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 March 31, 2002 
OR

[ ] 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 April 30, 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        March 31, 2002 
1
Consolidated Statements of    Operations for the        Three Months Ended March 31, 2002 and 2001
2
Consolidated Statements of    Cash Flows for the         Three Months Ended March 31, 2002 and 2001
3
Condensed Notes to    Consolidated Financial Statements
4-8
Item 2.
Management’s    Discussion and Analysis or Plan of Operation
9-17
Part II
Other    Information
Item 6.
Exhibits and Reports on    Form 8-K
17
Signatures
18**(i)

 

POINT WEST    CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED    BALANCE  SHEET
March 31,
ASSETS
2002
(unaudited)Cash and cash equivalents$882,920Restricted cash670,718Investment securities:     Available- for- sale13,955Matured policies receivable159,742Loans receivable, net of unearned income of    $473,720        and an allowance for loan losses of $253,65930,702,363Purchased life insurance policies28,747,310Non-marketable securities2,113,018Furniture and equipment,  net of    accumulated     depreciation of    $53,14841,557Assets held for sale3,351,406Other assets490,528                                                Total assets$67,173,517
LIABILITIES AND STOCKHOLDERS'    DEFICITAccrued interest expense$428,044Accounts payable527,804Revolving certificates8,520,592Term certificates22,448,772Securitized notes payable33,659,201Debenture payable6,500,000                                              Total liabilities72,084,413Stockholders' 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(32,172,464)Treasury stock, 1,038,500 shares(2,874,032)                                           Total stockholders' deficit(4,910,896)                                           Total liabilities and stockholders' deficit$67,173,517
See accompanying condensed notes to consolidated financial statements.
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POINT WEST    CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED    STATEMENTS OF OPERATIONSFor the Three Months EndedMarch 31,20022001
(unaudited)Revenues:     Interest income$870,177$975,536     Net gain (loss) on    securities5,647(3,407,865)     Other125,378149,363                                         Total revenues941,202(2,282,966)Expenses:     Interest expense760,499823,596     Compensation and    benefits229,754381,126     Other general and    administrative expenses266,633542,648     Amortization--24,150     Depreciation7,5116,024                                Total expenses1,264,4271,777,544                     Loss before income taxes(323,225)(4,060,510)Income tax expense--(18,170)     Net loss$(323,225)$(4,078,680)Loss per share-basic and diluted:$(0.10)$(1.22)Weighted-average    number of shares of common stock     outstanding3,352,6243,352,624Weighted-average number of shares of common    stock     and common stock    equivalents outstanding3,352,6243,352,624
See accompanying    condensed notes to consolidated financial statements.
2
 

 

 

POINT WEST CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three    Months Ended March 31,
2002
2001
(unaudited)Cash    flows from operating activities:        Net loss$(323,225)$(4,078,680)        Adjustments to reconcile net loss to net cash             used in operating activities:                  Depreciation and amortization7,51130,174
 Provision for loan losses
(4,865)--                  Net (gain) loss on securities(5,647)3,407,865              Gain    on sale of asset held for sale(56,388)--                  Deferred tax expense--17,370                  Changes in operating assets and liabilities:                        Collections on matured life insurance policies109,683513,498                        Other assets234,675(138,526)                        Unearned income(23,086)(114,358)                        Accrued interest expense123,428(104,802)                        Accounts payable71,48099,578                        Accrued compensation payable(204,869)(92,953)                                                                     Net cash used in operating activities(71,303)(460,834)Cash    flows from investing activities:        Increase in restricted cash(114,035)(105,179)        Proceeds from sale of investment and non-marketable securities23,730340,000    Proceeds    from sale of asset held for sale500,600--        Principal payments on loans receivable981,106170,972                                                                                        Net cash provided by investing activities1,391,401405,793Cash    flows from financing activities:        Principal payments on securitized notes payable(2,375)(179,387)        Principal payments on revolving certificates(303,404)(73,321)        Principal payments on term certificates(709,630)(185,337)                                Net cash used in financing activities(1,015,409)(438,045)                                Net increase (decrease)  in cash and cash equivalents304,689(493,086)                                     Cash    and cash equivalents, beginning of period578,2312,987,686Cash    and cash equivalents, end of period$882,920$2,494,600Supplemental    disclosures:Supplemental    disclosure of non-cash activities:        Unrealized loss on securities available for sale, net of tax$--$(23,175)Supplemental    disclosure of cash flow information:        Taxes paid$--$10,555        Cash paid for interest$637,071$928,398
See accompanying    condensed notes to consolidated financial statements.
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**POINT WEST CAPITAL CORPORATION AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

1.                General Description**
                   The unaudited consolidated financial statements of Point West Capital Corporation("Point West Capital"), including its consolidated entities (collectively the"Company"), as of March 31, 2002 and for the three month periods ended March 31,2002 and 2001 have been prepared in accordance with accounting principles generallyaccepted in the United States for interim financial information, in accordance with Item310(b) of Regulation S-B. Accordingly, such statements do not include all of theinformation and notes thereto that are included in the annual consolidated financialstatements. In the opinion of management, all adjustments considered necessary for a fairpresentation have been included. Operating results for the three month period ended March31, 2002 are not necessarily indicative of the results that may be expected for the yearending December 31, 2002. These statements and notes thereto should be read in conjunctionwith the audited consolidated financial statements and notes thereto included in theCompany’s Annual Report on Form 10-KSB for the year ended December 31, 2001 (the"Form 10-KSB").

