UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-QSB

 

[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2002
 

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)OF THE EXCHANGE ACTFor the transition period from _____________to_______________ 

Commission file number 0-27736

 

POINT WEST CAPITAL CORPORATION(Exact name of small business issuer as specified in its charter)****
 
**Delaware(State or other jurisdiction of    incorporation or organization)**94-3165263(IRS Employer    Identification No.)**1700 Montgomery Street,    Suite 250    San Francisco, California 94111(Address of principal executive offices)**(415) 394-9467(Issuer’s telephone number)
 

 

At July 31, 2002, there were 3,352,624 shares of the issuer’sCommon Stock outstanding.

Transitional Small Business Disclosure Format (Check one): Yes [ ] No[X]

 
**POINT WEST CAPITAL CORPORATION****INDEX**** **
Part I
Financial Information
Page 
Item 1.
Consolidated Financial    Statements (Unaudited):
Consolidated Balance Sheet        June 30, 2002 
1
Consolidated Statements of    Operations for the        Three and Six Months Ended June 30, 2002 and 2001
2
Consolidated Statements of    Cash Flows for the         Six Months Ended June 30, 2002 and 2001
3
Condensed Notes to    Consolidated Financial Statements
4-9
Item 2.
Management’s    Discussion and Analysis or Plan of Operation
10-17
Part II
Other    InformationItem 3.Defaults Upon Senior Securities
18
Item 6.
Exhibits and Reports on    Form 8-K
18
Signatures
19**(i)

 

 

POINT WEST    CAPITAL CORPORATION AND SUBSIDIARIES
CONSOIDATED    BALANCE  SHEET
June 30,
ASSETS
2002
(unaudited)Cash and cash equivalents$538,222Restricted cash649,378Investment securities:     Available- for- sale3,897Matured policies receivable113,162Loans receivable, net of unearned income of    $444,558        and an allowance for loan losses of $252,21630,527,342Purchased life insurance policies28,566,441Non-marketable securities2,113,018Furniture and equipment,  net of    accumulated     depreciation of    $60,57834,126Assets held for sale1,340,845Other assets519,173                                                Total assets$64,405,604
LIABILITIES AND STOCKHOLDERS'    DEFICITAccrued interest expense$553,011Accounts payable281,952Revolving certificates8,438,741Term certificates22,257,330Securitized notes payable33,407,849Debenture payable6,500,000                                              Total liabilities71,438,883Stockholders' deficit:     Common stock, $0.01 par    value; 15,000,000 authorized shares,             4,391,124 shares issued and 3,352,624 shares outstanding43,911Additional paid-in-capital30,091,689Accumulated deficit(34,294,847)Treasury stock, 1,038,500 shares(2,874,032)                                           Total stockholders' deficit(7,033,279)                                           Total liabilities and stockholders' deficit$64,405,604
See accompanying condensed notes to consolidated financial statements.
1
 

 

 

 

POINT WEST    CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED    STATEMENTS OF OPERATIONSFor the Three Months EndedFor the Six Months    EndedJune 30,June 30,2002200120022001
(unaudited)
(unaudited)Revenues:     Interest income$744,254$882,724$1,554,431$1,858,260     Net gain (loss) on    securities16,469(728,665)22,116(4,136,530)     Other140,37327,285265,751176,648                                         Total revenues901,096181,3441,842,298(2,101,622)Expenses:     Interest expense754,183816,6321,514,6821,640,228     Compensation and    benefits117,831286,231347,585667,357     Other general and    administrative expenses2,140,035405,0462,406,698947,694     Amortization--185,483--209,633     Depreciation7,4306,02414,94112,048                                Total expenses3,019,4791,699,4164,283,9063,476,960                    Loss    before income taxes (2,118,383)(1,518,072)(2,441,608)(5,578,582)Income tax  (expense) benefit(4,000)34,115(4,000)15,945                     Net loss$(2,122,383)$(1,483,957)$(2,445,608)$(5,562,637)     Loss per share-Basic    and Diluted:$(0.63)$(0.44)$(0.73)$(1.66)Weighted-average    number of shares of common stock     outstanding3,352,6243,352,6243,352,6243,352,624Weighted-average number of shares of common    stock     and common stock    equivalents outstanding3,352,6243,352,6243,352,6243,352,624
See accompanying    condensed notes to consolidated financial statements.
2
 

 

POINT WEST CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six    Months Ended     June  30, 
2002
2001
(unaudited)Cash    flows from operating activities:        Net loss$(2,445,608)$(5,562,637)        Adjustments to reconcile net loss to net cash             used in operating activities:                  Depreciation and amortization14,941221,681
 Provision for loan losses
2,006,354--                  Net (gain) loss on securities(22,116)4,136,530              Gain    on sale of asset held for sale(93,310)--                  Deferred tax asset--(21,545)                  Changes in operating assets and liabilities:                        Collections on matured life insurance policies336,8461,216,699                        Other assets200,52962,950                        Unearned income(53,949)(121,673)                        Accrued interest expense248,39517,648                        Accounts payable(174,372)80,731                        Accrued compensation payable(204,869)(336,238)                                                                     Net cash used in operating activities(187,159)(305,854)Cash    flows from investing activities:         Increase in restricted cash(92,695)(130,070)        Proceeds from sale of investment and non-marketable securities50,257340,000    Proceeds    from sale of asset held for sale543,310--    Principal    payments on loans receivable1,186,332397,284                                                                                        Net cash provided by investing activities1,687,204607,214Cash    flows from financing activities:        Principal payments on securitized notes payable(253,727)(934,905)        Principal payments on revolving certificates(385,255)(150,941)        Principal payments on term certificates(901,072)(365,016)                                Net cash used in financing activities(1,540,054)(1,450,862)                                Net decrease in cash and cash equivalents(40,009)(1,149,502)                                     Cash    and cash equivalents, beginning of period578,2312,987,686Cash    and cash equivalents, end of period$538,222$1,838,184Supplemental    disclosures:Supplemental    disclosure of non-cash activities:        Unrealized gain on securities available for sale, net of tax$--$28,748Supplemental    disclosure of cash flow information:        Taxes paid$4,500$22,974        Cash paid for interest$1,266,288$1,619,156
See accompanying    condensed notes to consolidated financial statements.
3
 

