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, 1998
                                                 --------------
                                       OR
              [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                 For the transition period from ______ to ______

                         Commission file number 0-27736

                         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, 1998,  there were  3,253,324  shares of the  registrant's  Common
Stock outstanding.



<PAGE>



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

                                      INDEX
                                      -----

Part I                                                                   Page #
------                                                                   ------
Item 1.   Consolidated Financial Statements:

          Consolidated Balance Sheets
            September 30, 1998 and December 31, 1997                       1

          Consolidated Statements of Operations
            and Comprehensive Income (Loss) for the
            Three and Nine Months Ended September 30, 1998 and 1997        2

          Consolidated Statements of Cash Flows for the
            Nine Months Ended September 30, 1998 and 1997                  3

          Condensed Notes to Consolidated Financial Statements            4-10

Item 2.   Management's Discussion and Analysis of Financial
            Condition and Results of Operations                           11-20

Item 3.   Quantitative and Qualitative Disclosures
           About Market Risk                                               21


Part II
-------

Item 1.   Legal Proceedings                                                22

Item 5.   Other Information                                                23

Item 6.   Exhibits and Reports on Form 8-K                                 24

Signatures                                                                 25
----------

                                      (i)

<PAGE>

                                         POINT WEST CAPITAL CORPORATION
                                           CONSOLIDATED BALANCE SHEETS
                                    September 30, 1998 and December 31, 1997

<TABLE>
<CAPTION>


                                                                        September 30,         December 31,
                              ASSETS                                         1998                 1997
                                                                      -------------------   ------------------

<S>                                                                           <C>                   <C>

Cash and cash equivalents                                           $          4,955,470  $        10,039,560
Restricted cash                                                                3,433,699            3,756,714
Investment securities (note 2)
          Held-to-maturity                                                     1,235,010            2,220,000
          Available-for-sale                                                   8,593,662            3,597,343
Matured policies receivable                                                       75,000              305,435
Loans receivable, net of unearned income of $(127,106) and
          $59,884, respectively (note 3)                                       7,018,698            4,015,716
Assets held for sale (note 4)                                                     66,470              129,334
Purchased life insurance policies (note 5)                                    33,993,697           36,586,788
Non-marketable securities (note 6)                                             3,658,478            1,658,478
Deferred financing and organizational costs, net of
          accumulated amortization of $818,602 and
          $621,884, respectively                                                 516,216              525,433
Furniture and equipment, net of accumulated depreciation of
          $2,784 and $341, respectively                                           27,049                6,862
Other assets                                                                     129,316              127,590
                                                                      -------------------   ------------------

          Total assets                                              $         63,702,765  $        62,969,253
                                                                      ===================   ==================

               LIABILITIES AND STOCKHOLDERS' EQUITY

Accrued expenses                                                    $            174,815  $           183,150
Accounts payable                                                                 208,643              216,851
Accrued compensation payable                                                     163,000              193,000
Reserve for equity interest in wholly owned financing
          subsidiary (note 5)                                                         --            2,300,037
Long term notes payable  (note 7)                                             38,528,914           38,804,107
Debentures payable to Small Business Administration (note 8)                   3,000,000                   --
Deferred income taxes                                                              6,000                6,000
                                                                      -------------------   ------------------

          Total liabilities                                                   42,081,372           41,703,145
                                                                      -------------------   ------------------

Stockholders' equity:
          Common stock, $0.01 par value; 15,000,000 authorized shares,
               4,291,824 shares issued
               3,253,324 shares outstanding                                       42,918               42,918
          Additional paid-in-capital                                          29,496,720           29,496,720
          Comprehensive income-- net unrealized
               investment gains (note 2 and 9)                                 5,001,555            2,597,239
          Retained deficit                                                  (10,045,768)          (7,996,737)
          Treasury stock, 1,038,500 shares                                   (2,874,032)          (2,874,032)
                                                                      -------------------   ------------------

          Total stockholders' equity                                          21,621,393           21,266,108
                                                                      -------------------   ------------------

          Total liabilities and stockholders' equity                $         63,702,765  $        62,969,253
                                                                      ===================   ==================

<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, 1998 and 1997



<TABLE>
<CAPTION>


                                                                        Three Months Ended               Nine Months Ended
                                                                           September 30,                   September 30,
                                                                      1998            1997            1998              1997
                                                                  --------------  --------------  --------------  -----------------
                                                                  

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



Income:
     Earned discounts on matured policies (note 10)             $        65,167 $        91,473 $       430,819 $          377,450
     Interest income                                                    350,218         338,191       1,049,373            883,401
     Gain (loss) on sale of convertible
           preferred shares                                                  --        (20,000)              --            679,665
     Gain on assets sold (note 4)                                        14,820          98,128         165,346          1,460,986
     Other                                                              173,990          18,168         342,878             88,043
                                                                  --------------  --------------  --------------  -----------------
                                                                  
           Total income                                                 604,195         525,960       1,988,416          3,489,545

Expenses:
     Interest expense                                                   925,545         896,771       2,697,587          2,721,030
     Compensation and benefits                                          414,984         289,244       1,110,322            843,352
     Other general and administrative expenses                          409,101          12,123       1,256,920          1,037,236
     Amortization                                                        71,406          60,392         196,718            177,538
     Depreciation                                                         1,240              --           2,443                 --
     Provision for loss on assets held for sale (note 4 )                    --         328,236              --            328,236
     Loss on non-marketable securities (note 6)                       1,073,494              --       1,073,494                 --
                                                                  --------------  --------------  --------------  -----------------
                                                                  
           Total expenses                                             2,895,770       1,586,766       6,337,484          5,107,392
                                                                  --------------  --------------  --------------  -----------------
                                                                  

           Loss before net loss in wholly owned
              financing subsidiary charged
              to reserve for equity interest                        (2,291,575)     (1,060,806)     (4,349,068)        (1,617,847)

Net loss in wholly owned financing subsidiary charged
     to reserve for equity interest (note 5)                            407,324         942,943       2,300,037          2,827,594

                                                                  --------------  --------------  --------------  -----------------
                                                                  
           Net income (loss)                                    $   (1,884,251) $     (117,863) $   (2,049,031) $        1,209,747
                                                                  ==============  ==============  ==============  =================
                                                                  

Comprehensive income (loss) -- net unrealized
     investment gains (losses) (note 9)                             (3,274,708)         356,421       2,404,316            356,421
Total comprehensive income (loss) (note 9)                          (5,158,959)         238,558         355,285          1,566,168

Basic earnings (loss) per share (note 11)                                (0.58)          (0.04)          (0.63)               0.33
Diluted earnings (loss) per share (note 11)                              (0.58)          (0.04)          (0.63)               0.33

Weighted average number of shares of common stock
     outstanding (note 11)                                            3,253,324       3,253,324       3,253,324          3,612,190
Weighted average number of shares of common stock
     and common stock equivalents outstanding (note 11)               3,253,324       3,253,324       3,253,324          3,692,572

<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, 1998 and 1997

<TABLE>
<CAPTION>



                                                                                     Nine Months Ended
                                                                                       September 30,
                                                                                 1998                  1997

                                                                          -------------------   -------------------

<S>                                                                              <C>                     <C>

Cash flows for operating activities:
    Net income (loss)                                                   $        (2,049,031) $           1,209,747
    Adjustments to reconcile net income (loss) to net cash
         (used in) provided by operating activities:
         Depreciation and amortization                                               199,161               177,538
         Gain on sale of assets                                                    (165,346)           (1,460,986)
         Gain on sale of convertible preferred shares                                     --             (679,665)
         Provisions for loss on sale of assets                                            --               328,236
         Earned discounts on policies                                              (430,819)             (377,450)
         Purchase of life insurance policies                                              --             (966,275)
         Collections on matured life insurance policies                            3,082,440             5,317,170
         Increase in other assets                                                    (1,729)              (37,192)
         (Decrease) increase in accrued expenses                                     (8,335)                 3,383
         (Decrease) increase in accounts payable                                     (8,208)               149,648
         Decrease in accrued compensation payable                                   (30,000)              (52,390)
         Decrease in reserve for equity interest in wholly
                   owned financing subsidiary                                    (2,128,989)           (2,827,594)
         Loss on non-marketable securities                                         1,073,494                     --
                                                                          -------------------   -------------------
                   Net cash (used in) provided by operating activities             (467,362)               784,170
                                                                          -------------------   -------------------