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

                   The principal business activity of the Company through February 1997 was to provideviatical settlements for terminally ill persons. Point West Capital continues to servicethe life insurance policies held by DPFC. However, the Securitized Notes (as definedherein) issued by DPFC are currently in default. See "Management’s Discussionand Analysis or Plan of Operation-- Results of Operations bySegment-- Viatical Settlements--Recent Developments." During 1997, the Company expanded its financial servicesbusiness through the operations of Ventures and Allegiance. During 1998, the Companyformed PWS, a broker-dealer licensed by the National Association of Securities Dealers,Inc. The operations of PWS have not been material to the Company. The Company has enteredinto an agreement to sell PWS. The agreement would provide Point West Capital with netproceeds of approximately $20,000. The Company expects the sale to close in the secondquarter of 2002. 

                   The activities of Allegiance and Ventures changed substantially beginning in late 2000.See the Company’s Form 10-KSB for further information. The Company has engaged inonly limited operations since the second half of 2000, and has limited prospects to expandits business activities or to continue in existence. In addition, the Allegiance Financing(as defined herein) is currently in default. See Note 4 and "Management’sDiscussion and Analysis or Plan of Operation-- Results ofOperations by Segment-- Allegiance." 

                   The accompanying consolidated financial statements have been prepared on a going concernbasis of accounting. The Company’s recurring losses from operations and net capitaldeficiency raise 

 

4

substantial doubt about its ability to continue as a going concern. SeeNote 2 to the consolidated financial statements in the Company’s Form 10-KSB forfurther information regarding the going concern issue.
**2.                Loans Receivable**
                   Loans receivable at December 31, 2002 consisted of 23 loans outstanding with an aggregateprincipal amount of $31.4 million, which bore a weighted-average fixed interest rate perannum of 9.5%. Principal and interest payments are due monthly on such loans, and suchloans mature, subject to permitted prepayments, approximately fifteen years from theinitial loan date. At March 31, 2002, two loans in the aggregate amount of $1.4 millionwere on non-accrual status. At March 31, 2002, the allowance for losses on loans was$254,000. 
**3.                Assets Held for Sale**
                   Assets held for sale are carried at the lower of cost or estimated fair value less cost tosell. Included in assets held for sale as of March 31, 2002 is $2.9 million representingthe estimated fair value of funeral home assets purchased from two Allegiance borrowersduring the first quarter of 2001 for a nominal amount. The assets acquired are subject tothe mortgages, which Allegiance holds. Also included in assets held for sale is $473,000representing the estimated fair value of an additional funeral home that Allegianceacquired in February 2002 via foreclosure. Management has estimated fair value based onbids for and appraisals of the funeral home businesses that secure the loans andassessment of the financial condition and cash flows of the funeral homes’operations. Allegiance intends to sell these funeral homes and is actively seeking buyersfor them.
**4.                Revolving and Term Certificates**
                   Through December 2000, Allegiance financed its loans receivable under a structuredfinancing arrangement established in August 1998 (the "Allegiance Financing").Under the Allegiance Financing, various classes of revolving and term certificates ofAllegiance Trust I have been issued. 

                   As a result of loans made by Allegiance which became non-performing, Allegiance was unableto access further debt under the Allegiance Financing beginning on October 30, 2000. TheAllegiance Financing expired in December 2000. Allegiance has no source of fundingavailable to make additional loans. In addition, Allegiance was unable to convert to termcertificates or otherwise repay $9.1 million ($8.5 million as of March 31, 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 March 31, 2002, the weighted-averageinterest rate on the revolving certificates was 8.2%.

                   Since the expiration of the Allegiance Financing in December 2000, Allegiance and aconsortium of insurance companies holding certificates issued under the AllegianceFinancing (the "Investors") have executed certain amendment and waiveragreements providing Allegiance additional time to resolve its non-performing loans andretire the revolving debt. In November 2001, Allegiance and the Investors executed anamendment and waiver agreement providing Allegiance until February 15, 2002 to resolve thenon-performing loans and retire the revolving debt; however, Allegiance was not able to doso by February 15, 2002. Therefore, the Investors could declare an event of default underthe Allegiance Financing at any time. If the Investors were to declare an event ofdefault, Point West Capital and Allegiance Capital could be terminated as servicers andthe Investors could liquidate the collateral and apply the proceeds to retire amountsoutstanding under the Allegiance Financing. Allegiance is seeking waivers from theInvestors, which would provide additional time to resolve the non-performing loans, 

5

retire the revolving debt and resolve other defaults. See theCompany’s Form 10-KSB for further discussion regarding the defaults under theAllegiance 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.

