UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-QSB

 

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

 

For the quarterly period ended September 30, 2002
 

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

Commission file number 0-27736

 

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

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

Transitional Small Business Disclosure Format (Check one): Yes (  )    No (X )
**POINT WEST CAPITAL CORPORATION**
 
**INDEX

 **
Part I
Financial Information
Page 
Item 1.
Consolidated Financial    Statements (Unaudited):
Consolidated Balance Sheet       September 30, 2002 
1
Consolidated Statements of    Operations for the       Three and Nine Months Ended September 30, 2002 and 2001
2
Consolidated Statements of    Cash Flows for the        Nine Months Ended September 30, 2002 and 2001
3
Condensed Notes to    Consolidated Financial Statements
4-9
Item 2.
Management’s    Discussion and Analysis or Plan of Operation
10-17
 

Part II
 

Other Information
Item 1.
Legal Proceedings
18
Item 3.
Defaults Upon Senior    Securities
18
Item 6.
Exhibits and Reports on    Form 8-K
18
Signatures
19**                                                                      (i)

 

 

POINT WEST    CAPITAL CORPORATION AND SUBSIDIARIES
CONSOIDATED    BALANCE  SHEET
September 30,
ASSETS
2002
(unaudited)Cash and cash equivalents$515,197Restricted cash583,938Investment securities:     Available- for- sale3,897Loans receivable, net of unearned income of    $417,000     and an    allowance for loan losses of $240,00029,642,626Non-marketable securities2,113,018Furniture and equipment,  net of    accumulated     depreciation of    $75,4132,000Assets held for sale1,327,713Other assets427,868                                                Total assets$34,616,257
LIABILITIES AND STOCKHOLDERS'    DEFICITAccrued interest expense$676,422Accounts payable360,531Revolving certificates8,147,819Term certificates21,606,118Debenture payable6,500,000                                              Total liabilities37,290,890Stockholders' deficit:     Common stock, $0.01 par    value; 15,000,000 authorized shares,             4,391,124 shares issued and 3,352,624 shares outstanding43,911Additional paid-in-capital30,091,689Accumulated deficit(29,936,202)Treasury stock, 1,038,500 shares(2,874,032)                                           Total stockholders' deficit(2,674,634)                                           Total liabilities and stockholders' deficit$34,616,256
See accompanying    condensed notes to consolidated financial statements.
1
 

POINT WEST    CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED    STATEMENTS OF OPERATIONSFor the Three Months EndedFor the Nine Months    EndedSeptember 30,September 30,2002200120022001
(unaudited)
(unaudited)Revenues:     Interest income$779,017$876,914$2,333,448$2,735,174     Net loss (gain) on    securities--(2,664,369)22,116(6,800,899)     Other126,00169,510391,752246,158                                         Total revenues905,018(1,717,945)2,747,316(3,819,567)Expenses:     Interest expense743,734803,0122,258,4162,443,240     Compensation and    benefits190,320291,490537,905958,847     Other general and    administrative expenses181,470411,6542,588,1681,359,348     Amortization--9,775--219,408     Depreciation32,1278,62847,06820,676                                Total expenses1,147,6511,524,5595,431,5575,001,519                    Loss    before income taxes (242,633)(3,242,504)(2,684,241)(8,821,086)                               and extraordinary gainIncome tax expense--23,870(4,000)7,925                             Loss before extraordinary gain(242,633)(3,266,374)(2,688,241)(8,829,011)Extraordinary gain4,601,278--4,601,278--                     Net income (loss)$4,358,645$(3,266,374)$1,913,037$(8,829,011)Earnings per share    - Basic and diluted:         Loss before extraordinary gain(0.07)(0.97)(0.80)(2.63)         Extraordinary gain1.37--1.37--     Net income (loss):$1.30$(0.97)$0.57$(2.63)Weighted-average    number of shares of common stock     outstanding3,352,6243,352,6243,352,6243,352,624Weighted-average number of shares of common    stock     and common stock    equivalents outstanding3,352,6243,352,6243,352,6243,352,624
See accompanying    condensed notes to consolidated financial statements.
2
 

 

POINT WEST CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS="4">
For the    Nine Months Ended     September  30, 
2002
2001
(unaudited)Cash    flows from operating activities:        Net income (loss)$1,913,037$(8,829,011)        Adjustments to reconcile net loss to net cash             used in operating activities:                  Depreciation and amortization47,068240,084
 Provision for loan losses
2,001,771(4,116)                  Net (gain) loss on securities(22,116)6,800,899              Gain    on sale of asset held for sale(93,310)--                  Deferred tax asset--2,840                  Extraordinary gain(4,601,278)--                  Changes in operating assets and liabilities:                        Collections on matured life insurance policies--1,741,017                        Other assets247,98588,774                        Unearned income(83,156)(138,390)                        Accrued interest expense371,806(82,078)                        Accounts payable(95,793)211,497                        Accrued compensation payable(204,869)(310,481)                                                                     Net cash used in operating activities(518,855)(278,965)Cash    flows from investing activities:       Purchase of furniture and equipment--(31,794)   Increase    in restricted cash(27,255)(188,931)        Proceeds from sale of investment and non-marketable securities50,257340,000    Proceeds    from sale of asset held for sale543,310--        Principal payments on loans receivable2,117,970616,817                                                                                        Net cash provided by investing activities2,684,282736,092Cash    flows from financing activities:        Principal payments on securitized notes payable--(1,622,602)        Principal payments on revolving certificates(676,177)(229,542)        Principal payments on term certificates(1,552,284)(550,854)                                Net cash used in financing activities(2,228,461)(2,402,998)                                Net decrease  in cash and cash equivalents(63,034)(1,945,871)                                     Cash    and cash equivalents, beginning of period578,2312,987,686Cash    and cash equivalents, end of period$515,197$1,041,815Supplemental    disclosures:Supplemental    disclosure of non-cash activities:        Unrealized gain on securities available for sale, net of tax$--$(3,788)Supplemental    disclosure of cash flow information:        Taxes paid$4,500$26,040        Cash paid for interest$1,886,609$2,520,127
See accompanying    condensed notes to consolidated financial statements.
3
** 
POINT WEST CAPITAL CORPORATION AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

