SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K
                                    ---------

            [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                   For the fiscal year ended December 31, 1998
                                       OR
              [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                For the transition period from _______ to _______

                                                 Commission file number 0-27736

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


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


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

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

        Securities registered pursuant to Section 12(b) of the Act: None
        ----------------------------------------------------------
           Securities registered pursuant to Section 12(g) of the Act:
           ----------------------------------------------------------

                        Common Stock, $0.01 par value
                                (Title of Class)

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

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

The aggregate  market value of the  registrant's  common stock,  $0.01 par value
held  by   non-affiliates  of  the  registrant  as  of  February  26,  1999 was
approximately $24,578,950

The  number  of  shares  of the  registrant's  common  stock,  $0.01  par  value
outstanding as of February 26, 1999 was 3,262,324.

                      Documents Incorporated by Reference:
                      -----------------------------------
The  registrant's  proxy  statement  (to be filed)  related  to its 1999  annual
meeting of stockholders is incorporated by reference in Part III hereof.


<PAGE>


                                                       
                         POINT WEST CAPITAL CORPORATION

                             Form 10-K Annual Report
                   For the Fiscal Year Ended December 31, 1998

                                Table of Contents
<TABLE>
<CAPTION>


<S>                                                                                             <C>

PART I                                                                                          Page
     Item 1.  Business................................................................            1
     Item 2.  Properties..............................................................            9
     Item 3.  Legal Proceedings.......................................................            9
     Item 4.  Submission of Matters to a Vote of Security Holders.....................            10
 .

PART II
     Item 5.  Market for the Registrant's Common Equity and Related Stock Matters ....            11
     Item 6.  Selected Financial Data.................................................            12
     Item 7.  Management's Discussion and Analysis of Financial Condition and
               Results of Operations..................................................            13
     Item 7A. Quantitative and Qualitative Disclosures About Market Risk .............            32
     Item 8.  Financial Statements and Supplementary Data.............................            33
     Item 9.  Changes in and Disagreements with Accountants on Accounting
               and Financial Disclosure...............................................            33


PART III
     Item 10. Directors and Executive Officers of the Registrant......................            58
     Item 11. Executive Compensation..................................................            58
     Item 12. Security Ownership of Certain Beneficial Owners and Management .........            58
     Item 13. Certain Relationships and Related Transactions..........................            58
 .

PART IV
     Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K ........            58

Signatures............................................................................            63

</TABLE>



                                       i

<PAGE>



Unless the context otherwise  requires,  all references to "Point West" refer to
Point West Capital  Corporation  and all  references to the  "Company"  refer to
Point West Capital Corporation and its consolidated entities.


                                     PART I
                                     ------ 
ITEM 1--BUSINESS 
----------------

General
-------

         The Company is a specialty  financial  services company.  The principal
business  activity of the Company through  February 1997 was to provide viatical
settlements for terminally ill persons. A viatical  settlement is the payment of
cash in return for an  ownership  interest  in,  and right to receive  the death
benefit (face value) of, a life insurance  policy. In connection with a viatical
settlement,  the policyholder  assigned his or her policy to the Company,  which
became the holder, owner or certificate holder of the policy and the beneficiary
thereunder  with the right to receive from the insurance  company the face value
payable under the policy  following the death of the insured.  In February 1997,
Point West's Board of Directors  (the  "Board")  decided to cease the  Company's
viatical settlement business.  In the third quarter of 1996, the Company decided
to sell all or  substantially  all of its  assets.  See "Asset  Sales;  Viatical
Settlement  Business."  The Company,  through its wholly owned  special  purpose
subsidiary,  Dignity  Partners  Funding  Corp.  I  ("DPFC"),  continues  to hold
policies  which are  pledged as  security  for the  Securitized  Notes  (defined
herein).  The Company  continues to service the life insurance  policies held by
DPFC.

         Subsequent   to   February   1997,   the  Company  has  become  a  more
broadly-based  specialty  financial  services company.  During 1997, the Company
expanded its financial services business through the operations of Fourteen Hill
Management,  LLC ("Fourteen Hill  Management")  and Fourteen Hill Capital,  L.P.
("Fourteen  Hill  Capital"),  which invest in small  businesses;  and Allegiance
Capital,  LLC ("Allegiance  Capital"),  Allegiance  Funding Corp. I ("Allegiance
Funding") and  Allegiance  Capital Trust I  ("Allegiance  Trust I"),  which lend
funds to funeral home and cemetery owners. During 1998, the Company formed Point
West  Securities,   LLC  ("PWS"),  a  broker-dealer  licensed  by  the  National
Association of Securities Dealers, Inc. ("NASD").  References herein to Fourteen
Hill include  Fourteen Hill  Management  and Fourteen  Hill Capital.  References
herein  to  Allegiance  include  Allegiance  Capital,   Allegiance  Funding  and
Allegiance Trust I.

         Information  regarding  the  revenues,  contributed  income  (loss) and
identifiable  assets for each of the Company's business segments is contained in
Note 16 of the Company's consolidated financial statements included herein.

         The Company  continues to evaluate  other business  opportunities.  The
Company is seeking advice from  financial  advisors to assist it in its strategy
of  developing  or  acquiring  new  operating   businesses.   See  "Management's
Discussion  and Analysis of Financial  Condition  and Results of  Operations  --
Considerations Under the Investment Company Act of 1940."

The Company
-----------

     General
     -------

         Point West was  incorporated in Delaware as Dignity  Partners,  Inc. in
September 1992 and commenced  operations on January 2, 1993. Effective August 1,
1997,  its name was changed to Point

                                       1
<PAGE>



West Capital Corporation.  The Company's principal executive offices are located
at 1700 Montgomery Street,  Suite 250, San Francisco,  California 94111, and its
telephone number is (415) 394-9467.

     DPFC
     ----

         DPFC is a wholly owned  subsidiary of Point West formed for the limited
purposes of issuing Senior  Viatical  Settlement  Notes,  Series 1995-A,  Stated
Maturity March 10, 2005 (the "Securitized Notes"). DPFC purchased life insurance
policies with proceeds of the  Securitized  Notes.  It continues to beneficially
own the policies that have not matured. Those policies are pledged as collateral
for the Securitized  Notes. DPFC is deemed a bankruptcy  remote entity.  DPFC no
longer purchases policies.

     Fourteen Hill
     -------------

         In June 1997, the Company formed  Fourteen Hill Management and Fourteen
Hill Capital.  Fourteen Hill  Management is a limited  liability  company wholly
owned by Point West. It was formed solely to serve as the general partner of one
or more small business investment companies ("SBIC"). Fourteen Hill Capital is a
limited  partnership  operating as an SBIC.  Fourteen Hill Capital  received its
SBIC license from the Small Business  Administration  ("SBA") in September 1997.
Fourteen Hill  Management is the sole general  partner of Fourteen Hill Capital,
and Point West is one of the two  limited  partners of  Fourteen  Hill  Capital.
Fourteen Hill Capital provides loans, debt and equity capital to small companies
as defined by SBA  regulations.  Fourteen Hill Capital  commenced  operations in
August 1997.

     Allegiance
     ----------- 

         Allegiance  Capital is a limited  liability company formed in September
1997 as a specialty  finance  company to provide senior secured loans to funeral
home and cemetery owners. Point West has a 65% ownership interest and 95% voting
control in Allegiance  Capital and serves as the managing  member.  Allegiance's
president  and its  vice  president  of  marketing,  each of whom  was  hired in
September 1997, have the balance of such interests. Allegiance Capital owns 100%
of Allegiance  Funding,  which is a special purpose subsidiary formed to acquire
and  securitize  loans  originated  by Allegiance  Capital.  Pursuant to a Trust
Agreement dated August 19, 1998 (the "Allegiance Trust  Agreement"),  Allegiance
Funding formed a trust, Allegiance Trust I, to consummate a structured financing
which may  provide up to  approximately  $56.4  million to support  Allegiance's
lending activities (the "Allegiance Financing").

     PWS
     ---

         PWS is a  limited  liability  company  formed  on  July  7,  1998  as a
broker-dealer.  PWS is wholly owned by Point West. PWS received its license from
the NASD to become a licensed  securities  broker-dealer on December 3, 1998. In
addition,  PWS is registered as a broker-dealer with the Securities and Exchange
Commission ("SEC") and as of February 28, 1999 was registered as a broker-dealer
in  California,  New York and 18 other states.  Operations  for PWS in 1998 were
immaterial.

Asset Sales; Viatical Settlement Business
-----------------------------------------

     Introduction
     ------------

         In December 1996, the holders of the Company's Common Stock,  $0.01 par
value ("Common Stock"), authorized the Board to sell all or substantially all of
the assets of the Company.  The Company  subsequently sold  substantially all of
the  Company's  policies  other  than the  policies  held by  DPFC.  The sale of
policies held by DPFC, all of which are pledged as security for the  Securitized
Notes,  will  require  the  consent  of  the  Company  and  the  holders  of the
Securitized Notes ("Noteholders"). The Company has

                                       2

<PAGE>


discussed  potential sales of DPFC policies with the Noteholders.  However,  the
Company  has not  decided  whether  it will  sell the DPFC  polices  and  cannot
determine  whether the Noteholders will consent to such a sale or whether such a
sale is  feasible.  See  "Management's  Discussion  and  Analysis  of  Financial
Condition and Results of Operations -- Description of Securitized Notes."

     Terms of Sale Agreements
     ------------------------

         Through  December 1997, the Company entered into several  agreements to
sell portions of its portfolio of policies. None of the purchasers is affiliated
with the  Company  or any of its  directors  or  officers.  The sale  agreements
provided for the sale, upon the issuing  insurance  company's  acknowledgment of
transfer of  ownership,  of an aggregate  of 373 life  insurance  policies.  The
agreements  contained cross indemnity  provisions  pursuant to which the Company
and the purchaser agreed to indemnify each other against losses,  liabilities or
damages  arising in connection  with a claim under any policy or with any breach
of any  representation or warranty made by the breaching party in the agreement.
By December 31, 1998,  the Company had  completed the sale of all but 7 policies
under these sales agreements.