                   Also as a result of the non-performing loans, monthly cash flow payments to Point WestCapital (for servicing fees) and to Allegiance (for servicing fees and interest owed ondebt certificates held by Allegiance) ceased in November 2000. As a result of, among otherthings, certain amendment and waiver agreements, monthly cash flow payments to Point WestCapital and Allegiance resumed in May 2001. 
**5.                Securitized Notes Payable**
                   In 1995, DPFC issued its Senior Viatical Settlement Notes, Series 1995-A with a statedmaturity of March 10, 2005 (the "Securitized Notes"). Principal and interestpayments on and other costs of the Securitized Notes are payable solely from collectionson pledged policies, deposited funds and funds provided by the holders of the SecuritizedNotes (the "Noteholders"). As a result of the imminent default of DPFC under theterms of the Securitized Notes, Point West Capital and the Noteholders entered into anagreement in March 2000 (the "DPFC Agreement") that amended certain of the termsof the Securitized Notes. Pursuant to the DPFC Agreement, the Noteholders are required toprovide funds through June 30, 2002 to pay servicing fees, premiums and certain othercosts of DPFC in the event policy collections are insufficient. Under the DPFC Agreement,Point West Capital continues to act as servicer for a fee of $18,000 per month for theperiod March 2000 through June 2002. The DPFC Agreement also provides the Noteholders withan option to purchase from Point West Capital the DPFC outstanding stock for a nominalamount on June 30, 2002. If the Noteholders do not exercise such option, Point WestCapital may liquidate DPFC. 

                   In November 2001, Bradley N. Rotter took a leave of absence and in March 2002 ceased to beemployed by the Company. He remains a director and Chairman of the Board. In April 2002,Alan B. Perper took a leave of absence and in May 2002 ceased to be employed by theCompany. He also remains a director of the Board. As a result a default has occurred underthe Securitized Notes. If the Noteholders declare an event of default, Point West Capitalcould be terminated as servicer and the Noteholders could foreclose on the collateral.Point West Capital and the Noteholders have been in discussions regarding this matter andextending the servicing beyond June 30, 2002.

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

 

6

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

Stockholders’ deficit, beginning of    period .........
$  (4,587,671)
Net loss    ...............................................
(323,225)
Stockholders’ deficit, end of period    ............
$ (4,910,896) 
       Changes in stockholders’ equityduring the first three months of 2001 reflected the following:

Stockholders’ equity, beginning of    period ...
$9,770,763Comprehensive loss:
   Net loss    .......................................
(4,078,680)
   Other comprehensive loss:    ...................
      Net unrealized    investment losses, net of tax               benefit of $99,000.......
(23,175)
                 Comprehensive loss ....................
(4,101,855)
Stockholders’ equity, end of period    ..............
$5,668,908** 

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.

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

7

 

                   The following tables represent the Company’s results from segments for and financialpositions as of the three months ended March 31, 2002 and 2001.

Three Months Ended March  31, 2002
Allegiance 
Viatical    Settlements    (1)
Ventures
Other
Total
Interest income.............$ 
808,825$
--$
18$
1,334$
810,177Gain on    securities   
--
--
5,647
--
5,647
Other income................
71,378
54,000
--
--
125,378
Total revenues.............
880,203
54,000
5,665
1,334
941,202
Interest expense ..........
634,494
--
126,005
--
760,499Depreciation     
--
--
--
7,511
7,511Contributed    net income           (loss)  (2)......$ 
167,724$ 
54,000$    
(120,370)$ 
(424,579)$ 
(323,225)
Identifiable assets.........$ 
35,486,969$ 
29,088,744$    
2,204,426$ 
393,378$ 
67,173,517
Three Months Ended March  31, 2001
Allegiance 
Viatical    Settlements    (1)
Ventures
Other
Total
Interest income.............$ 
909,489$
--$
15,289$
50,758$
975,536Net loss    on securities
--
--
(2,468,835)
(939,030)
(3,407,865)
Other income................
95,363
54,000
--
--
149,363
Total revenues.......
1,004,852
54,000
(2.453,546)
(888,272)
(2,282,966)
Interest expense ..........
699,317
--
124,279
--
823,596Depreciation    and           amortization .......
9,775
--
14,375
6,024
30,174 
 Income tax expense (2)(800)----(17,370)(18,170)Contributed    netincome          (loss) (2)......$ 
131,357$ 
54,000$ 
(2,592,200)$ 
(1,671,837)$ 
(4,078,680)
Identifiable assets.........$ 
39,026,903$ 
30,529,856$ 
7,849,219$ 
3,589,152$ 
80,995,130
(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.
8
** 

MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION**
                   The following is a discussion and analysis of the consolidated financial condition of theCompany at March 31, 2002, and results of operations for the Company for the three monthsended March 31, 2002 and 2001, and of certain factors that may affect the Company’sprospective financial condition and results of operations. The following should be read inconjunction with the Form 10-KSB and the unaudited consolidated financial statements andrelated notes appearing elsewhere herein.
**Overview**
                   The Company is a specialty financial services company. The Company’s financialstatements consolidate the assets, liabilities and operations of Allegiance, DPFC,Ventures and PWS. The principal business activity of the Company through February 1997 wasto provide viatical settlements for terminally ill persons. Subsequent to February 1997,the Company became a more broadly-based specialty financial services company. 

                   As described herein, the Company has engaged in only limited operations since the secondhalf of 2000. The Company is currently focusing on continuing servicing activities inconnection with Allegiance and DPFC, the resolution of non-performing loans made byAllegiance, actions relating to the liquidation of Point West Ventures and assessing itsfuture alternatives. The Company’s current business plan for 2002 reflects continuedinitiatives to reduce costs, keep its servicer roles for Allegiance and DPFC and resolveAllegiance’s non-performing loans. The Company’s ability to continue as a goingconcern is dependent upon, among other things, the Company’s ability to resolve thedefaults under the Allegiance Financing and the Securitized Notes, terminate its presentlease on satisfactory terms and relocate to less expensive office space, raise additionalcapital through equity or debt financings and/or successfully implement a business planthat restores the Company to profitability and positive cash flows. There is no assurancethat the Company will be able to resolve the defaults under the Allegiance Financing andthe Securitized Notes, terminate its present lease on satisfactory terms or at all, thatadditional funding will be available to the Company on acceptable terms, if at all, orthat the Company will succeed in implementing a business plan that will allow it continueas a going concern.

                   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 $941,000 during the three months endedMarch 31, 2002 compared to negative $2.3 million during the same period in 2001. Totalrevenues increased primarily because the Company reported a $3.4 million loss onsecurities for the three months ended March 31, 2001, compared to a $5,600 gain onsecurities for the three months ended March 31, 2002. See "Results of Operations bySegment-- Ventures-- Three MonthsEnded March 31, 2002 Compared to the Three Months Ended March 31, 2001--Net Gain (Loss) on Securities" and "Results of Operations by Segment-- Other-- Three Months Ended March 31,2002 Compared to the Three Months Ended March 31, 2001-- Losson Securities." Offsetting the increase in total revenues for the three months endedMarch 31, 2002 compared to the three months ended March 31, 2001 was a $165,000 decline ininterest income primarily related to Allegiance. See "Results of Operations bySegment-- Allegiance-- Three MonthsEnded March 31, 2002 Compared to the Three Months Ended March 31, 2001--Interest Income." 

9

 
*                   Total Expenses. Total expenses were $1.3 million and $1.8 million for the three monthsended March 31, 2002 and 2001, respectively. The decline in total expenses was also due toa reduction in compensation and benefits and other general and administrative expenses asa result of scaled-back activities. 
**Results of Operations by Segment*****Allegiance***
                   At March 31, 2002, four loans, two of which were included in assets held for sale, were onnon-accrual status. As a result of the non-accrual status loans, Allegiance was unable toaccess further debt under the Allegiance Financing beginning on October 30, 2000. TheAllegiance Financing expired in December 2000. Allegiance has no source of fundingavailable to make additional loans. In addition, Allegiance was unable to convert to termcertificates or otherwise repay $9.1 million ($8.5 million as of March 31, 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 March 31, 2002, the weighted-averageinterest rate on the revolving certificates was 8.2%. 

                   Since the expiration of the Allegiance Financing in December 2000, Allegiance and theInvestors have executed certain amendment and waiver agreements providing Allegianceadditional time to resolve its non-performing loans and retire the revolving debt. InNovember 2001, Allegiance and the Investors executed an amendment and waiver agreementproviding Allegiance until February 15, 2002 to resolve the non-performing loans andretire the revolving debt. Allegiance was not able to do so by February 15, 2002.Allegiance is seeking waivers from the Investors, which would provide additional time toresolve the non-performing loans, retire the revolving debt and resolve other defaults.There can be no assurance that the Investors will waive any defaults or not declare anevent of default. Therefore, the Investors could declare an event of default under theAllegiance Financing at any time. If the Investors were to declare an event of default,Point West Capital and Allegiance Capital could be terminated as servicers and theInvestors could liquidate the collateral and apply the proceeds to retire amountsoutstanding under the Allegiance Financing. See the Company’s Form 10-KSB for furtherdiscussion regarding the defaults under the Allegiance Financing. To the extent that theloans remain on non-accrual status, Allegiance Capital does not anticipate receiving allinterest and servicing income it would have received if the loans were performing. If theInvestors declare an event of default under the Allegiance Financing or do not permit cashflow payments to continue under the current arrangement, Point West Capital’s abilityto continue future operations is highly questionable.