1.          General Description**
            Theunaudited consolidated financial statements of Point West Capital Corporation ("PointWest Capital"), including its consolidated entities (collectively the"Company"), as of September 30, 2002 and for the three and nine month periodsended September 30, 2002 and 2001 have been prepared in accordance with accountingprinciples generally accepted in the United States for interim financial information, inaccordance with Item 310(b) of Regulation S-B. Accordingly, such statements do not includeall of the information and notes thereto that are included in the annual consolidatedfinancial statements. In the opinion of management, all adjustments considered necessaryfor a fair presentation have been included. Operating results for the three and nine monthperiods ended September 30, 2002 are not necessarily indicative of the results that may beexpected for the year ending December 31, 2002. These statements and notes thereto shouldbe read in conjunction with the audited consolidated financial statements and notesthereto included in the Company’s Annual Report on Form 10-KSB for the year endedDecember 31, 2001 (the "Form 10-KSB").

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

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

            Theprincipal business activity of the Company through February 1997 was to provide viaticalsettlements for terminally ill persons. Point West Capital serviced the life insurancepolicies held by DPFC through September 30, 2002. On September 30, 2002, a nominee of theNoteholders (as defined herein) purchased the DPFC stock for a nominal amount and PointWest Capital was replaced as servicer. See "Management’s Discussion and Analysisor Plan of Operation-- Results of Operations by Segment-- Viatical Settlements-- RecentDevelopments and Certain Accounting Implications for DPFC." During 1997, the Companyexpanded its financial services business through the operations of Ventures andAllegiance. During 1998, the Company formed PWS, a broker-dealer licensed by the NationalAssociation of Securities Dealers, Inc. The operations of PWS have not been material tothe Company. The Company sold PWS during the second quarter of 2002 for $20,000. 

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

4

 

replaced as servicers on August 5, 2002. See Note 4 and"Management’s Discussion and Analysis or Plan of Operation--Results of Operations by Segment-- Allegiance."

                   In October 2002, the Company terminated its lease and relocated to anoffice with 200 square feet  The new lease payment is $1,100 per month and the leaseis on a month-by-month basis. The Company also terminated its employees and is employingpersonnel on an hourly basis as needed. The Company is continuing to work towarddissolution. One impediment has been receiving permission from the Investors to dissolvecertain of the Allegiance entities and transfer the debt certificates held by AllegianceFunding. The Company is continuing to attempt to resolve these matters with the Investors(as defined herein), but no assurance can be given that a satisfactory resolution will beobtained. If it is, the Company plans to seek shareholder approval to dissolve theCompany. If it is not, the Company may seek relief through a chapter 7 bankruptcyliquidation proceeding. 
**2.        Loans Receivable**
           Loans receivable at September 30, 2002 consisted of 22 loans outstanding with an aggregateprincipal amount of $30.3 million, which bore a weighted-average fixed interest rate perannum of 9.4%. Principal and interest payments are due monthly on such loans, and suchloans mature, subject to permitted prepayments, approximately fifteen years from theinitial loan date. At September 30, 2002, two of the loans included in loans receivable inthe aggregate amount of $1.4 million were on non-accrual status. At September 30, 2002,the allowance for losses on loans was $240,000. 
**3.        Assets Held for Sale**
           Assets held for sale are carried at the lower of cost or estimated fair value less cost tosell. The assets held for sale as of September 30, 2002 consist of funeral homes,including two properties with an estimated fair value of $1.1 million purchased from twoAllegiance borrowers during the first quarter of 2001 for a nominal amount. The assetsacquired are subject to the mortgages in the amount of $3.9 million, which Allegianceholds. Also included in assets held for sale is $228,000, representing the estimated fairvalue of an additional funeral home that Allegiance acquired in February 2002 viaforeclosure. 
**4.        Revolving and Term Certificates**
           Through December 2000, Allegiance financed its loans receivable under a structuredfinancing arrangement established in August 1998 (the "Allegiance Financing").Under the Allegiance Financing, various classes of revolving and term certificates ofAllegiance Trust I have been issued. 

            As aresult of loans made by Allegiance which became non-performing, Allegiance was unable toaccess further debt under the Allegiance Financing beginning on October 30, 2000. TheAllegiance Financing expired in December 2000. Allegiance has no source of fundingavailable to make additional loans. In addition, Allegiance was unable to convert to termcertificates or otherwise repay $9.1 million ($8.2 million as of September 30, 2002) ofrevolving certificates issued under the Allegiance Financing. As a result, the interestpayable under the revolving certificates increased by 1% per annum, effective February 15,2001. The revolving certificates bear interest at fixed and variable rates based on theone-year U.S. Treasury yield and one-month LIBOR. At September 30, 2002, theweighted-average interest rate on the revolving certificates was 8.2%.

             OnAugust 5, 2002, as a result of the continuing defaults under the Allegiance Financing, theconsortium of insurance companies holding certificates issued under the AllegianceFinancing (the "Investors") terminated Point West Capital and Allegiance Capitalas servicers. The Investors could liquidate the collateral and apply the proceeds toretire amounts outstanding under the Allegiance 

5

 

Financing. See the Company’s Form 10-KSB for further discussionregarding the defaults under the Allegiance Financing.