     Viatical Business
     -----------------

         Until the Company ceased purchasing  policies,  the Company's  viatical
settlement  business involved the following  principal steps: (1) origination of
policy  purchases,  (2) underwriting,  which included  evaluating the terms of a
policy and, with the assistance of one or more  independent  physicians or other
medical consultants,  estimating the life expectancy of the insured, (3) closing
the  transaction,  (4)  monitoring the insured and the policy and (5) collecting
the policy proceeds following the insured's death. The Company ceased purchasing
policies in February 1997.  Therefore,  monitoring and collection activities are
the only activities the Company continues to undertake.

         Monitoring

                  Following the purchase of a life insurance policy, the insured
         is regularly  monitored to obtain  timely  information  concerning  the
         insured so that  proceeds  may be  collected  as  promptly  as possible
         following the death of the insured.  In addition,  the Company monitors
         the  policy to ensure it does not  lapse  because  of a failure  to pay
         timely premiums. Premiums are paid by the Company unless a waiver is in
         place. Some protection  against the failure to pay premiums is provided
         by statutory or policy provisions that require  insurance  companies to
         provide  written notice before  terminating a policy for failure to pay
         premiums.  As owner of  record of the  policy,  the  Company  generally
         receives those notices directly.  Furthermore, the Company monitors the
         policy to ensure  that  premium  waivers  are  renewed  and that,  when
         required, the policy is converted (e.g., from a group term policy to an
         individual  whole life policy) in a timely  manner.  See  "Management's
         Discussion   and  Analysis  of  Financial   Condition  and  Results  of
         Operations -- Results of Operations by Segment -- Viatical  Settlements
         -- Certain Accounting Implications for DPFC."

         Collection

                  Once the Company learns of an insured's death, a request for a
         copy of the death certificate is filed in the appropriate  governmental
         office. The Company then files the death certificate with the insurance
         company  and  requests  payment of the  policy  proceeds.  The  Company
         monitors the collection  status until it receives the face value of the
         policy.

                                       3

<PAGE>


Consideration of Strategic Options and New Businesses
-----------------------------------------------------

         In September 1996, in light of the  uncertainties  facing the Company's
viatical settlement  business,  the Company engaged an investment bank to assist
the Company in the  evaluation  of its strategic  direction.  As a result of the
Company's  evaluation,  the  Company  embarked  on a  strategy  to become a more
broadly-based  specialty  financial  services company.  The Company continues to
pursue other  potential  business  opportunities.  The Company is seeking advice
from financial  advisors to assist it in its strategy of developing or acquiring
new operating businesses. See "Management's Discussion and Analysis of Financial
Condition  and Results of  Operations  --  Considerations  Under the  Investment
Company Act of 1940."

Small Business Loans and Investments
------------------------------------

     Overview
     --------

         Fourteen Hill Capital is licensed by the SBA as an SBIC.  Fourteen Hill
Capital  focuses on creating a  diversified  portfolio  of loans to and debt and
equity  investments  in  later-stage  growth and expansion  companies.  To date,
Fourteen  Hill  Capital has  focused on  businesses  in the area of  e-commerce,
internet and  telecommunications.  Fourteen Hill Capital's loans and investments
are structured in a variety of ways,  including loans,  debt investments such as
subordinated  debt with equity  participation  through  warrants  or  conversion
rights, and investments in preferred and common stock.

     Regulation
     ----------

         As an SBIC,  Fourteen  Hill  Capital  is  required  to make loans to or
invest in qualified  entities as defined by regulations  promulgated by the SBA.
These entities are generally companies with a net worth of less than $18 million
and  average  net  income  of less  than $6  million  for the  last  two  years.
Additionally, at least 20% of Fourteen Hill Capital's loans and investments must
be made to  entities  with a net worth of less than $6 million  and  average net
income of less than $2 million  for the last two years.  Fourteen  Hill  Capital
holds an SBIC debenture license.

         SBIC's such as Fourteen  Hill  Capital are also limited with respect to
the rates of interest they can charge on their loans and debt  investments.  The
maximum  rate of interest  permitted  at present for loans is the greater of (i)
19% and (ii) 1100 basis points over the Debenture Rate or weighted  average cost
of capital incurred (including SBA debt). The maximum rate of interest permitted
at present  for debt  investments  is the  greater of (i) 14% and (ii) 600 basis
points over the  Debenture  Rate or weighted  average  cost of capital  incurred
(including SBA debt).

         Fourteen  Hill  Capital may be subject to licensing  requirements  as a
lender in  jurisdictions  in which it operates.  It is also subject to usury and
other similar laws in those jurisdictions.

     Origination & Investment Selection
     ----------------------------------

         Fourteen Hill Capital intends to focus on later stage growth companies.
The size of each individual  transaction by Fourteen Hill Capital will typically
range from $500,000 to $1 million.  Fourteen Hill Capital's investments in small
businesses  are made with the intent of having the loans repaid and  liquidating
the equity portion of the investments  after five years.  Although Fourteen Hill
Capital at the time of any investment expects to dispose of the investment after
five years,  situations  may arise in which it may hold equity  securities for a
different period of time.


                                       4

<PAGE>


         Fourteen  Hill  Capital  seeks to lend to or  invest  in  well-managed,
growing,  public or private  companies that seek capital to finance a variety of
activities.  These activities include (1) new product development, (2) expansion
into new markets,  (3) increasing  production capacity or (4) the acquisition of
complementary businesses.

         Fourteen Hill Capital considers a number of criteria in making loan and
investment  decisions.  Although the criteria  below may not be applied in every
instance and their importance may vary depending on the relevant  circumstances,
the following  characteristics  generally are sought when evaluating a potential
borrower or  investment:  (1) highly skilled  management  with the capability to
organize  resources,  develop  products and exploit  market  opportunities,  (2)
superior growth and the presence of a clearly defined  marketing  strategy which
addresses  the  conditions  of  the  market,  the  needs  of the  customers  and
established competitive practices exhibited in the relevant industry, (3) strong
demonstrable cash flows, both historical and projected,  or other security,  (4)
access  to  additional  capital  and  (5) the  existence  of a  reasonable  exit
strategy. Fourteen Hill Capital employs third party experts where appropriate to
assess the market  opportunity  or  operational  capabilities  of the  potential
investee.

         Fourteen  Hill  Capital  locates  potential  SBIC  investments  through
contacts with investment bankers, fund managers,  lenders,  venture capitalists,
leveraged buyout sponsor groups and other SBIC's. Fourteen Hill Capital uses its
own analysts that review  informational  packages in order to identify potential
investments.  After  identifying  investments  that meet Fourteen Hill Capital's
investment  criteria,  the analysts  conduct a more thorough  investigation  and
analysis of the applicant  ("Due  Diligence").  The Due Diligence  process often
includes  on-site  visits,   review  of  historical  and  prospective  financial
information, interviews with management, employees, customers and vendors of the
applicant, background checks and research on the applicant's product, service or
particular industry.

         Fourteen Hill Capital has a committee (the "Investment Committee") that
consists of Bradley N. Rotter, Alan B. Perper and John Ward Rotter, Point West's
executive  officers.  All loan and  investment  decisions  are  presented to the
Investment Committee for their approval prior to commitment.

     Monitoring Investments
     ----------------------

         Portfolio  loans and  investments  have a  designated  employee  who is
responsible for periodic contact and all initial troubleshooting.  Additionally,
this individual carefully reviews operating results,  cash flow, working capital
and  financial  structure  against  budgets.  Any  divestiture,  foreclosure  or
restructuring must be approved by the Investment Committee.

     Competition
     -----------

         Fourteen  Hill  Capital's   principal   competitors  include  financial
institutions,  venture capital firms and other non-traditional  lenders. Many of
these  entities have greater  financial and  managerial  resources than Fourteen
Hill Capital.  The Company  believes that many of these  entities do not have an
interest  in the  relatively  small size of  transactions  which  Fourteen  Hill
Capital targets.  Additionally,  the Company believes that Fourteen Hill Capital
competes  effectively with those entities  primarily on the basis of the quality
of its  service,  its  reputation  and the  timely  decision-making  process  it
follows,  and to a  significantly  lesser degree on the interest  rates or other
terms it offers on loans or investments to those seeking capital.

                                       5

<PAGE>

Loans to Funeral Homes and Cemeteries
-------------------------------------

     Overview
     --------

         Allegiance provides long-term debt to experienced owners of established
funeral home and cemetery  businesses on a senior  secured basis at  competitive
rates.  The funeral home and cemetery  businesses  comprise  what is  frequently
called the "death care" industry.  Death care historically has been a relatively
stable and mature industry, partly due to the inevitable nature of mortality. In
addition,  most areas of the country are already  served by one or more  funeral
homes and cemetery establishments and opportunities for expansion mostly consist
of consolidation of existing establishments.  Though subject to consolidation in
recent years, the death care industry remains highly fragmented.  The for-profit
ownership  base within the death care industry is split among private  entities,
primarily  smaller  family-owned   businesses  and  a  number  of  large  public
corporations,  including Service Corp.  International,  Loewen Group and several
others.  A variety of factors,  including  turnover  among the base of privately
owned death care businesses and the recognition of the increasing value of these
businesses,  have  combined to create  demand for capital  within the  industry.
These capital needs have been underserved by traditional lending sources.

         Allegiance  generally  seeks  to  finance  funeral  home  and  cemetery
businesses  which are  well-established  by virtue  of years of  service  in the
communities they serve.  The Company believes that the heritage,  reputation and
attendant  goodwill built up by these institutions  provide superior  collateral
value.

