities  discussed  in Note 2. The Company  will  reevaluate  the
amount of the valuation allowance in future periods.

                                       4

<PAGE>



         In June 1999, the Financial  Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard No. 137 ("SFAS 137"),  Accounting for
Derivative  Instruments and Hedging Activities -- Deferral of the Effective Date
of FASB  Statement  No. 133 -- an Amendment of FASB  Statement No. 133. SFAS 137
defers the effective date of Statement of Financial  Accounting Standard No. 133
("SFAS 133"), Accounting for Derivative Instruments and Hedging Activities. SFAS
133, as  amended,  is now  effective  for all fiscal  quarters  of fiscal  years
beginning after June 15, 2000. Management is still reviewing the impact of these
pronouncements.

2.        Investment Securities
--        ---------------------

         Statement  of  Financial  Accounting  Standard  No. 115  ("SFAS  115"),
Accounting  for  Certain  Investments  in Debt and Equity  Securities,  requires
marketable debt and equity  securities to be classified  into  held-to-maturity,
available-for-sale   and   trading   categories.    Securities   classified   as
available-for-sale  are  reported  on the  Consolidated  Balance  Sheets at fair
market  value  with any  cumulative  unrealized  gains and  losses as a separate
component of  stockholders'  equity and any unrealized  gains and losses for the
respective  period as a separate  line item on the  Consolidated  Statements  of
Operations  and  Comprehensive  Income  (Loss).  Many of the  equity  securities
classified by the Company as  available-for-sale  are  securities  traded in the
NASDAQ SmallCap Market(R) or the NASDAQ OTC Bulletin Board(R). Fair market value
is estimated by the Company based on the average  closing bid of the  securities
for the last three  trading  days of the  reporting  period and is  adjusted  to
reflect management's estimate of liquidity constraints. Securities classified as
held-to-maturity  included U.S.  treasury bills reported at cost with maturities
greater than three  months,  but less than one year.  Cash and cash  equivalents
included  U.S.  treasury  bills with  maturities  less than three months of $8.6
million  and  $4.9  million  at  September  30,  1999  and  December  31,  1998,
respectively. The Company had no trading securities at September 30, 1999 and no
held-to-maturity  or trading securities at December 31, 1998. Any realized gains
and losses,  accrued interest and dividends and unrealized  losses on securities
judged to be other-than-temporary are reported on the Consolidated Statements of
Operations and  Comprehensive  Income (Loss) on an  appropriate  line item above
"Net Income (Loss)."

                                       5


<PAGE>



         The costs and  estimated  fair market  value of  investment  securities
(before any minority interest)  reflected on the Consolidated  Balance Sheets as
of September 30, 1999 and December 31, 1998 are as follows:
<TABLE>
<CAPTION>



                                                 September 30, 1999
---------------------------------------------------------------------------------------------------------------------
                                                          Gross             Gross                   Fair
                                            Cost       Unrealized        Unrealized                Market
                                                          Gains             Losses                 Value
<S>                                  <C>                <C>                 <C>               <C>
Held-to-maturity
           U.S. treasury bills....   $     4,479,856     $          --     $           --    $     4,479,856
                                      ---------------  ---------------    ---------------    ---------------
      Total Held-to-maturity......   $     4,479,856     $          --     $           --    $     4,479,856


 Available-for-sale
           Corporate bond........    $       350,000   $            --     $    (293,750)    $        56,250
           Common stock..........          6,944,680         5,561,231        (1,857,051)         10,738,860
                                     ---------------   ---------------    ---------------    ---------------
      Total available-for-sale...    $     7,294,680   $     5,561,231     $  (2,150,801)    $    10,795,110

</TABLE>


<TABLE>
<CAPTION>


                                                 December 31, 1998
---------------------------------------------------------------------------------------------------------------------
                                                          Gross               Gross                   Fair
                                            Cost        Unrealized          Unrealized               Market
                                                          Gains               Losses                  Value
<S>                                  <C>                <C>                 <C>               <C>


 Available-for-sale
           Corporate bond....        $       350,000   $            --    $     (190,000)    $       160,000
           Common stock......              1,952,000             8,092            (7,058)          1,953,034
                                     ---------------   ---------------    ---------------    ---------------
      Total available-for-sale       $     2,302,000   $         8,092    $     (197,058)    $     2,113,034

</TABLE>



         Cumulative unrealized gains (losses) on  available-for-sale  securities
(representing  differences  between  estimated  fair market value and cost) were
$3.5  million and  ($189,000)  at  September  30, 1999 and  December  31,  1998,
respectively.  A separate balance sheet component of stockholders' equity called
"Accumulated  Comprehensive Income -- Net Unrealized  Investment Gains (Losses)"
reflects such cumulative gains (losses),  net of applicable taxes. For the three
and  nine  months  ended  September  30,  1999 and  1998,  the  Company's  total
comprehensive  income (loss) in its  Consolidated  Statements of Operations  and
Comprehensive Income (Loss) includes unrealized  investment gains (losses),  net
of applicable taxes, only for the respective period. See Note 10.

3.        Loans Receivable
--        ----------------

         Loans  receivable  includes  loans made to  unaffiliated  third parties
through  Allegiance and Ventures.  Such loans are reported at amortized cost net
of an  allowance  for loan  losses for the  Allegiance  loans,  and  interest is
accrued as earned.

         Allegiance had seventeen loans outstanding at September 30, 1999 in the
aggregate principal amount of $29.4 million, which bear a weighted-average fixed
interest  rate per  annum of 9.6%.  Allegiance  had five  loans  outstanding  at
December 31, 1998 in the aggregate principal amount of $9.1 million,  which bear
a weighted-average fixed interest rate per annum of 9.3%. Principal payments are
due  monthly  on such  loans,  and  such  loans  mature,  subject  to  permitted
prepayments,  in  approximately

                                       6

<PAGE>


fifteen years from the initial loan date.  At September  30, 1999,  one loan was
delinquent  and on non-accrual  status.  Loan  origination  fees and direct loan
origination  costs are  capitalized  and recognized over the life of the related
loan as an adjustment of yield (interest income) in accordance with Statement of
Financial  Accounting Standard No. 91 ("SFAS 91"),  Accounting for Nonrefundable
Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct
Costs of Leases.

         In August 1998,  Allegiance  put in place a structured  financing  (the
"Allegiance  Financing")  which  provides  short  term  financing  and long term
financing, subject to certain limitations,  with respect to loans Allegiance has
made in the past and may make in the future. See Note 6. Allegiance uses futures
contracts  to  hedge  certain   interest  rate  exposure  between  the  time  of
origination  of the loans and the expected  issuance of term  certificates.  The
futures contracts are intended to protect the net interest margins earned on the
loans.  Any  realized  gain or loss  related to these  hedges are  deferred  and
recognized by  Allegiance  over the life of the related loan as an adjustment of
interest income.  Pursuant to Statement of Financial  Accounting Standard No. 80
("SFAS 80"),  Accounting for Futures  Contracts,  all such deferred  amounts are
reflected on the  Consolidated  Balance  Sheets as an increase (in the case of a
hedging loss) or decrease (in the case of a hedging gain), in the carrying value
of loans receivable. As of September 30, 1999, Allegiance had net realized gains
on its hedging activities of $215,000 which decreased loans receivable in a like
amount. As of September 30, 1999 Allegiance had no open hedging positions.

         Ventures  had  one  loan  outstanding  at  September  30,  1999  in the
aggregate principal amount of $614,000, which was originated in January 1998 and
bears  interest at a fixed  interest  rate per annum of 15%.  Such loan matures,
subject to permitted  prepayments,  approximately  5 years from the initial loan
date.

4.        Purchased Life Insurance Policies
--        ---------------------------------

         Purchased life insurance  policies  consist only of those policies held
by DPFC. The sale of policies held by DPFC, all of which are pledged as security
for the  Securitized  Notes (as defined in Note 7),  requires the consent of the
Company and the  Noteholders.  Although the Company and the Noteholders have not
determined  whether the policies will be sold or whether such a sale of policies
is feasible, the Company and the Noteholders are in discussions that contemplate
a  purchase  of  the  policies  and  cancellation  of  the  indebtedness  by the
Noteholders. The discussions also contemplate that the Company would continue to
act as  servicer  through  June 30,  2002.  No  assurance  can be given that any
agreement will be ultimately  reached with the Noteholders or, if reached,  will
contain such terms and conditions contemplated by current discussions. A reserve
was recorded in 1996 in the amount of $6.9 million to reflect the estimated loss
of Point West's equity interest in DPFC. The reserve  provided for the write-off
of the unrealized  residual value  associated with DPFC. The losses of DPFC were
charged first against the reserve  which,  during the third quarter of 1998, was
fully  depleted.  Losses  associated  with DPFC after  depletion  of the reserve
during the third  quarter of 1998 have been,  and all future  losses  associated
with  DPFC  will  be,  reflected  in the  Company's  Consolidated  Statement  of
Operations and Comprehensive  Income (Loss) in the appropriate  period. See Note
7.

5.        Non-Marketable Securities
--        -------------------------

         Non-marketable  securities include  investments in non-marketable  debt
and equity securities through Point West and Ventures.  The Company accounts for
such non-marketable securities using the cost method. See the Form 10-K.

         The Company reviews on a quarterly basis all non-marketable  securities
and  attempts to ascertain  whether the value is  impaired.  As a result of such
review, the Company determined that $535,000 of non-

                                       7

<PAGE>


marketable  securities  of one company held by Ventures was impaired at June 30,
1999.  Therefore,  the Company  wrote-off the entire $535,000  carrying value of
such security.

6.        Revolving and Term Certificates
--        -------------------------------

         Pursuant  to  the  Allegiance  Financing,  a  consortium  of  insurance
companies (the "Investors")  provided funding through September 20, 1999, with a
balance at that date of $24.9 million, on a non-recourse  revolving  certificate
basis  which  was used for the  purchase  or  funding  of  loans  originated  by
Allegiance Capital and transferred to Allegiance Funding. On September 21, 1999,
the revolving  certificates then outstanding were repaid through the issuance of
the term  certificates  described below. In addition,  the Company and Investors
extended the Allegiance  Financing  through April 15, 2000. The Investors agreed
to continue to provide revolving debt, subject to certain  limitations,  through
April 15,  2000,  on terms  substantially  similar to those  under the  original
revolving  certificates  under the Allegiance  Financing,  but with an increased
weighted-average  spread of approximately 0.05%. Allegiance has agreed to retain
an unrated  revolving  certificate  related to the extension.  In addition,  the
Investors  agreed to provide up to $30  million of  additional  term  financing,
subject to certain  limitations,  through April 15, 2000, on terms substantially
similar  to  those  under  the  original  term  certificates  issued  under  the
Allegiance  Financing,   but  with  an  increased   weighted-average  spread  of
approximately  0.5%.  Term  financings  under the  extension may be completed in
minimum amounts of $15 million.

         Under the Allegiance  Financing  various  classes of revolving and term
certificates  through  Allegiance Trust I have been issued.  With the extension,
the amount issued under  different  classes may  increase,  and increases may be
disproportionate  to the current  proportions of term certificates  outstanding.
The original revolving  certificates were issued in August 1998 in four classes,
consisting  of Class  A-R,  Class B-R,  Class C-R and Class  D-R.  The Class D-R
certificate,  which  represents  the right to receive  all excess cash flow from
Allegiance Trust I, was unrated while the other revolving  certificates received
ratings from Duff & Phelps Credit Rating Co. ("Duff & Phelps") ranging from A to
BB. At September 20, 1999, the following  principal  amounts of Class A-R, Class
B-R, Class C-R and Class D-R certificates were outstanding,  respectively: $19.5
million, $3.2 million, $2.2 million and $2.4 million. At September 21, 1999 such
revolving certificates were repaid through the issuance in the following amounts
of Class A, Class B,  Class C,  Class D, Class E and Class F term  certificates:
$17.8 million,  $1.8 million,  $2.0 million, $1.8 million, $1.3 million and $2.6
million.  The Class F term  certificate,  which was retained by Allegiance,  was
unrated while the other term  certificates  received  ratings from Duff & Phelps
ranging from AA to B.