Cash flows from investing activities:
    Proceeds from sale of assets held for sale                                       229,067            12,686,192
    Purchase of furniture and equipment                                             (22,630)                    --
    Return of restricted cash                                                        323,015               504,816
    Purchase of investment and non-marketable securities                         (6,708,504)           (3,477,500)
    Sale of investment and non-marketable securities                               2,028,000             2,021,187
    Additions to loans receivable                                                (3,111,990)                    --
    Principal payments on loans receivable                                           109,008                    --
                                                                          -------------------   -------------------
                   Net cash (used in) provided by investing activities           (7,154,034)            11,734,695
                                                                          -------------------   -------------------

Cash flows from financing activities:
    Proceeds from debentures payable to the Small Business Administration          3,000,000                     --
    Principal payments on long term notes payable                                  (275,193)           (2,414,098)
    Purchase of treasury stock                                                             --           (2,484,032)
    Increase in financing costs                                                    (187,501)              (80,592)
                                                                          -------------------   -------------------
                                                                          
                   Net cash provided by (used in) financing activities             2,537,306           (4,978,722)
                                                                          -------------------   -------------------

                   Net (decrease) increase in cash and cash equivalents          (5,084,090)             7,540,143

Cash and cash equivalents, beginning of period                                    10,039,560             6,586,447
                                                                          -------------------   -------------------

Cash and cash equivalents, end of period                                $          4,955,470 $          14,126,590
                                                                          ===================   ===================


Supplemental disclosures:
Supplemental disclosure of non-cash activities:
    Unrealized gain on securities available for sale                    $          5,001,555 $             356,421
                                                                          ===================   ===================
Supplemental disclosure of cash flow information:
    State taxes paid                                                    $             16,014 $              35,823
                                                                          ===================   ===================
    Cash paid for interest                                              $          2,701,359 $           2,717,647
                                                                          ===================   ===================
<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, 1998 and for the three and nine month periods ended  September 30,
1998 have  been  prepared  in  accordance  with  generally  accepted  accounting
principles 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,  1998 are not  necessarily
indicative of the results that may be expected for the year ending  December 31,
1998.  The balance  sheet as of  December  31,  1997 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,  1997 (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"),  Fourteen  Hill  Management,  LLC
("Fourteen  Hill  Management"),  Fourteen Hill  Capital,  L.P.  ("Fourteen  Hill
Capital"),  Allegiance Capital, LLC ("Allegiance  Capital"),  Allegiance Funding
Corp. I ("Allegiance Funding") and Allegiance Capital Trust I ("Allegiance Trust
I").  References herein to Allegiance  include  Allegiance  Capital,  Allegiance
Funding and Allegiance Trust I.

         Until February  1997, the Company  provided  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 by expanding
its  financial   services  business  through  the  formation  of  Fourteen  Hill
Management  and Fourteen Hill  Capital,  which invest in small  businesses,  and
Allegiance  which lends funds to funeral home and cemetery  owners.  The Company
continues  to service  the life  insurance  policies  held by its  wholly  owned
special  purpose  subsidiary,  DPFC,  and to evaluate other  strategic  business
opportunities. Fourteen Hill Capital and Allegiance may or may not be indicative
of the types of  business  opportunities  the  Company  intends to  continue  to
pursue.  See  "Management's  Discussion and Analysis of Financial  Condition and
Results of Operations -- Fourteen Hill Management and Fourteen Hill Capital" and
"-- Allegiance."

         During 1997, the Financial  Accounting  Standard Board ("FASB")  issued
Statement of Financial  Accounting  Standard  No. 131 ("SFAS  131"),  Disclosure
About Segments of An Enterprise and Related  Information.  SFAS 131 is effective
with the year-end 1998 financial statements.  During 1998, FASB issued Statement
of Financial Accounting Standard No. 133 ("SFAS 133"), Accounting for Derivative
Instruments  and  Hedging  Activities.  SFAS  133 is  effective  for all  fiscal
quarters of fiscal years  beginning after June 15, 1999. The Company will comply
with the disclosure requirements of SFAS 131 and SFAS 133 when required.

                                       4

<PAGE>



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

         Statement  of  Financial  Accounting  Standards  No. 115 ("SFAS  115"),
Accounting  for  Certain  Instruments  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
held-to-maturity   are  reported  at  amortized   cost  and   available-for-sale
securities are reported at fair market value with unrealized gains and losses as
a separate  component of  stockholders'  equity.  Many of the equity  securities
classified  by  the  Company  as  available-for-sale   are  securities  (or  are
convertible into securities) traded in the over-the-counter ("OTC") market. 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.  The Company
had no trading  securities  at  September  30, 1998 or December  31,  1997.  Any
unrealized  gains  and  losses,  declines  in value of  securities  judged to be
other-than-temporary  and accrued  interest and dividends on all securities will
be  reported  on an  appropriate  line item  above  "Net  Income  (Loss)" on the
consolidated  statements  of  operations  and  comprehensive  income (loss) when
realized.

         The amortized  costs and estimated fair value of investment  securities
(before any minority  interest)  as of September  30, 1998 and December 31, 1997
are as follows:
<TABLE>
<CAPTION>


                                                       December 31, 1997
-------------------------------------------------------------------------------------------------------

                                                   Gross Unrealized    Gross Unrealized
                                 Amortized Cost          Gains               Loss
                                                                                            Fair Value

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


Held-to-maturity
     Corporate bonds           $    1,235,010      $          --    $        (150,010)   $    1,085,000
                               --------------      ---------------    -----------------   --------------
Total held-to-maturity         $    1,235,010      $          --    $        (150,010)   $    1,085,000

Available-for-sale
     Common stock              $    3,592,000      $    5,001,662     $             --   $     8,593,662
     Warrants                  $            0      $           --     $             --   $            --
                               ------------------  -----------------  ------------------  ------------------
 
Total available-for-sale       $    3,592,000      $    5,001,662     $              --   $    8,593,662
                                                                      
</TABLE>

<TABLE>
<CAPTION>



                                                       December 31, 1997
-------------------------------------------------------------------------------------------------------

                                                   Gross Unrealized    Gross Unrealized
                                 Amortized Cost          Gains               Loss
                                                                                            Fair Value

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



Held-to-maturity
     Corporate bonds           $    2,220,000      $         75,000   $         (5,000)   $    2,290,000
                               --------------      ----------------   -----------------   --------------
Total held-to-maturity         $    2,220,000      $         75,000   $         (5,000)   $    2,290,000

Available-for-sale
     Common stock              $      903,181     $       1,355,153     $            --   $    2,258,334
     Warrants                  $       96,819     $       1,242,190     $            --   $    1,339,009
                               --------------     -----------------     ---------------   --------------
   Total available-for-sale    $    1,000,000     $       2,597,343     $            --   $    3,597,343

</TABLE>   

                                       5

         The Company  classifies  debt  securities for which it has the positive
intent and ability to hold to maturity as  held-to-maturity.  All investments in
debt  securities  classified  as  held-to-maturity  at  September  30,  1998 and
December 31, 1997 have maturity  dates  ranging from one to six years.  Warrants
classified as available-for-sale  have expiration dates ranging from one to five
years.  Certain warrants  outstanding at December 31, 1997 were exercised during
the first quarter of 1998 and the securities  purchased upon such conversion are
reflected at September 30, 1998 as available-for-sale.