 
**POINT WEST CAPITAL CORPORATION AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

1.               General Description**
                   The unaudited consolidated financial statements of Point West Capital Corporation("Point West Capital"), including its consolidated entities (collectively the"Company"), as of June 30, 2002 and for the three and six month periods endedJune 30, 2002 and 2001 have been prepared in accordance with accounting principlesgenerally accepted in the United States for interim financial information, in accordancewith Item 310(b) of Regulation S-B. Accordingly, such statements do not include all of theinformation and notes thereto that are included in the annual consolidated financialstatements. In the opinion of management, all adjustments considered necessary for a fairpresentation have been included. Operating results for the three and six month periodsended June 30, 2002 are not necessarily indicative of the results that may be expected forthe year ending December 31, 2002. These statements and notes thereto should be read inconjunction with the audited consolidated financial statements and notes thereto includedin the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2001(the "Form 10-KSB").

                   The accompanying consolidated financial statements have been prepared on a liquidationbasis of accounting. As a result of the Company’s loss of servicing activities, theCompany’s liquidity issues and other factors, management plans to dissolve theCompany, through dissolution procedures under Delaware Law, bankruptcy proceedings orotherwise.

                   The Company was a specialty financial services company with historic operations in fourbusiness segments: (i) loans to funeral homes and cemeteries through Allegiance Capital,LLC ("Allegiance Capital"), Allegiance Funding I, LLC ("AllegianceFunding"), Allegiance Capital Trust I ("Allegiance Trust I") and AllegianceManagement Corp. ("Allegiance Management"), (ii) viatical settlements throughDignity Partners Funding Corp. I ("DPFC"), (iii) small business loans andinvestments through Point West Venture Management, LLC ("Point West Management")and Point West Ventures, L.P. ("Point West Ventures") and (iv) other activitiesthrough Point West Capital and Point West Securities, LLC ("PWS"). Referencesherein to Allegiance include Allegiance Capital, Allegiance Funding, Allegiance Trust Iand Allegiance Management. References herein to Ventures include Point West Management andPoint West Ventures. 

                   The principal business activity of the Company through February 1997 was to provideviatical settlements for terminally ill persons. Point West Capital has continued toservice the life insurance policies held by DPFC. It is anticipated that, on September 30,2002, the Noteholders (as defined herein) or their designee will purchase the DPFC stockfor a nominal amount and Point West Capital will be replaced as servicer. See"Management’s Discussion and Analysis or Plan of Operation--Results of Operations by Segment-- Viatical Settlements-- Recent Developments and Certain Accounting Implications forDPFC." During 1997, the Company expanded its financial services business through theoperations of Ventures and Allegiance. During 1998, the Company formed PWS, abroker-dealer licensed by the National Association of Securities Dealers, Inc. Theoperations of PWS have not been material to the Company. The Company sold PWS during thesecond quarter of 2002 for $20,000. 

                   The activities of Allegiance and Ventures changed substantially beginning in late 2000.See the Company’s Form 10-KSB for further information. The Company has engaged inonly limited operations since the second half of 2000, and is not expected to continue inexistence. In addition, the Allegiance Financing (as defined herein) is currently indefault and Point West Capital and Allegiance Capital were

4

replaced as servicers on August 5, 2002. See Note 4 and"Management’s Discussion and Analysis or Plan of Operation--Results of Operations by Segment-- Allegiance."
**2.                Loans Receivable**
                   Loans receivable at June 30, 2002 consisted of 23 loans outstanding with an aggregateprincipal amount of $31.2 million, which bore a weighted-average fixed interest rate perannum of 9.5%. Principal and interest payments are due monthly on such loans, and suchloans mature, subject to permitted prepayments, approximately fifteen years from theinitial loan date. At June 30, 2002, two of the loans included in loans receivable in theaggregate amount of $1.4 million were on non-accrual status. At June 30, 2002, theallowance for losses on loans was $253,000. 
**3.               Assets Held for Sale**
                   Assets held for sale are carried at the lower of cost or estimated fair value less cost tosell. The assets held for sale as of June 30, 2002 consist of funeral homes, including twoproperties with an estimated fair value of $1.1 million purchased from two Allegianceborrowers during the first quarter of 2001 for a nominal amount. The assets acquired aresubject to the mortgages in the amount of $3.9 million, which Allegiance holds. Alsoincluded in assets held for sale is $192,000, representing the estimated fair value of anadditional funeral home that Allegiance acquired in February 2002 via foreclosure. 
**4.               Revolving and Term Certificates**
                   Through December 2000, Allegiance financed its loans receivable under a structuredfinancing arrangement established in August 1998 (the "Allegiance Financing").Under the Allegiance Financing, various classes of revolving and term certificates ofAllegiance Trust I have been issued. 

                   As a result of loans made by Allegiance which became non-performing, Allegiance was unableto access further debt under the Allegiance Financing beginning on October 30, 2000. TheAllegiance Financing expired in December 2000. Allegiance has no source of fundingavailable to make additional loans. In addition, Allegiance was unable to convert to termcertificates or otherwise repay $9.1 million ($8.4 million as of June 30, 2002) ofrevolving certificates issued under the Allegiance Financing. As a result, the interestpayable under the revolving certificates increased by 1% per annum, effective February 15,2001. The revolving certificates bear interest at fixed and variable rates based on theone-year U.S. Treasury yield and one-month LIBOR. At June 30, 2002, the weighted-averageinterest rate on the revolving certificates was 8.1%.