                   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.

                   Also as a result of the non-performing loans, monthly cash flow payments to Point WestCapital (for servicing fees) and to Allegiance (for servicing fees and interest owed ondebt certificates held by Allegiance) ceased in November 2000. Between January and October2000, such payments averaged $42,000 a month. As a result of, among other things, certainamendment and waiver agreements, monthly cash flow payments to Point West Capital andAllegiance resumed in May 2001. From May 2001 through March 2002, these payments, whichare subordinate to other payments under the Allegiance Financing, averaged $9,000 permonth. Payments in future months could increase, decrease or cease subject to theperformance of the underlying loans, the relative spread between LIBOR and interest rates 

10

on treasury securities and resulting cash flow from the loans andcontinued compliance with other provisions of the Allegiance Financing.

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

*Three Months Ended March 31, 2002 Compared to the Three Months Ended  March 31, 2001**                   Interest Income. Interest income declined to $809,000 during the three months endedMarch 31, 2002 from $909,000 during the same period in 2001. The decline was primarily dueto non-performing loans, which were in default and on non-accrual status. During the threemonths ended March 31, 2002 and 2001, the weighted-average interest rates earned on theloans were 8.8% and 8.9% and the weighted-average principal amounts outstanding were $35.4million and $37.8 million, respectively. For purposes of the weighted average interestrate and weighted average principal outstanding calculations for the three months endedMarch 31, 2002, four non-performing loans (including two which are included in assets heldfor sale) in the aggregate principal amounts of $5.3 million have been included in thecalculations to the extent they were performing during that period. For purposes of theweighted average interest rate and weighted average principal outstanding calculations forthe three months ended March 31, 2001, two non-performing loans in the aggregate principalamounts of $3.9 million have been included to the extent they were performing during thatperiod. Allegiance cannot predict at this time whether the loans currently on non-accrualstatus will remain on non-accrual status. To the extent that the loans remain onnon-accrual status, Allegiance Capital does not anticipate receiving all interest andservicing income it would have received had the loans been performing. Allegiance isattempting to work out its non-performing loans. Allegiance is not currently originatingloans and principal payments are occurring on outstanding loans. Therefore, Allegianceexpects interest income to continue to decrease in future periods.

*                   Other Income.*Other income was $71,000 during the three months ended March 31, 2002and resulted primarily from a gain on the sale of a funeral home held by Allegiance. Otherincome was $95,000 during the three months ended March 31, 2001 and resulted primarilyfrom the recognition of previously deferred net hedging gains related to the Allegianceloans upon adoption of Statement of Financial Accounting Standards No. 133, *Accountingfor Derivative Instruments and Hedging Activities* on January 1, 2001. At March 31,2002, Allegiance had no hedging relationships. 
*                   Interest Expense. Interest expense declined to $634,000 during the three months endedMarch 31, 2002 from $699,000 during the three months ended March 31, 2001 due to principalpayments on the outstanding certificates and lower interest rates. During the three monthsended March 31, 2002 and 2001, the weighted-average interest rates under the AllegianceFinancing were 8.1% and 8.5% and the weighted-average borrowings were $31.2 million and$32.9 million, respectively. The Allegiance Financing terminated in December 2000.However, amounts borrowed under the Allegiance Financing remain outstanding. 
*                   Compensation and Benefits. Compensation and benefits declined to $48,000 during thethree months ended March 31, 2002 from $58,000 during the same period in 2001. Allegiancehad no employees at March 31, 2002 and two employees at March 31, 2001. Compensation andbenefits for both periods reflects an intercompany charge for services preformed by PointWest employees on behalf of Allegiance.
*                   Other General and Administrative Expenses. Other general and administrative expensesdeclined to $30,000 during the three months ended March 31, 2002 from $105,000 during thesame period in 2001, due primarily to a reduction in expenses resulting fromAllegiance’s suspended lending activities. 