         Unrealized  gains  on   available-for-sale   securities   (representing
differences  between  estimated  fair value and cost) of $5.0  million  and $2.6
million at September 30, 1998 and December 31, 1997, respectively, were credited
to a separate component of stockholders' equity called  "Comprehensive Income --
Net Unrealized Investment Gains."

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

         Loans  receivable  includes  loans made to  unaffiliated  third parties
through  Allegiance  and  Fourteen  Hill  Capital.  Such loans are  reported  at
amortized  cost,  and interest is accrued as earned.  All loans at September 30,
1998 and  December  31,  1997 were  current,  and no  reserves  were  considered
necessary as of either date.

         Allegiance  had two loans  outstanding  at  September  30,  1998 in the
aggregate  principal  amount of $5.8  million,  one of which was  originated  in
December 1997 and bears  interest at a fixed interest rate per annum of 9.4% and
the other of which was  originated in January 1998 and bears interest at a fixed
interest  rate per annum of 9.8%.  Principal  payments  are due  monthly on such
loans, and such loans mature, subject to permitted prepayments, in approximately
fifteen years from the initial loan date. 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 Standards No. 91 ("SFAS 91"),  Accounting for Nonrefundable
Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct
Costs of Leases.

         On August 19,  1998,  Allegiance  put in place a  structured  financing
which provides short term financing and may provide long term financing, subject
to certain  limitations,  with respect to loans  Allegiance has made in the past
and may  make in the  future.  See  "Management's  Discussion  and  Analysis  of
Financial  Condition and Results of Operations -- Allegiance." It is anticipated
that  this   transaction  will  provide  interim  floating  rate  financing  and
ultimately  permanent fixed and floating rate financing for loans  originated by
Allegiance,  including  the two loans held by  Allegiance at September 30, 1998.
The interest  rate at which it is  anticipated  that term  certificates  will be
issued  will be set in the future when  approximately  $30 million of loans have
been originated. Allegiance utilizes futures contracts to hedge certain interest
rate exposure  between the time of  origination of the loans and the issuance of
term  certificates.  Any  realized  gain or loss  related  to these  hedges  are
deferred and  recognized  by the Company over the life of the related loan as an
adjustment  of interest  income.  Pursuant to Statement of Financial  Accounting
Standards  No.  80 ("SFAS  80"),  Accounting  for  Futures  Contracts,  all such
deferred  amounts are reflected on the balance sheet 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,  1998,  the  Company  had net
realized  losses on its hedging  activities of $211,000  which  increased  loans
receivable in a like amount. In addition,  the Company had unrealized net losses
from open hedging  positions of $123,000 as of September  30, 1998.  The Company
had no hedging activities at December 31, 1997.

         Fourteen Hill Capital had two loans  outstanding  at September 30, 1998
in the aggregate principal amount of $1,045,000,  one of which was originated in
January 1998 and bears  interest at a fixed  interest  rate per annum of 15% and
the other of which was  originated  in  September  1998 and bears  interest at a


                                       6

<PAGE>


fixed  interest rate per annum of 14%.  Such loans mature,  subject to permitted
prepayments, in approximately 5 years.

4.        Assets Held for Sale
--        --------------------

         As a  result  of  the  Company's  decision  in  1996  to  sell  all  or
substantially  all of its assets,  it  reclassified  all assets owned as of such
date,  other  than  the  assets  of DPFC,  to a  "held-for-sale"  category.  See
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations  -- Overview."  Accordingly,  such assets are recorded on the balance
sheet as of  September  30, 1998 and  December 31, 1997 at the lower of carrying
value or fair value less estimated cost to sell. In connection with the decision
to sell assets, the Company  established a reserve for loss on sale of assets in
1996 and reevaluates  such reserve each quarter.  Assets held for sale consisted
of:
 <TABLE>
<CAPTION>

                                                             September 30 , 1998           December 31, 1997
                                                             -------------------           ----------------- 
<S>                                                              <C>                       <C>     
     Capitalized costs                                        $         232,447           $       525,697
     Earned discounts on life insurance policies                            731                     2,482
     Reserve for loss on sale                                          (166,708)                 (398,845)
                                                              ------------------          ----------------
     Assets held for sale                                     $          66,470           $       129,334
                                                              =================          ==================
                                                              
</TABLE>

         The  reserve  for  loss  on  sale  was  calculated  based  on the  life
expectancy of the insured under each life insurance policy in relation to prices
obtained by the Company in connection with other sales, management's estimate of
the saleability of such policy,  the type of policy (e.g.,  term or whole life),
the age of the insured and premiums on such policy.  Any gain or loss due to the
difference  between  actual  proceeds  (less any back end sourcing fees) and the
carrying  value after giving effect to the reserve for loss on sale of assets is
reported as a realized gain or loss on assets sold at the time any sale proceeds
are received.

         "Assets  held for  sale" at  September  30,  1998  consisted  of 7 life
insurance  policies which were the subject of prior sales agreements between the
Company and  unaffiliated  third  parties.  The Company  experienced  delays and
difficulties  in  transferring  to the  purchasers  under  such  agreements  the
ownership of these 7 policies  and,  thus,  the sale of these 7 policies was not
consummated  under such sales  agreements.  However,  the Company  continues  to
pursue other alternatives for the sale of these policies.

5.        Purchased Life Insurance Policies
--        ---------------------------------

         Effective July 1996,  purchased life insurance  policies consisted 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.  The  Company  has
discussed  potential sales of DPFC policies with the Noteholders;  however,  the
Company  has not  determined  whether it will decide to sell such  policies  and
cannot determine  whether the Noteholders will consent to such a sale or whether
such a sale is  feasible.  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.


                                       7

<PAGE>

6.        Non-Marketable Securities
--        -------------------------

         Non-marketable  securities include  investments in non-marketable  debt
and equity securities through Point West and Fourteen Hill Capital.  The Company
accounts for such non-marketable securities using the cost method.

         In 1996, Point West purchased  convertible preferred shares in American
Information Company,  Inc. ("American  Information").  As of September 30, 1998,
the carrying value of such non-marketable preferred shares was $1.7 million. See
the Form 10-K for further  information  regarding  the  Company's  investment in
American Information.

         In 1998,  Fourteen Hill Capital  invested $2 million in the convertible
preferred  shares  (convertible  into common shares) of one  unaffiliated  small
business  entity  and  invested  $1 million  in the debt  securities  (which are
convertible  into preferred  shares,  which in turn are convertible  into common
shares) of another  unaffiliated  small business  entity.  The investment in the
convertible debt yields a fixed interest rate per annum of 6.4%.

         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 $1.1 million of non-marketable securities of
one company was impaired at September  30, 1998,  and  therefore  wrote-off  its
entire $1.1 million carrying value of such security.

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 balance sheet 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.  Since 1996,  losses  associated  with DPFC have been charged against the
reserve which was originally established in 1996 for the estimated loss of Point
West's equity  interest in DPFC. See Note 5. 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.  Upon the retirement of the Securitized  Notes, the Company
will  recognize  a gain in an  amount  approximately  equal  to any  accumulated
deficit  reflected.  At  September  30,  1998,  DPFC's  accumulated  deficit was
$562,000.  In the third  quarter of 1998,  the total loss  realized  by DPFC was
$969,000,  $407,000 of which was charged against the reserve for equity interest
in wholly  owned  financing  subsidiary,  and  $562,000  of which was  otherwise
reflected  in  the  Company's   consolidated   statements   of  operations   and
comprehensive income (loss).