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

            As aresult of the non-performing loans, monthly cash flow payments to Point West Capital (forservicing fees) and to Allegiance (for servicing fees and interest owed on debtcertificates held by Allegiance) ceased in November 2000. As a result of, among otherthings, certain amendment and waiver agreements, reduced monthly cash flow payments toPoint West Capital and Allegiance resumed in May 2001. However, these payments ended inAugust 2002 as a result of the termination notice referred to above. 
**5.        Stockholders’ (Deficit) Equity**
Changes in stockholders’ deficit during the first nine months of 2002reflected the following:

Stockholders’ deficit, beginning of    period .........
$  (4,587,671)
Net income    ...............................................
1,913,037
Stockholders’ deficit, end of period    ............
$ (2,674,634)) 
       Changes in stockholders’ equityduring the first nine months of 2001 reflected the following:

Stockholders’ equity, beginning of    period ...
$9,770,763Comprehensive loss:
   Net loss    .......................................
(8,829,011)
   Other comprehensive loss:    ...................
      Net unrealized    investment losses, net of tax              benefit of $2,840.......
(3,788)
                 Comprehensive loss ....................
(8,832,799)
Stockholders’ equity, end of period    ..............
$937,964
 
**6.        Litigation**
            InSeptember 2002, an action was filed in Barbour County, Alabama against Point West Capital,Allegiance and other parties whom were named as co-defendants in an action seeking tocollect unspecified damages for alleged fraud, conspiracy, breach of contract and breachof fiduciary duty. The litigation stems from an alleged defect in the property titletransfer. Point West Capital and Allegiance believe the suit is without merit and willvigorously defend the suit in cooperation with the Title Insurance Company that insuredthe property sale transaction.

            InFebruary 2000, Point West Ventures brought an action in Santa Clara County againstUniversal Access, Inc., certain of its directors and other parties seeking to collect foraggregate damages in the amount of $1 million for breach of contract, breach of fiduciaryduty including breach of contract, misappropriation of trade secret, unjust enrichment,tortious interference, conspiracy and unfair competition. In accordance with itsappointment as permanent receiver of Point West Ventures in February 2002, the SmallBusiness Administration ("SBA") will make all decisions concerning the pursuitof the litigation. 

6.

 

            InJune 2001, Point West Ventures filed an action for fraud against Home Director, Inc. andSpencer Trask Ventures, Inc. seeking rescission of an agreement pursuant to which PointWest Ventures purchased $500,000 of stock in Home Director, Inc. through Spencer TraskVentures, Inc. Ventures is seeking to collect aggregate damages in the amount of $500,000.In accordance with its appointment as permanent receiver of Point West Ventures inFebruary 2002, the SBA will make all decisions concerning the pursuit of the litigation. 
**7.        Segment Reporting**
           Statement of Financial Accounting Standards No. 131, *Disclosures about Segments of anEnterprise and Related Information*, establishes standards for reporting informationabout operating segments in annual financial statements and requires selected informationabout operating segments in interim financial reports. Operating segments are defined ascomponents of an enterprise about which separate financial information is available thatis evaluated regularly by the chief operating decision maker, or decision making group, indeciding how to allocate resources and in assessing performance. Point West Capital’schief operating decision-making group is comprised of its Board of Directors.

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

 

7

 

 

 

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

 

Three Months Ended September 30, 2002
Allegiance 
Viatical    Settlements    (1)
Ventures
Other
Total
Interest income.............$ 
778,088$
--$
5$
924$
779,017Gain on    securities   
--
--
--
--
--
Other income................
81,001
45,000
--
--
126,001
Total revenues.............
859,089
45,000
5
924
905,018
Interest expense ..........
617,729
--
126,005
--
743,734Depreciation     
--
--
--
32,127
32,127Income tax    expense
--
--
--
--
--Extraordinary    gain
--
4,601,278
--
--
4,601,278Contributed    net  income      (loss)  (2)......$ 
16,010$ 
4,646,278$    
(126,000)
(177,643)$ 
4,358,645
Identifiable assets.........$ 
32,067,176$ 
--$    
2,218,349$ 
330,732$ 
34,616,257
Three Months EndedSeptember 30, 2001
Allegiance 
Viatical    Settlements    (1)
Ventures
Other
Total
Interest income.............$ 
845,530$
--$
2,458$
28,926$
876,914Net loss    on securities
--
--
(2,664,369)
--
(2,664,369)
Other income................
510
54,000
--
15,000
69,510
Total revenues.......
846,040
54,000
(2,661,911)
43,926
(1,717,945)
Interest expense ..........
675,972
--
127,040
--
803,012Depreciation    and           amortization .......
9,775
--
--
8,628
18,403
Income taxbenefit    (expense) (2)514----(24,384)(23,870)Contributed    netincome          (loss) (2)......$ 
41,282$ 
54,000$ 
(2,811,390)$ 
(550,266)$ 
(3,266,374)
Identifiable assets.........$ 
38,375,399$ 
29,090,135$ 
3,516,314$ 
3,234,500$ 
74,216,348
 

8

            Thefollowing tables represent the Company’s results from segments for and financialpositions as of the nine months ended September 30, 2002 and 2001.