                   Since the expiration of the Allegiance Financing in December 2000, Allegiance and aconsortium of insurance companies holding certificates issued under the AllegianceFinancing (the "Investors") have executed certain amendment and waiveragreements providing Allegiance additional time to resolve its non-performing loans andretire the revolving debt. On August 5, 2002, as a result of the continuing defaults underthe Allegiance Financing, the Investors terminated Point West Capital and AllegianceCapital as servicers. The Investors could liquidate the collateral and apply the proceedsto retire amounts outstanding under the Allegiance Financing. See the Company’s Form10-KSB for further discussion regarding the defaults under the Allegiance Financing.

                   Repayment of the debt outstanding under the Allegiance Financing is an obligation solelyof Allegiance Trust I. Neither Point West Capital, Allegiance Capital, Allegiance Fundingnor Allegiance Management guaranteed repayment of the revolving or term certificates andnone is required to fund any principal or interest deficiencies which may arisethereunder.

5

 

                   As a result of the non-performing loans, monthly cash flow payments to Point West Capital(for servicing fees) and to Allegiance (for servicing fees and interest owed on debtcertificates held by Allegiance) ceased in November 2000. As a result of, among otherthings, certain amendment and waiver agreements, reduced monthly cash flow payments toPoint West Capital and Allegiance resumed in May 2001. However, these payments ended inAugust 2002 as a result of the termination notice referred to above. 
**5.               Securitized Notes Payable**
                   In 1995, DPFC issued its Senior Viatical Settlement Notes, Series 1995-A with a statedmaturity of March 10, 2005 (the "Securitized Notes"). Principal and interestpayments on and other costs of the Securitized Notes are payable solely from collectionson pledged policies, deposited funds and funds provided by the holders of the SecuritizedNotes (the "Noteholders"). As a result of the imminent default of DPFC under theterms of the Securitized Notes, Point West Capital and the Noteholders entered into anagreement in March 2000 (the "DPFC Agreement") that amended certain of the termsof the Securitized Notes. Pursuant to the DPFC Agreement, the Noteholders were required toprovide funds through June 30, 2002 to pay servicing fees, premiums and certain othercosts of DPFC in the event policy collections were insufficient. Under the DPFC Agreement,Point West Capital continued to act as servicer for a fee of $18,000 per month for theperiod March 2000 through June 2002. On June 30, 2002, Point West Capital and theNoteholders entered into an agreement (the "Letter Agreement") that amendedcertain of the terms of the Securitized Notes. Pursuant to the Letter Agreement, PointWest Capital will continue to act as servicer through September 30, 2002 for a reduced feeof $15,000 per month. It is anticipated that, on September 30, 2002, Point West Capitalwill be replaced as servicer and the Noteholders or their designee will purchase the DPFCoutstanding stock from Point West Capital for a nominal amount. 

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

 

 
**6.    Stockholders’ (Deficit) Equity**
       Changes in stockholders’ deficitduring the first six months of 2002 reflected the following:

Stockholders’ deficit, beginning of    period .........
$  (4,587,671)
Net loss    ...............................................
(2,445,608)
Stockholders’ deficit, end of period    ............
$ (7,033,279) 
       Changes in stockholders’ equityduring the first six months of 2001 reflected the following:

Stockholders’ equity, beginning of    period ...
$9,770,763Comprehensive loss:
   Net loss    .......................................
(5,562,637)
   Other comprehensive loss:    ...................
      Net unrealized    investment losses, net of taxes               of $22,000.......
28,748
                 Comprehensive loss ....................
(5,533,889)
Stockholders’ equity, end of period    ..............
$4,236,874
 

6
** 

7.               Contingent Liabilities**
                   The Company has a lease obligation for its California office space, which expires on May31, 2004. The monthly rent from July 1, 2002 through May 31, 2004 is $22,037. The Companyis currently subleasing approximately 60% of its current office space to an unrelatedparty. The sublease payments substantially cover the Company’s lease obligation. Thesublease expires September 21, 2002. The sublessee has an option to extend the sublease toMay 31, 2004.

                   Because of insufficient liquidity, it is highly likely that Point West Capital will not beable to continue making lease payments after September 30, 2002. Management is in theprocess of negotiating termination of the lease with the landlord. Point WestCapital’s contingent liability due to the landloard from October 1, 2002 through May31, 2004, according to the minimum future rental payments is as follows:

 
Year ending December 31,2002
$           66,1112003
           264,4442004
           110,185Total
$      440,740
                                                        

 
**8.               Segment Reporting**
                   Statement of Financial Accounting Standards No. 131, *Disclosures about Segments of anEnterprise and Related Information*, establishes standards for reporting informationabout operating segments in annual financial statements and requires selected informationabout operating segments in interim financial reports. Operating segments are defined ascomponents of an enterprise about which separate financial information is available thatis evaluated regularly by the chief operating decision maker, or decision making group, indeciding how to allocate resources and in assessing performance. Point West Capital’schief operating decision-making group is comprised of its Board of Directors.

                   The Company’s reportable operating segments include Allegiance, Viatical Settlementsand Ventures. The Other segment includes Point West Capital. The accounting policies ofthe operating segments are the same as those described in the summary of significantaccounting policies in the Form 10-KSB.

 

7

 

                The following tables represent the Company’s results from segments for and financialpositions as of the three months ended June 30 , 2002 and 2001.