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


                                       8
<PAGE>



8.        Debentures payable to Small Business Administration
--        ---------------------------------------------------

         As of  September  30,  1998,  Fourteen  Hill  Capital  had  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, Fourteen Hill Capital 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.        Stockholders' Equity
--        --------------------

         Changes in  stockholders'  equity  during the first nine months of 1998
reflected the following:

Stockholders' equity, beginning of period                       $   21,266,108
   Comprehensive income -- net unrealized investment gains           2,404,316
   Net loss                                                         (2,049,031)
                                                              -----------------
Stockholders' equity, end of period                             $   21,621,393
                                               

         During 1997,  FASB issued  Statement of Financial  Accounting  Standard
No.130 ("SFAS 130"),  Reporting  Comprehensive Income. SFAS 130 is effective for
interim and annual periods  beginning  after December 15, 1997. At September 30,
1998, the Company's  total  comprehensive  income (loss) includes net unrealized
investment  gains which  represents  the  increase in the  Company's  investment
securities classified as available-for-sale.

10.       Earned Discounts on Matured Policies
--        ------------------------------------

         With the  decision to sell all or  substantially  all of the  Company's
assets,  any income on matured policies since the third quarter of 1996 has been
recorded  as  earned  discounts  on  matured  policies  and  recorded  upon  the
notification  of death of the  insured.  Such income is equal to the  difference
between the  proceeds the Company  received on the  policies  (less any back end
sourcing  fees) and the carrying  value of such policies  after giving effect to
any reserve for loss on sale of such policies.

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

         Statement  of  Financial  Accounting  Standards  No.128  ("SFAS  128"),
Earnings  per Share,  was issued in  February  1997 and is  effective  for years
ending after  December 15, 1997.  Under SFAS 128,  earnings per share ("EPS") is
reported  as two  separate  calculations:  Basic EPS,  similar  to the  previous
primary EPS  excluding  stock  equivalents;  and,  Diluted  EPS,  similar to the
previous fully diluted EPS.

         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>
                                                                      For the three months      For the six months 
                                                                        ended September 30,      ended September 30, 
                                                                       ===================       ==================
                                                                         1998       1997            1998         1997

<S>                                                                   <C>                      <C>    
Weighted  average  number of shares of common   
     Stock outstanding.......................................          3,253,324  3,253,324       3,253,324    3,612,190
Additional common stock equivalents ..............                            --         --              --       80,382
                                                                       ---------  ---------       ---------    ---------
Weighted  average  number of shares of common  stock 
and  common stock equivalents outstanding ........                     3,253,324  3,253,324       3,253,324    3,692,572
                                                                       =========  =========       =========    =========
</TABLE>

                                       9

<PAGE>

            
         Diluted EPS for the three and nine months ended  September 30, 1998 and
the three  months  ended  September  30, 1997 do not  include  any common  stock
equivalents due to their anti-dilutive  effect. Common Stock equivalents for the
nine months ended September 30, 1997 include,  to the extent they do not have an
anti-dilutive  effect,  employee  stock  options,  non-employee  director  stock
options and warrants issued to Jefferies & Company, Inc., the investment banking
firm which previously advised the Company in connection with strategic options.

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
alleged 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  directors.  Thereafter,
plaintiffs filed a motion for class certification which the remaining defendants
have  opposed.  The  Company  has not  received a ruling on the motion for class
certification.  The case is currently in discovery.  The Company and each of the
remaining 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.  Although
the case has been stayed since its  inception,  the plaintiff  recently  filed a
motion (which the defendants have opposed) to have the stay lifted.  The Company
and each of the defendants intend to defend the action vigorously.


                                       10


<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, 1998, and of the results
of operations for the Company for the three and nine months ended  September 30,
1998 and 1997, 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
sale of a substantial  portion of the Company's life insurance  policies  during
the first half of 1997 and the  inception  of two new  businesses  in the second
half of 1997) the Company's  results of operations  and cash flows for the three
and nine months ended  September  30, 1998 are not  comparable  to those for the
three and nine months ended September 30, 1997.

Overview
--------

         The Company is a specialty  financial  services company.  The Company's
financial statements consolidate the assets, liabilities and operations of DPFC,
Fourteen Hill  Management,  Fourteen Hill Capital and  Allegiance.  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.  A viatical
settlement  is the payment of cash in return for an  ownership  interest in, and
right to receive the death benefit (face value) of, a life insurance  policy. In
February 1997,  Point West's Board of Directors  (the "Board")  decided to cease
the Company's viatical settlement  business.  The Board's decision resulted from
(i) accounts of research results reported at the  International  AIDS Conference
held in Vancouver,  British Columbia in July 1996 (the "AIDS Conference"),  (ii)
the Board's belief regarding  increased risks of purchasing and holding policies
insuring the lives of individuals  diagnosed with HIV or AIDS, (iii) accounts of
subsequent  research results which appeared to confirm the reports from the AIDS
Conference, and (iv) a determination by the Board that it was not viable for the
Company  to  continue  to  operate a  viatical  settlement  business  solely for
non-AIDS policies. Also as a result of the accounts of research results reported
at the AIDS Conference, the Company decided in the third quarter of 1996 to sell
all or substantially  all of its assets.  Through December 31, 1997, the Company
had entered into agreements to sell 373 policies with an aggregate face value of
$29.2 million and had consummated the sale of (or otherwise collected) all but 7
of such policies  (having an aggregate  face value of $436,000) at September 30,
1998.  See "Results of Operations  -- Three and Nine Months Ended  September 30,
1998  Compared  to Three and Nine  Months  Ended  September  30, 1997 -- Gain on
Assets  Sold"  and  Note 4 of the  Condensed  Notes  to  Consolidated  Financial
Statements  (contained herein) for further information regarding assets held for
sale.

         Subsequent   to   February   1997,   the  Company  has  become  a  more
broadly-based  specialty  financial  services company by expanding its financial
services business through the formation of Fourteen Hill Management and Fourteen
Hill Capital, which invest in small businesses, and Allegiance which lends funds
to funeral home and cemetery owners.  The Company  continues to service the life
insurance  policies held by its wholly owned special purpose  subsidiary,  DPFC,
and to evaluate other strategic  business  opportunities.  Fourteen Hill Capital
and Allegiance, whose business activities are described below, may or may not be
indicative  of the  types of  business  opportunities  the  Company  intends  to
continue to pursue.


                                       11

<PAGE>


Fourteen Hill Management and Fourteen Hill Capital
--------------------------------------------------

         On June 3, 1997,  the  Company  formed  Fourteen  Hill  Management  and
Fourteen  Hill  Capital.  Fourteen  Hill  Management  is a wholly owned  limited
liability  company of Point West formed solely for the purpose of serving as the
general  partner of one or more small business  investment  companies  ("SBIC").
Fourteen Hill Capital is a limited  partnership formed solely for the purpose of
operating as an SBIC.  Fourteen Hill Capital  received its SBIC license from the
SBA effective  September 26, 1997.  Fourteen Hill Management is the sole general
partner of Fourteen Hill Capital, and owns 99.978% of the partnership interests.
Point West is one of the two limited  partners of Fourteen Hill Capital and owns
0.02% of the  partnership  interests.  The remaining  0.002% of the  partnership
interest is owned by one unaffiliated  limited  partner.  Point West capitalized
Fourteen Hill Management with $5.0 million.