         Because of Allegiance's right to redeem the term certificates if 15% or
less  in  principal  amount  of  certificates  is  outstanding,  the  Allegiance
Financing  does not qualify for sale  treatment  under  Statement  of  Financial
Accounting Standard No. 125 ("SFAS 125"), Accounting for Transfers and Servicing
of  Financial  Assets  and  Extinguishments  of  Liabilities.  Accordingly,  the
Allegiance Financing will not receive gain on sale treatment under SFAS 125. The
loans and  borrowings  under  the  Allegiance  Financing  are  reflected  on the
Consolidated Balance Sheets.

         In connection with the Allegiance Financing,  Allegiance Capital paid a
$175,000 commitment fee when funds were initially  borrowed.  Of such commitment
fee,  $58,000  has  been  amortized  over  the  expected  life of the  revolving
certificates  (10 months) and $117,000 will be amortized  over the expected life
of  the  term  certificates  (15  years).  In  connection  with  the  extension,
Allegiance  paid a  $125,000  commitment  fee.  Of  such  fee,  $42,000  will be
amortized  over the expected life of the revolving  certificates  (8 months) and
$83,000 will be amortized  over the expected life of the term  certificates  (15
years).  These  allocations  were  based on an  estimate  of the  portion of the
commitment  fee  attributable  to  the  revolving   certificates  and  the  term
certificates.


                                       8
<PAGE>


         In connection  with the extension of the  Allegiance  Financing,  Point
West agreed to provide  additional cash to Allegiance  Trust I in the event that
monthly LIBOR interest rates exceed 6.16%. The amount of cash will be a function
of  several  variables  including  the  monthly  LIBOR  interest  rate  and  the
outstanding  balance of the Class A-R  certificate.  At present the  outstanding
balance of the Class A-R certificate is zero.

7.        Long Term Notes Payable
--        -----------------------

         The Senior Viatical  Settlement Notes,  Series 1995-A,  Stated Maturity
March 10, 2005 (the  "Securitized  Notes")  were issued by DPFC.  Principal  and
interest  payments on the Securitized  Notes are payable solely from collections
on pledged  policies and  deposited  funds.  The  Securitized  Notes,  which are
reported on the Consolidated  Balance Sheets as long term notes payable,  bear a
fixed interest rate of 9.17% per annum.

         The Securitized  Notes  represent the  obligations  solely of DPFC. The
Company's consolidated financial statements include the assets,  liabilities and
operations  of  DPFC;  however,  the  assets  of DPFC are not  available  to pay
creditors  of  Point  West.  The  assets  of DPFC are the  beneficial  ownership
interests in the life insurance  policies and funds which secure the Securitized
Notes.  From 1996 through the third quarter of 1998, losses associated with DPFC
were charged  against the reserve which was  originally  established in 1996 for
the estimated  loss of Point West's equity  interest in DPFC.  See Note 4. Since
the third quarter of 1998,  losses  associated  with DPFC after depletion of the
reserve  have  been  reflected  in  the  Company's   Consolidated  Statement  of
Operations and Comprehensive  Income (Loss) in the appropriate  period. Upon the
retirement of the  Securitized  Notes,  the Company will  recognize a gain in an
amount  approximately  equal to any accumulated  deficit reflected (less any tax
effect  for debt  forgiveness).  For the first  nine  months  of 1999,  the loss
associated  with DPFC was  approximately  $3.1  million.  At September 30, 1999,
DPFC's accumulated deficit was $4.8 million.

         Point West is the servicer of the policies  pledged under the Indenture
pursuant to which the Securitized Notes were issued (the "Indenture") and incurs
servicing expenses (which are reimbursed,  subject to certain priority payments)
in connection therewith.

         The  Company  is in  discussions  with the  Noteholders  regarding  the
possible   purchase  of  policies  and   cancellation  of  indebtedness  by  the
Noteholders. See Note 4.

8.        Debentures
--        ----------

         Point West Ventures has issued one debenture in the principal amount of
$3 million payable to the Small Business Administration ("SBA") with semi-annual
interest  only  payments  at a fixed rate of 5.9%  (plus a 1% annual  fee) and a
scheduled  maturity date of September 1, 2008. In addition,  Point West Ventures
paid to the SBA a $105,000  fee (3.5% of the total  borrowings)  to borrow  such
money.  The  debenture  is  subject  to a  prepayment  penalty  if paid prior to
September 1, 2003.

                                       9

<PAGE>



9.        Stockholders' Equity
--        ---------------------

         Changes in  stockholders'  equity  during the first nine months of 1999
reflected the following:

Stockholders' equity, beginning of period                      $14,829,561
   Common stock -- options exercised                                   973
   Additional paid-in-capital -- options exercised                 326,783
   Accumulated comprehensive income -- net unrealized
          investment gains                                       3,398,142
   Net income                                                    5,420,878
                                                               -----------
Stockholders' equity, end of period                            $23,976,337

10.       Comprehensive Income -- Net Unrealized Investment Gains (Losses)
--        ----------------------------------------------------------------

         Statement  of  Financial  Accounting  Standard  No. 130  ("SFAS  130"),
Reporting  Comprehensive Income, requires the reporting of comprehensive income.
For the nine months ended September 30, 1999, the Company's total  comprehensive
income  includes net unrealized  investment  gains,  net of applicable  taxes of
$291,000,  which represents the increase in the Company's investment  securities
classified as available-for-sale.

         The Company originally reported "Comprehensive Income -- Net Unrealized
Investment  Gains (Losses)" of $(3.3) million and $2.4 million for the three and
nine months ended  September  30, 1998,  respectively,  in its Form 10-Q for the
period ended  September 30, 1998. Of these  unrealized  gains  (losses),  $(1.0)
million and $4.8 million in the three and nine months ended  September 30, 1998,
respectively,  related to  unrealized  gains  (losses)  on  certain  convertible
preferred shares originally classified as available-for-sale. In this Form 10-Q,
the Company has  reported  "Comprehensive  Income -- Net  Unrealized  Investment
Gains (Losses)" for the same periods of $(2.3) million and $(2.4)  million.  The
difference in numbers reported is due to a reclassification of those convertible
preferred shares from available-for-sale to non-marketable securities, which are
carried  at cost.  See  Notes 2 and 5. In both  periods,  such  securities  were
convertible  into  marketable   securities  but  nonetheless  should  have  been
reflected  at September  30, 1998 as  non-marketable  securities  under GAAP and
carried at cost with corresponding footnote disclosure regarding any significant
appreciation  or  permanent  impairment.  During  the first  half of 1999,  such
securities were converted into common shares and sold.

11.       Earnings per Share
--        ------------------

         Earnings per share ("EPS") is calculated in accordance  with  Statement
of Financial  Accounting  Standard  No.128  ("SFAS 128").  The  weighted-average
number of common stock shares and additional common stock equivalent shares used
in computing EPS are set forth below for the periods indicated.
<TABLE>
<CAPTION>

                                                            Three Months Ended             Nine Months Ended
                                                               September 30,                 September  30,
                                                             1999         1998             1999        1998

<S>                                                         <C>           <C>             <C>          <C>

Weighted-average number of shares of common
 stock outstanding.........................                 3,350,624  3,253,324          3,321,888    3,253,324
Additional common stock equivalents........                   198,912         --            326,141           --
                                                            ---------  ---------          ---------   ----------
Weighted-average number of shares of common
 stock and common stock equivalents
 outstanding...............................                 3,549,536  3,253,324          3,648,029    3,253,324

</TABLE>

                                       10
<PAGE>


         Diluted EPS for the three and nine months ended  September  30, 1998 do
not include any common stock equivalents due to their anti-dilutive effect.

12.       Litigation
--        ----------

         On  December  19,  1996,  a  complaint  was filed in the United  States
District  Court,  Northern  District of  California  (the  "Court")  (Docket No.
C96-4558)  against Dignity Partners,  Inc. (now Point West Capital  Corporation)
and each of its  directors by three  individuals  purporting to act on behalf of
themselves  and an alleged class  consisting of all  purchasers of the Company's
common stock during the period February 14, 1996 to July 16, 1996. The complaint
alleges that the defendants  violated  Section 10(b) of the Securities  Exchange
Act of 1934 and Rule 10b-5  thereunder  and Section 11 of the  Securities Act of
1933 and seeks, among other things,  compensatory  damages,  interest,  fees and
costs. The allegations were based on alleged misrepresentations in and omissions
from the Company's  registration statement and prospectus related to its initial
public  offering and certain  documents  filed by the Company under the Exchange
Act. On April 24, 1998,  the Court granted the  Company's and other  defendants'
motion to  dismiss as it related to the  Section 11 claims  with  prejudice  but
denied the motion to dismiss the claims under Section 10(b) and Rule 10b-5 as to
all  defendants  other than Mr.  Bow,  one of Point  West's  outside  directors.
Plaintiffs  appealed this  dismissal to the United States  Circuit Court for the
Ninth Circuit.  On November 13, 1998, the Court granted  plaintiff's  motion for
class  certification.  On March 11, 1999,  defendants filed a motion for summary
judgement  which was denied.  In August  1999,  the Ninth  Circuit  reversed the
United States  District  Court's ruling in regard to the Section 11 claims.  The
plaintiffs and defendants have executed a memorandum of understanding  providing
for a settlement  pursuant to which all claims against all  defendants  would be
dismissed.  The  memorandum of  understanding  provides for the payment of $3.15
million  to the  plaintiffs.  Under the  terms of the  Company's  D&O  insurance
policy,  the Company's insurer is obligated to pay 70% of the settlement amount.
The settlement is subject to negotiation and execution of further  documentation
and court  approval.  No  assurance  can be given that a  definitive  settlement
agreement will be reached, or, if reached, will be approved by the Court. In the
event a  settlement  is not  effected,  the Company  and each of the  defendants
intend to continue to defend the action vigorously.

         On February 13, 1997,  a complaint  was filed in the Superior  Court of
California, City and County of San Francisco (Docket No. 984643) against Dignity
Partners,  Inc.,  and each of its  executive  officers and New Echelon LLC by an
individual  purporting  to  act on  behalf  of  himself  and  an  alleged  class
consisting of all  purchasers  of the  Company's  common stock during the period
February 14, 1996 to July 16, 1996.  The complaint  alleges that the  defendants
violated  section 25400 of the  California  Corporate  Code and seeks to recover
damages. The allegations are based on alleged misstatements,  concealment and/or
misrepresentations and omissions of allegedly material information in connection
with the Company's initial public offering and subsequent disclosures.  The case
has been stayed since its  inception by agreement of the parties.  However,  the
claims in this case are covered by the  memorandum  of  understanding  described
above  and  will  also  be  dismissed  pursuant  to the  settlement  arrangement
described  above if it  becomes  effective.  In the  event a  settlement  is not
effected,  the  Company and each of the  defendants  intend to defend the action
vigorously.

         As a result of having reached a settlement agreement in principle,  the
Company recorded an accrued litigation settlement liability of $3.15 million and
an accounts receivable from the insurance company of $2.2 million. The remaining
amount  of  $945,000  was  expensed  in  the  second  quarter  of  1999  in  the
Consolidated Statements of Operations and Comprehensive Income (Loss).