Three Months Ended June 30, 2002
Allegiance 
Viatical    Settlements    (1)
Ventures
Other
Total
Interest income.............$ 
743,523$
--$
6$
725$
744,254Gain on    securities   
--
--
16,469
--
16,469
Other income................
66,373
54,000
--
20,000
140,373
Total revenues.............
809,896
54,000
16,475
20,725
901,096
Interest expense ..........
628,178
--
126,005
--
754,183Depreciation     
--
--
--
7,430
7,430Income tax    expense
2,400
--
--
1,600
4,000Contributed    net (loss)           income)  (2)......$ 
(1,943,061)$ 
54,000$    
(109,562)$ 
(123,760)$ 
(2,122,383)
Identifiable assets.........$ 
32,946,145$ 
28,836,834$    
2,220,869$ 
401,756$ 
64,405,604
Three Months Ended June 30, 2001
Allegiance 
Viatical    Settlements    (1)
Ventures
Other
Total
Interest income.............$ 
853,979$
--$
6,716$
22,029$
882,724Net loss    on securities
--
--
(728,665)
--
(728,665)
Other income................
1,174
57,083
(30,972)
--
27,285
Total revenues.......
855,183
57,083
(752,921)
22,029
181,344
Interest expense ..........
690,972
--
125,660
--
816,632Depreciation    and           amortization .......
9,775
--
175,708
6,024
191,507
Income tax (expense)    benefit (2)(2,400)--(800)37,31534,115Contributed    netincome          (loss) (2)......$ 
40,441$ 
57,083$ 
(1,116,839)$ 
(464,642)$ 
(1,483,957)
Identifiable assets.........$ 
38,851,589$ 
29,770,621$ 
6,888,582$ 
2,899,805$ 
78,410,597
8

 

The following tables represent the Company’s results from segmentsfor and financial positions as of the six months ended June 30 , 2002 and 2001.

Six Months Ended June 30, 2002
Allegiance 
Viatical    Settlements    (1)
Ventures
Other
Total
Interest income.............$ 
1,552,348$
--$
24$
2,059$
1,554,431Gain on    securities   
--
--
22,116
--
22,116
Other income................
137,751
108,000
--
20,000
265,751
Total revenues.............
1,690,099
108,000
22,140
22,059
1,842,298
Interest expense ..........
1,262,672
--
252,010
--
1,514,682Depreciation     
--
--
--
14,941
14,941Income tax    expense (2)
2,400
--
--
1,600
4,000Contributed    net income           (loss)  (2)......$ 
(1,775,337)$ 
108,000$    
(229,932)$ 
(548,339)$ 
(2,445,608)
Identifiable assets.........$ 
32,946,145$ 
28,836,834$    
2,220,869$ 
401,756$ 
64,405,604
Six Months Ended June 30, 2001
Allegiance 
Viatical    Settlements    (1)
Ventures
Other
Total
Interest income.............$ 
1,763,468$
--$
22,005$
72,787$
1,858,260Net loss    on securities
--
--
(3,197,500)
(939,030)
(4,136,530)
Other income................
96,537
111,083
(30,972)
--
176,648
Total revenues.......
1,860,005
111,083
(3,206,467)
(866,243)
(2,101,622)
Interest expense ..........
1,390,289
--
249,939
--
1,640,228Depreciation    and           amortization .......
19,550
--
190,083
12,048
221,681
Income tax (expense)    benefit  (2)(3,200)--(800)19,94515,945Contributed    netincome          (loss) (2)......$ 
171,798$ 
111,083$ 
(3,709,039)$ 
(2,136,479)$ 
(5,562,637)
Identifiable assets.........$ 
38,851,589$ 
29,770,621$ 
6,888,582$ 
2,899,805$ 
78,410,597
 
(1)The Viatical Settlements segment includes results of    operations in connection with viatical settlements for DPFC and Point West Capital. (2)Corporate overhead and income tax expense are not generally    allocated between segments and are included in the Other segment.**9

 

**                   MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION**

                   The following is a discussion and analysis of the consolidated financial condition of theCompany at June 30, 2002, and results of operations for the Company for the three and sixmonths ended June 30, 2002 and 2001, and of certain factors that may affect theCompany’s prospective financial condition and results of operations. The followingshould be read in conjunction with the Form 10-KSB and the unaudited consolidatedfinancial statements and related notes appearing elsewhere herein.
**Overview**
                   As described herein, the Company has engaged in only limited operations since the secondhalf of 2000. As a result of the Company’s loss of servicing activities, theCompany’s liquidity issues and other factors, management plans to dissolve theCompany, through dissolution procedures under Delaware Law, bankruptcy proceedings orotherwise.

                   The Company was a specialty financial services company. The Company’s financialstatements consolidate the assets, liabilities and operations of Allegiance, DPFC andVentures. The principal business activity of the Company through February 1997 was toprovide viatical settlements for terminally ill persons. Subsequent to February 1997, theCompany became a more broadly-based specialty financial services company. 

                   Information regarding the revenues, contributed net income (loss) and identifiable assetsfor each of the Company’s business segments is contained in Note 8 of the CondensedNotes to Consolidated Financial Statements. See the Company’s Form 10-KSB for adiscussion of accounting policies critical to the Company’s businesses.
**Results of Operations for the Company***                   Total Revenues. Total revenues amounted to $901,000 during the three months ended June30, 2002 compared to $181,000 during the same period in 2001. Total revenues increasedprimarily because the Company reported a $729,000 loss on securities for the three monthsended June 30, 2001, compared to a $16,000 gain on securities for the three months endedJune 30, 2002. See "Results of Operations by Segment--Ventures-- Three and Six Months Ended June 30, 2002 Compared tothe Three and Six Months Ended June 30, 2001-- Net Gain (Loss)on Securities." Offsetting the increase in total revenues for the three months endedJune 30, 2002 compared to the three months ended June 30, 2001 was a $138,000 decline ininterest income primarily related to Allegiance. See "Results of Operations bySegment-- Allegiance-- Three and SixMonths Ended June 30, 2002 Compared to the Three and Six Months Ended June 30, 2001-- Interest Income." Total revenues amounted to $1.8 millionduring the six months ended June 30, 2002 compared to negative $2.1 million during thesame period in 2001. Total revenues increased primarily because the Company reported a$4.1 million loss on securities for the six months ended June 30, 2001, compared to a$22,000 gain on securities for the six months ended June 30, 2002. See "Results ofOperations by Segment-- Ventures--Three and Six Months Ended June 30, 2002 Compared to the Three and Six Months Ended June30, 2001-- Net Gain (Loss) on Securities" and"Results of Operations by Segment-- Other-- Three and Six Months Ended June 30, 2002 Compared to the Three andSix Months Ended June 30, 2001-- Loss on Securities."Offsetting the increase in total revenues for the six months ended June 30, 2002 comparedto the six months ended June 30, 2001 was a $304,000 decline in interest income primarilyrelated to Allegiance. See "Results of Operations by Segment--Allegiance-- Three and Six Months Ended June 30, 2002 Comparedto the Three and Six Months Ended June 30, 2001-- InterestIncome." 