     Marketing & Origination 
     -----------------------

     Allegiance  targets  family-owned  and other private owners of funeral home
and  cemetery  establishments.  Loans are  sourced by  marketing  employees  and
independent  parties both directly through the solicitation of owners of funeral
homes and cemetery  businesses  and  indirectly  through  contacts with industry
associations,  professional  groups,  business advisors and others.  Origination
activities   are  supported   through  print   advertising   in  industry  trade
publications, newsletters and attendance at industry conferences.

         Loans are offered with fixed or adjustable interest rates, generally in
minimum  amounts of  $500,000.  Loan  proceeds may be used by the borrower for a
variety  of  purposes.  These  purposes  include  (1)  acquisitions,   (2)  debt
refinancing and (3) stockholder  buyouts or distributions.  Allegiance charges a
loan  arrangement  fee payable at closing as well as application  and commitment
fees,  which  may be  credited  against  the loan  arrangement  fee at  closing.
Contractual  repayment terms require monthly payments  sufficient to pay accrued
interest and a portion of principal sufficient to amortize the loan balance over
a long-term repayment schedule, generally 15 to 18 years.

         Allegiance  obtains a senior,  secured  position  with  respect  to the
borrowers  and  business  establishments  it  finances.  Security  for  loans is
generally  provided  through a  mortgage  providing  a first  priority  security
interest in the owned or leased real  property  associated  with the  borrower's
business  establishment(s);   security  agreement  providing  a  first  priority
security  interest  in the  related  personal  property,  intangible  assets and
intellectual  property;  pledge  agreement  providing a first priority  security
interest in the borrower's stock (if a corporation);  and personal guarantees of
the borrower's principals.

     Underwriting
     ------------

         Loan  commitments  are  made  based  on  an  in-depth  qualitative  and
quantitative  underwriting analysis. This analysis focuses on the applicant, its
ownership and management, and the funeral home and/or cemetery establishments it
owns and  operates.  The  process  begins  with the  collection  of  

                                       6
<PAGE>


information concerning the prospective borrower.  Information collected from the
borrower includes detailed information  regarding ownership,  business locations
and  characteristics,  personnel,  real and personal property used in connection
with the  business,  the  market  environment  in which the  business  operates,
banking  and  trade  references  and  historical  financial  statements  and tax
returns.

         The  management  review  seeks to assess the quality,  sufficiency  and
commitment of management,  with an emphasis on the borrower's owners or managers
("key  principals").  This  assessment  includes a review of the key principals'
backgrounds,   including  education,  professional  experience,  other  business
experience and other activities such as community  involvement.  Staffing levels
of licensed and other professionals are reviewed to determine  sufficiency given
historic service volume and any projected  increases.  Allegiance  requires that
the funeral  home and  cemetery  establishments  financed by it, and the funeral
directors and embalmers associated with such  establishments,  be fully licensed
in compliance with applicable legal requirements.

         The business portion of the underwriting  analysis includes a review of
tangible aspects of the business such as property condition and appearance,  and
intangible  factors  affecting  business value and  economics,  such as history,
location and market demographics. Financial statements are analyzed to determine
historic  adjusted  cash  flow in light of the  proposed  loan  amount  and debt
service burden. In addition,  third-party  consultants  independently  determine
adjusted  cash flow and assess  business  value.  Business  value of the subject
business is assessed based primarily on its historic  financial  performance and
secondarily  on the real property and other assets of the business.  Assessments
of business value are used to determine a loan-to-business value ratio.

         Prior to  closing,  any  real  property  to be  pledged  as  collateral
undergoes an environmental  review.  The Company uses third-party  environmental
service  providers  for the  environmental  review.  In  addition  to  providing
assurance  as to the  quality  of  the  real  property  collateral,  the  review
generally meets standards for due diligence developed to avoid lender liability.

         All loan  decisions are  presented to an  investment  committee for its
approval  prior to  commitment.  The  committee  is  comprised  of Point  West's
executive officers and the president of Allegiance. Allegiance relies on outside
legal counsel to prepare loan documents and to facilitate loan closings.

     Servicing
     ---------

         Point West performs certain basic loan servicing  functions  related to
loans made by Allegiance.  These  functions  include (1) sending monthly billing
statements  and other  notices,  (2)  tracking and posting  loan  payments,  (3)
directing  the  transfer of loan  payments to the  appropriate  accounts and (4)
maintaining loan files.

         In  addition  to the  functions  performed  by Point  West,  Allegiance
performs  loan  portfolio  surveillance  functions  in order to  monitor  credit
quality. Borrowers provide certain information periodically, including quarterly
and  annual  financial  statements  as well as  supplemental  business  activity
information.  Allegiance uses this information to periodically  monitor covenant
compliance and the credit quality of the borrowers' underlying businesses.  As a
senior secured  lender,  in the event of default,  Allegiance is in a relatively
strong  position to control  any  disposition  of the  businesses  it  finances.
However,  the  monitoring  process is intended to help  borrowers  identify  and
address problems to avoid defaults.

                                       7

<PAGE>

     Competition
     -----------

         Allegiance faces  competition  from  alternative  providers of capital,
including primarily financial institutions,  the financial services industry and
to a lesser  extent other  companies in the death care  industry.  The financial
services  industry  is  highly   competitive.   Allegiance  competes  with  both
traditional  lenders such as commercial banks,  thrifts and finance companies as
well as specialized  lenders such as Provident  Services,  Inc. (a subsidiary of
Service Corp.  International) and Franchise Mortgage  Acceptance Co. The Company
believes that  Allegiance's  focus on and knowledge of the death care  industry,
its ability to offer loans on terms which meet the needs of owners and acquirers
of death care  businesses,  and the  attractiveness  of a  non-industry  lender,
provide it with the ability to compete effectively.

     Regulation
     ----------

         On October 23, 1998,  Allegiance  Capital  received its finance lenders
license from California.  Allegiance may be subject to licensing requirements as
a lender in other  jurisdictions  in which it  operates.  It is also  subject to
usury and other similar laws in such jurisdictions.

Broker-Dealer Activities
------------------------

     Overview
     --------

         PWS is a  broker-dealer  licensed by the NASD and  registered  with the
SEC. As of February  28,  1999,  PWS was also  licensed  as a  broker-dealer  in
California,  New York and 18  other  states.  PWS  intends  to offer  investment
banking services targeting  e-commerce,  telecommunications,  internet and other
growth  companies.  PWS also intends to provide  equity  research and  brokerage
services to  institutional  investors.  PWS did not  commence  operations  until
December 1998. The full scope of services to be provided by PWS has not yet been
determined.

     Competition
     -----------

         PWS  encounters  intense  competition  in  its  business  and  competes
directly  with  numerous  securities  firms,  most of which  have  substantially
greater  capital and other  resources.  PWS also faces  competition  from banks,
insurance companies and financial institutions.  The companies in the industries
to which PWS targets its investment  banking services are relatively  small. PWS
believes that its large competitors will not target those companies. The Company
also  believes  that  PWS  will  be  able  to  compete  effectively  with  those
competitors  primarily  on the  basis of the  quality  of its  service,  product
selection and price.

     Regulation
     -----------

         The  securities  industry in the United  States is subject to extensive
regulation  under  federal  and  state  laws.  The  SEC  is the  federal  agency
responsible for the administration of the federal securities laws. However, much
of the  regulation  of  broker-dealers  has been  delegated  to  self-regulatory
organizations,   principally  the  NASD  and  the  NYSE.  These  self-regulatory
organizations  adopt  rules  (which  are  subject  to  approval  by the SEC) for
governing   the   industry   and  conduct   periodic   examinations   of  member
broker-dealers.  Securities  firms  are  also  subject  to  regulation  by state
securities commissions in the states in which they are registered.

         The regulations to which  broker-dealers  are subject cover all aspects
of the securities business,  including sales methods, trading practices, capital
structure, record keeping and the conduct of directors,  officers and employees.
Additional  legislation,  changes  in  rules  promulgated  by  the  SEC  and  by
self-
                                       8

<PAGE>

regulatory  organizations  or changes in the  interpretation  or  enforcement of
existing  laws and rules  often  directly  affect  the method of  operation  and
profitability of broker-dealers.  The SEC and the self-regulatory  organizations
may  conduct  administrative  proceedings  that can  result  in  censure,  fine,
suspension  or expulsion of a  broker-dealer,  its  officers or  employees.  The
principal  purpose  of  regulation  and  discipline  of  broker-dealers  is  the
protection  of clients and the  securities  markets  rather than  protection  of
creditors and shareholders of broker-dealers.

         Other Investments
         -----------------

         From time to time,  Point West  invests in  companies  directly and not
through Fourteen Hill. These activities,  which are sporadic,  include loans and
equity investments.

Employees
---------

         As of December 31, 1998, the Company  employed 17  individuals,  two of
whom (in addition to Point West's  executive  officers) also perform services on
behalf of The Echelon Group of Companies,  LLC ("New Echelon LLC").  New Echelon
LLC is owned by Point West's executive officers. None of the Company's employees
is a member of a labor  union.  The  Company  believes  that it  maintains  good
relations with its employees.

ITEM 2--PROPERTIES
------------------

         The Company currently leases  approximately 5,900 square feet of office
space in San Francisco which it shares with New Echelon LLC. The Company,  which
is the lessee  under the lease,  charges  New Echelon LLC for 35% of the rent of
the entire office space. See "Certain  Relationships and Related  Transactions."
The Company  believes  that its current  office  space will be adequate  for its
purposes  through the expiration of the lease in May 1999. The Company is in the
process  of  evaluating  other  locations  and  renewal  terms  at its  existing
facilities.  The Company  believes  there are a number of suitable  locations on
acceptable  rent terms within the San Francisco  area. The Company  expects that
its  space-sharing  arrangement  with New  Echelon LLC will  continue  under any
renewed or new lease.