 

Nine Months Ended September 30, 2002
Allegiance 
Viatical    Settlements    (1)
Ventures
Other
Total
Interest income.............$ 
2,330,436$
--$
29$
2,983$
2,333,448Gain on    securities   
--
--
22,116
--
22,116
Other income................
218,752
153,000
--
20,000
391,752
Total revenues.............
2,549,188
153,000
22,145
22,983
2,747,316
Interest expense ..........
1,880,401
--
378,015
--
2,258,416Depreciation     
--
--
--
47,068
47,068Income tax    expense (2)
2,400
--
--
1,600
4,000Extraordinary    gain
--
4,601,278
--
--
4,601,278Contributed    net  (loss)     income  (2)......$ 
(1,759,327)$ 
4,754,278$    
(355,932)
(725,982)$ 
1,913,037
Identifiable assets.........$ 
32,067,176$ 
--$    
2,218,349$ 
330,732$ 
34,616,257
Nine Months EndedSeptember 30, 2001
Allegiance 
Viatical    Settlements    (1)
Ventures
Other
Total
Interest income.............$ 
2,608,998$
--$
24,463$
101,713$
2,735,174Net loss    on securities
--
--
(5,861,869)
(939,030)
(6,800,899)
Other income................
97,047
165,083
(30,972)
15,000
246,158
Total revenues.......
2,706,045
165,083
(5,868,378)
(822,317)
(3,819,567)
Interest expense ..........
2,066,261
--
376,979
--
2,443,240Depreciation    and           amortization .......
29,325
--
190,083
20,676
240,084
Income tax(expense)   (2)(2,686)--(800)(4,439)(7,925)Contributed    netincome          (loss) (2)......$ 
213,080$ 
165,083$ 
(6,520,429)$ 
(2,686,745)$ 
(8,829,011)
Identifiable assets.........$ 
38,375,399$ 
29,090,135$ 
3,516,314$ 
3,234,500$ 
74,216,348
 

 
(1)The Viatical Settlements segment includes results of      operations in connection with viatical settlements for DPFC and Point West Capital. (2)Corporate overhead and income tax expense are not generally      allocated between segments and are included in the Other segment.
9
** 

MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION**
            Thefollowing is a discussion and analysis of the consolidated financial condition of theCompany at September 30, 2002, and results of operations for the Company for the three andnine months ended September 30, 2002 and 2001, and of certain factors that may affect theCompany’s prospective financial condition and results of operations. The followingshould be read in conjunction with the Form 10-KSB and the unaudited consolidatedfinancial statements and related notes appearing elsewhere herein.
**Overview**
            Asdescribed herein, the Company has engaged in only limited operations since the second halfof 2000. As a result of the Company’s loss of servicing activities, theCompany’s liquidity issues and other factors, management plans to dissolve theCompany, through dissolution procedures under Delaware Law, bankruptcy proceedings orotherwise.

            InOctober 2002, the Company terminated its lease and relocated to an office with 200 squarefeet. The new lease payment is $1,100 per month and the lease is on a month-by-monthbasis. In connection with the early termination, the Company paid $68,000 and was releasedfrom any future liability. The Company also terminated its employees and is employingpersonnel on an hourly basis as needed. The Company is continuing to work towarddissolution. One impediment has been receiving permission from the Investors to dissolvecertain of the Allegiance entities and transfer the debt certificates held by AllegianceFunding. The Company is continuing to attempt to resolve these matters with the Investors,but no assurance can be given that a satisfactory resolution will be obtained. If it is,the Company plans to seek shareholder approval to dissolve the Company. If it is not, theCompany may seek relief through a chapter 7 bankruptcy liquidation proceeding. In eithercase, the only significant assets of the Company are the debt certificates held byAllegiance. Because of the uncertainties regarding the non-performing loans, the Companycannot predict the value of these assets.

            TheCompany was a specialty financial services company. The Company’s financialstatements consolidate the assets, liabilities and operations of Allegiance and Ventures.The principal business activity of the Company through February 1997 was to provideviatical settlements for terminally ill persons. Subsequent to February 1997, the Companybecame a more broadly-based specialty financial services company. 

           Information regarding the revenues, contributed net income (loss) and identifiable assetsfor each of the Company’s business segments is contained in Note 7 of the CondensedNotes to Consolidated Financial Statements. See the Company’s Form 10-KSB for adiscussion of accounting policies critical to the Company’s businesses.
**Results of Operations for the Company***           Total Revenues. Total revenues amounted to $905,000 during the three months endedSeptember 30, 2002 compared to negative $1.7 million during the same period in 2001. Totalrevenues increased primarily because the Company reported a $2.7 million loss onsecurities for the three months ended September 30, 2001. No net gain or loss onsecurities was reported for the three months ended September 30, 2002. See "Resultsof Operations by Segment-- Ventures--Three and Nine Months Ended September 30, 2002 Compared to the Three and Nine Months EndedSeptember 30, 2001-- Net Gain (Loss) on Securities."Offsetting the increase in total revenues for the three months ended September 30, 2002compared to the three months ended September 30, 2001 was a $98,000 decline in interestincome primarily related to Allegiance. See "Results of Operations by Segment-- Allegiance-- Three and Nine MonthsEnded September 30, 2002 Compared to the Three and Nine Months Ended September 30, 2001-- Interest Income." Total revenues amounted to $2.7 millionduring the nine months ended 

10

 