10

 
*                   Total Expenses. Total expenses were $3.0 million and $1.7 million for the three monthsended June 30, 2002 and 2001, respectively, and $4.3 million and $3.5 million for the sixmonths ended June 30, 2002 and 2001, respectively. The increase in total expenses was dueto a $2.0 million impairment expense recognized in connection with the assets of two ofthe non-performing loans acquired by Allegiance and the assets of another borroweracquired by Allegiance via foreclosure. See "Results of Operations by Segment-- Allegiance-- Three and Six Months EndedJune 30, 2002 Compared to the Three and Six Months Ended June 30, 2001--Other General and Administrative Expenses." Offsetting this increase was a decline intotal expenses due to a reduction in compensation and benefits and other general andadministrative expenses as a result of scaled-back activities and a decrease in legalexpenses related to litigation and arbitration proceedings, which were settled in March2002. See "Results of Operations by Segment-- Other-- Three and Six Months Ended June 30, 2002 Compared to the Three andSix Months Ended June 30, 2001-- Other General andAdministrative Expenses." 
**Results of Operations by Segment*****Allegiance***
                   At June 30, 2002, four loans, two of which were included in assets held for sale, were onnon-accrual status. As a result of the non-accrual status loans, Allegiance was unable toaccess further debt under the Allegiance Financing beginning on October 30, 2000. TheAllegiance Financing expired in December 2000. Allegiance has no source of fundingavailable to make additional loans. In addition, Allegiance was unable to convert to termcertificates or otherwise repay $9.1 million ($8.4 million as of June 30, 2002) ofrevolving certificates issued under the Allegiance Financing. As a result, the interestpayable under the revolving certificates increased by 1% per annum, effective February 15,2001. The revolving certificates bear interest at fixed and variable rates based on theone-year U.S. Treasury yield and one-month LIBOR. At June 30, 2002, the weighted-averageinterest rate on the revolving certificates was 8.1%. 

                   Since the expiration of the Allegiance Financing in December 2000, Allegiance and theInvestors have executed certain amendment and waiver agreements providing Allegianceadditional time to resolve its non-performing loans and retire the revolving debt. OnAugust 5, 2002, as a result of the continuing defaults under the Allegiance Financing, theInvestors terminated Point West Capital and Allegiance Capital as servicers. The Investorscould liquidate the collateral and apply the proceeds to retire amounts outstanding underthe Allegiance Financing. If the Investors were to liquidate the collateral, there is noassurance that the proceeds would be sufficient to repay the outstanding debt issued underthe Allegiance Financing. To the extent that any liquidation proceeds from the collateralare less than the current carrying value of that collateral, the value of the unratedrevolving and term certificates held by Allegiance Funding would be adversely affected.See the Company’s Form 10-KSB for further discussion regarding the defaults under theAllegiance Financing and the certificates held by Allegiance Funding. To the extent thatthe loans remain on non-accrual status, Allegiance Capital does not anticipate receivinginterest income it would have received if the loans were performing. As a result of theInvestors terminating Point West Capital and Allegiance Capital as servicers, theCompany’s liquidity issues and other factors, Point West Capital and AllegianceCapital will not be able to continue future operations.

                   Repayment of the debt outstanding under the Allegiance Financing is an obligation solelyof Allegiance Trust I. Neither Point West Capital, Allegiance Capital, Allegiance Fundingnor Allegiance Management guaranteed repayment of the revolving or term certificates andnone is required to fund any principal or interest deficiencies which may arisethereunder.

                   As a result of the non-performing loans, monthly cash flow payments to Point West Capital(for servicing fees) and to Allegiance (for servicing fees and interest owed on debtcertificates held by 

 

11

Allegiance) ceased in November 2000. Between January and October 2000,such payments averaged $42,000 a month. As a result of, among other things, certainamendment and waiver agreements, reduced monthly cash flow payments to Point West Capitaland Allegiance resumed in May 2001. From January 2002 through June 2002, these payments,which are subordinate to other payments under the Allegiance Financing, averaged $6,000per month. However, these payments ended in August 2002 as a result of the terminationnotice referred to above. 

                   In the first quarter of 2002, Allegiance Capital entered into an agreement to sell afuneral home it had acquired in connection with a defaulted loan. The sale closed on March28, 2002. 

*Three and Six Months Ended June 30, 2002 Compared to the Three and  Six Months Ended June 30, 2001**                   Interest Income. Interest income declined to $744,000 during the three months endedJune 30, 2002 from $854,000 during the same period in 2001 and declined to $1.5 millionduring the six months ended June 30, 2002 from $1.8 million during the same period in2001. The decline was primarily due to non-performing loans, which were in default and onnon-accrual status. During the three and six months ended June 30, 2002, theweighted-average interest rate earned on the loans was 8.2% and 8.5%, respectively, andthe weighted-average principal amounts outstanding was $35.3 million, compared to theweighted-average interest rate of 8.9% and the weighted-average principal amountsoutstanding of $37.6 million and $37.7 million, respectively, during the three and sixmonths ended June 30, 2001. For purposes of the weighted average interest rate andweighted average principal outstanding calculations for the three and six months endedJune 30, 2002, four non-performing loans (including two which are included in assets heldfor sale) in the aggregate principal amounts of $5.3 million have been included in thecalculations to the extent they were performing during that period. For purposes of theweighted average interest rate and weighted average principal outstanding calculations forthe three and six months ended June 30, 2001, two non-performing loans in the aggregateprincipal amounts of $3.9 million have been included to the extent they were performingduring that period. Allegiance cannot predict at this time whether the loans currently onnon-accrual status will remain on non-accrual status. To the extent that the loans remainon non-accrual status, Allegiance does not anticipate receiving all interest income itwould have received had the loans been performing. 