                                       11

<PAGE>



13.       Segment Reporting
--        -----------------

         Statement  of  Financial  Accounting  Standard  No. 131  ("SFAS  131"),
Disclosures about Segments of an Enterprise and Related Information, establishes
standards for reporting information about operating segments in annual financial
statements and requires selected information about operating segments in interim
financial reports. Operating segments are defined as components of an enterprise
about which  separate  financial  information  is  available  that is  evaluated
regularly by the chief  operating  decision  maker, or decision making group, in
deciding how to allocate resources and in assessing  performance.  The Company's
chief operating decision making group is comprised of the Chairman of the Board,
the President and the Chief Financial Officer of Point West.

         The  Company's   reportable   operating   segments   include   Viatical
Settlements,  Ventures and Allegiance. The Other segment includes Point West and
PWS. The  accounting  policies of the  operating  segments are the same as those
described in the summary of significant accounting policies in the Form 10-K.

                                       12

<PAGE>

         The following tables represent the Company's  results from segments for
the three months ended September 30, 1999 and 1998.
<TABLE>
<CAPTION>
                                   Three Months Ended September 30, 1999
                     -----------------------------------------------------------------------------------------

                               Viatical
                           Settlements (1)        Ventures           Allegiance          Other             Total
                           ---------------        --------           ----------          -----             -----

<S>                           <C>                    <C>                  <C>           <C>                 <C>
Interest income......         $    19,488       $    475,996      $    517,361      $    61,393   $     1,074,238
Gain on sale of
   securities.........                 --          3,499,686                --        2,447,037         5,946,723
Other revenue........              99,052                 --             10,000           9,134           118,186
Interest expense......            879,651             52,478            381,036              --         1,313,165
Depreciation &
   Amortization......              58,720              7,500             67,819           2,258           136,297
Income tax expense.                    --                 --             30,380         516,885           547,265
Contributed income
   (loss) (2)............        (884,027)         3,912,443           (156,166)      1,290,956         4,163,206
Comprehensive
  Income (loss)......                  --        (11,761,748)                --          (1,250)      (11,762,998)
Segment assets......           33,962,584         20,791,042          29,915,252     10,410,243        95,079,121


</TABLE>

<TABLE>
<CAPTION>
                                   Three Months Ended September 30, 1998
                     -----------------------------------------------------------------------------------------

                               Viatical
                           Settlements (1)        Ventures           Allegiance          Other             Total
                           ---------------        --------           ----------          -----             -----

<S>                           <C>                    <C>                  <C>           <C>                 <C>
Interest income......         $    50,569       $     32,213      $    139,934      $   127,502  $        350,218
Gain on sale of
   securities.........                 --             24,691                --           85,000           109,691
Other revenue........             156,825                 --           (12,539)              --           144,286
Interest expense......            879,651             45,894                --               --           925,545
Depreciation &
   Amortization......              58,720             10,759             1,927            1,240            72,646
Income tax expense.                    --                 --                --               --                --
Contributed income
   (loss) (2)............        (439,139)         (1,019,650)           2,319         (427,781)       (1,884,251)
Comprehensive
  Income (loss)......                  --          (2,326,692)              --               --        (2,326,692)
Segment assets......           38,195,121           7,330,338(3)     6,275,716        7,089,930        58,891,105(3)


</TABLE>
                                       13
<PAGE>



         The following tables represent the Company's  results from segments for
the nine months ended September 30, 1999 and 1998.

<TABLE>
<CAPTION>



                                                 Nine Months Ended September 30, 1999
                           -----------------------------------------------------------------------------------------
                               Viatical
                            Settlements (1)       Ventures         Allegiance          Other             Total
                            ---------------       ---------        ----------          -----             -----
<S>                           <C>                    <C>                  <C>           <C>                <C>


Interest income......        $       65,178   $       795,579     $  1,109,725  $      174,227   $       2,144,709
Gain on sale of
   securities.........                   --         8,942,455               --       2,764,487          11,706,942
Other revenue........               262,578            46,458           10,000         228,491             547,527
Interest expense......            2,634,131           155,722          730,459              --           3,520,312
Depreciation &
  amortization.......               176,160            22,500          187,350           5,934             391,944
Income tax expense .                    800               800           43,880         519,285             564,765
Contributed  income
   (loss) (2)............       (2,765,830)         9,061,763        (346,432)       (528,623)           5,420,878
Comprehensive
  income (loss)........                 --          3,501,892              --        (103,750)           3,398,142
Segment assets......            33,962,584         20,791,042      29,915,252       10,410,243          95,079,121


</TABLE>

<TABLE>
<CAPTION>


                                                        Nine Months Ended September 30, 1998
                           -----------------------------------------------------------------------------------------
                               Viatical
                            Settlements (1)       Ventures         Allegiance          Other             Total
                            ---------------       ---------        ----------          -----             -----

<S>                           <C>                    <C>                 <C>            <C>                <C>
Interest income......         $     157,783   $       150,891     $    424,168  $       316,531   $      1,049,373

Gain on sale of
   securities.........                   --            24,691               --           85,000            109,691
Other revenue........               768,815                --           (9,088)          69,625            829,352
Interest expense......            2,651,693            45,894               --               --          2,697,587
Depreciation &
  amortization.......               176,160            15,775            4,783            2,443            199,161
Income tax expense .                     --                --               --               --                 --
Contributed        income
(loss) (2)..............           (115,513)         (937,199)          213,193      (1,209,512)        (2,049,031)
Comprehensive
  income (loss) (3)...                    --       (2,407,344)               --              --         (2,407,344)
Segment assets.......             38,195,121        7,330,338(3)      6,275,716       7,089,930         58,891,105(3)
<FN>


--
(1)  The  Viatical   Settlements  segment  includes  results  of  operations  in
     connection with viatical settlements for DPFC and Point West.
(2)  Corporate  overhead  and income tax  expense  are not  generally  allocated
     between segments and are included in the Other segment.
(3)  Reflects  a  reclassification  of  convertible  preferred  shares  held  by
     Ventures from  available-for-sale to non-marketable  securities,  which are
     carried at cost. See Note 10.

</FN>
</TABLE>


                                       14

<PAGE>



         A reconciliation  of the totals reported for the operating  segments to
the  applicable  line  items  in the  consolidated  financial  statements  is as
follows:


                                                 Three Months Ended
                                                ------------------
                                          September 30, 1999  September 30, 1998
          Income
          ------
          Interest income                 $    1,074,238     $      350,218
          Gain on sale of securities           5,946,723            109,691
          Other revenue                          118,186            144,286
                                          ---------------    ---------------
           Total income                   $    7,139,147     $      604,195


                                                Nine Months Ended
                                                ------------------


                                          September 30, 1999  September 30, 1998
          Income
          ------
          Interest income                 $    2,144,709     $    1,049,373
          Gain on sale of securities          11,706,942            109,691
          Other revenue                          547,527            829,352
                                          ---------------    ---------------
           Total income                   $   14,399,178     $    1,988,416


14.       Events Subsequent to the Balance Sheet Date
--        -------------------------------------------

         Ventures  has  invested  a total  of $2.9  million  in four  new  small
business entities through November 10, 1999.


                                       15


<PAGE>



                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                -------------------------------------------------
                       CONDITION AND RESULTS OF OPERATIONS
                       -----------------------------------

         The  following  is  a  discussion  and  analysis  of  the  consolidated
financial  condition of the Company as of September 30, 1999, and of the results
of operations for the Company for the three and nine months ended  September 30,
1999 and 1998, and of certain factors that may affect the Company's  prospective
financial  condition and results of operations.  The following should be read in
conjunction  with the unaudited  consolidated  financial  statements and related
notes appearing elsewhere herein. For the reasons set forth below (including the
inception  of two new  businesses  in the second  half of 1997  which  generated
substantially  more  activity in the first nine  months of 1999  compared to the
first nine months of 1998) the Company's  results of  operations  and cash flows
for the three and nine months ended  September  30, 1999 are not  comparable  to
those for the three and nine months ended September 30, 1998.

Overview
--------

         Point West is a specialty  financial  services  company.  The Company's
financial statements consolidate the assets, liabilities and operations of DPFC,
Ventures,  Allegiance  and  PWS.  See the  Form  10-K  and  Condensed  Notes  to
Consolidated  Financial  Statements  (contained herein) for further  information
regarding these entities.

         The principal  business  activity of the Company through  February 1997
was to provide  viatical  settlements  for terminally ill persons.  See the Form
10-K for further  information  regarding the Company's former principal business
activity.  Subsequently,  the Company has become a more broadly-based  specialty
financial  services  company.  During 1997,  the Company  expanded its financial
services  business  through the  operations of Ventures,  which invests in small
businesses,  and  Allegiance,  which  lends funds to funeral  home and  cemetery
owners.  During 1998,  the Company formed PWS, a  broker-dealer  licensed by the
National  Association  of  Securities  Dealers,  Inc.  The Company  continues to
service the life  insurance  policies held by its wholly owned  special  purpose
subsidiary,  DPFC. See Note 4 of the Condensed Notes to  Consolidated  Financial
Statements (contained herein).

         Information  regarding  the  revenues,  contributed  income  (loss) and
identifiable  assets for each of the Company's business segments is contained in
Note 13 of the Condensed Notes to Consolidated  Financial Statements  (contained
herein).

         The Company continues to evaluate new business opportunities. Ventures,
Allegiance and PWS, whose business  activities are described  below,  may or may
not be  indicative  of the types of  business  opportunities  the  Company  will
continue  to  pursue.  No  assurance  can be  given  that  the  Company  will be
successful in becoming a broad-based  specialty  financial  services  company or
that any such enterprise will be successful.  The Company is seeking advice from
financial  advisors to assist it in its strategy of  developing or acquiring new
operating  businesses.  See "Considerations  Under the Investment Company Act of
1940."

Results of Operations for the Company
-------------------------------------

     Three and Nine Months Ended  September  30, 1999  Compared to the Three and
     ---------------------------------------------------------------------------
     Nine Months Ended September 30, 1998
     ------------------------------------

         Total Income.  Total income  increased  $6.5 million to $7.1 million in
the third  quarter of 1999 from  $604,000  in the third  quarter  of 1998.  This
increase  was due  primarily to $3.5 million and $2.4 million of gain on sale of
securities by Ventures and Point West, respectively, during the third quarter of
1999.  The  increase  was also due to a $724,000  increase  in  interest  income
primarily  related  to loans  held

                                       16

<PAGE>


by  Allegiance  and  Ventures.  Total income  increased  $12.4  million to $14.4
million  in the first  nine  months of 1999 from $2.0  million in the first nine
months of 1998.  This increase was due primarily to $8.9 million of gain on sale
of  securities  by  Ventures   during  the  first  nine  months  of  1999.  Also
contributing  to the increase was (i) $2.8 million of gain on sale of securities
by Point West, (ii) a $1.1 million increase in interest income primarily related
to loans held by Allegiance and Ventures and (iii) a $119,000  increase in other
income  primarily  related  to a fee  received  by PWS  for  investment  banking
services.  Offsetting  the increase in the first nine months of 1999 compared to
the first nine  months of 1998 was an  aggregate  decrease of $401,000 in income
related to the  Viatical  Settlement  segment.  See  "Results of  Operations  by
Segment -- Viatical  Settlements  -- Three and Nine Months Ended  September  30,
1999  Compared to the Three and Nine Months Ended  September  30, 1998 -- Earned
Discounts on Matured Policies" and " -- Gain on Assets Sold."