September 30, 2002 compared to negative $3.8 million during the sameperiod in 2001. Total revenues increased primarily because the Company reported a $6.8million loss on securities for the nine months ended September 30, 2001, compared to a$22,000 gain on securities for the nine months ended September 30, 2002. See "Resultsof Operations by Segment-- Ventures--Three and Nine Months Ended September 30, 2002 Compared to the Three and Nine Months EndedSeptember 30, 2001-- Net Gain (Loss) on Securities" and"Results of Operations by Segment-- Other-- Three and Nine Months Ended September 30, 2002 Compared to theThree and Nine Months Ended September 30, 2001-- Loss onSecurities." Offsetting the increase in total revenues for the nine months endedSeptember 30, 2002 compared to the nine months ended September 30, 2001 was a $402,000decline in interest income primarily related to Allegiance. See "Results ofOperations by Segment-- Allegiance--Three and Nine Months Ended September 30, 2002 Compared to the Three and Nine Months EndedSeptember 30, 2001-- Interest Income." 
*           Total Expenses. Total expenses were $1.2 million for the three months ended September30, 2002 compared to $1.5 million for the three months ended September 30, 2001 due to areduction in compensation and benefits and other general and administrative expenses as aresult of scaled-back activities and a decrease in legal expenses related to litigationand arbitration proceedings, which were settled in March 2002. See "Results ofOperations by Segment-- Other--Three and Nine Months Ended September 30, 2002 Compared to the Three and Nine Months EndedSeptember 30, 2001-- Other General and AdministrativeExpenses." Total expenses were $5.4 million for the nine months ended September 30,2002 compared to $5.0 million for the nine months ended September 30, 2001 due to a $2.0million impairment expense recognized in connection with the assets of two of thenon-performing loans acquired by Allegiance and the assets of another borrower acquired byAllegiance via foreclosure. See "Results of Operations by Segment--Allegiance-- Three and Nine Months Ended September 30, 2002Compared to the Three and Nine Months Ended September 30, 2001--Other General and Administrative Expenses." Offsetting this increase was a decline intotal expenses due to a reduction in compensation and benefits and other general andadministrative expenses as a result of scaled-back activities and a decrease in legalexpenses related to litigation and arbitration proceedings, which were settled in March2002. See "Results of Operations by Segment-- Other-- Three and Nine Months Ended September 30, 2002 Compared to theThree and Nine Months Ended September 30, 2001-- Other Generaland Administrative Expenses." 
*           Extraordinary Gain. The Company recognized an extraordinary gain on debt forgivenessin the amount of $4.6 million in connection with the purchase by a a nominee of theholders of the Securitized Notes (the "Noteholders") of the DPFC outstandingstock from Point West Capital. See "Results of Operations by Segment-- Viatical Settlements-- RecentDevelopments and Certain Accounting Implications for DPFC" below. 
**Results of Operations by Segment*****Allegiance***
            AtSeptember 30, 2002, four loans, two of which were included in assets held for sale, wereon non-accrual status. As a result of the non-accrual status loans, Allegiance was unableto access further debt under the Allegiance Financing beginning on October 30, 2000. TheAllegiance Financing expired in December 2000. Allegiance has no source of fundingavailable to make additional loans. In addition, Allegiance was unable to convert to termcertificates or otherwise repay $9.1 million ($8.2 million as of September 30, 2002) ofrevolving certificates issued under the Allegiance Financing. As a result, the interestpayable under the revolving certificates increased by 1% per annum, effective February 15,2001. The revolving certificates bear interest at fixed and variable rates based on theone-year U.S. Treasury 

11

yield and one-month LIBOR. At September 30, 2002, the weighted-averageinterest rate on the revolving certificates was 8.2%. 

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

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

            As aresult of the non-performing loans, monthly cash flow payments to Point West Capital (forservicing fees) and to Allegiance (for servicing fees and interest owed on debtcertificates held by Allegiance) ceased in November 2000. Between May 2001 and August2002, the payments resumed at a reduced level, but the fees for servicing ended in August2002 as a result of the termination notice referred to above. Because the payments forinterest on debt certificates held by Allegiance are subordinate to other payments underthe Allegiance Financing, these payments have not been made. Until a resolution of thenon-performing loans is obtained, the Company cannot predict whether the payments forinterest on debt certificates will resume or at what level they will resume.

            Inthe first quarter of 2002, Allegiance Capital entered into an agreement to sell a funeralhome it had acquired in connection with a defaulted loan. The sale closed on March 28,2002. 

*Three and Nine Months Ended September 30, 2002 Compared to the Three    and Nine Months Ended September 30, 2001**           Interest Income. Interest income declined to $778,000 during the three months endedSeptember 30, 2002 from $846,000 during the same period in 2001 and declined to $2.3million during the nine months ended September 30, 2002 from $2.6 million during the sameperiod in 2001. The decline was primarily due to non-performing loans, which were indefault and on non-accrual status. During the three and nine months ended September 30,2002, the weighted-average interest rate earned on the loans was 8.6% and theweighted-average principal amounts outstanding were $34.5 million and $35.1 million,respectively, compared to the weighted-average interest rate of 8.9% and theweighted-average principal amounts outstanding were $37.3 million and $37.5 million,respectively, during the three and nine months ended September 30, 2001. For purposes ofthe weighted average interest rate and weighted average principal outstanding calculationsfor the three and nine months ended September 30, 2002, four non-performing loans(including two which are included in assets held for sale) in the aggregate principalamounts of $5.3 million have been included in the calculations to the extent they wereperforming during that period. For purposes of the weighted average interest rate andweighted average principal outstanding calculations for the three and nine months endedSeptember 30, 2001, two non-performing loans in the aggregate principal amounts of $3.9million have been included to the extent they were

12

 

performing during that period. Allegiance cannot predict at this timewhether the loans currently on non-accrual status will remain on non-accrual status. Tothe extent that the loans remain on non-accrual status, Allegiance does not anticipatereceiving all interest income it would have received had the loans been performing. 