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Because four non-performing loans are currently in default, it islikely that additional general and administrative expenses will be incurred in connectionwith the work out of those loans. Allegiance cannot, however, predict the overall level ofother general and administrative expenses for the year ended December 31, 2002 relative tothe year ended December 31, 2001.
***Viatical Settlements***
                   The Viatical Settlements segment includes results of operations in connection withviatical settlements for DPFC and Point West Capital.
*                   Recent Developments*
                   In November 2001, Bradley N. Rotter took a leave of absence and in March 2002 ceased to beemployed by the Company. He remains a director and Chairman of the Board. In April 2002,Alan B. Perper took a leave of absence and in May 2002 ceased to be employed by theCompany. He also remains a director of the Board. As a result a default has occurred underthe Securitized Notes. If the Noteholders declare an event of default, Point West Capitalcould be terminated as servicer and the Noteholders could foreclose on the collateral. IfPoint West Capital is terminated as servicer, or the Noteholders do not extend servicingbeyond June 30, 2002, Point West Capital’s ability to continue future operations ishighly questionable. Point West Capital and the Noteholders have been in discussionsregarding this matter and extending the servicing beyond June 30, 2002. No assurance,however, can be given that servicing will be extended or that the Noteholders will notdeclare an event of default prior to June 30, 2002. 
*Certain Accounting Implications for DPFC

                   As a result of the imminent default of DPFC under the terms of the Securitized Notes,Point West Capital and the Noteholders entered into an agreement in March 2000 thatamended certain of the terms of the Securitized Notes. Pursuant to the DPFC Agreement, theNoteholders are required to provide funds through June 30, 2002 to pay servicing fees,premiums and certain other costs of DPFC in the event policy collections are insufficient.Under the DPFC Agreement, Point West Capital continues to act as servicer for a fee of$18,000 per month for the period March 2000 through June 2002. The DPFC Agreement alsoprovides the Noteholders with an option to purchase from Point West Capital the DPFCoutstanding stock for a nominal amount on June 30, 2002. If the Noteholders do notexercise such option, Point West Capital may liquidate DPFC. 

                   As a result of the DPFC Agreement, the Company will not recognize any future gain or lossrelated to DPFC until the Noteholders purchase the DPFC stock or DPFC is liquidatedpursuant to the DPFC Agreement. The Company expects to recognize a pre-tax gain in anamount approximately equal to the $4.6 million accumulated deficit of DPFC upon theoccurrence of either of these events. Additionally, when the DPFC stock is purchased orDPFC is liquidated, the Company may have income tax liability associated with the gainfrom debt forgiveness. The Company may be able to use carryforward losses to offset suchliability, unless the carryforward losses have been previously utilized. Since March 2000the Company has recognized the $18,000 monthly servicing fee ($54,000 per quarter) paid toPoint West Capital as other income in the consolidated statement of operations.

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

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

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

                   Point West Ventures has issued two debentures payable to the SBA totaling $6.5 million inprincipal amount. The debentures will continue to be reflected in the Company’sconsolidated balance sheet until Point West Ventures is legally released from itsobligations under the debentures. The Company cannot predict whether or at what time PointWest Ventures will be legally released from its obligations under the debentures.Dispositions of Point West Ventures’ portfolio securities by a receiver may occur attimes or on terms that would not maximize the value of those assets. It is virtuallycertain that proceeds from any asset dispositions will be insufficient to repay allamounts owed to the SBA by Point West Ventures under the debentures. If and when the debtis finally discharged, the Company would then recognize a gain on debt forgiveness in anamount equal to any unpaid debt that is discharged, net of any tax effect.
***Three Months Ended March 31, 2002 Compared to the Three Months    Ended March 31, 2001**                   Net Gain (Loss) on Securities. Ventures reported a $5,600 gain on securities for thethree months ended March 31, 2002 compared to a $2.5 million loss on securities for thethree months ended March 31, 2001. The gain on securities for the period ended March 31,2002 resulted from the sale of marketable securities held in one company. The loss onsecurities during the three months ended March 31, 2001 was primarily due to thewrite-down or write-off of impaired investments in six different companies as a result ofthe financial deterioration of the investees. As a result of the SBA receivershipdiscussed above in "Certain Accounting Implications for Ventures," the Companydoes not anticipate any further changes in the carrying values of investments inmarketable and non-marketable securities held by Ventures unless the SBA informs Venturesof a liquidation or the Company learns that the assets should be written down further. 
*                   Interest Expense. Interest expense increased to $126,000 during the three months endedMarch 31, 2002 from $124,000 during the three months ended March 31, 2001. During thethree months ended 

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March 31, 2002 and 2001, the weighted-average interest rate on thefunds borrowed from the SBA was 7.8% and the weighted-average borrowings were $6.5million.
***Other