         Total Expenses.  Total expenses  decreased 17.2% to $2.4 million in the
third  quarter  of 1999 from $2.9  million in the third  quarter  of 1998.  This
decrease was primarily due to a $1.1 million loss on  non-marketable  securities
recorded  in the third  quarter of 1998.  Offsetting  this  decrease  were (i) a
$388,000 increase in interest expense related to borrowings by Allegiance,  (ii)
a $170,000 increase in compensation and benefits expense primarily related to an
increase  in  salaries  paid to  employees  and  (iii)  a  $63,000  increase  in
amortization costs related to the Allegiance Financing.

         Total expenses increased 33.3% to $8.4 million in the first nine months
of 1999 from $6.3  million in the first nine months of 1998.  This  increase was
primarily due to $945,000 of estimated litigation expense recorded in the second
quarter of 1999 reflecting the amount of the proposed settlement  arrangement of
the pending  federal class action and state  alleged  class action  lawsuits not
covered  by  insurance.  The  proposed  settlement  is  subject  to a number  of
contingencies  described  in  Note 12 of the  Condensed  Notes  to  Consolidated
Financial Statements  (contained herein). Also contributing to the increase were
(i) a $823,000 increase in interest expense related to borrowings by Allegiance,
(ii) a $259,000  increase in compensation and benefits expense primarily related
to an increase  in  salaries  paid to  employees,  (iii) a $189,000  increase in
amortization costs related to the Allegiance Financing, (iv) a $133,000 increase
in legal expenses incurred in connection with the federal class action and state
alleged class action lawsuits filed against Point West and its directors and (v)
a $140,000  write-off  of a loan  recognized  by Point  West.  See  "Results  of
Operations  by Segment -- Other -- Other General and  Administrative  Expenses."
The Company  wrote-off  $535,000 of  non-marketable  securities during the first
nine  months of 1999.  This  compares  to a $1.1  million  write-off  during the
comparable 1998 period, thereby offsetting the increase in total expenses in the
first nine months of 1999 compared to the first nine months of 1998.

         Income Tax  Expense.  The income tax expense of $547,000  and  $565,000
recorded in the three and nine months ended September 30, 1999, respectively, is
primarily  related  to the  state  tax  expense  for gain on sale of  securities
recognized by Point West and Ventures. See "Income Taxes."

         Net Loss in Wholly Owned  Financing  Subsidiary  Charged to Reserve for
Equity Interest.  The DPFC net loss of $407,000 and $2.3 million recorded in the
three and nine months ended  September 30, 1998,  respectively,  was included in
the Company's loss before net loss in wholly owned financing  subsidiary charged
to reserve for equity interest. Prior to the depletion of the reserve during the
third  quarter of 1998,  losses  were  charged  against  the  reserve for equity
interest  in wholly  owned  financing  subsidiary.  After the  reserve was fully
depleted during the third quarter of 1998,  DPFC's losses have been reflected in
the Company's net income (loss). All additional losses of DPFC will be reflected
in the  Company's  net income (loss) for the periods in which such losses occur.
See the Form 10-K for additional information.


                                       17

<PAGE>


         Comprehensive  Income  -- Net  Unrealized  Investment  Gains  (Losses).
Comprehensive income -- net unrealized  investment gains (losses) for any period
reflects unrealized gains or losses on marketable securities during that period.
The line item  changes as a result of (i)  fluctuations  in the market  value of
marketable  securities from period to period, (ii) acquisitions and dispositions
of marketable securities from period to period and (iii) the recharacterizations
of investments from non-marketable  securities (which are reflected at the lower
of cost or market value) to marketable  securities  (which are reflected at fair
market value).  During the first quarter of 1999, one of Ventures'  investments,
FlashNet Communications Inc. ("FlashNet"), completed an initial public offering.
As a result of the  offering,  the  FlashNet  securities  held by Ventures  were
recharacterized  from  non-marketable   securities  to  marketable   securities.
Primarily  as a result of the  recharacterization  of FlashNet  shares and other
non-marketable securities to marketable securities,  comprehensive income -- net
unrealized  investment  gains  (losses) for the nine months ended  September 30,
1999 was $3.4 million versus $(2.4) million for the comparable 1998 period.  The
increase was also impacted,  both  positively and  negatively,  by the amount of
marketable  securities  held and  changes  in the  value  of  those  securities.
Comprehensive  income -- net unrealized  investment losses for the third quarter
of 1999 was $(11.8)  million,  primarily  reflecting  the decrease in the market
value of the FlashNet  securities  between June 30, 1999 and  September 30, 1999
and the sale of shares of FlashNet securities in September 1999.

         The Company originally reported "Comprehensive Income -- Net Unrealized
Investment  Gains (Losses)" of $(3.3) million and $2.4 million for the three and
nine months ended  September  30, 1998,  respectively,  in its Form 10-Q for the
period ended  September 30, 1998. Of these  unrealized  gains  (losses),  $(1.0)
million and $4.8 million in the three and nine months ended  September 30, 1998,
respectively,  related to  unrealized  gains  (losses)  on  certain  convertible
preferred shares originally classified as available-for-sale. In this Form 10-Q,
the Company has  reported  "Comprehensive  Income -- Net  Unrealized  Investment
Gains (Losses)" for the same periods of $(2.3) million and $(2.4)  million.  The
difference in numbers reported is due to a reclassification of those convertible
preferred shares from available-for-sale to non-marketable securities, which are
carried  at cost.  See  Notes 2 and 5 of the  Condensed  Notes  to  Consolidated
Financial  Statements.  In both periods,  such securities were  convertible into
marketable  securities but  nonetheless  should have been reflected at September
30,  1998 as  non-marketable  securities  under  GAAP and  carried  at cost with
corresponding  footnote  disclosure  regarding any  significant  appreciation or
permanent  impairment.  During  the first  half of 1999,  such  securities  were
converted  into common shares and sold. See "Results of Operations by Segment --
Ventures"  and  Note  10  of  the  Condensed  Notes  to  Consolidated  Financial
Statements.

Results of Operations by Segment
--------------------------------

     Viatical Settlements
     --------------------

         The Viatical  Settlements  segment  includes  results of  operations in
connection with viatical settlements for DPFC and Point West.

         Method of Accounting for Viatical Settlements

         As a  result  of  the  Company's  decision  in  1996  to  sell  all  or
substantially all of its assets,  the Company  established a reserve for loss on
sale of assets during 1996. This reserve is reevaluated  quarterly.  The reserve
for loss on sale of assets was $132,000 as of September 30, 1999 and $167,000 as
of December 31, 1998. In 1996,  the Company also  established a reserve for loss
of Point  West's  equity  interest in DPFC.  By the end of the third  quarter of
1998,  the  equity  reserve  was  fully   depleted.   See  "Certain   Accounting
Implications for DPFC." During both 1998 and 1999, the Company recognized income
with respect to its  viatical  settlement  business  upon receipt of proceeds on
policies  (either

                                       18

<PAGE>


pursuant  to sale of the  policy or the death of the  insured).  Such  income is
equal to the difference  between such proceeds (less any back-end sourcing fees)
and the carrying  value of such policies  after giving effect to any reserve for
loss on the sale of such policies.

         Certain Accounting Implications for DPFC

         Although  the  Securitized  Notes have a stated  maturity  of March 10,
2005, the Securitized Notes were originally  expected to be repaid by the fourth
quarter  of 1997.  However,  at  September  30,  1999,  $38.5  million  remained
outstanding  under  the  Securitized  Notes.  As a result  of the  substantially
delayed  collection  of DPFC  policies,  DPFC had a deficit  of $4.8  million at
September 30, 1999.

         If the  collection  experience  for the DPFC  policies  continues to be
substantially  delayed,  DPFC's  deficit  will  increase  for one or more of the
following  reasons.  First,  a decision to discontinue  paying  premiums on some
policies may be made because the present value of the expected  death benefit on
some  policies  may be less than  expected  future  premiums  to be paid on such
policies. Second, the face value of certain policies (especially group term) may
begin to  decrease  as the  people  whose  lives are  insured  thereunder  reach
specified age levels (often 65).  Finally,  policies for which the insurance was
continued under a disability  provision may be uneconomical to convert given the
insured's age and life expectancy if such insured person is no longer considered
disabled.  The Company cannot  determine at present the extent to which policies
held by DPFC will be so affected.

         In the first nine months of 1999,  the total loss  realized by DPFC was
$3.1 million,  which was reflected in the Company's net income. The loss for the
first nine months of 1999 decreased basic EPS by $0.93.  The average  historical
quarterly losses in DPFC have been  approximately  $1.1 million per quarter over
the past four  quarters.  Upon the  retirement  of the  Securitized  Notes,  the
Company  will  recognize  a  gain  in  an  amount  approximately  equal  to  any
accumulated deficit of DPFC (less any tax effect for debt forgiveness).

         The Securitized  Notes represent the obligations  solely of DPFC. Point
West did not guarantee repayment of the Securitized Notes and is not required to
fund any principal or interest deficiencies thereunder.

         Three and Nine Months Ended  September  30, 1999  Compared to the Three
         and Nine Months Ended September 30, 1998

         Earned  Discounts  on Matured  Policies.  Earned  discounts  on matured
policies increased 16.9% to $76,000 in the third quarter of 1999 from $65,000 in
the third  quarter of 1998 due to an  increase  in the number and face amount of
matured policies.  During the third quarter of 1999, earned discounts on matured
policies were recognized on 11 policies with a face value of $783,000,  compared
to 6 policies with a face value of $542,000 in the third quarter of 1998. Earned
discounts  on matured  policies  decreased  56.6% to  $187,000 in the first nine
months of 1999 from  $431,000 in the first nine months of 1998.  The decrease is
due primarily to fewer deaths of insureds and  secondarily  to a decrease in the
size of the Company's  portfolio of life  insurance  policies.  During the first
nine months of 1999,  earned discounts on matured policies were recognized on 35
policies with a face value of $2.2 million,  compared to 44 policies with a face
value of $2.9  million  in the  first  nine  months  of  1998.  See  "Method  of
Accounting for Viatical Settlements." As of September 30, 1999, the Company held
471 policies with an aggregate  carrying  value of $32.2  million  (comprised of
"matured policies receivable," "purchased life insurance policies" and a portion
of "other  assets") and an  aggregate  face value of $37.4  million.  All of the
"purchased  life  insurance  policies"  and "matured  policies  receivable"  are
pledged as security for the Securitized Notes.

                                       19

<PAGE>


          Interest  Income.  Interest  income  decreased 62.7% to $19,000 in the
third  quarter of 1999 from  $51,000  in the third  quarter of 1998 and 58.9% to
$65,000 in the first nine months of 1999 from  $158,000 in the first nine months
of 1998. This decrease was a result of lower cash balances  attributable to DPFC
and to lower yields on such cash balances.  DPFC's cash balances are affected by
the amount and timing of any policy  collections and by the amount and timing of
expenses  (such as interest,  trustee fees,  premium  costs and servicing  fees)
related to its  portfolio.  The cash  generated by DPFC is restricted  under the
Indenture.

         Gain on Assets  Sold.  The  Company  did not  collect  any  proceeds on
policies sold during the third quarter of 1999.  The Company  collected the sale
proceeds  on 1 policy  resulting  in a  realized  gain of  $15,000  in the third
quarter of 1998.  The gain on assets sold  decreased to $8,000 in the first nine
months of 1999 from  $165,000  in the first  nine  months of 1998.  The  Company
collected  the sale  proceeds  on one policy in the first  nine  months of 1999,
compared to seven  policies in the first nine months of 1998.  The realized gain
was  calculated  based  on the  difference  between  the sale  proceeds  and the
carrying  value after giving effect to the provision for loss on sale of assets.
The Company  collected a large portion of the sale proceeds from life  insurance
policies  in 1997,  therefore  there will be minimal (if any) gains or losses on
any assets sold in future periods.