*           Other Income.*Other income was $81,000 during the three months ended September 30,2002 and resulted primarily from a prepayment fee related to one loan. Other income was$510 during the three months ended September 30, 2001. Other income was $219,000 duringthe nine months ended September 30, 2002 and resulted primarily from a $100,000 gain onthe sale of a funeral home held by Allegiance and the prepayment fee discussed above.Other income was $97,000 during the nine months ended September 30, 2001 and resultedprimarily from the recognition of previously deferred net hedging gains related to theAllegiance loans upon adoption of Statement of Financial Accounting Standards No. 133, *Accountingfor Derivative Instruments and Hedging Activities* on January 1, 2001. At September 30,2002, Allegiance had no hedging relationships. 
*           Interest Expense. Interest expense declined to $618,000 during the three months endedSeptember 30, 2002 from $676,000 during the three months ended September 30, 2001 anddeclined to $1.9 million during the nine months ended September 30, 2002 from $2.1 millionduring the nine months ended September 30, 2001, due to principal payments on theoutstanding certificates and lower interest rates. During the three and nine months endedSeptember 30, 2002, the weighted-average interest rate under the Allegiance Financing was8.2% compared to 8.4% during the three and nine months ended September 30, 2001. Duringthe three and nine months ended September 30, 2002, the weighted-average borrowings were$30.2 million and $30.7 million, respectively, compared to the weighted-average borrowingsof $32.4 million and $32.7 million, respectively, during the three and nine months endedSeptember 30, 2001. The Allegiance Financing terminated in December 2000. However, amountsborrowed under the Allegiance Financing remain outstanding. 
*           Compensation and Benefits. Compensation and benefits declined to $40,000 during thethree months ended September 30, 2002 from $92,000 during the same period in 2001 anddeclined to $127,000 during the nine months ended September 30, 2002 from $205,000 duringthe same period in 2001. Allegiance had no employees at September 30, 2002 and twoemployees at September 30, 2001. Compensation and benefits for both periods reflects anintercompany charge for services preformed by Point West Capital employees on behalf ofAllegiance.
*           Other General and Administrative Expenses. Other general and administrative expenseswere $185,000 and $28,000 for the three months ended September 30, 2002 and 2001,respectively. The increase in other general and administrative expenses was due to legalexpenses related to the Allegiance Financing and loans that are in default. Offsettingsuch increase during the 2002 periods was a decline due primarily to a reduction inexpenses resulting from Allegiance’s suspended lending activities. Other general andadministrative expenses were $2.3 million and $190,000 for the nine months ended September30, 2002 and 2001, respectively. The increase in other general and administrative expenseswas due to a $2.0 million impairment expense recognized in connection with the assets oftwo of the non-performing loans acquired by Allegiance and the assets of another borroweracquired by Allegiance via foreclosure. 
***Viatical Settlements***
            TheViatical Settlements segment includes results of operations in connection with viaticalsettlements for DPFC and Point West Capital.
*13* 

Recent Developments and Certain Accounting Implications for DPFC

            OnSeptember 30, 2002, Point West Capital was replaced as servicer and a nominee of theNoteholders purchased the DPFC outstanding stock from Point West Capital for a nominalamount. Accordingly, Point West Capital will no longer consolidate the operations of DPFC.

            In1995, DPFC issued its Senior Viatical Settlement Notes, Series 1995-A with a statedmaturity of March 10, 2005 (the "Securitized Notes"). As a result of theimminent default of DPFC under the terms of the Securitized Notes, Point West Capital andthe Noteholders entered into an agreement in March 2000 (the "DPFC Agreement")that amended certain of the terms of the Securitized Notes. Pursuant to the DPFCAgreement, the Noteholders were required to provide funds through June 30, 2002 to payservicing fees, premiums and certain other costs of DPFC in the event policy collectionswere insufficient. Under the DPFC Agreement, Point West Capital continued to act asservicer for a fee of $18,000 per month for the period March 2000 through June 2002. OnJune 30, 2002, Point West Capital and the Noteholders entered into an agreement (the"Letter Agreement") that amended certain of the terms of the Securitized Notes.Pursuant to the Letter Agreement, Point West Capital continued to act as servicer throughSeptember 30, 2002 for a reduced fee of $15,000 per month. 

            Asof September 30, 2002, DPFC was no longer included in the Company’s consolidatedfinancial statements. As a result of the DPFC Agreement, the Company did not recognize anygain or loss related to DPFC until the Noteholders purchased the DPFC stock. The Companyrecognized a non-cash gain in an amount equal to the $4.6 million accumulated deficit ofDPFC on September 30, 2002. From March 2000 through June 2002 the Company recognized the$18,000 monthly servicing fee ($54,000 per quarter) paid to Point West Capital as otherincome in the consolidated statement of operations and from July 2002 through September2002 the Company recognized the reduced $15,000 monthly servicing fee paid to Point WestCapital as other income in the consolidated statement of operations.
***    Ventures**
           Certain Accounting Implications for Ventures*
            InFebruary 2002, the SBA was appointed permanent receiver of Point West Ventures. The SBAhas taken possession and control of all of Point West Ventures’ assets for thepurpose of liquidating Point West Ventures’ assets, satisfying claims of Point WestVentures’ creditors and pursuing causes of action available to Point West Ventures.Upon conclusion of the receivership, Point West Ventures’ Small Business InvestmentCompany license will be terminated. 