ITEM 3--LEGAL PROCEEDINGS
-------------------------

         From time to time, the Company is involved in routine legal proceedings
incidental  to  its  business,  including  litigation  in  connection  with  the
collection of amounts owed by insurance company  obligors.  The Company does not
expect that these  proceedings,  individually  or in the aggregate,  will have a
material  adverse  effect on the  Company's  financial  position,  liquidity  or
results of operations.

         On  December  19,  1996,  a  complaint  was filed in the United  States
District  Court,  Northern  District of  California  (the  "Court")  (Docket No.
C96-4558)  against Dignity Partners,  Inc. (now Point West Capital  Corporation)
and each of its  directors by three  individuals  purporting to act on behalf of
themselves  and an alleged class  consisting of all  purchasers of the Company's
common stock during the period February 14, 1996 to July 16, 1996. The complaint
alleged that the defendants  violated  Section 10(b) of the Securities  Exchange
Act of 1934 and Rule 10b-5  thereunder  and Section 11 of the  Securities Act of
1933 and seeks, among other things,  compensatory  damages,  interest,  fees and
costs. The allegations were based on alleged misrepresentations in and omissions
from the Company's  registration statement and prospectus related to its initial
public  offering and certain  documents  filed by the Company under the Exchange
Act. On April 24, 1998,  the Court granted the  Company's and other  defendants'
motion to  dismiss as it related to the  Section 11 claims  with  prejudice  but
denied the motion to dismiss the claims under Section 10(b) and Rule 10b-5 as to
all  defendants  other than Mr. Bow, one of Point West's  directors.  Plaintiffs
have  appealed this  dismissal to the United States  Circuit Court for the Ninth

                                       9

<PAGE>

Circuit.  Plaintiffs have also filed a motion for class  certification which the
remaining  defendants  have  opposed.  On November 13, 1998,  the Court  granted
plaintiff's motion for class certification.  The case is currently in discovery.
A trial  date  has  been  set for  October  1999.  The  Company  and each of the
remaining defendants intend to continue to defend the action vigorously.

         On February 13, 1997,  a complaint  was filed in the Superior  Court of
California, City and County of San Francisco (Docket No. 984643) against Dignity
Partners,  Inc.,  and each of its  executive  officers and New Echelon LLC by an
individual  purporting  to  act on  behalf  of  himself  and  an  alleged  class
consisting of all  purchasers  of the  Company's  common stock during the period
February 14, 1996 to July 16, 1996.  The complaint  alleges that the  defendants
violated  section 25400 of the  California  Corporate  Code and seeks to recover
damages. The allegations are based on alleged misstatements,  concealment and/or
misrepresentations and omissions of allegedly material information in connection
with the Company's initial public offering and subsequent disclosures.  The case
has been stayed since its inception by agreement of the parties. The Company and
each of the defendants intend to defend the action vigorously.

ITEM 4--SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
-----------------------------------------------------------

         No  matters  were  submitted  to a vote of the  Company's  stockholders
during the fourth quarter of 1998.

                                       10

<PAGE>


                                     PART II
                                     -------

ITEM 5--MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS 
--------------------------------------------------------------------------
MATTERS
-------

         The Common  Stock trades on the  National  Market  System of The Nasdaq
Stock  MarketSM  under the symbol  "PWCC." As of February 26,  1999,  there were
approximately 113 holders of record of Common Stock,  including banks, brokerage
firms and other nominees.  A substantial portion of the publicly-held  shares of
Common Stock are held in book-entry  form. As of February 26, 1999,  the Company
estimates that there were more than 500 beneficial  owners of Common Stock.  The
following table sets forth, for the fiscal quarters indicated,  the high and low
sales prices for the Common Stock on The Nasdaq Stock MarketSM.

                                  1998           High                Low
                                  ----           ----                ----

                  First Quarter ...........  $    6               $  3 3/4
                  Second Quarter...........       7 1/8              4 3/4
                  Third Quarter............       6                  4
                  Fourth Quarter...........       7                  2 1/4


                                   1997          High                Low
                                   -----         ----                ----
                  First Quarter............   $   2 7/8          $   2 1/2
                  Second Quarter...........       3 5/8              2 1/2
                  Third Quarter............       3 5/8              2 7/8
                  Fourth Quarter...........       4 3/4              2 3/8

         The  Company  has  never  declared  or paid any cash  dividends  on its
capital stock. The Indenture pursuant to which the Securitized Notes were issued
(the "Indenture")  limits the Company's ability to pay dividends by restricting,
prior to repayment in full of the  Securitized  Notes,  the Company's  access to
cash generated through the collection of pledged policies. The Company currently
intends  to  retain  its  future  earnings,  if any,  to  finance  its  existing
businesses and any new  businesses.  Therefore,  the Company does not anticipate
paying cash dividends on the Common Stock for the foreseeable future.

                                       11

<PAGE>


ITEM 6--SELECTED FINANCIAL DATA
-------------------------------

         The  data  presented  below  should  be read in  conjunction  with  the
consolidated financial statements and notes thereto and "Management's Discussion
and  Analysis  of  Financial  Condition  and  Results  of  Operations"  included
elsewhere  herein.  For the reasons set forth in  "Management's  Discussion  and
Analysis of Financial  Condition  and Results of  Operations,"  information  for
1998,  1997  and  1996  and as of  December  31,  1998,  1997  and  1996 are not
comparable to each other or to prior periods.
<TABLE>
<CAPTION>



                                                                                   Years Ended December 31,
                                                                                   ========================

                                                                                  1998      1997      1996       1995       1994
                                                                                            (Dollars in thousands)
                                                                                            ----------------------
<S>                                                                              <C>         <C>        <C>        <C>       <C>

Statement of Operations Data:
-----------------------------
Earned discounts on life insurance policies  (1) ..............................  $  --   $    --   $  3,697   $  6,933    $  4,240
Earned  discounts on prior  maturities and matured
       policies (1)............................................................    439       489      1,782         --        --
Interest income................................................................  1,494     1,184        783         267        118
Net gain on sale of non-marketable securities..................................     --       680         --         --        --
Gain (loss) on assets sold.....................................................    165     1,463        180         --        --
Total income...................................................................  2,408     3,918      6,405      7,389       4,443
Interest expense...............................................................  3,680     3,599      3,984      3,352       1,115
Provision for loss on assets held for sale.....................................     --       328      3,140         --        -- 
Loss on  investment in wholly owned financing
       subsidiary..............................................................     --        --      6,940         --         --
Loss on non-marketable securities..............................................  1,073        --         --         --         --
Total expenses.................................................................  8,352     6,795     17,118       5,394      2,279 
Income (loss)  before  income  taxes,  minority  interest
       and net loss in wholly owned financing subsidiary
       charged to reserve for equity interest ................................. (5,945)   (2,877)   (10,713)      1,996      2,163
Income tax (expense) benefit ..................................................     (6)       (4)       526        (625)      (137) 
Net loss in wholly owned financing subsidiary charged
       to reserve for equity interest........................................... 2,300     3,891        488         --         -- 
Net income (loss)(2)............................................................(3,650)    1,011     (9,699)        803        235 
Comprehensive income---- net unrealized investment gains (losses)
     ("Comprehensive Income").................................................. (2,786)    2,597         --         --         -- 
Total comprehensive income (loss)...............................................(6,437)    3,608         --         --         -- 
Basic earnings (loss) per share (3).............................................$(1.12)  $  0.29    $ (2.46)     $ 0.51     $ 0.26
Diluted earnings (loss) per share (3)...........................................$(1.12)  $  0.28    $ (2.46)     $ 0.42     $ 0.19

Balance Sheet Data (at period end):
-----------------------------------
Cash and cash equivalents...................................................... $ 6,668    $10,040   $6,586   $   1,057    $    31
investment securities..........................................................   2,113      5,817       --          --         -- 
Loans receivable...............................................................  10,188      4,016       --          --         --
Purchased life insurance policies..............................................  33,893     36,587   41,246      48,938      32,916
Non-marketable securites.......................................................   5,397      1,658    3,000          --         --
Total assets...................................................................  62,443     62,969   68,944      58,226      35,433
Reserve  for  equity  interest  in  wholly  owned  financing
       subsidiary..............................................................      --      2,300    6,453          --         -- 
Revolving certificates.........................................................   5,400         --       --          --         -- 

                                       12
</TABLE>

<PAGE>



Total long term debt (4)........... 41,529  38,804    41,218    40,549   18,447
Total liabilities.................  47,613  41,703    48,802    46,680   22,176
Total stockholders' equity (2)....  14,830  21,266    20,142     4,866    4,062
 --




(1)  See  "Management's  Discussion  and  Analysis of  Financial  Condition  and
     Results  of  Operations  - Results  of  Operations  by  Segment -  Viatical
     Settlements - Method of Accounting for Viatical Settlements."

(2)  Includes  minority  interest  of  $568 in 1995  and  $1,791  in 1994 on the
     statements of operations  data and minority  interest of $6,680 in 1995 and
     $9,195 in 1994 on the balance sheet data. See "Management's  Discussion and
     Analysis  of  Financial  Condition  and Results of  Operations  - Method of
     Consolidation - Dignity Viatical & Dignified One."

(3)  Reflects the following  transactions as if such transaction had occurred at
     the beginning of 1994, 1995 and 1996: (a) On September 30, 1995, Point West
     and its then sole stockholder,  The Echelon Group Inc.  ("Echelon"),  which
     was owned  entirely by Point  West's  executive  officers,  entered  into a
     series of transactions (collectively, the "Reorganization") to separate the
     business of Point West from  Echelon's  other  business  interests;  (b) On
     January 12, 1996,  Point West  effected a reverse  stock split  pursuant to
     which each outstanding  share of Common Stock was converted into .7175 of a
     share of Common Stock;  (c) In February  1996,  all  outstanding  shares of
     Point West's  Cumulative  Pay-in-Kind  Preferred  Stock were converted into
     321,144  shares of Common  Stock.  The  Reorganization  included  a sale of
     assets by Echelon to New  Echelon,  which was also owned  entirely by Point
     West's executive  officers,  and a merger of Echelon into Point West. Point
     West's  initial  public  offering  occurred in February 1996. See Note 9 of
     Notes to Consolidated Financial Statements.