         Fourteen Hill Capital provides loans,  debt and equity capital to small
companies (i.e.,  generally companies with a net worth less than $l8 million and
average net income less than $6 million for the last two years).  Fourteen  Hill
Capital  commenced  operations in August 1997.  At September 30, 1998,  Fourteen
Hill Capital had two loans  outstanding  in the  aggregate  principal  amount of
$1,045,000 and  non-marketable  securities  consisting of one  convertible  debt
instrument  and  one  convertible  preferred  equity  instrument  for  which  it
originally provided funds in the aggregate amount of $3 million. See Notes 3 and
6 of the Condensed Notes to Consolidated Financial Statements (contained herein)
and "Method of Accounting."  In addition,  Fourteen Hill Capital has investments
in marketable securities consisting of three equity investments  outstanding for
which it had originally  provided funds in the aggregate amount of $3.6 million.
At September 30, 1998, such investments in marketable securities were carried on
the balance sheet at $8.6 million.  The  difference  between such carrying value
and the original  funds  provided is reflected as  "Comprehensive  Income -- Net
Unrealized  Investment  Gains" in stockholders'  equity.  Many of the marketable
equity  securities,  which  are held by  Fourteen  Hill  Capital  and  which are
classified as available-for-sale,  are securities traded in the OTC Market. 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.

         On July 16, 1998,  Fourteen  Hill Capital  borrowed $3 million from the
SBA. At present, Fourteen Hill Capital is unable to borrow additional funds from
the SBA because two  investments  each  represents an amount greater than 20% of
its regulatory  capital plus its net unrealized  investment  gains.  The Company
cannot determine when, if ever, it will be able to borrow  additional funds from
the SBA. In addition,  if Fourteen  Hill Capital does not liquidate a portion of
its investment  portfolio or obtain additional  capital,  the SBA may accelerate
the repayment of the debenture.  See "Liquidity and Capital  Resources." See the
Form 10-K and Notes 2, 3 and 6 of the Condensed Notes to Consolidated  Financial
Statements  (contained herein) for further  information  regarding Fourteen Hill
Management and Fourteen Hill Capital.

Allegiance
----------

         Allegiance  Capital is a limited  liability company formed on September
5, 1997 as a  specialty  finance  company to  provide  senior  secured  loans to
funeral home and cemetery owners. Through September 30, 1998, Allegiance Capital
had funded two loans in the aggregate  principal  amount of $5.9 million.  Point
West provided the capital to Allegiance Capital for such loans. Point West has a
65% ownership  interest and 95% voting control in Allegiance  Capital and serves
as the managing member of Allegiance Capital. Allegiance Capital's president and
its vice president of marketing,  each of whom was hired in September 1997, have
the balance of such  interests  and have an option to acquire from Point West 5%
of the equity  interests  (but not the voting  power) if certain  events  occur.
Allegiance Capital owns 100% of Allegiance  Funding,  which is a special purpose
subsidiary  formed to acquire and  securitize  loans  originated  by  Allegiance
Capital.  Net  profits of  Allegiance  Capital  for each  calendar  year will be

                                       12
<PAGE>


allocated  first to Point West in an amount  equal to a return of 10% per annum,
compounded monthly, on the amount of its capital contribution, but not in excess
of such net profits.  Any shortfall will be carried forward  indefinitely to the
next  calendar  year or years in which net profits are  sufficient  to make such
allocation.  An  additional  5% return for each  calendar year will be allocated
first to Point  West to the  extent  that in each year  sufficient  profits  are
available with no carry forward provided.

         On August 19, 1998, Allegiance Funding formed a trust, Allegiance Trust
I, to consummate a structured financing  which may provide  approximately  $56.4
million  to  support  Allegiance's  lending  activities  (the  "Financing").  At
September 30, 1998, no funds had been borrowed under the Financing.

         Pursuant to the  Financing,  a consortium of insurance  companies  (the
"Investors") will provide funding of approximately  $26.4 million through August
31,  1999 on a non  recourse  revolving  certificate  basis  to be used  for the
purchase or funding of loans originated by Allegiance Capital and transferred to
Allegiance Funding.  The interest rate on such revolving facility depends on the
amount outstanding and varies with prevailing  interest rates, but if the entire
revolving  facility  were  utilized,  the  weighted-average   interest  rate  at
September  30,  1998 would have been  approximately  7.5%.  Such  interest  rate
represents a spread of 2.0% over the one-month LIBOR (London  InterBank  Offered
Rate) on such date for a portion of the  certificates  and the  weighted-average
spread of 3.9% over the one-year U.S.  Treasury rate for the remaining  interest
bearing  certificates.  Upon the earlier of the  incurrence  of $26.4 million of
revolving  certificates or August 31, 1999, such revolving  certificates will be
repaid through the issuance of term  certificates  with an  approximate  15-year
maturity.  In addition,  the Financing provides a commitment to provide up to an
additional $30 million of funding  through August 31, 1999 through  15-year term
loans.  In the event that term  certificates  are not issued by August 31, 1999,
Allegiance will be required to refinance any revolving certificates  outstanding
under the Financing. See "Liquidity and Capital Resources."

         The Financing contemplates the issuance of various classes of revolving
and term certificates through Allegiance Trust I. Certificates receiving ratings
are to be  purchased  by the  Investors,  while  Allegiance  Funding will retain
unrated  certificates.  The revolving  certificates received ratings from Duff &
Phelps Credit  Rating Co.  ranging from A to BB and it is  anticipated  that the
term  certificates,  when and if issued,  will also receive  ratings from Duff &
Phelps.   Allegiance   initially  retained  an  unrated  revolving   certificate
(currently with an aggregate  principal  amount of $0) with a maximum  aggregate
principal amount of $3,650,000. This certificate represents the right to receive
all  excess  cash flow from  Allegiance  Trust I.  Allegiance  also  anticipates
retaining   unrated  term   certificates   following   retirement  of  revolving
certificates. Because of Allegiance's right to redeem the certificates if 15% or
less in principal amount of certificates is outstanding,  the Financing does not
qualify for sale treatment under Statement of Financial Accounting Standards No.
125 ("SFAS 125"), Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities. Accordingly, the Financing will not receive gain
on sale treatment under SFAS 125 and any borrowings  under the Financing will be
reflected on the consolidated balance sheet.

         In  connection  with the  Financing,  Allegiance  will  pay a  $175,000
commitment  fee when funds are  initially  borrowed  under the  Financing.  Such
commitment  fee will be amortized  over the expected  life of the  Financing (15
years). See Note 3 of the Condensed Notes to Consolidated  Financial  Statements
(contained herein) and "Liquidity and Capital Resources" for further information
regarding Allegiance and the Financing.

Method of Accounting
--------------------

         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 and reevaluates this reserve 

                                       13

<PAGE>


quarterly.  The Company  also  established  a reserve  for loss of Point  West's
equity interest in DPFC during 1996 because of the uncertainties  created by the
data presented at the AIDS Conference and subsequent  reports of the efficacy of
new treatments for AIDS/HIV. The reserve for loss on sale of assets was $167,000
and $399,000 as of September 30, 1998 and December 31, 1997,  respectively.  The
reserve for loss of Point West's equity  interest in DPFC was fully  depleted as
of  September   30,  1998  and  was  $2.3  million  as  of  December  31,  1997,
respectively.  See  "Certain  Accounting  Implications  for DPFC." In  addition,
beginning  in 1996,  the Company  began  recognizing  income with respect to its
viatical  settlement  business  upon  receipt of proceeds  on  policies  (either
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.  See the Form  10-K and Notes 4 and 5 of the
Condensed  Notes to Consolidated  Financial  Statements  (contained  herein) for
further  information  regarding  the  reserve for loss on sale of assets and the
reserve for loss of Point West's equity interest in DPFC.

         SFAS 115  requires  marketable  debt and equity  securities  (including
those held by Fourteen  Hill Capital) to be  classified  into  held-to-maturity,
available-for-sale   and   trading   categories.    Securities   classified   as
held-to-maturity   are  reported  at  amortized   cost  and   available-for-sale
securities are reported at fair market value with unrealized gains and losses as
a  separate  component  of  stockholders'  equity.  The  Company  had no trading
securities at September 30, 1998 or December 31, 1997. Any unrealized  gains and
losses,  declines in value of securities judged to be  other-than-temporary  and
accrued  interest  and  dividends  on all  securities  will  be  reported  on an
appropriate line item above "Net Income (Loss)" on the  consolidated  statements
of operations and comprehensive  income (loss) when realized.  See Note 2 of the
Condensed Notes to Consolidated Financial Statements (contained herein).