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

           Point West Ventures has issued two debentures payable to the SBA totaling $6.5 million inprincipal amount. The debentures will continue to be reflected in the Company’sconsolidated balance sheet until Point West Ventures is legally released from itsobligations under the debentures. The 

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Company cannot predict whether or at what time Point West Ventures willbe legally released from its obligations under the debentures. Dispositions of Point WestVentures’ portfolio securities by a receiver may occur at times or on terms thatwould not maximize the value of those assets. It is virtually certain that proceeds fromany asset dispositions will be insufficient to repay all amounts owed to the SBA by PointWest Ventures under the debentures. If and when the debt is finally discharged, theCompany would then recognize a gain on debt forgiveness in an amount equal to any unpaiddebt that is discharged, net of any tax effect.
***Three and Nine Months Ended September 30, 2002 Compared to the    Three and Nine Months Ended September 30, 2001****
            NetGain (Loss) on Securities. Ventures did not report a net gain (loss) on securities forthe three months ended September 30, 2002. Ventures reported a $2.7 million loss onsecurities for the three months ended September 30, 2001. The loss on securities duringthe three months ended September 30, 2001 was primarily due to the write-down or write-offof impaired investments in five different companies as a result of the financialdeterioration of the investees. Ventures reported a $22,000 gain on securities for thenine months ended September 30, 2002 compared to a $5.9 million loss on securities for thenine months ended September 30, 2001. The gain on securities for the period endedSeptember 30, 2002 resulted from the sale of marketable securities held in two companies.The loss on securities during the nine months ended September 30, 2001 was primarily dueto the write-down or write-off of impaired investments in eleven different companies as aresult of the financial deterioration of the investees. As a result of the SBAreceivership discussed above in "Certain Accounting Implications for Ventures,"the Company does not anticipate any further changes in the carrying values of investmentsin marketable and non-marketable securities held by Ventures unless the SBA informsVentures of a liquidation or the Company learns that the assets should be written downfurther. 
*           Interest Expense. Interest expense was $126,000 during the three months endedSeptember 30, 2002 compared to $127,000 during the three months ended September 30, 2001and $378,000 during the nine months ended September 30, 2002 compared to $377,000 duringthe nine months ended September 30, 2001. During all periods the weighted-average interestrate on the funds borrowed from the SBA was 7.8% and the weighted-average borrowings were$6.5 million.
***Other

            TheOther segment includes results attributable to Point West Capital and PWS. Except forcompensation and benefit expenses clearly attributable to Allegiance, corporate overheadis included in the "Other" segment and has not been allocated. As of June 30,2002, PWS was no longer included in the Company’s consolidated financial statements.The Company sold PWS during the second quarter of 2002 for $20,000. PWS’ operationshave been reflected in the Statement of Operations through June 30, 2002. Activities forPWS were immaterial during the 2002 and 2001 periods. 
*Three and Nine Months Ended September 30, 2002 Compared to the Three    and Nine Months Ended September 30, 2001**            Losson Securities. During the three months ended March 31, 2001, Point West Capitaldetermined that a $939,000 investment in one company was impaired and therefore wrote-offthe entire carrying value during that period. This write-off was a result of deteriorationin the financial condition of the underlying company. That company is presently beingliquidated and no amounts will be paid to any shareholders. This investment was made byPoint West Capital prior to the inception of Ventures, and was the only investment inPoint West Capital’s portfolio. 

15

 
*           Other Income. Other income was $20,000 for the nine months ended September 30, 2002due to the sale of PWS. Other income was $15,000 for the three and nine months endedSeptember 30, 2001 due to the sale of a telephone number.
*           Compensation and Benefits. Compensation and benefits declined to $150,000 during thethree months ended September 30, 2002 from $200,000 during the three months endedSeptember 30, 2001 and declined to $411,000 during the nine months ended September 30,2002 from $754,000 during the nine months ended September 30, 2001 due to employee layoffsand attrition. Bradley N. Rotter and Alan B. Perper ceased to be employed by the Companyin 2002. Both remain directors and Mr. Rotter remains the Chairman of the Board.
*           Other General and Administrative Expenses. Other general and administrative expensesdeclined to negative $4,000 during the three months ended September 30, 2002 from $361,000during the three months ended September 30, 2001 and declined to $290,000 during the ninemonths ended September 30, 2002 from $1.1 million during the nine months ended September30, 2001. The decrease in such expenses was primarily due to a decrease in legal expensesrelated to litigation and arbitration proceedings, which were settled in March 2002. Inaddition, other general and administrative expenses decreased in the 2002 periods as aresult of a cost-reduction program, which the Company established in the latter half of2000. 
**Liquidity and Capital Resources

           At September 30, 2002, the Company had $515,000 of cash and cash equivalents (including$207,000 held for the benefit of Allegiance Trust I as described below), $4,000 ofinvestment securities and $2.1 million of non-marketable securities. For the nine monthsended September 30, 2002, the Company incurred a $2.7 million loss before a $4.6 millionextraordinary (non-cash) gain. At September 30, 2002, the Company had a stockholders’deficit of $2.7 million and accumulated deficit of $30.0 million. The Company expects tocontinue to incur losses. The Company has also experienced continuing negative cash flowsfrom operations due to limited operations and losses on securities. Cash flows used inoperating activities for the nine months ended September 30, 2002 and 2001 were $519,000and $279,000, respectively. As a result of the Company’s loss of servicingactivities, the Company’s liquidity issues and other factors, management plans todissolve the Company, through dissolution procedures under Delaware Law, bankruptcyproceedings or otherwise. 

            TheCompany is currently unable to predict its liquidity beyond December 31,  2002, whichwill be dependent on the cash flow from the Company’s assets. 