         Other  Income.  Components  of  other  income  include  collections  on
policies of dividends, interest and paid-up cash values, increases in face value
of matured  policies and refunds of premiums on matured  policies.  Other income
decreased  70.1% to  $23,000 in the third  quarter  of 1999 from  $77,000 in the
third quarter of 1998. This decrease is due to a $65,000  increase in face value
on one policy realized during the third quarter of 1998.  Other income decreased
60.7% to  $68,000 in the first nine  months of 1999 from  $173,000  in the first
nine months of 1998. This decrease was due to the face value increase  described
above and to the decrease in the number and amount of matured policies.

         Interest  Expense.  Interest  expense was  $880,000  for both the third
quarter  of 1999 and the  third  quarter  of 1998.  Interest  expense  decreased
nominally to $2,634,131 in the first nine months of 1999 from  $2,651,693 in the
first nine months of 1998 as a result of modest principal repayments of $275,000
under the Securitized Notes during the second quarter of 1998.

         Other   General  and   Administrative   Expenses.   Other  general  and
administrative  expenses decreased 44.3% to $64,000 in the third quarter of 1999
from  $115,000  in the third  quarter of 1998 and 44.9% to $283,000 in the first
nine  months  of 1999  from  $514,000  in the first  nine  months of 1998.  This
decrease was due primarily to a decrease in life insurance policy premium costs.
Although  premium  costs  decreased  in both  periods of 1999 as a result of the
decrease in size of the Company's  portfolio,  the Company  believes that if the
life insurance policies continue to mature slowly,  life insurance premium costs
are likely to increase in future periods.  See "Certain Accounting  Implications
for DPFC."

     Ventures
     --------

         Method of Accounting for Loans and Debt and Equity Securities

         SFAS  115  requires   marketable  debt  and  equity  securities  to  be
classified into  held-to-maturity,  available-for-sale  and trading  categories.
Securities  classified as  available-for-sale  are reported on the  Consolidated
Balance  Sheets at fair market value with any  cumulative  unrealized  gains and
losses as a separate component of stockholders'  equity and any unrealized gains
and losses for the respective period as a separate line item on the Consolidated
Statements of Operations and Comprehensive Income (Loss).  Securities classified
as  held-to-maturity   included  U.S.  treasury  bills  reported  at  cost  with
maturities greater than three months, but less than one year. The Company had no
trading  securities  at September  30, 1999 and no  held-to-maturity  or trading
securities at December 31, 1998. The Company uses the cost


                                       20
<PAGE>


method to  account  for  non-marketable  securities.  The  Company  reviews on a
quarterly basis all non-marketable  securities and attempts to ascertain whether
the  value  is  impaired.  For  further  information  regarding  accounting  for
securities classified as available-for-sale,  see "Results of Operations for the
Company -- Three and Nine Months Ended  September 30, 1999 Compared to the Three
and  Nine  Months  Ended  September  30,  1998 --  Comprehensive  Income  -- Net
Unrealized  Investment Gains (Losses)" and Notes 2 and 10 to the Condensed Notes
to Consolidated  Financial  Statements.  Any realized gains and losses,  accrued
interest  and  dividends  and  unrealized  losses  on  securities  judged  to be
other-than-temporary  are reported on the Consolidated  Statements of Operations
and  Comprehensive  Income (Loss) on an appropriate  line item above "Net Income
(Loss)." See Note 2 of the Condensed Notes to Consolidated Financial Statements.

         Beginning in 1999,  because of the  volatility of internet and internet
related stocks,  Point West shorted stocks of certain competitors of FlashNet so
as to partially hedge Ventures' holdings in FlashNet.  However,  under GAAP such
hedging  activities  do not  constitute  hedges under SFAS 80.  Therefore,  such
hedging  activities  are  reflected in the Company's  Consolidated  Statement of
Operations and Comprehensive Income (Loss). At September 30, 1999 no such hedges
were in place.  The Company  recognized a $317,000 gain in connection  with such
hedging activities during the first quarter of 1999. See "Item 3 -- Quantitative
and Qualitative Disclosures About Market Risk."

         The  Company  accounts  for loans by accruing  interest on  outstanding
balances.  At September  30, 1999 and December 31, 1998,  the Company  evaluated
each of Ventures'  outstanding  loans and determined  that an allowance for loan
losses was not necessary.  As Ventures' loan portfolio  grows or upon subsequent
evaluation,  allowances  for loan losses will be added to the extent  considered
necessary.  See  Note  3  of  the  Condensed  Notes  to  Consolidated  Financial
Statements.

         Three and Nine Months Ended  September  30, 1999  Compared to the Three
         and Nine Months Ended September 30, 1998

         Interest Income.  Interest income increased $444,000 to $476,000 in the
third  quarter of 1999 from $32,000 in the third quarter of 1998 and $645,000 to
$796,000 in the first nine months of 1999 from $151,000 in the first nine months
of 1998.  This  increase was  primarily due to $383,000 and $625,000 of interest
income  recognized  in the three  and nine  months  ended  September  30,  1999,
respectively,  as  a  result  of  a  warrant  (valued  using  the  Black-Scholes
option-pricing model) received in connection with one of Ventures' loans.

         Gain on Sale of  Securities.  Ventures  recognized  a net  gain of $3.5
million and $8.9 million in the three and nine months ended  September 30, 1999,
respectively,  primarily in connection with the sale of two of its  investments,
including FlashNet. For federal tax purposes, the gain on sale of securities was
offset  by the  Company's  NOL's.  However,  the  gain  generated  a  state  tax
liability.  See "Income Tax."  Ventures  recognized a net gain of $25,000 in the
three and nine months ended September 30, 1998.

         Other Income. Ventures recognized other income of $46,000 in the second
quarter of 1999 in connection with the liquidation of a $1.0 million  investment
that was written-off in 1998.

         Interest  Expense.  Interest expense  increased to $52,000 in the third
quarter of 1999 from $46,000 in the third quarter of 1998 and to $156,000 in the
first nine  months of 1999 from  $46,000 in the first nine months of 1998 due to
the interest on funds  borrowed  from the SBA in July 1998.  The  interest  rate
(including a 1% annual fee) is 6.9%. Prior to July 1998, Ventures had no debt.

         Amortization. Amortization costs decreased 27.3% to $8,000 in the third
quarter of 1999 from  $11,000  in the third  quarter  of 1998.  The 1998  period
reflects  organizational  costs which are  currently

                                       21
<PAGE>

required to be expensed as  incurred  and were  written-off  at the end of 1998.
Amortization  costs  increased 43.8% to $23,000 in the first nine months of 1999
from  $16,000 in the first nine  months of 1998.  This  increase  was due to the
financing costs associated with the funds borrowed in July 1998.

         Loss on  Non-Marketable  Securities.  Ventures  reviews on a  quarterly
basis all non-marketable  securities and attempts to ascertain whether the value
is impaired.  As a result of such review,  Ventures  determined that $535,000 of
non-marketable  equity  securities of one company was impaired at June 30, 1999.
Therefore,  Ventures  wrote-off  the  entire  $535,000  carrying  value  of such
security.  In addition,  Ventures determined that $1.0 million of non-marketable
securities  of one company was impaired at September  30,  1998,  and  therefore
wrote-off its entire $1.0 million carrying value of such security.

     Allegiance
     ----------

         Method of Accounting for Loans

         The  Company  accounts  for loans  advanced by  Allegiance  by accruing
interest on  outstanding  balances.  At September 30, 1999 and December 31, 1998
the  allowance  for loan losses was  $135,000  and  $50,000,  respectively.  The
allowance  for loan losses is estimated by  management  based on a review of the
loans and factors which in  management's  judgement  deserve  recognition  under
current  economic  conditions.  Management  believes that the allowance for loan
losses is adequate.  Although management uses available information to recognize
losses on loans,  future  additions to the allowance  may be necessary  based on
changes in economic  conditions.  At September 30, 1999, one loan was in default
and on non-accrual status. This loan was not included in the collateral securing
the Allegiance Financing.

         Loan origination fees and direct loan origination costs are capitalized
and  recognized  over the life of the  related  loan as an  adjustment  of yield
(interest income) in accordance with SFAS 91.

         The  Allegiance  Financing  provides for long term fixed and short term
fixed and floating rate debt. On September 21, 1999, the revolving  certificates
then  outstanding  were repaid  through the  issuance of term  certificates.  In
addition,  the Company and Investors  extended the Allegiance  Financing through
April 15, 2000.  The  investors  agreed to continue to provide  revolving  debt,
subject to certain  limitations,  through April 15, 2000, on terms substantially
similar to those under the original revolving  certificates under the Allegiance
Financing, but with an increased weighted-average spread of approximately 0.05%.
Allegiance has agreed to retain an unrated revolving  certificate related to the
extension.  In addition,  the  Investors  agreed to provide up to $30 million of
additional term  financing,  subject to certain  limitations,  through April 15,
2000,  on  terms  substantially   similar  to  those  under  the  original  term
certificates  issued  under  the  Allegiance  Financing,  but with an  increased
weighted-average   spread  of  approximately  0.5%.  Term  financing  under  the
extension may be completed in minimum amounts of $15 million.

         Because of Allegiance's right to redeem the term certificates if 15% or
less  in  principal  amount  of  certificates  is  outstanding,  the  Allegiance
Financing does not qualify for sale treatment under SFAS 125.  Accordingly,  the
Allegiance Financing will not receive gain on sale treatment under SFAS 125. The
loans and  borrowings  under  the  Allegiance  Financing  are  reflected  on the
Consolidated Balance Sheets.

         Allegiance  uses  futures  contracts  to hedge  certain  interest  rate
exposure between the time of origination of the loans and the expected  issuance
of term  certificates.  The futures  contracts  are  intended to protect the net
interest margins earned on the loans. Any realized gain or loss related to these
hedges are deferred and  recognized by  Allegiance  over the life of the related
loan as an adjustment of interest income. Pursuant to SFAS 80, all such deferred
amounts are reflected on the Consolidated  Balance Sheets as an increase (in the
case of a hedging  loss) or  decrease  (in the case of a hedging  gain),  in the
carrying value of loans receivable. As of September 30, 1999, Allegiance had net
realized  gains on its

                                       22
<PAGE>


hedging  activities  of $215,000  which  decreased  loans  receivable  in a like
amount. As of September 30, 1999 Allegiance had no open hedging positions.

         Three and Nine Months Ended  September  30, 1999  Compared to the Three
         and Nine Months Ended September 30, 1998

         Interest Income.  Interest income increased $377,000 to $517,000 in the
third quarter of 1999 from $140,000 in the third quarter of 1998 and $676,000 to
$1.1  million in the first nine  months of 1999 from  $424,000 in the first nine
months  of  1998.  This  increase  was  due to  increased  lending  activity  by
Allegiance.  However,  offsetting  this  increase  was  $49,000  and  $83,000 of
interest  for the  third  quarter  of 1999 and the  first  nine  months of 1999,
respectively,  that was not  accrued  on one  delinquent  loan.  Allegiance  had
seventeen  loans  outstanding  in the  aggregate  amount  of  $29.4  million  at
September  30, 1999 as compared to two loans  outstanding  in the amount of $5.8
million at September 30, 1998. The  weighted-average  interest rate on the loans
outstanding  during the three and nine months ended  September 30, 1999 was 8.9%
compared to 9.5% during the three and nine months ended  September 30, 1998. The
weighted-average  interest rates for the 1999 periods decreased because one loan
in the  amount  of  $2.1  million  was  delinquent  and on  non-accrual  status.
Allegiance  cannot  predict at this time  whether or not the loan will remain on
non-accrual  status.  However,  to the  extent  that the  loan  does  remain  on
non-accrual  status,  Allegiance does not anticipate  receiving  interest income
(approximately  $16,000 per month) from such loan.  Allegiance  has  declared an
event of default and is in the process of taking  actions to foreclose on assets
securing  the  loan.  Allegiance  does not  believe  it will  incur  any loss in
connection with such loan.