                   The Other segment includes results attributable to Point West Capital and PWS. Except forcompensation and benefit expenses clearly attributable to Allegiance, corporate overheadis included in the "Other" segment and has not been allocated. Activities forPWS were immaterial during the three months ended March 31, 2002 and 2001. The Company hasentered into an agreement to sell PWS. The Company expects the sale to close in the secondquarter of 2002.
*Three Months Ended March 31, 2002 Compared to the Three Months Ended    March 31, 2001**                   Loss on Securities. During the three months ended March 31, 2001, Point West Capitaldetermined that a $939,000 investment in one company was impaired and therefore wrote-offthe entire carrying value during that period. This write-off was a result of deteriorationin the financial condition of the underlying company. That company is presently beingliquidated and no amounts will be paid to any shareholders. This investment was made byPoint West Capital prior to the inception of Ventures, and was the only investment inPoint West Capital’s portfolio. 
*                   Compensation and Benefits. Compensation and benefits declined to $182,000 during thethree months ended March 31, 2002 from $323,000 during the three months ended March 31,2001 due to a reduction in the level of accrued profit sharing and bonuses for allemployees and employee layoffs and attrition. 
*                   Other General and Administrative Expenses. Other general and administrative expensesdeclined to $236,000 during the three months ended March 31, 2002 from $437,000 during thethree months ended March 31, 2001. The Company established a cost-reduction program in thelatter half of 2000; however, for the period ended March 31, 2002, the decline inoperating expenses was offset by an increase in legal expenses related to litigation andarbitration proceedings, which were settled in March 2002. 
**Liquidity and Capital Resources

                   At March 31, 2002 the Company had $883,000 of cash and cash equivalents, $14,000 ofinvestment securities and $2.1 million of non-marketable securities. For the three monthsended March 31, 2002, the Company incurred a loss of $323,000, which resulted in astockholders’ deficit of $4.9 million and increased accumulated deficit to $32.2million. The Company expects to continue to incur losses. The Company has also experiencedcontinuing negative cash flows from operations. Cash flows used in operating activitiesfor the three months ended March 31, 2002 and 2001 were $71,000 and $461,000,respectively. The Company’s current defaults under the Allegiane Financing and theSecuritized Notes, its recurring losses from operations and its net capital deficiencyraise substantial doubt about its ability to continue as a going concern. However, theCompany’s unaudited consolidated financial statements included herein have beenprepared assuming that the Company will continue as a going concern. See Note 2 of theNotes to Consolidated Financial Statements included in the Form 10-KSB for moreinformation regarding the going concern issue. 

                   The Company’s current business plan for 2002 reflects continued initiatives to reducecosts, keep its servicer roles for Allegiance and DPFC and resolve Allegiance'snon-performing loans. The Company’s ability to continue as a going concern isdependent upon, among other things, the Company’s ability to resolve the defaultsunder the Allegiance Financing and the Securitized Notes, terminate its present lease onsatisfactory terms and relocate into less expensive office space, raise additional capitalthrough equity or debt financings and/or successfully implement a business plan thatrestores the 

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Company to profitability and positive cash flows. There is no assurancethat the Company will be able to resolve the defaults under the Allegiane Financing andthe Securitized Notes, terminate its present lease on satisfactory terms or at all, thatadditional funding will be available to the Company on acceptable terms, if at all, orthat the Company will succeed in implementing a business plan that will allow it continueas a going concern. Assuming that the Company is able to terminate its present lease onsatisfactory terms and relocate into less expensive office space, the Company currentlyanticipates having sufficient liquidity to meet its working capital and operating needs atleast through December 31, 2002.

                   The Company is currently unable to predict its liquidity beyond December 31, 2002, whichwill be dependent on (i) the Company’s level of operations and its cash flows fromservicing activities, (ii) the Investors’ willingness to permit the continuation ofmonthly cash flow payments to Point West Capital and Allegiance Capital under theAllegiance Financing, (iii) Allegiance’s ability to resolve the non-performing loansand (iv) the Noteholders’ willingness to extend the DPFC Agreement beyond June 30,2002. 

                   The Company continues to assess the viability of its businesses. Were the Company to beliquidated it is uncertain whether any funds would be available to stockholders. Theamount, if any, of funds available for stockholders would be dependent primarily on thevalue of the residual ownership in Allegiance upon any such liquidation. 
*Point West Capital*
                   At present, Point West Capital has no external funding source from which to fund itsworking capital and general corporate needs. At March 31, 2002, Point West Capital’scash and cash equivalents was $277,000. On March 27, 2002, Point West Capital received$225,000 in connection with the settlement of litigation and arbitration proceedings.Point West Capital used a substantial portion of these proceeds during the second quarterof 2002 to pay related legal expenses.  On March 28, 2002, Allegiance receivedapproximately $441,000 from the sale of a funeral home held by Allegiance, $300,000 ofwhich was subsequently transferred to Point West Capital in the second quarter of 2002.Point West Capital expects the remainder of such funds to be available to it. 
*Allegiance