         The Company  accounts for loans  advanced by Fourteen  Hill Capital and
Allegiance by accruing  interest on outstanding  balances.  At December 31, 1997
and September 30, 1998, the Company  evaluated each of the outstanding loans and
determined that a reserve for the loans was not necessary. As the Company's loan
portfolio grows or upon subsequent evaluation,  reserves for loans will be added
to the extent  considered  necessary.  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. See
Note 3 of the Condensed Notes to Consolidated  Financial  Statements  (contained
herein).

         The  interest  rate  at  which  Allegiance   anticipates  issuing  term
certificates  will be set in the future when  approximately $30 million of loans
have been originated.  Allegiance  utilizes  futures  contracts to hedge certain
interest  rate  exposure  between the time of  origination  of the loans and the
issuance of term certificates. Any realized gain or loss related to these hedges
are deferred and  recognized by the Company 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 balance  sheet 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, 1998, the Company had net realized losses
on its hedging activities of $211,000 which increased loans receivable in a like
amount.  In addition,  the Company had  unrealized  net losses from open hedging
positions  of  $123,000 as of  September  30,  1998.  The Company had no hedging
activities at December 31, 1997.

         Point West is the counter party to a swap  agreement  pursuant to which
Point West has assumed  certain  variable rate  interest  exposure of Allegiance
between the time of origination of loans and the issuance of term  certificates.
Point West plans to  utilize  futures  contracts  to hedge  such  exposure.  Any
realized gain or loss related to these hedges will be deferred and recognized by
the Company over the life of the term  certificates as an adjustment of interest
expense.

                                       14

<PAGE>


         The  Company  uses  the  cost  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.  As a result
of such  review,  the Company  determined  that $1.1  million of  non-marketable
securities  of one company was impaired at September  30,  1998,  and  therefore
wrote-off its entire $1.1 million carrying value of such security.  See "Results
of  Operations  -- Three and Nine Months Ended  September  30, 1998  Compared to
Three  and  Nine  Months  Ended  September  30,  1997 -- Loss on  Non-Marketable
Securities"

Certain Accounting Implications for DPFC
----------------------------------------

         Although  the  Securitized  Notes had an expected  life of 2.1 years in
September  1995, the Securitized  Notes were not retired through  collections by
October  1997. At September 30, 1998,  $38.5 million was  outstanding  under the
Securitized  Notes. As a result of the substantially  delayed collection of DPFC
policies, DPFC had a deficit at September 30, 1998.

         If the  collection  experience  for the DPFC  policies  continues to be
substantially  delayed, the deficit of DPFC 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.

         Since 1996,  losses  associated with DPFC have been charged against the
reserve which was originally established in 1996 for the estimated loss of Point
West's equity interest in DPFC.  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.  Upon
the retirement of the Securitized Notes, the Company will recognize a gain in an
amount  approximately equal to any accumulated  deficit reflected.  At September
30, 1998, DPFC's accumulated deficit was $562,000. In the third quarter of 1998,
the total loss  realized  by DPFC was  $969,000,  $407,000  of which was charged
against the reserve for equity  interest in wholly owned  financing  subsidiary,
and  $562,000 of which was  otherwise  reflected in the  Company's  consolidated
statement of operations and  comprehensive  income (loss).  The loss of $562,000
for the third  quarter  of 1998  decreased  basic EPS by $0.17 for the three and
nine months ended September 30, 1998. The average historical quarterly losses in
DPFC have been approximately  $938,000 per quarter over the past eight quarters.
The Securitized Notes represent the obligations  solely of DPFC. The Company did
not guarantee repayment of the Securitized Notes and is not required to fund any
principal or interest deficiencies thereunder.

Results of Operation
--------------------

Three and Nine Months Ended September 30, 1998 Compared to the Three and Nine 
-----------------------------------------------------------------------------
Months Ended September 30, 1997
-------------------------------

         Earned  Discounts  on Matured  Policies.  Earned  discounts  on matured
polices  decreased  28.8% in the third  quarter  of 1998  compared  to the third
quarter of 1997 due to the  decrease  in the  number and face  amount of matured
policies.  During the third quarter of 1998, the Company had earned discounts on
6 policies  with a face value of  $542,000,  compared to 9 policies  with a face
value of  $605,000 in the third  quarter of 1997.  Earned  discounts  on matured
polices  increased  14.1% in the first nine months of 1998 

                                       15

<PAGE>


compared to the first nine months of 1997. During the first nine months of 1998,
the  Company  had  earned  discounts  on 44  policies  with a face value of $2.9
million,  compared to 63 policies  with a face value of $4.1 million  during the
first nine months of 1997.  Although  the Company had earned  discounts on fewer
policies  during the first nine months of 1998 compared to the first nine months
of 1997, the earned discounts increased for the 1998 period due primarily to the
collection in the first quarter of 1998 of two policies with  above-average face
values and relatively low carrying values. See "Method of Accounting."

         Interest Income. Interest income increased 3.6% in the third quarter of
1998 compared to the third quarter of 1997 and 18.8% in the first nine months of
1998 over the first nine months of 1997.  This  increase is due primarily to the
interest earned on loans made by Fourteen Hill Capital (which was formed in June
1997) and  Allegiance  (which  was formed in  September  1997).  See  "Method of
Accounting."  Partially  offsetting  this  increase is the  decrease in interest
earned on the proceeds from the sale of policies in the first half of 1997 which
were invested in short term securities and marketable securities.

         Gain on Sale of Convertible  Preferred  Shares. In the first quarter of
1997 the Company  recognized  a $700,000  gain on the sale of a portion of Point
West's  investment  in American  Information.  In  addition,  the Company had an
option  that  expired on October 26, 1997 to  purchase  for  approximately  $1.1
million, 8.2 million additional shares of common stock of American  Information.
Since the Company did not  exercise  this  option,  a $20,000  pre-tax  loss was
recognized in the third quarter of 1997. See the Form 10-K. The Company accounts
for this investment using the cost method.

         Gain on Assets  Sold.  The gain on assets sold  decreased  84.9% in the
third  quarter of 1998  compared  to the third  quarter of 1997 and 88.7% in the
first nine months of 1998  compared  to the first nine months of 1997  because a
large portion of the sale proceeds  from life  insurance  policies was collected
during the first half of 1997.  The  Company  collected  the sale  proceeds on 1
policy  resulting  in a realized  gain of $15,000 in the third  quarter of 1998,
compared  to 6 policies  resulting  in a  realized  gain of $98,000 in the third
quarter of 1997. The Company collected the sale proceeds on 7 policies resulting
in a realized gain of $165,000 in the first nine months of 1998, compared to 245
policies  resulting in a realized  gain of $1.5 million in the first nine months
of 1997.  The realized gain was calculated  based on the difference  between the
sale proceeds and the carrying value of such policies after giving effect to the
reserve  for  loss on sale of  assets.  See  Note 4 of the  Condensed  Notes  to
Consolidated Financial Statements (contained herein).

         Other  Income.  Components  of other  income  include a placement  fee,
collections  on  policies  of  dividends,  interest  and  paid-up  cash  values,
increases  in face value of matured  policies,  refunds of  premiums  on matured
policies and realized  capital  gains on  investments  securities.  Other income
increased  $156,000  during  the third  quarter  of 1998  compared  to the third
quarter of 1997 and  $255,000  during the first nine months of 1998  compared to
the first nine months of 1997.  This  increase is primarily a result of $110,000
in capital gains from the sale of investment  securities and a $65,000  increase
in face value on one policy, both realized during the third quarter of 1998. The
nine-month  increase  is also due to a $70,000  placement  fee  received  in the
second quarter of 1998 by Point West in the form of convertible preferred shares
in connection  with an investment  made by co-investors of Fourteen Hill Capital
in an unaffiliated small business entity.