(4)  Includes  long term notes  payable,  debentures  payable to Small  Business
     Administration and other long term liabilities.






ITEM 7--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS 
-------------------------------------------------------------------------------
OF OPERATIONS
-------------

         The  following  is  a  discussion  and  analysis  of  the  consolidated
financial  condition  of the  Company  at  December  31,  1998  and  results  of
operations  for the Company for the three years ended  December 31, 1998, and of
certain factors that may affect the Company's  prospective  financial  condition
and results of operations.  The following should be read in conjunction with the
consolidated  financial statements and related notes appearing elsewhere herein.
For the reasons set forth below  (including  the  reclassification  into "assets
held for sale" of a  substantial  portion of the  Company's  assets in the third
quarter of 1996 and related  accounting  consequences  and the  inception of two
businesses in the second half of 1997) the Company's  results of operations  and
cash flows for 1998,  1997 and 1996 are not comparable to each other or to prior
periods.

Overview
--------

         The Company is a specialty  financial  services company.  The Company's
financial statements consolidate the assets, liabilities and operations of DPFC,
Fourteen Hill, Allegiance and PWS.

         Until February  1997, the Company  provided  viatical  settlements  for
terminally ill persons. See "Cessation of Viatical Settlement Business;  Sale of
Assets;  Name  Change."  Subsequently,  the  Company  has  sought  to  become  a
broad-based  specialty  financial services company. To that end, the Company has
expanded its financial  services business through Fourteen Hill,  Allegiance and
PWS. The Company continues to evaluate other potential  business  opportunities.
Fourteen Hill, Allegiance and PWS, whose business activities are described under
"Item  1--Business,"  may or may not be  indicative  of the  types  of  business
opportunities the Company will continue to pursue. See "Method of Consolidation"
and  "Considerations  Under  the  Investment  Company  Act of  1940"  below.  No
assurance  can be given  that the  Company  will be  successful  in  becoming  a
broad-based  specialty  financial  services  company or that any such enterprise
will be successful.

                                       13

<PAGE>


Cessation of Viatical Settlement Business; Sale of Assets; Name Change
----------------------------------------------------------------------

         The principal  business  activity of the Company through  February 1997
was to provide  viatical  settlements  for  terminally  ill persons.  A viatical
settlement  is the payment of cash in return for an  ownership  interest in, and
right to receive the death benefit (face value) from, a life insurance policy.

         On July 16,  1996,  the Company  announced  that,  in light of the data
regarding new treatments  involving  combinations  of various drugs presented at
the  AIDS  Conference,  the  Company  was  temporarily  ceasing  processing  new
applications for policies insuring individuals afflicted with AIDS and HIV while
it further analyzed the effects of such research results on its business and its
strategic  options.  Further analysis resulted in the Company's  concluding that
the efficacy of the treatments  reported at the AIDS Conference and subsequently
reported  treatments had increased the risks of purchasing and holding  policies
insuring  the lives of  individuals  diagnosed  with HIV and AIDS.  The  Company
decided  in the third  quarter of 1996 to sell all or  substantially  all of its
assets. As a result of this decision, the Company reclassified all of its assets
(other than the policies held by DPFC) to a "held-for-sale"  category during the
third quarter of 1996. Accordingly,  these assets are accounted for at the lower
of carrying  value or fair value less cost to sell.  The Company  cannot predict
what  further  impact the  foregoing  may have on its results of  operations  or
financial position.

         Based  on the  Company's  evaluation  of the  effects  of the  research
results  reported  at the AIDS  Conference  and  subsequent  reports  and  other
information,  the Company  believed  that it had become  extremely  difficult to
predict  accurately  life  expectancy  of  people  afflicted  with HIV and AIDS.
Further,  the  Company  decided  that it was not viable to continue to operate a
viatical  settlement  business  solely for non-AIDS  policies while a market for
non-AIDS policies  developed,  if it developed at all. As a result, the Board in
February 1997 approved the cessation of the viatical settlement business and the
sale by the Company of its non-AIDS policies.

         Through  December 31, 1997, the Company entered into agreements to sell
approximately  373  policies  with an  aggregate  sale  price of $19.5  million,
representing  $29.2 million in aggregate face value.  Through December 31, 1998,
the Company consummated the sale of 355 policies for $19.3 million, representing
$28.9 million in aggregate face value. At December 31, 1998, the Company owned 7
policies  under the  aforementioned  sales  agreements  with a carrying value of
$67,000 and a face value of $436,000.

         The Company also continues to hold,  through DPFC, a substantial amount
of policies,  which at December 31, 1998 totaled 494 policies  with a face value
of $39.0 million and a carrying value of $33.9 million.

         Because  the  Company  no longer  engages  in the  viatical  settlement
business,  the  Board  determined  that a  change  in  the  Company's  name  was
appropriate.  The Company sought and received in June 1997 stockholder  approval
to amend  Point  West's  certificate  of  incorporation  to change its name from
Dignity Partners,  Inc. to Point West Capital  Corporation.  The name change was
effective August 1, 1997.

Method of Consolidation
-----------------------

     DPFC
     ----

         The Company's financial statements consolidate the assets,  liabilities
and operations of DPFC, Point West's wholly owned  subsidiary  through which the
Company  issued  the  Securitized  Notes.  See Note 6 of  Notes to  Consolidated
Financial Statements. DPFC no longer purchases policies.

                                       14
<PAGE>


     Dignity Viatical & Dignified One
     --------------------------------

         Dignity Viatical Settlement  Partners,  L.P. ("Dignity Viatical") was a
limited partnership formed in 1993 to fund purchases of life insurance policies.
Point West served as the sole general  partner,  and persons not affiliated with
the  Company  were  limited  partners.  Because  Point West  controlled  Dignity
Viatical,  the assets,  liabilities  and  operations  of Dignity  Viatical  were
consolidated  in the Company's  consolidated  financial  statements from 1993 to
June 24, 1996. The minority  interest of former  limited  partners in investment
partnership  reflected  in  the  Company's   consolidated  financial  statements
represents  the  limited  partners'  interests  in the net  assets and income of
Dignity  Viatical.  In June 1996,  Point West purchased the limited  partnership
interests  in  Dignity  Viatical  and  became  the  sole  owner  of  all  of the
partnership  interests  therein.  In 1996, the Company sold virtually all of the
policies  owned by  Dignity  Viatical.  See  Note 1c of  Notes  to  Consolidated
Financial Statements.

         Dignified  One  was a  limited  partnership  formed  in  1994  to  fund
purchases of life  insurance  policies.  All policies held by Dignified One were
collected or sold by September 1997. Due to its immateriality, Dignified One has
been treated as an investment for accounting purposes.  Therefore,  the policies
purchased  by Dignified  One are not  reflected  in the  Company's  consolidated
financial statements.

     Fourteen Hill
     -------------

         The Company also consolidates the assets, liabilities and operations of
Fourteen Hill.

     Allegiance
     ----------

         The Company also consolidates the assets, liabilities and operations of
Allegiance.  In September 1997, the Company formed Allegiance Capital, a limited
liability company,  to provide senior secured loans to funeral home and cemetery
owners.  Point West made the only capital  contribution  to Allegiance  Capital.
During 1998, Point West was allocated all interest on loans through November 20,
1998,  which  was  the  initial  funding  date  for  the  Allegiance  Financing.
Additionally,   Point   West   will  be   allocated   interest   (based  on  the
weighted-average  interest  rate of all loans  outstanding)  to the extent  that
Point West's capital investment in Allegiance exceeds $3.0 million.  Net profits
of Allegiance  Capital for each  calendar year will be allocated  first to Point
West in an amount equal to a return of 10% per annum, compounded monthly, on the
amount of its capital  contribution,  but not in excess of such net profits. Any
shortfall  will be carried  forward  indefinitely  to the next  calendar year or
years in which net profits are sufficient to make such allocation. An additional
5% return for each  calendar  year will be allocated  first to Point West to the
extent that in each year sufficient  profits are available with no carry forward
provided. Allegiance Capital owns 100% of Allegiance Funding, which is a special
purpose  subsidiary  formed  to  acquire  and  securitize  loans  originated  by
Allegiance  Capital.  Pursuant to the  Allegiance  Trust  Agreement,  Allegiance
Funding  formed  a  trust,  Allegiance  Trust I, to  consummate  the  Allegiance
Financing. See "Liquidity and Capital Resources -- Allegiance" below.

     PWS
     ---
         The Company also consolidates the assets, operations and liabilities of
PWS. Operations for PWS in 1998 were immaterial.

Share Repurchase Program
------------------------

         In October 1996, the Board approved a share repurchase program pursuant
to which  the  Company  was  authorized  to  purchase  from time to time up to 1
million shares of Common Stock at prevailing 

                                       15
<PAGE>


market prices. In June 1997, such authority was increased to 1.04 million shares
of Common  Stock.  In June 1997,  the  Company  completed  the share  repurchase
program,  having  repurchased  an aggregate of 1.04 million shares at a weighted
average price of $2.77 per share.

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

     Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
     ---------------------------------------------------------------------

         Total Income. Total income decreased 38.5% to $2.4 million in 1998 from
$3.9 million in 1997 due  primarily  to a $1.3  million  decrease in the gain on
assets  (life  insurance  policies)  sold.  In  addition,  total income for 1997
included a $680,000 net gain on sale of non-marketable  securities sold by Point
West in 1997.  Offsetting this decrease was an aggregate increase of $517,000 in
interest  income and other income  related to the  activities of Allegiance  and
Fourteen Hill.