                   The Allegiance Financing expired in December 2000 and, as a result, Allegiance has nocurrent ability to continue to make new loans or to grow its business. As of March 31,2002, Allegiance had cash and cash equivalents of $1.1 million, of which $520,000 isrestricted under the Allegiance Financing. The Company is pursuing potential futureoperations and growth of Allegiance. However, the current status of Allegiance’sloans, its current defaults under the Allegiance Financing and its lack of funding raiseserious doubts as to its continued viability. 
*DPFC*
                   DPFC operations are in run-off. Point West Capital, as servicer under the SecuritizedNotes, performs monitoring and collection activities for DPFC and incurs administrativecosts associated with these activities. See "Results of Operations bySegment—Viatical Settlements—Recent Developments." Point West Capital isreimbursed for these costs subject to priority provisions contained in the Indenture.Principal, interest payments and other costs are payable solely from collections onpolicies pledged to secure the payment thereof and, with respect to costs, amountsprovided by the Noteholders.

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*Ventures*
                   As of March 31, 2002, Ventures had identifiable assets of $2.2 million, includinginvestment securities with an estimated fair value of $14,000, non-marketable securitieswith an estimated fair value of $2.1 million and $75,000 of accounts receivable. 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.See "Results of Operation by Segment—Ventures—Recent Developments"above for further information, including a discussion of the accounting implications ofsuch a receivership. 

                   Point West Ventures does not currently have sufficient cash to repay the SBA debentures.As of March 31, 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**
                   This report includes forward-looking statements within the meaning of the PrivateSecurities Litigation Reform Act of 1995. All statements made herein which are not basedon historical facts are forward looking and, accordingly, involve risks and uncertaintiesthat could cause actual results to differ materially from those discussed. Such forwardlooking statements include those under "Management’s Discussion and Analysis orPlan of Operation" relating to (1) the amount of any loss experienced in connectionwith loans made by Allegiance that are in default, (2) the continuation of payments toPoint West Capital and Allegiance Capital for servicing activities provided to Allegianceand to Allegiance Capital under revolving and term certificates issued to AllegianceCapital under the Allegiance Financing, (3) the amount of gain to be recognized on thepurchase of DPFC stock or its liquidation, (4) sufficiency of the Company’s liquidityand capital resources (see "Liquidity and Capital Resources") (5) anticipatedlevels of income and expenses for 2002, (6) the Company’s ability to terminate itspresent lease on satisfactory terms and relocate to less expensive office space and (7)the consequences of Point West Ventures’ default under its SBA borrowings and thereceivership. Such statements are based on management’s belief, judgment and analysisas 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 thisreport in connection with such forward looking statements, factors that could cause actualresults to differ materially from those contemplated by the forward looking statementsinclude (1) Allegiance’s ability to foreclose on the collateral and realize an amounton foreclosure at least equal to the carrying value of the Allegiance loans which arecurrently in default, (2) the continuing ability of borrowers to perform under loanspreviously made by Allegiance and factors such as general economic conditions that wouldaffect such ability, (3) Allegiance’s ability to resolve the currently non-performingloans to the satisfaction of the Investors, (4) Allegiance’s ability to obtainadditional time to resolve the non-performing loans and retire the revolving debt, (5)actions taken by the Investors with respect to the current or any future default under theAllegiance Financing, (6) actions taken by the Noteholders with respect to any futuredefault under the Securitized Notes, (7) actions taken by the Noteholders with respect tothe purchase or liquidation of DPFC, including discussions regarding possibly extendingPoint West Capital’s servicing beyond June 2002, (8) the results of theCompany’s consideration of strategic options and any costs associated with a chosenoption, (9) higher than anticipated costs related to recently settled arbitration andlitigation proceedings, or the commencement of any additional arbitration or litigationproceedings by or against the Company or its subsidiaries, (10) availability and cost ofcapital, (11) higher than anticipated compensation and benefits expenses for Point WestCapital, (12) the Company’s ability to come to an agreement with its current landlordand the availability of inexpensive 

16

 
**office space and (13) actions taken by the SBA with respect toPoint West Ventures, including any manner of liquidation.

**PART II. OTHER INFORMATION**
 

Item 6. Exhibits and Reports on Form 8-K

                   (a)         Exhibits: 

                                 None

                   (b)        Reports on Form 8-K filed during the quarterended March 31, 2002:

Date
Item          Reported
Matter          Reported
April, 10,          2002
4
The Company          reported the resignation          of its independent auditors, Ernst &          Young, LLP.
May 10, 2002
4
The Company          reported the          engagement of Samuel H. Wong & Co.,          LLP as its independent auditors.
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**SIGNATURES**

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

 

POINT WEST CAPITAL CORPORATION
Dated:    May 20, 2002
/s/ John Ward RotterJohn Ward Rotter
Chief Executive Officer
(Authorized Officer)
Dated:    May 20, 2002
/s/ Joanna L. ZesigerJoanna L. ZesigerChief Financial Officer(Principal Financial and Accounting Officer)
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