         Interest Expense.  Interest expense increased 3.2% in the third quarter
of 1998  compared to the third  quarter of 1997.  Such  increase  was due to the
interest  paid on the $3 million  borrowed  from the SBA on July 16,  1998.  The
interest  rate  (including  the 1% annual fee) on the SBA  Debentures  was 6.9%.
Interest expense decreased 0.9% in the first nine months of 1998 compared to the
first nine months of 1997.  Such  decrease  was due to the  decrease in interest
expense for the  Securitized  Notes.  Average  borrowings  under the Securitized
Notes were $38.7  million in the first  nine  months of 1998  compared  to 

                                       16

<PAGE>


$39.3  million  in the first  nine  months  of 1997.  The  interest  rate on the
Securitized Notes was 9.17% in both periods.

         Compensation and Benefits. Compensation and benefits increased 43.5% in
the third quarter of 1998 compared to the third quarter of 1997 and 31.7% in the
first  nine  months of 1998  compared  to the first  nine  months of 1997.  This
increase  was  due to two new  employees  hired  in  September  1997 to  support
Allegiance's  lending activities,  four new employees hired in the third quarter
of 1998 to support Point West's  activities and an increase in compensation  and
benefits for other employees (including executive officers) for 1998.

         Other   General  and   Administrative   Expenses.   Other  general  and
administrative expenses increased $397,000 in the third quarter of 1998 compared
to the third  quarter of 1997.  The third  quarter  of 1997  included a one-time
reduction of professional fees in the amount of $75,000 due to the expiration of
a consulting contract and a reduction of estimated general legal expenses in the
amount of  $100,000.  In addition,  such  increase is also due to an increase of
$115,000 in life  insurance  policy premium costs during 1998 and an increase in
legal expenses of $49,000  incurred in connection with federal and state alleged
class action lawsuits filed against the Company and its officers and directors.

         Other general and  administrative  expenses  increased  $220,000 in the
first  nine  months of 1998  compared  to the  first  nine  months of 1997.  The
increase  was due to an  increase  in life  insurance  policy  premium  costs of
$389,000  in the first nine months of 1998.  Prior to the third  quarter of 1998
and the depletion of the reserve for equity  interest in wholly owned  financing
subsidiary,  premium costs were reflected in the reduction of such reserve. As a
result,  such  increased  premium  costs did not impact net income in any period
prior to the third  quarter of 1998.  Partially  offsetting  this increase was a
decrease  in legal  expenses  in the first nine  months of 1998 in the amount of
$241,000  incurred in  connection  with federal and state  alleged  class action
lawsuits filed against the Company and its officers and directors. This decrease
was largely a result of the  retention  limit  being  satisfied,  requiring  the
insurance  carrier  to  fund  the  majority  of the  continuing  costs  of  such
litigation.

         Provision  for Loss on Assets Held for Sale.  The  Company  recorded in
1996 a  provision  for loss on sale of assets  totaling  $3.3  million.  For the
quarter ended September 30, 1997, the Company  recorded an additional  provision
in the amount of $328,000 in  connection  with the  remaining  policies  not yet
sold,  based on management's  revised best estimate of proceeds from the sale of
such policies. No adjustment to the provision has been made during 1998.

         Loss on Non-Marketable  Securities.  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 $1.1
million of  non-marketable  securities  of one company was impaired at September
30, 1998, and therefore wrote-off its entire $1.1 million carrying value of such
security.

         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,  and $943,000 and
$2.8  million  recorded in the three and nine months ended  September  30, 1997,
respectively,  were included in the Company's net 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 consolidated statement of operations
and comprehensive income (loss). All additional losses of DPFC will be reflected
in the Company's  consolidated  statement of operations and comprehensive income
(loss) for the periods in which such losses occur.


                                       17

<PAGE>

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

         On July 16, 1998,  Fourteen  Hill Capital  borrowed $3 million from the
SBA. At present, Fourteen Hill Capital is unable to borrow additional funds from
the SBA because two  investments  each  represents an amount greater than 20% of
its regulatory  capital plus its net unrealized  investment  gains.  The Company
cannot determine when, if ever, it will be able to borrow  additional funds from
the SBA. In addition,  if Fourteen  Hill Capital does not liquidate a portion of
its investment  portfolio or obtain additional  capital,  the SBA may accelerate
the repayment of the debenture.  The Securitized Notes do not provide funds with
which to fund  operations.  On  August  19,  1998,  Allegiance  put in place the
Financing  which may  provide up to $56.4  million  solely to support any future
lending  activities of  Allegiance.  It is  anticipated  that the Financing will
provide interim  floating rate financing  through August 31, 1999 and ultimately
15 year fixed and floating rate  financing for loans  originated by  Allegiance.
However,  if  Allegiance  does not  originate $30 million in loans by August 31,
1999,  the  term  certificates  may  not  be  issued  and  Allegiance  would  be
responsible for finding an alternative  financing  source.  See "Allegiance." At
present, the Company does not have an external funding source from which to fund
its working capital and general corporate needs.

         At September 30, 1998, cash and cash equivalents was $5.0 million.  The
Company  continues to analyze its current and future needs for financing,  which
will be  dependent  on its ability to develop the  businesses  of Fourteen  Hill
Capital and Allegiance and any other business opportunities the Company pursues.
There can be no  assurance  that the Company  will be  successful  in  obtaining
external  financing  on  satisfactory  terms  assuming  it  determines  it needs
additional funds. Point West at present anticipates having sufficient  liquidity
to meet its working  capital and operational  needs through 1999,  using current
cash  and  cash  equivalents.  However,  the  Company  may not  have  sufficient
liquidity to grow the business of Fourteen Hill Capital.

         As of  September  30, 1998,  the  outstanding  principal  amount of the
Securitized  Notes was $38.5  million.  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  the Company to expend cash or
obtain financing to satisfy such principal and interest obligations.  See Note 7
of the Condensed Notes to Consolidated Financial Statements (contained herein).

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,
holding 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  (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  Securities  and Exchange  Commission  (the  "Commission")  as
investment   companies  and  upon  registration   become  subject  to  extensive
regulation.

         The Company does not believe it is engaged primarily in the business of
investing,  reinvesting,  holding or trading in securities within the meaning of
the 1940 Act and the rules of the Commission promulgated thereunder and does not
believe  that  it  should  be  deemed  to be an  investment  company  under  the
Percentage  Tests.  It is  possible,  however,  that the Company  could,  in the
future,  be deemed to be an  investment  company under the  Percentage  Tests or
otherwise  and,  thus,  be required to register and be regulated  under the 1940
Act, which could  significantly and adversely affect the Company's  business and
the market price of its Common Stock.

                                       18

<PAGE>


         In  particular,  through  Fourteen  Hill  Capital,  the  Company  holds
investments  in securities.  These  investments  have been made primarily  since
January 1998. The value of these and certain of the Company's other  investments
have increased  substantially  since originally being purchased,  increasing the
likelihood  that the  Company  will,  in the  future,  exceed one or more of the
Percentage  Tests,  unless the Company's other businesses grow more rapidly than
currently anticipated.