         Total Expenses.  Total expenses increased 23.5% to $8.4 million in 1998
from $6.8 million in 1997 due primarily to a $1.1 million loss on non-marketable
securities recognized by Fourteen Hill in 1998.  Contributing to the increase in
1998 were: (i) a $363,000  increase in compensation and benefits  resulting from
the hiring of  employees  to support  Allegiance's  and PWS'  activities  and an
increase in salaries and other benefits for other employees for 1998; and (ii) a
$253,000 increase in other general and administrative  expenses due to increased
premium  expenses  incurred in connection  with life insurance  policies held by
DPFC. The 1997 expenses include a $328,000 provision for loss on assets held for
sale.

         Income Tax Expense.  In 1998 the Company  recorded  $5,600 for minimum
state income  taxes.  See Note 8 of Notes to Consolidated Financial Statements.

         Net Loss in Wholly Owned  Financing  Subsidiary  Charged to Reserve for
Equity Interest.  The DPFC net loss of $2.3 million and $3.9 million recorded in
1998 and 1997,  respectively,  were included in the Company's loss before income
taxes and net loss in wholly owned financing  subsidiary  charged to reserve for
equity interest.  Prior to the depletion of the reserve during the third quarter
of 1998,  losses were charged  against the reserve for equity interest in wholly
owned  financing  subsidiary.  After the reserve was fully  depleted  during the
third  quarter of 1998,  DPFC's  losses  have been  reflected  in the  Company's
consolidated  statement of  operations  and  comprehensive  income  (loss).  All
additional  losses  of DPFC  will be  reflected  in the  Company's  consolidated
statement of operations and comprehensive income (loss) for the periods in which
such losses occur.

     Comprehensive  Income.  Comprehensive Income decreased to $(2.8) million in
1998 from $2.6 million in 1997, as a result of a decrease in the market value of
marketable  investment  securities  held by Fourteen  Hill.  In  addition,  $1.2
million of unrealized  gains were  recorded in 1997 in connection  with warrants
which  were  exercised  in  January  1998.  See Note 2 of Notes to  Consolidated
Financial  Statements.  The Company  also had  holdings  which  under  Generally
Accepted Accounting Principles ("GAAP") were carried at cost. In particular,  at
December 31, 1998 the Company was carrying at cost, an  investment  which had on
file a registration  statement with the SEC for an initial public offering which
is scheduled to occur in March 1999. In addition,  another investment carried at
cost was preferred shares convertible into marketable securities. If the Company
had  converted  such  convertible  shares in 1998,  an  unrealized  gain of $4.1
million  would have been recorded on the balance sheet at December 31, 1998 (the
Company  converted  33% of these  shares to  marketable  securities  in February
1999).  See "Results of Operations by Segment -- Fourteen  Hill." Since Fourteen
Hill was not formed until 1997, there was no Comprehensive Income in 1996.

                                       16

<PAGE>


     Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
     ---------------------------------------------------------------------
 
         Total Income. Total income decreased 39.1% to $3.9 million in 1997 from
$6.4  million  in 1996  due  primarily  to a $5.0  million  decrease  in  earned
discounts.  Earned  discounts  decreased  because the Company began  recognizing
income with respect to its viatical settlement business upon receipt of proceeds
on policies.  Offsetting  this decrease was: (i) a $1.6 million  increase in the
gain on assets (life insurance  policies) sold; (ii) a $680,000 net gain on sale
of non-marketable  securities;  and (iii) a $401,000 increase in interest income
resulting  from the  investment  of the proceeds from the gain on assets sold in
short term securities and marketable securities.

         Total Expenses.  Total expenses decreased 60.2% to $6.8 million in 1997
from $17.1  million in 1996 due primarily to the $6.9 million loss on investment
in wholly owned financing  subsidiary,  DPFC, and the $3.1 million provision for
loss on assets held for sale both  recorded  in 1996.  In  addition,  a $384,000
reduction in interest expense contributed to the decrease.

         Income Tax Expense.  In 1997 the Company  recorded  $4,000 for minimum
 state income  taxes.  See Note 8 of Notes to Consolidated Financial Statements.

         Net loss in Wholly Owned  Financing  Subsidiary  Charged to Reserve for
Equity  Interest.  At  December  31,  1997 and 1996 the  reserve to reflect  the
estimated  loss of Point West's entire equity  interest in DPFC was $2.3 million
and $6.5 million,  respectively.  The DPFC net loss of $3.9 million and $488,000
recorded in  1997 and 1996,  respectively,  was included in the Company's  loss
before income taxes and net loss in wholly owned financing subsidiary charged to
reserve  for equity  interest.  This loss was  charged  against  the reserve for
equity interest in wholly owned financing subsidiary.

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

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

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

         Method of Accounting for Viatical Settlements

         Through  June  30,  1996,  the  Company   recognized   income  ("earned
discount") on each  purchased  policy by accruing,  over the period  between the
acquisition date of the policy and the Company's estimated date of collection of
the policy's face value (the "Accrual  Period"),  the difference  (the "unearned
discount")  between (a) the face value of the policy less the amount of fees, if
any, payable to a referral source upon collection of the face value, and (b) the
carrying value of the policy. Through June 30, 1996, the carrying value for each
policy  was  reflected  on  the  Company's   consolidated  balance  sheet  under
"purchased life insurance  policies" and consisted of the purchase price,  other
capitalized  costs and the earned  discount on the policy accrued to the balance
sheet  date.  The  Company  capitalized  as incurred  the  following  costs of a
purchased  policy:  (i) the  purchase  price paid for the  policy,  (ii)  policy
premiums,  if any, paid by the Company,  (iii) amounts, if any, paid to referral
sources upon acquisition of the policy and (iv) amounts paid to Company-retained
physicians  or other  medical  consultants  ("Consultants")  who  estimated  the
insured's life expectancy. The carrying value of a policy changed over time, and
was adjusted  quarterly to reflect  earned  discounts  accrued on the policy and
amounts paid for any  additional  future  increases in coverage,  any additional
premium  payments  and any  premium  refunds  if the policy  becomes  covered by
premium  waiver  provisions.  The length of the Accrual Period was determined by
the Company  based upon its  estimate of the date on which it would  collect the
face value of the policy. Such estimate was based upon the Company's estimate of
the life  expectancy of the insured,  after review 

         
                                       17

<PAGE>



of the medical records of the insured by one or more  Consultants,  and was also
adjusted to reflect the historical  accuracy of the life expectancies  estimated
by the Consultants and the typical period between the date of an insured's death
and the date on which the Company collects the face value of the policy.

         The unearned  discount  was accrued  over the Accrual  Period using the
"level yield"  interest  method.  Under the "level yield" method,  the yield was
held constant such that when the yield was applied to the carrying  value of the
policy on a compounded basis over the course of the Accrual Period, the unearned
discount was fully accrued as earned discount by the end of the Accrual Period.

     As a result of the Company's  decision in 1996 to sell all or substantially
all of its assets, the Company  established a reserve for loss on sale of assets
during 1996. This reserve is reevaluated quarterly. The reserve for loss on sale
of  assets  was  $167,000  and  $399,000  as of  December  31,  1998  and  1997,
respectively.  In 1996, the Company also established a reserve for loss of Point
West's equity interest in DPFC because of the uncertainties  created by the data
presented at the AIDS  Conference and subsequent  reports of the efficacy of new
treatments for AIDS/HIV. The reserve for loss of Point West's equity interest in
DPFC was $2.3 million as of December 31, 1997.  By the end of the third  quarter
of 1998, the reserve was fully depleted.  See "Certain  Accounting  Implications
for DPFC." In addition,  beginning in 1996, the Company began recognizing income
with respect to its  viatical  settlement  business  upon receipt of proceeds on
policies  (either  pursuant to sale of the policy or the death of the  insured).
Such income is equal to the difference  between such proceeds (less any back-end
sourcing  fees) and the carrying  value of such policies  after giving effect to
any reserve for loss on the sale of such  policies.  The Company  also no longer
included in the  carrying  value of policies  premiums  incurred  after June 30,
1996.

         Certain Accounting Implications for DPFC

         Although  the  Securitized  Notes have a stated  maturity  of March 10,
2005, the Securitized Notes were originally  expected to be repaid by the fourth
quarter  of  1997.  However,  at  December  31,  1998,  $38.5  million  remained
outstanding  under  the  Securitized  Notes.  As a result  of the  substantially
delayed  collection  of DPFC  policies,  DPFC had a deficit  of $1.7  million at
December 31, 1998.

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

         In 1998, the total loss realized by DPFC was $4.0 million, $2.3 million
of which was charged  against the  reserve for equity  interest in wholly  owned
financing  subsidiary,  and $1.7 million of which was otherwise reflected in the
Company's  consolidated statement of operations and comprehensive income (loss).
The $1.7 million  portion of the loss for 1998 decreased  basic EPS by $0.52 for
1998. The average historical quarterly losses in DPFC have been approximately $1
million per quarter  over the past four  quarters.  Upon the  retirement  of the
Securitized Notes, the Company will recognize a gain in an amount  approximately
equal to any accumulated deficit of DPFC.

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

        

                                       18

<PAGE>

         Year Ended  December 31, 1998  Compared to Year Ended  December 31 1997
         and Year Ended  December 31, 1997  Compared to Year Ended  December 31,
         1996

         Earned  Discounts.  Earned discounts on matured polices decreased 10.2%
to $439,000  in 1998 from  $489,000 in 1997,  and  decreased  50.1% in 1997 from
$980,000 in 1996.  Effective July 1, 1996, the Company began recognizing  earned
discounts  only upon  receipt of proceeds on matured  policies  (pursuant to the
death of an insured). The decrease in 1997, therefore,  probably would have been
more pronounced if the Company had been  recognizing for the entire year of 1996
earned discounts only upon receipt of proceeds on matured policies.