*                   Other Income.*Other income was $66,000 during the three months ended June 30, 2002 andresulted primarily from additional proceeds in the amount of $43,000 received on a gain onthe sale of a funeral home held by Allegiance. Other income was $1,000 during the threemonths ended June 30, 2001. Other income was $138,000 during the six months ended June 30,2002 and resulted primarily from a $100,000 gain on the sale of a funeral home held byAllegiance discussed above. Other income was $97,000 during the six months ended June 30,2001 and resulted primarily from the recognition of previously deferred net hedging gainsrelated to the Allegiance loans upon adoption of Statement of Financial AccountingStandards No. 133, *Accounting for Derivative Instruments and Hedging Activities* onJanuary 1, 2001. At June 30, 2002, Allegiance had no hedging relationships. 
*                   Interest Expense. Interest expense declined to $628,000 during the three months endedJune 30, 2002 from $691,000 during the three months ended June 30, 2001 and declined to$1.3 million during the six months ended June 30, 2002 from $1.4 million during the sixmonths ended June 30, 2001, due to principal payments on the outstanding certificates andlower interest rates. During the three and six months ended June 30, 2002, theweighted-average interest rate under the Allegiance Financing was 8.2% and 8.1%,respectively, compared to 8.5% during the three and six months ended June 30, 2001. Duringthe three and six months ended June 30, 2002, the weighted-average borrowings were $30.8million and $31.0 million, respectively, compared to the weighted-average borrowings of$32.6 million and $32.8 million, respectively, during the three and six months ended June30, 2001. The Allegiance Financing 

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terminated in December 2000. However, amounts borrowed under theAllegiance Financing remain outstanding. 
*                   Compensation and Benefits. Compensation and benefits declined to $40,000 during thethree months ended June 30, 2002 from $55,000 during the same period in 2001 and declinedto $87,000 during the six months ended June 30, 2002 from $113,000 during the same periodin 2001. Allegiance had no employees at June 30, 2002 and two employees at June 30, 2001.Compensation and benefits for both periods reflects an intercompany charge for servicespreformed by Point West Capital employees on behalf of Allegiance.
*                   Other General and Administrative Expenses. Other general and administrative expenseswere $2.1 million and $57,000 for the three months ended June 30, 2002 and 2001,respectively and $2.1 million and $162,000 for the six months ended June 30, 2002 and2001, respectively. The increase in total expenses was due to a $2.0 million impairmentexpense recognized in connection with the assets of two of the non-performing loansacquired by Allegiance and the assets of another borrower acquired by Allegiance viaforeclosure. Offsetting such increase during the 2002 periods was a decline due primarilyto a reduction in expenses resulting from Allegiance’s suspended lending activities.
***Viatical Settlements***
                   The Viatical Settlements segment includes results of operations in connection withviatical settlements for DPFC and Point West Capital.
*Recent Developments and Certain Accounting Implications for DPFC

                   As a result of the imminent default of DPFC under the terms of the Securitized Notes,Point West Capital and the Noteholders entered into an agreement in March 2000 thatamended certain of the terms of the Securitized Notes. Pursuant to the DPFC Agreement, theNoteholders were required to provide funds through June 30, 2002 to pay servicing fees,premiums and certain other costs of DPFC in the event policy collections wereinsufficient. Under the DPFC Agreement, Point West Capital continued to act as servicerfor a fee of $18,000 per month for the period March 2000 through June 2002. On June 30,2002, Point West Capital and the Noteholders entered into an agreement (the "LetterAgreement") that amended certain of the terms of the Securitized Notes. Pursuant tothe Letter Agreement, Point West Capital will continue to act as servicer throughSeptember 30, 2002 for a reduced fee of $15,000 per month. It is anticipated that, onSeptember 30, 2002, Point West Capital will be replaced as servicer and the Noteholders ortheir designee will purchase the DPFC outstanding stock from Point West Capital for anominal amount. 

                   As a result of the DPFC Agreement, the Company will not recognize any future gain or lossrelated to DPFC until the Noteholders purchase the DPFC stock pursuant to the DPFCAgreement. The Company expects to recognize a pre-tax (non-cash) gain in an amountapproximately equal to the $4.6 million accumulated deficit of DPFC on September 30, 2002.Additionally, when the DPFC stock is purchased or DPFC is liquidated, the Company may haveincome tax liability associated with the gain from debt forgiveness. The Company may beable to use carryforward losses to offset such liability, unless the carryforward losseshave been previously utilized. Since March 2000 the Company has recognized the $18,000monthly servicing fee ($54,000 per quarter) paid to Point West Capital as other income inthe consolidated statement of operations.

                   Also as a result of the DPFC Agreement, DPFC has not recognized any interest expenserelated to the Securitized Notes nor any general and administrative expenses subsequent toFebruary 29, 2000 and will not recognize these expenses in future periods. 

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                   The Securitized Notes represent the obligations solely of DPFC. Point West Capital did notguarantee repayment of the Securitized Notes and is not required to fund any principal orinterest deficiencies thereunder.
***                   Ventures**
                   Certain Accounting Implications for Ventures*
                   In February 2002, the Small Business Administration ("SBA") was appointedpermanent receiver of Point West Ventures. The SBA has taken possession and control of allof Point West Ventures’ assets for the purpose of liquidating Point WestVentures’ assets, satisfying claims of Point West Ventures’ creditors andpursuing causes of action available to Point West Ventures. Upon conclusion of thereceivership, Point West Ventures’ SBIC license will be terminated. 