         Although  the  Company  intends to conduct  its  business  so as to not
become  subject  to  regulation  under the 1940 Act,  the  Company's  ability to
continue not being subject to  registration  and  regulation  under the 1940 Act
will be subject to many  factors,  some of which may be  outside  the  Company's
control.  Such  factors  include,   among  others,  the  successful  and  timely
implementation  of the  Company's  business  plan,  the  relative  values of the
various  assets  which are held by the Company and the sources of the  Company's
income which, in turn, will be significantly  affected by increases or decreases
in the market  value of assets held by  Fourteen  Hill  Capital.  In view of the
foregoing, no assurance can be given that the Company may not, in the future, be
required to register as an  investment  company under the 1940 Act or take steps
to avoid being  required to  register.  Such steps may include (i)  disposing of
certain  assets  at a time or in a manner  which  would not  maximize  potential
returns,  (ii) restricting  additional  investments by Fourteen Hill Capital (or
otherwise) even if the capital to make additional investments is available,  and
(iii)  initiating  other  businesses  which may be different  from the Company's
other business activities.

Other
-----

         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 Company expects to spend  approximately  $50,000 to $100,000 in the
aggregate  during  1998 and 1999 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
such modifications and replacements. Through September 30, 1998, the Company had
incurred Year 2000 Compliant costs of  approximately  $24,000,  of which $19,000
has been  capitalized.  The Company does not believe the amounts  expected to be
expensed  over the next two years 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 is currently assessing 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 will require  upgrades.  The
Company is also  assessing the readiness of its  business-critical  spreadsheets
and  customized  databases and plans to make  modifications  of those systems as
necessary.  The Company expects to have completed all of its remediation efforts
by the end of 1998,  allowing  time in 1999 for testing  and system  refinements
that may be needed.

                                       19

<PAGE>


         The Company has begun  assessing  the  readiness of external  entities,
such  as  vendors,  suppliers,  investments  and  financial  institutions  which
interface  with the Company and plans to have this  assessment  complete by June
30, 1999. The Company plans to determine  whether those parties have appropriate
plans to  remediate  Year 2000 issues  where their  systems  interface  with the
Company's  systems or  otherwise  impact its  operations.  The Company  plans to
assess  the  extent  to  which  its  operations  are  vulnerable   should  those
organizations fail to properly  remediate their computer systems.  The Company's
Year 2000 team is made up of only one internal staff member, and the loss of the
service of such  individual may have a material  adverse effect on the Company's
ability to be Year 2000  Compliant.  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,  relies  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 themselves  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 finance the loans at
the expected  rating levels,  (ii)  sufficiency  of the Company's  liquidity and
capital resources (See "Liquidity and Capital  Resources"),  (iii) 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"), and
(iv)  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 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, the
market's  acceptance  of the  asset  class  consisting  of  the  loans  held  by
Allegiance and Allegiance's  ability to finance the loans on terms acceptable to
the market and Allegiance,  (ii) the results of the Company's  consideration  of
strategic  options  and  any  costs  associated  with  a  chosen  option,  (iii)
availability and cost of capital, (iv) the factors described under "Management's
Discussion  and Analysis of Financial  Condition  and Results of  Operations  --
Considerations Under the Investment Company Act of 1940," and (v) the ability of
the Company's suppliers and vendors to become Year 2000 Compliant.

                                       20

<PAGE>


Item 3.  Quantitative and Qualitative Disclosures About Market Risk.
------   -----------------------------------------------------------

         Not required.

                                       21

<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  alleged  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   directors.
         Thereafter, plaintiffs filed a motion for class certification which the
         remaining  defendants  have  opposed.  The Company  has not  received a
         ruling on the motion for class certification.  The case is currently in
         discovery.  The Company and each of the remaining  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. Although the case has been stayed since its inception, the
         plaintiff  recently filed a motion (which the defendants  have opposed)
         to have the stay lifted.  The Company and each of the defendants intend
         to defend the action vigorously.

                                       22


<PAGE>


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

         (a)      The NASDAQ Stock Market SM ("NASDAQ")

                  On October 19, 1998, the Company received a notice from NASDAQ
                  which  indicated  that,  because of the recent  decline in the
                  price of the  Company's  Common Stock,  the Company  failed to
                  meet one of the listing  requirements  of the NASDAQ  National
                  Market(R)  ("NMS") to maintain a public  float having a market
                  value equal to at least $5 million.  NASDAQ indicated that, if
                  the Company did not satisfy such  requirement  by November 13,
                  1998, NASDAQ would issue a formal notice. The Company does not
                  believe at November 13, 1998 that it satisfied  such  request.
                  In the event that the  Company  receives a formal  notice from
                  NASDAQ, the Company believes that it will have 90 days to cure
                  such  deficiency.  At  present,  the  Company's  desire  is to
                  maintain a listing for its Common  Stock on the NMS, but it is
                  possible that,  not  withstanding  such desire,  the Company's
                  Common  Stock  will be  delisted  from  the NMS.  The  Company
                  believes   that  its  Common  Stock   satisfies   the  listing
                  requirements for the NASDAQ SmallCap  Market(R) and may pursue
                  such  listing if the Common  Stock is  delisted  from the NMS.
                  Another  alternative  is for the Company's  Common Stock to be
                  traded  on  the  NASDAQ  OTC  Bulletin  Board(R)  or  delisted
                  entirely.

         (b)      Annual Stockholders' Meeting

                  The Company has  established May 10, 1999 as the date on which
                  the  Company's  1999 annual  stockholders  meeting  (the "1999
                  Meeting")  will be held. As indicated in the  Company's  proxy
                  statement  related to its 1998 annual  stockholders'  meeting,
                  the Company  must receive by December 18, 1998 any proposal of
                  a stockholder intended to be presented at the 1999 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 1999
                  Meeting  ("Non-Rule 14a-8  Proposals") must be received by the
                  Company by March 11, 1999 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  1999  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 11,  1999.  Any  stockholder  wishing to
                  submit a proposal  at the 1999  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.

                                       23

<PAGE>


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

         (a)      Exhibits.
                  Number        Description
                  ------        -----------

                #   10.1        Trust  Agreement,  dated as of August  1,  1998,
                                among Allegiance  Funding Corp. I, Manufacturers
                                and Traders Trust Company and Point West Capital
                                Corporation

                #   10.2        Supplement  to  Trust  Agreement  for  Revolving
                                Series 1998-1,  dated as of August 1, 1998 among
                                Allegiance  Funding Corp. I,  Manufacturers  and
                                Traders  Trust  Company  and Point West  Capital
                                Corporation

                #   10.3        Loan Acquisition  Agreement,  dated as of August
                                1, 1998,  between  Allegiance  Capital,  LLC and
                                Allegiance Funding Corp. I

                #   10.4        Servicing Agreement, dated as of August 1, 1998,
                                among Point West Capital Corporation, Allegiance
                                Capital,   LLC,   Allegiance  Funding  Corp.  I,
                                Manufacturers  and  Traders  Trust  Company  and
                                other party thereto

                    10.5        Amended and Restated Limited  Liability  Company
                                Agreement of Allegiance Capital, LLC

                     27        Financial Data Schedule

                     99.1      Subsidiaries

                     99.2      Press Release for Fourteen Hill Capital, L.P.

                #   Certain  information  omitted  pursuant  to  a  request  for
                    confidential  treatment filed separately with the Securities
                    and Exchange Commission.

         (b)      Reports on Form 8-K.

                    Date            Item Reported      Matter Reported

                    July 24, 1998    5                  The  Company   issued  a
                                                        press release  regarding
                                                        its      results      of
                                                        operations    for    the
                                                        second quarter of 1998.

                    August 19, 1998  5                  The  Company   issued  a
                                                        press release announcing
                                                        the           Allegiance
                                                        Financing.


                                       24

<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 13, 1998                     /S/ ALAN B. PERPER              
                                              -------------------------------- 
                                              ALAN B. PERPER 
                                              President
                                              (Duly Authorized Officer)




DATED:  November 13, 1998                     /S/ JOHN WARD ROTTER         
                                              -------------------------------- 
                                              JOHN WARD ROTTER
                                              Executive Vice President and
                                              Chief Financial Officer
                                              (Principal Financial and
                                              Accounting Officer)


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