         The  decreases  are due  primarily  to fewer  deaths  of  insureds  and
secondarily  to a decrease in the size of the  Company's  portfolio of policies.
During 1998, earned discounts on matured policies were recognized on 46 policies
with a face value of $2.9  million,  compared to 77 and 96 policies  with a face
value of $4.9 million and $6.4 million in 1997 and 1996, respectively.

         In the first six months of 1996, the earned  discount was recognized on
each purchased  policy.  Earned  discounts on life  insurance  policies was $3.7
million for the six months ended June 30, 1996.  The Company has not  recognized
any earned discounts in that manner since July 1, 1996. In addition, the Company
recognized $802,000 of earned discounts on prior maturities in 1996. Such earned
discounts were carried on the balance sheet at June 30, 1996 as unearned  income
which related to policies for which the Company had collected the proceeds prior
to the expected  collection date.  Because the Company began recognizing  earned
discounts  under a  different  method in July  1996,  earned  disounts  on prior
maturities  were  recognized  at the time of change in method  and have not been
recognized in 1997 or 1998. See "Method of Accounting for Viatical Settlements."

         As of  December  31,  1998,  the  Company  held  501  policies  with an
aggregate  carrying  value of $34.0 million and an aggregate face value of $39.4
million.  Virtually  all of  the  policies  are  pledged  as  security  for  the
Securitized Notes.

         Interest  Income.  Interest income  decreased 13.8% to $200,000 in 1998
from $232,000 in 1997,  and 17.4% in 1997 from $281,000 in 1996 , as a result of
lower  cash  balances  attributable  to  DPFC.  The  cash  generated  by DPFC is
restricted under the Indenture.

         Gain (Loss) on Assets Sold. The gain on assets sold decreased  89.0% to
$165,000 in 1998 from $1.5 million in 1997  because a large  portion of the sale
proceeds from life  insurance  policies was  collected  during the first half of
1997. The Company  collected the sale proceeds on 7 policies in 1998 compared to
246 policies in 1997. The Company collected the sale proceeds on 102 policies in
1996 and recorded a net loss on assets sold of $180,000 in connection with these
sales. The realized gain (loss) was calculated  based on the difference  between
the sale  proceeds and the carrying  value after giving  effect to the provision
for loss on sale of assets. See "Cessation of Viatical Settlement Business; Sale
of Assets; Name Change."

         Other  Income.  Components  of  other  income  include  collections  on
policies of dividends, interest and paid-up cash values, increases in face value
of matured  policies and refunds of premiums on matured  policies.  Other income
increased  $106,000 to  $173,000  in 1998 from  $67,000 in 1997 due to a $65,000
increase  in face  value on one  policy in 1998 and an  aggregate  of $43,000 in
paid-up cash values on two policies in 1998.  Other  income  decreased  77.4% in
1997  from  $297,000  in 1996  due to the  decrease  in the  number  of  matured
policies.

         Interest Expense. Interest expense decreased 1.3% to $3,551,000 in 1998
from $3,599,000 in 1997, and 5.1% in 1997 from $3,794,000 in 1996 as a result of
principal  repayments under the Securitized   

                                       19
<PAGE>

Notes. Average borrowings under the Securitized Notes were $38.6 million in 1998
compared to $39.3 million in 1997 and $42.7 million in 1996.

     Other General and Administrative Expenses. Other general and administrative
expenses  increased  $359,000 to $594,000  in 1998 from  $235,000 in 1997.  This
increase  was due  primarily  to an increase in life  insurance  policy  premium
costs.  However,  because such premium  costs were largely  charged  against the
reserve for equity  interest in wholly owned financing  subsidiary  until it was
depleted in the third quarter of 1998, the increase had a marginal effect on the
Company's  1998 net income  relative to 1997.  Other general and  administrative
expenses  increased $223,000 in 1997 from $12,000 in 1996. This increase was due
primarily to a $151,000  increase in life insurance policy premium costs in 1997
compared to 1996. For the reasons discussed above, the increase in premium costs
did not impact net income in 1997. In addition,  the $72,000  annual fee paid to
the trustee for the Securitized Notes was expensed in 1997 and 1998.

         Provision  for Loss on Assets Held for Sale.  The  Company  recorded in
1996 a  provision  for loss on sale of assets  totaling  $3.1  million  based on
management's  estimate  of proceeds  from the sale of  policies.  The  provision
equaled  the  difference  between  the  carrying  value of  policies  and  those
estimates.  The estimates  were based on the life  expectancies  of the insureds
covered by the policies,  the estimated  sale period and the prices  obtained by
the Company in  connection  with other sales of policies.  In 1997,  the Company
recorded an additional  provision in the amount of $328,000 in  connection  with
the remaining policies not yet sold, based on management's revised best estimate
of proceeds from the sale of such policies.

         Loss on Investment In Wholly Owned Financing Subsidiary.  A reserve was
recorded in 1996 in the amount of $6.9 million to reflect the estimated  loss of
Point West's entire equity  interest in DPFC.  Point West had an initial capital
investment  in DPFC of $2.9 million and,  through  consolidation,  an additional
$4.0  million of increased  equity  attributable  to the  earnings of DPFC.  See
"Certain Accounting Implications for DPFC."

     Fourteen Hill
     -------------

         Method of Accounting for Loans and Debt and Equity Securities

         SFAS  115  requires   marketable  debt  and  equity  securities  to  be
classified into  held-to-maturity,  available-for-sale  and trading  categories.
Securities  classified as  held-to-maturity  are reported at amortized  cost and
available-for-sale  securities are reported at fair market value with unrealized
gains and losses as a separate  component of stockholders'  equity.  The Company
had no trading  securities  at December 31, 1998 and 1997.  The Company uses the
cost method to account for non-marketable  securities.  The Company reviews on a
quarterly basis all non-marketable  securities and attempts to ascertain whether
the value is impaired.

         During 1998,  the Company  reflected in its  Quarterly  Reports on Form
10-Q  certain  convertible  preferred  securities  as  available-for-sale.   The
unrealized  gains  correspondingly  reflected  in  stockholders'  equity  on the
balance sheet were $2.7  million,  $6.4 million and $4.8 million as of March 31,
June 30, and September 30, 1998,  respectively,  and in Comprehensive  Income on
the income statement were $2.7 million,  $3.7 million and $(1.6) million for the
quarters  then  ended,  respectively.  Such  securities  were  convertible  into
marketable   securities   but   nonetheless   should  have  been   reflected  as
non-marketable  securities  under GAAP and  carried at a cost of  $900,000  with
corresponding  footnote disclosure  regarding any significant  appreciation.  At
December 31, 1998, such convertible preferred shares are shown as non-marketable
securities at a cost of $900,000.  If the Company had  converted  such shares in
1998,  an  unrealized   gain  of  $4.1  million  would  have  been  recorded  in
stockholders'  equity on the  balance  

                                       20

<PAGE>

sheet at  December  31,  1998  (the  Company  converted  33% of these  shares to
marketable  securities  in February  1999).  Footnote  disclosure  regarding any
significant appreciation in such non-marketable  securities will be given in the
future.

         Any  realized  gains and losses,  accrued  interest and  dividends  and
unrealized  losses  judged to be  other-than-temporary  will be  reported  on an
appropriate line item above "Net Income (Loss)" on the  consolidated  statements
of  operations  and  comprehensive  income  (loss).  See  Note  2  of  Notes  to
Consolidated Financial Statements.

         Included  on the balance  sheet at  December  31,  1998,  were  329,490
convertible  preferred  shares of FlashNet  Communications,  Inc.  ("FlashNet"),
which were  carried on the balance  sheet at cost of $2 million.  FlashNet is an
internet  service  provider which serves  individuals and businesses  across the
United States.  In December 1998,  FlashNet filed a registration  statement with
the SEC for an initial public  offering.  In connection with such initial public
offering, Fourteen Hill's shares are automatically convertible and Fourteen Hill
will hold 1,120,266 common shares of FlashNet, after giving effect to a 3.4 to 1
stock split which was authorized to occur prior to the initial public  offering.
If the FlashNet initial public offering occurs,  the FlashNet shares will become
marketable  securities.  As a  result,  any  unrealized  gains or losses in such
investment   will  be  reflected  as  "Accumulated   Comprehensive   Income--Net
Unrealized  Investment  Gains (Losses)" in stockholders'  equity.  Pursuant to a
standard lock-up agreement,  Fourteen Hill will not be able to sell or otherwise
dispose  of its  FlashNet  shares  until six  months  after the  initial  public
offering.

         Beginning  in 1999,  because  of the  recent  volatility  of the  stock
market,  particularly in internet and internet  related  stocks,  Point West has
hedged a portion of its  exposure and may  increase  its hedging  activities  to
reduce its  exposure to such  volatility.  Such  hedging has  included  shorting
stocks of certain competitors of the Company's holdings.  However, under GAAP it
is unlikely that such hedging  activities will constitute hedges under Statement
of Financial  Accounting  Standards No. 80 ("SFAS 80"),  Accounting  for Futures
Contracts. Therefore, such hedging activities will be reflected in the Company's
Consolidated  Statement of Operations and Comprehensive Income (Loss). See "Item
7A -- Quantitative and Qualitative Disclosures About Market Risks.""