                   The Company expects the SBA to liquidate the assets of Point West Ventures in an orderlymanner. Point West Ventures’ assets are carried at estimated fair value as ofDecember 31, 2001. The Company does not anticipate any future changes to the carryingvalues unless the SBA liquidates some assets or the Company learns that the assets shouldbe written down further. If assets are liquidated or the Company receives information fromthe SBA indicating further write-downs are necessary, the Company will record anysubsequent reduction in liquidation value in the consolidated balance sheet and statementof operations in the appropriate period. Future revenues and expenses associated withPoint West Ventures (including gains and losses in respect of liquidated assets, accruedinterest and fees) will continue to be recognized in the consolidated statement ofoperations until the receivership is terminated and Point West Ventures is dissolved. 

                   Point West Ventures has issued two debentures payable to the SBA totaling $6.5 million inprincipal amount. The debentures will continue to be reflected in the Company’sconsolidated balance sheet until Point West Ventures is legally released from itsobligations under the debentures. The Company cannot predict whether or at what time PointWest Ventures will be legally released from its obligations under the debentures.Dispositions of Point West Ventures’ portfolio securities by a receiver may occur attimes or on terms that would not maximize the value of those assets. It is virtuallycertain that proceeds from any asset dispositions will be insufficient to repay allamounts owed to the SBA by Point West Ventures under the debentures. If and when the debtis finally discharged, the Company would then recognize a gain on debt forgiveness in anamount equal to any unpaid debt that is discharged, net of any tax effect.
***Three and Six Months Ended June 30, 2002 Compared to the Three    and Six Months Ended June 30, 2001**                   Net Gain (Loss) on Securities. Ventures reported a $16,000 gain on securities for thethree months ended June 30, 2002 compared to a $729,000 loss on securities for the threemonths ended March 31, 2001. The gain on securities for the period ended June 30, 2002resulted from the sale of marketable securities held in one company. The loss onsecurities during the three months ended June 30, 2001 was primarily due to the write-downor write-off of impaired investments in four different companies as a result of thefinancial deterioration of the investees. Ventures reported a $22,000 gain on securitiesfor the six months ended June 30, 2002 compared to a $3.2 million loss on securities forthe six months ended June 30, 2001. The gain on securities for the period ended June 30,2002 resulted from the sale of marketable securities held in two companies. The loss onsecurities during the six months ended June 30, 2001 was primarily due to the write-downor write-off of impaired investments in nine different companies as a result of thefinancial deterioration of the investees. As a result of the SBA receivership discussedabove in "Certain Accounting Implications for Ventures," the Company does notanticipate any further changes in the carrying values of investments in marketable andnon-marketable securities held by 

14

Ventures unless the SBA informs Ventures of a liquidation or theCompany learns that the assets should be written down further. 
*                   Interest Expense. Interest expense was $126,000 during both the three months endedJune 30, 2002 and 2001 and $252,000 during the six months ended June 30, 2002 compared to$250,000 during the six months ended June 30, 2001. During all periods theweighted-average interest rate on the funds borrowed from the SBA was 7.8% and theweighted-average borrowings were $6.5 million.
***Other

                   The Other segment includes results attributable to Point West Capital and PWS. Except forcompensation and benefit expenses clearly attributable to Allegiance, corporate overheadis included in the "Other" segment and has not been allocated. As of June 30,2002, PWS was no longer included in the Company’s consolidated financial statements.The Company sold PWS during the second quarter of 2002 for $20,000. PWS’ operationshave been reflected in the Statement of Operations through June 30, 2002. Activities forPWS were immaterial during the six months ended June 30, 2002 and 2001. 
*Three and Six Months Ended June 30, 2002 Compared to the Three and    Six Months Ended June 30, 2001**                   Loss on Securities. During the three months ended March 31, 2001, Point West Capitaldetermined that a $939,000 investment in one company was impaired and therefore wrote-offthe entire carrying value during that period. This write-off was a result of deteriorationin the financial condition of the underlying company. That company is presently beingliquidated and no amounts will be paid to any shareholders. This investment was made byPoint West Capital prior to the inception of Ventures, and was the only investment inPoint West Capital’s portfolio. 
*                   Other Income. Other income was $20,000 for the three months ended June 30, 2002 due tothe sale of PWS. No other income was recognized during the 2001 periods.
*                   Compensation and Benefits. Compensation and benefits declined to $78,000 during thethree months ended June 30, 2002 from $232,000 during the three months ended June 30, 2001and declined to $260,000 during the six months ended June 30, 2002 from $555,000 duringthe six months ended June 30, 2001 due to employee layoffs and attrition. Bradley N.Rotter and Alan B. Perper ceased to be employed by the Company in 2002. Both remaindirectors and Mr. Rotter remains the Chairman of the Board.
*                   Other General and Administrative Expenses. Other general and administrative expensesdeclined to $57,000 during the three months ended June 30, 2002 from $286,000 during thethree months ended June 30, 2001 and declined to $294,000 during the six months ended June30, 2002 from $724,000 during the six months ended June 30, 2001. The decrease in suchexpenses was primarily due to a decrease in legal expenses related to litigation andarbitration proceedings, which were settled in March 2002. In addition, other general andadministrative expenses decreased in the 2002 periods as a result of a cost-reductionprogram, which the Company established in the latter half of 2000. 
**Liquidity and Capital Resources

                   At June 30, 2002 the Company had $538,000 of cash and cash equivalents, $4,000 ofinvestment securities and $2.1 million of non-marketable securities. For the six monthsended June 30, 2002, the Company incurred a loss of $2.4 million, which resulted in astockholders’ deficit of $7.0 million and increased accumulated deficit to $34.3million. The Company expects to continue to incur losses. The Company has also experiencedcontinuing negative cash flows from operations. Cash flows used in operating activitiesfor the six months ended June 30, 2002 and 2001 were $187,000 and $306,000, 

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respectively. As a result of the Company’s loss of servicingactivities, the Company’s liquidity issues and other factors, management plans todissolve the Company, through dissolution procedures under Delaware Law, bankruptcyproceedings or otherwise. 

                   The Company is currently unable to predict its liquidity beyond September 30, 2002, whichwill be dependent on (i) the cash flow from the Company’s assets and (ii) theCompany’s ability to terminate its present lease on satisfactory terms. 