         Interest  Expense.  Interest  expense for  Allegiance  was $381,000 and
$730,000 in the three and nine months ended September 30, 1999, respectively, as
a result of the interest paid under the Allegiance  Financing.  During the three
and nine months ended  September 30, 1999,  the  weighted-average  interest rate
under the Allegiance Financing was 7.6% and the weighted-average borrowings were
$16.5  million  and  $11.5  million,  respectively.   Prior  to  November  1998,
Allegiance had no debt.

         Compensation and Benefits. Compensation and benefits increased 10.0% to
$66,000 in the third  quarter of 1999 from $60,000 in the third  quarter of 1998
and 35.1% to  $181,000  in the first nine  months of 1999 from  $134,000  in the
first nine months of 1998. This increase  resulted from the hiring of additional
employees in 1999 to support Allegiance's lending activities.

         Other   General  and   Administrative   Expenses.   Other  general  and
administrative expenses were $138,000 in the third quarter of 1999. This was due
primarily to a $41,000  increase in general legal expense,  a $40,000  provision
for loan losses,  $17,000 in expenses  related to the  Allegiance  Financing,  a
$13,000  increase  in  accounting  expense and a $6,000  increase  in  marketing
expense.  There were no other general and administrative  expenses for the third
quarter of 1998  because  expenses  related  to loans  which  were  expensed  in
previous periods were required to be capitalized in accordance with SFAS 91. See
"Method of  Accounting  for Loans." Other  general and  administrative  expenses
increased  $262,000 to $323,000 in the first nine months of 1999 from $61,000 in
the first nine months of 1998.  This  increase  was due  primarily  to a $91,000
increase in general  legal  expense,  a $85,000  increase in allowance  for loan
losses,  $40,000 in expenses  related to the Allegiance  Financing and a $24,000
increase in marketing expense. In addition,  the increase was due to an increase
in Allegiance's activities.

         Amortization.  Amortization  costs  increased  to  $68,000 in the third
quarter of 1999 from  $2,000 in the third  quarter  1998 and to  $187,000 in the
first nine months of 1999 from $5,000 in the first nine months of 1998. The 1999
periods reflect  financing costs associated with the Allegiance  Financing.  The
1998 periods  reflect  organizational  costs which are currently  required to be
expensed as incurred and were written-off at the end of 1998.


                                       23
<PAGE>

     Other
     -----

         The Other segment  includes  operating  results for Point West and PWS.
Except for compensation and benefit expenses clearly attributable to Allegiance,
corporate  overhead is included in the Other segment and has not been allocated.
Activities for PWS were immaterial in the first nine months of 1999 and 1998.

         Three and Nine Months Ended  September  30, 1999  Compared to the Three
         and Nine Months Ended September 30, 1998

         Interest Income. Interest income declined 52.3% to $61,000 in the third
quarter of 1999 from $128,000 in the third quarter of 1998 and 45.1% to $174,000
in the first nine months of 1999 from $317,000 in the first nine months of 1998.
Interest income has declined because a larger portion of cash balances have been
invested in lower yielding instruments in 1999 compared to 1998.

         Gain on Sales of Securities.  Point West recognized a $2.4 million gain
in the  third  quarter  of  1999  in  connection  with  the  sale  of one of its
investments.  In addition,  Point West  recognized a $317,000  gain in the first
quarter of 1999 in  connection  with  hedging  activities  of  internet  related
stocks.  See "Item 3 -- Quantitative  and Qualitative  Disclosures  About Market
Risk."  Point West  recognized  a $85,000  gain in the third  quarter of 1998 in
connection with the sale of a debt security.

         Other Income.  Other income was $9,000 in the third quarter of 1999 due
to trading  commissions  generated by PWS. Other income increased to $228,000 in
the first nine  months of 1999 from  $70,000  in the first nine  months of 1998.
This increase was due to (i) an increase of $121,000 in fees received by PWS for
investment banking services and (ii) $37,000 in trading commissions generated by
PWS in the first nine months of 1999. The increase in other income was primarily
due to transaction based investment  banking services.  The amount and timing of
these  services in future  periods  cannot be  predicted  because of the limited
operating history of PWS.

         Compensation and Benefits. Compensation and benefits increased 46.2% to
$519,000 in the third quarter of 1999 from $355,000 in the third quarter of 1998
and 22.8% to $1.2 million in the first nine months of 1999 from  $977,000 in the
first nine months of 1998.  This  increase  was due  primarily to an increase in
compensation and benefits for employees in 1999.

         Other   General  and   Administrative   Expenses.   Other  general  and
administrative expenses decreased 12.1% to $188,000 in the third quarter of 1999
from $214,000 in the third  quarter of 1998.  This decrease was due to a $71,000
decrease in litigation expense.  Offsetting this decrease was a $21,000 increase
in rent  expense and a $14,000  increase in  clearing  expenses  related to PWS.
During the second quarter of 1999, the Company  renewed the lease on its current
space.   The  Company's   monthly  rent  increased  from  $5,240  per  month  to
approximately  $15,000  per month.  Other  general and  administrative  expenses
increased  $1.4  million to $2.0  million in the first nine  months of 1999 from
$632,000 in the first nine months of 1998.  This  increase was  primarily due to
$945,000 of estimated  litigation expense recorded in the second quarter of 1999
reflecting  the amount of the  proposed  settlement  arrangement  of the pending
federal  class action and state  alleged  class  action  lawsuits not covered by
insurance.  The  proposed  settlement  is subject  to a number of  contingencies
described in Note 12 of the Condensed Notes to Consolidated Financial Statements
(contained herein). Unless a settlement of these actions is effected, Point West
expects legal  expenses to increase  substantially  during the remainder of 1999
relative  to 1998.  Also  contributing  to the  increase  were a  $140,000  loan
write-off, a $133,000 increase in legal expenses incurred in connection with the
federal  and  state  alleged  class  action  lawsuits,  a  $70,000  increase  in
accounting expense and $37,000 increase in rent expense.

                                       24
<PAGE>


Liquidity and Capital Resources
-------------------------------

     Point West and PWS

         At present,  neither Point West nor PWS has an external  funding source
from which to fund its working capital and general  corporate needs.  During the
first nine months of 1999,  the Company  supported the operations of Point West,
PWS and Ventures  primarily  from cash balances.  In prior periods,  the Company
generated cash  primarily  from sales  proceeds of life  insurance  policies and
investment  securities.  The  Company  invested  the cash in the  growth  of its
businesses. At September 30, 1999, Point West and PWS' cash and cash equivalents
were  $7.0  million,   which  includes  government   securities   classified  as
"Investment  Securities --  Held-to-Maturity".  The Company continues to analyze
its current  and future  needs for  financing,  which will be  dependent  on its
ability to develop the businesses of Ventures,  Allegiance and PWS and any other
business  opportunities  the  Company  pursues.  See  "Considerations  Under the
Investment  Company Act of 1940." There can be no  assurance  that Point West or
PWS will be successful in obtaining  external  financing on  satisfactory  terms
assuming  the Company  determines  additional  funds are needed.  The Company at
present anticipates having sufficient  liquidity to meet the working capital and
operational  needs of Point West and PWS through  1999,  using  current cash and
cash equivalents.

     DPFC

         DPFC  does  not  have  operations.  Point  West,  as  servicer,  incurs
administrative  costs  associated  with the  Securitized  Notes.  Point  West is
reimbursed  for these costs  subject to  priority  provisions  contained  in the
Indenture.  As of September 30, 1999, the  outstanding  principal  amount of the
Securitized  Notes was $38.5 million.  As of the same date,  DPFC had restricted
cash of $1.4  million,  which  cannot  be  accessed  by Point  West  except  for
reimbursement  of costs  incurred in connection  with its activities as servicer
under the Indenture.  Principal and interest  payments on the Securitized  Notes
are payable solely from  collections  on policies  pledged to secure the payment
thereof and do not  require  Point West to expend  cash or obtain  financing  to
satisfy such principal and interest obligations.

     Ventures

         Ventures'   activities   have   generally  been  supported  by  capital
investments  by Point West,  by the sale of  investments  and the  repayment  by
obligors of loans. During 1997, Point West contributed $2.5 million to Ventures.
During 1998,  Point West  contributed  an  additional  $2.5 million to Ventures.
During the first quarter of 1999, Point West contributed an additional  $800,000
to  Ventures.  During the first nine months of 1999,  Ventures  generated  $11.2
million  of  proceeds  (net of  commissions)  from  the sale of  securities.  At
September 30, 1999, Ventures' cash and cash equivalents were $5.5 million

         Point West Ventures has an SBA debenture license and, therefore, may be
permitted,  based on capital investments by Point West and realized gains on the
sale of  securities,  to borrow up to $16.6 million from the SBA. Any borrowings
bear  interest at the rate for ten year  debentures  issued by SBIC's and funded
through public sales of  certificates  bearing the SBA's  guarantee  ("Debenture
Rate"). Interest is payable semi-annually.  In addition, there is a leverage fee
of 3% and a fee of 1% per annum on the outstanding  amount of debt.  Among other
requirements,  an SBIC  with an SBIC  debenture  license  must  maintain  proper
diversification of its portfolio. This requirement generally means that in order
to borrow funds from the SBA, no single  investment may exceed 20% of the SBIC's
regulatory capital plus its net unrealized  investment gains. The net unrealized
investment  gains may be used in this  calculation only if the SBIC has positive
retained earnings.  Additionally,  the portfolio must consist of a proper mix of
debt and equity  investments.  In July 1998,  Point West Ventures  borrowed $3.0
million from the SBA.  Point West  Ventures is permitted to borrow an additional
$13.6 million from the SBA.


                                       25
<PAGE>


         Ventures may not have sufficient liquidity, at least in the short term,
to grow its  business.  In  addition,  because of  substantial  appreciation  in
investments,  the Company may be required to restrict  Ventures' growth in order
to avoid  registration  under the Investment Company Act of 1940 at some time in
the future. See "Considerations Under the Investment Company Act of 1940."

     Allegiance

         As of  September  30,  1999,  Point West has  invested  $5.3 million in
Allegiance Capital.

         On August 19, 1998,  Allegiance put in place the  Allegiance  Financing
which has provided debt on a non-recourse revolving certificate basis to support
lending  activities  of  Allegiance.   On  September  21,  1999,  the  revolving
certificates  then  outstanding  were repaid  through  the  issuance of the term
certificates.  Such term certificates  provide fixed interest rate financing for
the life of the  underlying  loans.  In  addition,  the  Company  and  Investors
extended the Allegiance  Financing  through April 15, 2000. The Investors agreed
to continue to provide revolving debt, subject to certain  limitations,  through
April 15,  2000,  on terms  substantially  similar to those  under the  original
revolving  certificates  under the Allegiance  Financing,  but with an increased
weighted-average  spread of approximately 0.05%. Allegiance has agreed to retain
an unrated  revolving  certificate  related to the extension.  In addition,  the
Investors  agreed to provide up to $30  million of  additional  term  financing,
subject to certain  limitations,  through April 15, 2000, on terms substantially
similar  to  those  under  the  original  term  certificates  issued  under  the
Allegiance  Financing,   but  with  an  increased   weighted-average  spread  of
approximately  0.5%.  Term  financings  under the  extension may be completed in
minimum amounts of $15 million.