           Management is assessing the dissolution of the Company. Were the Company to be liquidatedit is uncertain whether any funds would be available to stockholders. The amount, if any,of funds available for stockholders would be dependent primarily on the value of theresidual ownership in Allegiance upon any such liquidation. 
*    Point West Capital*
            Atpresent, Point West Capital has no external funding source from which to fund its workingcapital and general corporate needs. At September 30, 2002, Point West Capital’s cashand cash equivalents was $278,000. At November 11, 2002, Point West Capital’s cashand cash equivalents was $149,000. 
* 

16* 

    Allegiance*
            Asof September 30, 2002, Allegiance had cash and cash equivalents of $821,000, of which$584,000 is restricted under the Allegiance Financing and $207,000 is held by AllegianceTrust I and not accessible to Allegiance Capital. As of November 11, 2002, Allegiance(excluding funds held by Allegiance Trust I) had cash and cash equivalents of $15,000. 
*    Ventures*
            Asof September 30, 2002, Ventures had identifiable assets of $2.2 million, including $27,000of cash, investment securities with an estimated fair value of $4,000, non-marketablesecurities with an estimated fair value of $2.1 million and $75,000 of accountsreceivable. In February 2002, the SBA was appointed permanent receiver of Point WestVentures. The SBA has taken possession and control of all of Point West Ventures’assets for the purpose of liquidating Point West Ventures’ assets, satisfying claimsof Point West Ventures’ creditors and pursuing causes of action available to PointWest Ventures. See "Results of Operation by Segment—Ventures—RecentDevelopments" above for further information, including a discussion of the accountingimplications of such a receivership. 

           Point West Ventures does not currently have sufficient cash to repay the SBA debentures.As of September 30, 2002, Point West Ventures’ identifiable assets were significantlyless than the amounts owed under the SBA debentures, and it is virtually certain thatproceeds from any asset disposition will be insufficient to repay all amounts owed to theSBA by Point West Ventures under the debentures. Any asset disposition proceeds will beused to satisfy amounts owed to the SBA under the debentures and to pay the costs of thereceivership. 
**Forward Looking Statements**
            Thisreport includes forward-looking statements within the meaning of the Private SecuritiesLitigation Reform Act of 1995. All statements made herein which are not based onhistorical facts are forward looking and, accordingly, involve risks and uncertaintiesthat could cause actual results to differ materially from those discussed. Such forwardlooking statements include those under "Management’s Discussion and Analysis orPlan of Operation" relating to (1) the amount of any loss experienced in connectionwith loans made by Allegiance that are in default, (2) the amount of proceeds received ifthe Investors were to liquidate the collateral under the Allegiance Financing, (3)sufficiency of the Company’s liquidity and capital resources (see "Liquidity andCapital Resources") and (4) the consequences of Point West Ventures’ defaultunder its SBA borrowings and the receivership. Such statements are based onmanagement’s belief, judgment and analysis as well as assumptions made by andinformation available to management at the date hereof. In addition to any assumptions andcautionary factors referred to specifically in this report in connection with such forwardlooking statements, factors that could cause actual results to differ materially fromthose contemplated by the forward looking statements include (1) the Investors’ability to foreclose on the collateral and realize an amount on foreclosure at least equalto the carrying value of the Allegiance loans which are currently in default, (2) thecontinuing ability of borrowers to perform under loans previously made by Allegiance andfactors such as general economic conditions that would affect such ability, (3) theInvestors’ ability to sell the collateral under the Allegiance Financing at thecurrent carrying value and market conditions at the time of any such sale, (4) actionstaken by the Investors with respect to the current or any future default under theAllegiance Financing, (5) the commencement of any additional arbitration or litigationproceedings by or against the Company or its subsidiaries and (6) actions taken by the SBAwith respect to Point West Ventures, including any manner of liquidation.

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**PART II. OTHER INFORMATION**
Item 1. Legal Proceedings

            InSeptember 2002, an action was filed in Barbour County, Alabama against Point West CapitalCorporation, Allegiance and other parties whom were named as co-defendants in an actionseeking to collect unspecified damages for alleged fraud, conspiracy, breach of contractand breach of fiduciary duty. The litigation stems from an alleged defect in the propertytitle transfer. Point West Capital and Allegiance believe the suit is without merit andwill vigorously defend the suit in cooperation with the Title Insurance Company thatinsured the property sale transaction.

            InFebruary 2000, Point West Ventures brought an action in Santa Clara County againstUniversal Access, Inc., certain of its directors and other parties seeking to collect foraggregate damages in the amount of $1 million for breach of contract, breach of fiduciaryduty including breach of contract, misappropriation of trade secret, unjust enrichment,tortious interference, conspiracy and unfair competition. In accordance with itsappointment as permanent receiver of Point West Ventures in February 2002, the SmallBusiness Administration ("SBA") will make all decisions concerning the pursuitof the litigation. 

            InJune 2001, Point West Ventures filed an action for fraud against Home Director, Inc. andSpencer Trask Ventures, Inc. seeking rescission of an agreement pursuant to which PointWest Ventures purchased $500,000 of stock in Home Director, Inc. through Spencer TraskVentures, Inc. Ventures is seeking to collect aggregate damages in the amount of $500,000.In accordance with its appointment as permanent receiver of Point West Ventures inFebruary 2002, the SBA will make all decisions concerning the pursuit of the litigation. 

Item 3. Defaults Upon Senior Securities

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

Item 6. Exhibits and Reports on Form 8-K

(a)                                   Exhibits:

    Number                 Description10.1Stock Assignment Agreement dated    September 30, 2002 among Point West Capital Corporation and Broad Street Contract    Services, Inc
10.2
Termination    Agreement dated as of October 3, 2002 among Point West Capital Corporation, SKS/FBOP    Associates, LLC and MyCFO, Inc.
(b)                                   Reports on Form 8-K filed during the quarter ended September 30, 2002: 

                                     None

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** **
**SIGNATURES**

            Inaccordance with the requirements of the Exchange Act, the registrant caused this report tobe signed on its behalf by the undersigned, thereunto duly authorized.

 

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