                   Management is assessing the dissolution of the Company. Were the Company to be liquidatedit is uncertain whether any funds would be available to stockholders. The amount, if any,of funds available for stockholders would be dependent primarily on the value of theresidual ownership in Allegiance upon any such liquidation. 
*           Point West Capital*
                   At present, Point West Capital has no external funding source from which to fund itsworking capital and general corporate needs. At June 30, 2002, Point West Capital’scash and cash equivalents was $311,000. 
*Allegiance

                   As of June 30, 2002, Allegiance had cash and cash equivalents of $720,000, of which$522,000 is restricted under the Allegiance Financing. 
*DPFC*
                   It is anticipated that, on September 30, 2002, the Noteholders or their designee willpurchase the DPFC stock for a nominal amount and Point West Capital will be replaced asservicer. Point West Capital, as servicer under the Securitized Notes, performs monitoringand collection activities for DPFC and incurs administrative costs associated with theseactivities. See "Results of Operations by Segment—ViaticalSettlements—Recent Developments and Certain Accounting Implications for DPFC."Point West Capital is reimbursed for these costs subject to priority provisions containedin the Indenture. Principal, interest payments and other costs are payable solely fromcollections on policies pledged to secure the payment thereof and, with respect to costs,amounts provided by the Noteholders.
*Ventures*
                   As of June 30, 2002, Ventures had identifiable assets of $2.2 million, including $27,000of cash, investment securities with an estimated fair value of $4,000, non-marketablesecurities with an estimated fair value of $2.1 million and $75,000 of accountsreceivable. In February 2002, the SBA was appointed permanent receiver of Point WestVentures. The SBA has taken possession and control of all of Point West Ventures’assets for the purpose of liquidating Point West Ventures’ assets, satisfying claimsof Point West Ventures’ creditors and pursuing causes of action available to PointWest Ventures. See "Results of Operation by Segment—Ventures—RecentDevelopments" above for further information, including a discussion of the accountingimplications of such a receivership. 

                   Point West Ventures does not currently have sufficient cash to repay the SBA debentures.As of June 30, 2002, Point West Ventures’ identifiable assets were significantly lessthan the amounts owed under the SBA debentures, and it is virtually certain that proceedsfrom any asset disposition will be insufficient to repay all amounts owed to the SBA byPoint West Ventures under the debentures. Any asset disposition proceeds will be used tosatisfy amounts owed to the SBA under the debentures and to pay the costs of thereceivership. 

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**Forward Looking Statements**
                   This report includes forward-looking statements within the meaning of the PrivateSecurities Litigation Reform Act of 1995. All statements made herein which are not basedon historical facts are forward looking and, accordingly, involve risks and uncertaintiesthat could cause actual results to differ materially from those discussed. Such forwardlooking statements include those under "Management’s Discussion and Analysis orPlan of Operation" relating to (1) the amount of any loss experienced in connectionwith loans made by Allegiance that are in default, (2) the amount of proceeds received ifthe Investors were to liquidate the collateral under the Allegiance Financing, (3) theamount of gain to be recognized on the purchase of DPFC stock, (4) sufficiency of theCompany’s liquidity and capital resources (see "Liquidity and CapitalResources"), (5) the Company’s ability to terminate its present lease onsatisfactory terms and (6) the consequences of Point West Ventures’ default under itsSBA borrowings and the receivership. Such statements are based on management’sbelief, judgment and analysis as well as assumptions made by and information available tomanagement at the date hereof. In addition to any assumptions and cautionary factorsreferred to specifically in this report in connection with such forward lookingstatements, factors that could cause actual results to differ materially from thosecontemplated by the forward looking statements include (1) the Investors’ ability toforeclose on the collateral and realize an amount on foreclosure at least equal to thecarrying value of the Allegiance loans which are currently in default, (2) the continuingability of borrowers to perform under loans previously made by Allegiance and factors suchas general economic conditions that would affect such ability, (3) the Investors’ability to sell the collateral under the Allegiance Financing at the current carryingvalue and market conditions at the time of any such sale, (4) actions taken by theInvestors with respect to the current or any future default under the AllegianceFinancing, (5) actions taken by the Noteholders with respect to the purchase of DPFC, (6)the commencement of any additional arbitration or litigation proceedings by or against theCompany or its subsidiaries, (7) the Company’s ability to come to an agreement withits current landlord and (8) actions taken by the SBA with respect to Point West Ventures,including any manner of liquidation.

 

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**PART II. OTHER INFORMATION**
Item 3. Defaults Upon Senior Securities

                   See "Management’s Discussion and Analysis or Plan of Operation--- Liquidity andCapital Resources--- Ventures" and "Management’s Discussion and Analysis orPlan of Operation--- Results of Operations by Segment--- Allegiance."

Item 6. Exhibits and Reports on Form 8-K

(a)                                   Exhibits:

    Number                 Description
10.1
Letter    Agreement dated June 30, 2002 among Point West Capital Corporation, Dignity Partners    Funding Corp. I, Bankers Trust Company, Heller Financial, Inc., The Lincoln National Life    Insurance Company and First Penn-Pacific Life Insurance Company. 
10.2
Servicer    Termination Notice dated August 5, 2002
10.3
Special    Servicer Termination Notice dated August 5, 2002
(b)                                   Reports on Form 8-K filed during the quarter ended June 30, 2002: 

                       None.
**18****
 

**SIGNATURES**

In accordance with the requirements of the Exchange Act, the registrantcaused this report to be signed on its behalf by the undersigned, thereunto dulyauthorized.

 

POINT WEST CAPITAL CORPORATION
Dated:    August 14, 2002
/s/ John Ward RotterJohn Ward Rotter
Chief Executive Officer
(Authorized Officer)
Dated:    August 14, 2002
/s/ Joanna L. ZesigerJoanna L. ZesigerChief Financial Officer(Principal Financial and Accounting Officer)
19***********************************