         The  Company  expects  that  the  Allegiance   Financing  will  provide
sufficient funds to support  Allegiance's  lending  activities through April 15,
2000. See Note 6 of the Condensed Notes to Consolidated Financial Statements.

Income Taxes
------------

         The  Company  has  significant  NOLs  for tax  purposes.  The  NOLs are
primarily  related to losses  incurred  by DPFC.  The  Company  has  established
valuation  allowances which offset completely the deferred tax assets related to
NOLs  because the Company  and DPFC have been  unable to  consistently  generate
taxable earnings. There has been no reduction made to the valuation allowance in
connection  with the gain upon the  anticipated  retirement  of the  Securitized
Notes  discussed  in Note 7 of the  Condensed  Notes to  Consolidated  Financial
Statements or the unrealized gains on investment  securities discussed in Note 2
of the Condensed Notes to Consolidated  Financial  Statements.  The Company will
reevaluate the amount of the valuation allowance in future periods.

Considerations Under the Investment Company Act of 1940
-------------------------------------------------------

         The  Investment  Company  Act  of  1940  (the  "1940  Act")  creates  a
comprehensive  regulatory framework applicable generally to investment companies
(i.e., companies engaged primarily in the business of investing,  reinvesting or
trading in securities  within the meaning of the 1940 Act,  whether or not those
companies  intend to be engaged  primarily in such business).  There are various
percentage  of assets and income tests under the 1940 Act and related rules (the
"Percentage Tests") that are relevant in considering whether a company is deemed
to be an  investment  company.  Companies  that are subject to the 1940 Act must
register  with the SEC as  investment  companies  and upon  registration  become
subject to extensive regulation.

                                       26
<PAGE>


         Although  the Company  believes  that it did not exceed the  Percentage
Tests at September 30, 1999,  it is possible  that it may exceed the  Percentage
Tests in the near future as a result of the following:

              Allegiance  has not  grown  its  commercial  lending  business  as
              quickly as the Company had expected;

              The  Company  has  been  unable  to  commence  or  acquire   other
              complementary  financial services  businesses as rapidly as it had
              hoped;

              The  success  of  Ventures,  which  holds a number  of  investment
              securities, has exceeded expectations; and

              The  success of other  investments  by the  Company  has  exceeded
              expectations.

         The  majority of  investment  securities  held by the Company have been
acquired  since  January  1998.  The aggregate  value of these  investments  has
increased substantially since the purchase dates. In particular,  Ventures holds
at November 15, 1999,  497,266 shares of FlashNet common stock that was acquired
for $887,764. During September, October and November 1999, Ventures sold 623,000
shares of FlashNet and has realized  $5.1  million of gains in  connection  with
such sales. At September 30, 1999, the price of FlashNet common stock was $8.00.
On November 8, 1999, Prodigy  Communications  Corporation  announced that it had
executed  definitive  documentation  to acquire  FlashNet  in a  stock-for-stock
merger.  The transaction is subject to FlashNet  shareholder  approval and other
customary conditions.

         In any event,  the Company does not believe that it should be deemed to
be an investment  company because it is not engaged primarily in the business of
investing,  reinvesting or trading in securities  within the meaning of the 1940
Act and the rules of the SEC promulgated thereunder and does not hold itself out
as an investment company.

         During 1999, Ventures sold some of its investments  (including FlashNet
shares) in part to address these  issues.  The proceeds of these sales have been
invested in U.S.  government  securities  pending final use,  which has included
further investments by Ventures.

         The Company intends to pursue an aggressive  strategy to ensure that it
is not deemed to be an  investment  company.  Some  elements  of this  strategy,
however,  may at  least  in the  short  term  materially  adversely  affect  the
Company's financial condition or results of operations, or both. The elements of
this strategy, which are subject to the risks described below involve:

              pursuing the growth of new operating businesses, by acquisition or
              internal development; and

              continuing to develop  Allegiance's  commercial  lending business;
              and

              continuing  to dispose of  publicly-traded  investment  securities
              and/or restricting the growth of Ventures' business.  Although the
              Company intends to continue Ventures' investment  activities,  the
              Company does not intend to contribute more capital to Ventures.

Growth of New Operating Businesses

         The Company is seeking advice from  financial  advisors to assist it in
its strategy of developing or acquiring  new  operating  businesses  that do not
involve investment securities. Although the Company

                                       27
<PAGE>



intends to pursue  businesses which are  complementary to the Company's  current
businesses,  these businesses may not necessarily  involve  financial  services.
These businesses will be operating  entities which do not own, trade or hold any
significant  amount  of  investment  securities.  The  Company  may not find any
suitable businesses to acquire or develop on terms acceptable to the Company. In
addition,  the Company may not be able to successfully  integrate the operations
of any new businesses. Finally, any new businesses may not contribute positively
to the Company's financial condition or results of operations.

Continuing the Growth of Allegiance

         The  Company  will use all  reasonable  efforts to grow the  commercial
lending business of Allegiance.  However,  the growth of Allegiance is dependent
on the market's  acceptance of the product offerings and services of Allegiance,
Allegiance's   continued   ability  to  raise   financing  for  its  activities,
Allegiance's  ability to find suitable  creditworthy  borrowers and  competitive
pressures in the lending industry.  Allegiance does not have an external funding
source beyond April 2000.

Disposing of Investment Securities/Limiting Growth of Ventures

         The Company may determine that it must dispose of additional investment
securities to avoid being deemed to be an investment  company.  The dispositions
may  occur at times and on terms  that  would  not  maximize  the value of these
investments.  In addition,  the dispositions may result in  disadvantageous  tax
consequences.  The Company intends to use any proceeds of any additional sale to
support its working capital (including further  investments by Ventures) and may
consider using such proceeds to repay SBA debt.  Pending final use,  proceeds of
any additional sale will be invested in U.S. government securities.

         The Company  also  currently  intends to limit the growth of  Ventures'
business.   Although  Ventures  intends  to  continue  investing  in  investment
securities,  the Company does not intend to contribute more capital to Ventures.
Limiting  Ventures' growth may materially  adversely affect the Company's future
financial condition and results of operations.

Year 2000 Readiness Disclosure
------------------------------

         The "Year 2000 issue"  refers to a wide variety of  potential  computer
program processing and functionality issues that may arise from the inability of
computer programs to properly process date-sensitive information relating to the
Year 2000,  years  thereafter  and to a lesser degree the Year 1999.  Any of the
Company's computers,  computer programs and administration equipment or products
that have  date-sensitive  software may  recognize a date using "00" as the Year
1900 rather than the Year 2000.  If any of the  Company's  systems or  equipment
that have  date-sensitive  software  use only two  digits,  system  failures  or
miscalculations may result causing disruptions of operations,  including,  among
other things, a temporary inability to process  transactions or send and receive
electronic  data  with  third  parties  or  engage in  similar  normal  business
activities.   The  following  discussion   constitutes  a  Year  2000  Readiness
Disclosure.

         The Company  expects to spend  approximately  $30,000 to $50,000 in the
aggregate to modify its computer  information systems enabling proper processing
of  transactions  relating to the Year 2000 and beyond ("Year 2000  Compliant").
During 1998,  the Company made an assessment of Year 2000  Compliant  issues and
determined  that it needed to modify or replace  certain  third  party  computer
hardware and software. As the Company has implemented solutions to the Year 2000
Compliant  issues,  in  some  circumstances  it has  determined  that  replacing
existing systems,  hardware, or equipment may be more efficient and also provide
additional functionality. The Company has completed the majority of


                                       28

<PAGE>

such modifications and replacements. Through September 30, 1999, the Company had
incurred Year 2000 Compliant costs of  approximately  $27,000,  of which $19,000
has been  capitalized.  The Company does not believe the amounts  expected to be
expensed over the remainder of 1999 will have a material effect on its financial
position  or results of  operations.  However,  there can be no  assurance  that
actual costs (i) will not  materially  exceed  expected  costs and (ii) will not
have a material adverse effect on the Company's  financial condition and results
of operation.  The Company has assessed its electronic  office equipment such as
the phone system, copiers, fax machines,  printers, and the like to determine if
such  equipment is date sensitive and has performed the required  upgrades.  The
Company has assessed the  readiness of its  business-critical  spreadsheets  and
customized  databases and is making modifications of those systems as necessary.
During  the  remainder  of 1999,  the  Company  will  test  and make any  system
refinements that may be needed.

         The Company has assessed the  readiness of external  entities,  such as
vendors, suppliers,  investments and financial institutions which interface with
the  Company.  Based on the  results  of this  assessment  the risk of  business
failure caused by an external  party's Year 2000 malfunction is not significant.
While the Company believes its planning efforts are adequate to address its Year
2000 concerns,  there can be no guarantee that the systems of other companies on
which the Company's systems and operations rely will be Year 2000 Compliant on a
timely  basis.  Although the Company  believes it is  unlikely,  there can be no
assurance  that  the  failure  of the  Company  or a third  party on which it is
dependent to be Year 2000 Compliant  will not have a material  adverse effect on
the  Company's  operations,   prospects,   financial  condition  or  results  of
operations.

         The Company's contingency plans, if Year 2000 modifications do not work
or are not ready by Year  2000,  rely  significantly  on manual  procedures  and
record keeping. All files are expected to be adequately backed up as of December
31, 1999 and to be available to facilitate manual record keeping.  Adequate hard
copy reports of balances and  transactions  as of December 31, 1999 will also be
available  to provide a  complete  manual  system of  accounting  and  inventory
control,  if required.  Subsequent to Year 2000, manual systems will continue to
be in  place to  mitigate  the risk of lost  information  due to any  unforeseen
interruptions  that may  occur as a result  of Year 2000  issues  arising  after
January 1,  2000.  Nonetheless,  there can be no  assurance  that the  Company's
contingency plan will  effectively  mitigate any Year 2000 failures or that such
contingency  plan would not itself  materially  adversely  effect the  Company's
financial condition or results of operations.

Forward Looking Statements
--------------------------

         This report includes forward looking  statements  within the meaning of
the Private Securities Litigation Reform Act of 1995. All statements made herein
which are not based on historical  facts are forward  looking and,  accordingly,
involve  risks and  uncertainties  that  could  cause  actual  results to differ
materially from those discussed.  Such forward looking  statements include those
under  "Management's  Discussion and Analysis of Financial Condition and Results
of Operations"  relating to (i) the ability of Allegiance to avail itself of the
benefits of the extension of the  Allegiance  Financing,  (ii) the collection of
interest, no incurrence of any loss and potential foreclosure and liquidation of
one  of the  loans  made  by  Allegiance,  (iii)  sufficiency  of the  Company's
liquidity and capital  resources (See "Liquidity and Capital  Resources"),  (iv)
the  Company's  ability  to  continue  not being  subject  to  registration  and
regulation under the 1940 Act (See "Considerations  Under the Investment Company
Act of 1940"), (v) the Company's ability to enter into a settlement agreement in
connection  with the federal  and state  alleged  class  action  lawsuits  filed
against the Company and its  officers  and  directors,  (vi)  expected  expenses
(including  amounts  paid in any  settlement)  in  connection  with the lawsuits
described  above,  (vii) expected  future life  insurance  policy premium costs,
(viii) the potential  purchase of policies and  cancellation  of indebtedness by
the  Noteholders,  and (ix)  expected  expenses to make the  Company's  computer
operations  Year  2000  Compliant  and  expectations  regarding  the  Year  2000
Compliance of the Company, third-parties on which

                                       29
<PAGE>


the Company is dependent and the efficacy of contingency  plans related thereto.
Such statements are based on management's belief,  judgment and analysis as well
as  assumptions  made by and  information  available to  management  at the date
hereof.  In addition  to any  assumptions  and  cautionary  factors  referred to
specifically in this report in connection with such forward looking  statements,
factors  that  could  cause  actual  results  to differ  materially  from  those
contemplated by the forward looking statements include (i) Allegiance's  ability
to  originate  a  sufficient  number  and amount of loans,  (ii) the  borrower's
ability  to  make  future   payments  on  the  defaulted   Allegiance  loan  and
Allegiance's ability to foreclose on the collateral at a price at least equal to
the amount of debt (including foreclosure fees and expenses) of such loan, (iii)
the results of the Company's  consideration  of strategic  options and any costs
associated with a chosen option, (iv) availability and cost of capital,  (v) the
factors  described  under  "Considerations  Under the Investment  Company Act of
1940," (vi) the outcome of the federal and state alleged  class action  lawsuits
filed  against the Company and its  officers and  directors,  (vii) the maturity
rate of DPFC's portfolio of life insurance policies, (viii) Point West's ability
to reach an agreement with the Noteholders and (ix) the ability of the Company's
suppliers and vendors to become Year 2000 Compliant.


                                       30


<PAGE>





ITEM 3--QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
------------------------------------------------------------------

         Market  risk  refers  to the risk  that a change in the level of one or
more market prices,  interest rates, or other market factors, such as liquidity,
will  result in losses for a  specified  position or  portfolio.  The  Company's
exposure to market risk arises primarily from Ventures' investments in the stock
of public and private  companies,  fixed rate loans and debt investments made by
Allegiance  and Ventures and  Allegiance's  variable  rate debt.  The  Company's
management  believes the Company's risk management and hedging  practices result
in carefully managed market exposure.

         The Company has investment  holdings in various  companies.  Due to the
varying nature of these investments, it is difficult to correlate the effects of
the market to a particular  market index. The effects of the market are reviewed
by management on an individual investment-by-investment basis.

         Beginning in 1999,  because of the  volatility of internet and internet
related stocks,  Point West shorted stocks of certain competitors of FlashNet so
as to partially hedge Ventures'  holdings in FlashNet.  At September 30, 1999 no
such hedges were in place. The Company  recognized a $317,000 gain in connection
with such hedging activities during the first quarter of 1999.

         The table below  represents  principal cash flows and  weighted-average
interest rates for the Allegiance loans outstanding at September 30, 1999:
<TABLE>
<CAPTION>


                                  1999           2000           2001          2002          2003        Thereafter
                                  ----           ----           ----          ----          ----        ----------
<S>                             <C>               <C>           <C>           <C>            <C>          <C>

Fixed rate loans(1)(2)          $ 124,332     $ 673,624     $  741,339    $  815,877     $  897,930     $24,031,848
Average interest
     Rates (1)                   9.6%          9.6%           9.6%          9.6%           9.7%         9.7%
--

<FN>

(1) The principal cash flows for fixed rate loans and average  interest rates do
    not include one delinquent  loan.
(2) The  Company  intends to hedge its  interest  rate  exposure  related to the
    future  loans  made  by  Allegiance  because  the  interest  rate  at  which
    Allegiance  anticipates  issuing term  certificates  in connection  with the
    extension  of the  Allegiance  Financing  will be set in the  future at some
    point.  Allegiance  intends to utilize  futures  contracts to hedge  certain
    interest rate exposure  between the time of origination of the loans and the
    expected issuance of such term certificates.
</FN>
</TABLE>


         In connection  with the extension of the  Allegiance  Financing,  Point
West agreed to provide  additional cash to Allegiance  Trust I in the event that
monthly LIBOR interest rates exceed 6.16%. The amount of cash will be a function
of  several  variables  including  the  monthly  LIBOR  interest  rate  and  the
outstanding  balance of the Class A-R  certificate.  At present the  outstanding
balance of the Class A-R certificate is zero.

                                       31

<PAGE>



PART II.  OTHER INFORMATION
---------------------------

Item 1. Legal Proceedings
-------------------------

         On  December  19,  1996,  a  complaint  was filed in the United  States
         District Court,  Northern  District of California (the "Court") (Docket
         No. C96-4558)  against Dignity  Partners,  Inc. (now Point West Capital
         Corporation) and each of its directors by three individuals  purporting
         to act on behalf of themselves  and an alleged class  consisting of all
         purchasers of the Company's common stock during the period February 14,
         1996 to July 16,  1996.  The  complaint  alleges  that  the  defendants
         violated Section 10(b) of the Securities  Exchange Act of 1934 and Rule
         10b-5  thereunder  and  Section  11 of the  Securities  Act of 1933 and
         seeks, among other things,  compensatory  damages,  interest,  fees and
         costs. The allegations were based on alleged  misrepresentations in and
         omissions  from the Company's  registration  statement  and  prospectus
         related to its initial public  offering and certain  documents filed by
         the  Company  under the  Exchange  Act.  On April 24,  1998,  the Court
         granted the  Company's  and other  defendants'  motion to dismiss as it
         related to the Section 11 claims with  prejudice  but denied the motion
         to dismiss  the  claims  under  Section  10(b) and Rule 10b-5 as to all
         defendants  other than Mr. Bow, one of Point West's outside  directors.
         Plaintiffs  appealed this  dismissal to the United States Circuit Court
         for the  Ninth  Circuit.  On  November  13,  1998,  the  Court  granted
         plaintiff's  motion  for  class  certification.   On  March  11,  1999,
         defendants  filed a motion for summary  judgement which was denied.  In
         August 1999,  the Ninth  Circuit  reversed the United  States  District
         Court's  ruling in regard to the Section 11 claims.  The plaintiffs and
         defendants have executed a memorandum of understanding  providing for a
         settlement pursuant to which all claims against all defendants would be
         dismissed.  The memorandum of understanding provides for the payment of
         $3.15 million to the  plaintiffs.  Under the terms of the Company's D&O
         insurance policy,  the Company's insurer is obligated to pay 70% of the
         settlement  amount.  The  settlement  is  subject  to  negotiation  and
         execution of further documentation and court approval. No assurance can
         be given that a definitive settlement agreement will be reached, or, if
         reached,  will be approved by the Court.  In the event a settlement  is
         not effected, the Company and each of the defendants intend to continue
         to defend the action vigorously.

         On February 13, 1997,  a complaint  was filed in the Superior  Court of
         California,  City and  County  of San  Francisco  (Docket  No.  984643)
         against Dignity Partners,  Inc., and each of its executive officers and
         New Echelon LLC by an individual purporting to act on behalf of himself
         and an alleged  class  consisting  of all  purchasers  of the Company's
         common stock during the period  February 14, 1996 to July 16, 1996. The
         complaint  alleges that the  defendants  violated  section 25400 of the
         California Corporate Code and seeks to recover damages. The allegations
         are    based   on    alleged    misstatements,    concealment    and/or
         misrepresentations  and omissions of allegedly material  information in
         connection  with the Company's  initial public  offering and subsequent
         disclosures.  The case has been stayed since its inception by agreement
         of the  parties.  However,  the claims in this case are  covered by the
         memorandum of understanding  described above and will also be dismissed
         pursuant to the settlement  arrangement  described  above if it becomes
         effective.  In the event a settlement is not effected,  the Company and
         each of the defendants intend to defend the action vigorously.

         As a result of having reached a settlement agreement in principle,  the
         Company recorded an accrued  litigation  settlement  liability of $3.15
         million and an accounts  receivable from the insurance  company of $2.2
         million.  The  remaining  amount of $945,000 was expensed in the second
         quarter  of 1999  in the  Consolidated  Statements  of  Operations  and
         Comprehensive Income (Loss).

                                       32

<PAGE>


Item 5.  Other Information
--------------------------

                  The Company has  established May 16, 2000 as the date on which
                  the  Company's  2000 annual  stockholders  meeting  (the "2000
                  Meeting")  will be held.  The Company must receive by December
                  17,  1999  any  proposal  of  a  stockholder  intended  to  be
                  presented  at  the  2000  Meeting  and to be  included  in the
                  Company's proxy, notice of meeting and proxy statement related
                  to the Meeting pursuant to Rule 14a-8 under the Securities Act
                  of  1934  (the  "Exchange  Act").  Proposals  of  stockholders
                  submitted  outside  the  processes  of Rule  14a-8  under  the
                  Exchange Act in  connection  with the 2000 Meeting  ("Non-Rule
                  14a-8 Proposals") must be received by the Company by March 17,
                  2000 or such proposals  will be considered  untimely under the
                  advance notice  provisions of the Company's Second Amended and
                  Restated Certificate of Incorporation and Amended and Restated
                  By-Laws (the "Charter Documents"). The Company's proxy related
                  to the 2000 Meeting will give  discretionary  authority to the
                  proxy  holders  to vote with  respect  to all  Non-Rule  14a-8
                  Proposals  received by the Company  after March 17, 2000.  Any
                  stockholder  wishing to submit a proposal at the 2000  Meeting
                  must also comply with certain other  provisions of the Charter
                  Documents. Notices of stockholder proposals should be directed
                  to, and any request for a copy of the Charter Documents (which
                  will be provided  at no charge to any holder of the  Company's
                  Common Stock),  should be directed to:  Secretary,  Point West
                  Capital  Corporation,  1700 Montgomery Street,  Suite 250, San
                  Francisco, California 94111.

Item 6. Exhibits and Reports on Form 8-K
----------------------------------------

         (a)      Exhibits:
                  Number           Description
                  ------           -----------

                     10.1**      Amended  and  Restated   Supplement   to  Trust
                                 Agreement for Revolving Series 1998-1, dated as
                                 of September 1, 1999, among Allegiance  Funding
                                 I, LLC, Manufacturers and Traders Trust Company
                                 and Point West Capital Corporation.

                     10.2**      Second Amended and Restated Supplement to Trust
                                 Agreement for Revolving Series 1998-1, dated as
                                 of September 15, 1999, among Allegiance Funding
                                 I, LLC, Manufacturers and Traders Trust Company
                                 and Point West Capital Corporation.

                     10.3**      Supplement  to Trust  Agreement for Term Series
                                 1999-1,  dated as of September 15, 1999,  among
                                 Allegiance  Funding I, LLC,  Manufacturers  and
                                 Traders  Trust  Company and Point West  Capital
                                 Corporation.

                     27          Financial Data Schedule

                     99.1        Press Release for Point West Ventures, L.P.

            **    Certain   information   omitted  pursuant  to  a  request  for
                  confidential treatment filed with the SEC.

                                       33
<PAGE>



         (b) Reports on Form 8-K filed during the quarter  ended  September  30,
1999:


         Date                   Item Reported    Matter Reported
         ----                   -------------    ---------------

         August 16, 1999             5           The  Company   issued  a  press
                                                 release  regarding  its results
                                                 of  operations  for the  second
                                                 quarter of 1999.

         September 20, 1999          4           The  Company  reported a change
                                                 in   its   independent   public
                                                 accountants  from  KPMG  LLP to
                                                 Ernst & Young LLP.

                                       34

<PAGE>


                                   SIGNATURES
                                   ==========

Pursuant to the  requirements  of the  Securities  and Exchange Act of 1934, the
Registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.





                                              POINT WEST CAPITAL CORPORATION



Dated:  November 15, 1999                       /s/ ALAN B. PERPER
                                              --------------------------------
                                              ALAN B. PERPER
                                              President
                                              (Duly Authorized Officer)




Dated:  November 15, 1999                       /s/ JOHN WARD ROTTER
                                              --------------------------------
                                              JOHN WARD ROTTER
                                              Executive Vice President and
                                              Chief Financial Officer
                                              (Principal Financial and
                                              Accounting Officer)



                                       35