         The  Company  accounts  for loans by accruing  interest on  outstanding
balances.  At December 31, 1998 and 1997, the Company evaluated each of Fourteen
Hill's  outstanding  loans and determined  that an allowance for loan losses was
not  necessary.  As Fourteen  Hill's  loan  portfolio  grows or upon  subsequent
evaluation,  allowances  for loan losses will be added to the extent  considered
necessary.   Loan  origination  fees  and  direct  loan  origination  costs  are
capitalized and recognized over the life of the related loan as an adjustment of
yield  (interest  income) in accordance  with Statement of Financial  Accounting
Standards  No. 91  ("SFAS  91"),  Accounting  for  Nonrefundable  Fees and Costs
Associated  with  Originating  or  Acquiring  Loans and Initial  Direct Costs of
Leases. See Note 3 of Notes to Consolidated Financial Statements.

         Year Ended December 31, 1998 Compared to Year Ended December 31, 1997

         Since Fourteen Hill was not formed until 1997,  there are no results of
operations for 1996.

         Interest Income. Interest income increased $167,000 to $300,000 in 1998
from $133,000 in 1997. This increase was due primarily to the interest earned on
loans made by Fourteen  Hill.  See "Method of Accounting  for Loans and Debt and
Equity  Securities."  Fourteen Hill had two loans  outstanding  in the aggregate
amount of $864,000 at the end of 1998 versus one loan  outstanding in the amount
of $250,000 at the end of 1997. The weighted-average  interest rate on the loans
made in 1998 was 14.9%  compared to 

                                       21

<PAGE>

an interest  rate of 14% on the loan made in 1997.  In addition,  Fourteen  Hill
recognized  $98,000 of interest income in 1998 as a result of warrants  received
in connection with one of the outstanding loans.

         Other Income. Components of other income include certain gains realized
in connection  with sales of securities and application  fees.  Other income was
$25,000 in 1998 versus $800 in 1997.  This  increase was primarily the result of
investment securities sold during 1998.

         Interest  Expense.  Interest  expense  was  $98,000  in 1998 due to the
interest on funds  borrowed in July 1998.  The  interest  rate  (including  a 1%
annual fee) was 6.9%. Prior to July 1998, Fourteen Hill had no debt.

         Amortization.  Amortization  costs increased $58,000 to $62,000 in 1998
from $4,000 in 1997 because of the financing costs  associated with the borrowed
funds and because organizational costs were expensed in 1998.

         Loss on Non-Marketable Securities. Fourteen Hill reviews on a quarterly
basis all non-marketable  securities and attempts to ascertain whether the value
is impaired.  As a result of such review,  Fourteen  Hill  determined  that $1.1
million of  non-marketable  securities  of one company was impaired at September
30, 1998.  Therefore,  Fourteen Hill wrote-off the entire $1.1 million  carrying
value of such security.

     Allegiance
     ----------

         Method of Accounting for Loans and Debt and Equity Securities

         The  Company  accounts  for loans  advanced by  Allegiance  by accruing
interest on outstanding  balances.  At December 31, 1998 the Company recorded an
allowance for loan losses of $50,000. The allowance for loan losses is estimated
by management  based on a review of the loans and factors which in  management's
judgement  deserve  recognition  under current economic  conditions.  Management
believes  that the allowance  for loan losses is adequate.  Although  management
uses available information to recognize losses on loans, future additions to the
allowance may be necessary based on changes in economic conditions.  At December
31, 1997, the Company evaluated Allegiance's one outstanding loan and determined
that an allowance for loan losses was not necessary.

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

         The  Allegiance  Financing  provides for short term  floating rate debt
that is expected to become long term fixed rate debt. The interest rate at which
Allegiance  anticipates issuing long term certificates will be set in the future
when  approximately  $30  million  of loans have been  originated.  Because of a
provision allowing Allegiance to redeem outstanding certificates when 15% of the
original principal balance remains  outstanding,  the Allegiance  Financing does
not qualify for sale treatment under Statement of Financial Accounting Standards
No. 125 ("SFAS 125"), Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities.  Accordingly,  the Allegiance Financing will
not receive gain on sale  treatment  under SFAS 125. The loans and any borrowing
under the  Allegiance  Financing will be reflected on the  consolidated  balance
sheet.  Allegiance  utilizes  futures  contracts to hedge certain  interest rate
exposure between the time of origination of the loans and the expected  issuance
of term certificates. The futures contracts are to protect the margins earned on
the loans.  Any  realized  gain or loss related to these hedges are deferred and
recognized  over the  life of the  related  loan as an  adjustment  of  interest
income.  Pursuant  to SFAS 80 all such  deferred  amounts are  reflected  on the
balance sheet as an increase (in the case of a hedging loss) or decrease (in the
case of a 

                                       22

<PAGE>


hedging  gain),  in the carrying value of loans  receivable.  As of December 31,
1998,  Allegiance had net realized losses on its hedging  activities of $261,000
which increased loans receivable in a like amount.  In addition,  Allegiance had
unrealized  net losses from open  hedging  positions  of $800 as of December 31,
1998. Allegiance had no hedging activities at December 31, 1997. See "Item 7A --
Quantitative and Qualitative Disclosures About Market Risks"

         Year Ended December 31, 1998 Compared to Year Ended December 31, 1997

         Since  Allegiance  was not formed  until 1997,  there are no results of
operations for 1996.

         Interest Income. Interest income increased $575,000 to $589,000 in 1998
from $14,000 in 1997. This increase was due primarily to increased loans made by
Allegiance.  Allegiance had five loans  outstanding  in the aggregate  amount of
$9.1  million at the end of 1998  versus one loan  outstanding  in the amount of
$3.8 million at the end of 1997. The weighted-average interest rate on the loans
outstanding  at the end of 1998 was 9.3% compared to an interest rate of 9.4% on
the one outstanding loan at the end of 1997.

         Interest  Expense.  Interest expense for Allegiance was $31,000 in 1998
as a result of the interest paid under the Allegiance Financing. At December 31,
1998,  the  weighted-average  interest rate under the  Allegiance  Financing was
8.17%. Prior to 1998, Allegiance had no debt.

         Compensation and Benefits. Compensation and benefits increased $137,000
to $184,000 in 1998 from $47,000 in 1997. This increase resulted from the hiring
of  two  new  employees  in  September  1997  to  support  Allegiance's  lending
activities.

         Other   General  and   Administrative   Expenses.   Other  general  and
administrative  expenses  increased $145,000 to $178,000 in 1998 from $33,000 in
1997. This increase was primarily due to an increase in Allegiance's  activities
and the  allowance  for loan  losses that was  recorded in 1998.  See "Method of
Accounting for Loans and Debt and Equity Securities."

         Amortization.  Amortization  costs increased $55,000 to $56,000 in 1998
from $1,000 in 1997. Such costs increased due to the financing costs  associated
with the Allegiance Financing and because  organizational costs were expensed in
1998.

     Other
     -----

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

         Year Ended  December 31, 1998 Compared to Year Ended  December 31, 1997
         and Year Ended  December 31, 1997  Compared to Year Ended  December 31,
         1996

         Interest  Income.  Interest income  decreased 49.5% to $406,000 in 1998
from $804,000 in 1997,  and  increased 60.2% in 1997 from $502,000 in 1996. This
decrease in 1998 is due to lower cash  balances.  In 1998,  the  Company  used a
portion of proceeds  from the sale of policies in the first half of 1997 to grow
other businesses.  In 1997, such proceeds were invested in short term securities
and marketable securities. This increase in 1997 is due to the investment of the
proceeds  from the sale of  policies  in short term  securities  and  marketable
securities.  Interest  income  generated  in the first  nine  months of 1996 was
primarily the result of the investment of Point West's  initial public  offering
proceeds.

                                       23

<PAGE>

     Net Gain on Sale of Non-Marketable Securities. In the first quarter of 1997
Point West recognized a $700,000 gain on the sale of a portion of its investment
in Car  Club.  In March  1997,  Point  West  converted  8.2  million  shares  of
convertible  preferred stock into 8.2 million shares of common stock of Car Club
and sold such shares (approximately 38% of Point West's equity investment in Car
Club) to an  unaffiliated  third party for $1.8 million.  The carrying  value of
such shares was $1.1 million. In addition, Point West had an option that expired
on October 26, 1997 to purchase,  for  approximately  $1.1 million,  8.2 million
additional shares of common stock of Car Club. Since Point West did not exercise
this option,  a $20,000 pre-tax loss was recognized in 1997. Point West accounts
for this investment  using the cost method.  See Note 4 of Notes to Consolidated
Financial Statements.

         Other Income.  Components  of other income  include a placement fee and
certain gains  realized in  connection  with sales of  securities.  Other income
increased  $94,000 to $120,000 in 1998 from $26,000 in 1997.  This  increase was
primarily  a result  of a  $70,000  placement  fee  received  by  Point  West in
connection  with an investment  made by co-investors of Fourteen Hill Capital in
an  unaffiliated  small business  entity.  The placement fee received was in the
form of preferred shares. These preferred shares were written off as part of the
$1.1  million  write off of  non-marketable  securities.  See Note 4 of Notes to
Consolidated  Financial  Statements.  Other income  increased 62.5% in 1997 from
$16,000 in 1996 due  primarily  to an  increase  in gains  realized  on sales of
securities.

         Interest  Expense.  Interest expense was $190,000 in 1996 in connection
with Point West's revolving credit facility. Average borrowings were $800,000 in
1996 under the  revolving  credit  facility  which was repaid and  terminated in
August 1996.  Point West has not has any debt since then. Point West had assumed
certain  variable  rate  interest  exposure  of  Allegiance  between the time of
origination of loans and the expected issuance of term  certificates.  See "Item
7A -- Quantitative and Qualitative Disclosures About Market Risks."

         Compensation and Benefits. Compensation and benefits increased 18.2% to
$1.3 million in 1998 from $1.1 million in 1997. This increase  resulted from the
hiring  of two new  employees  in the  third  quarter  of 1998 to  support  PWS'
activities and an increase in compensation  and benefits for other employees for
1998.  Compensation  and  benefits  decreased  8.3% in 1997 from $1.2 million in
1996.  This decrease was due mainly to the reduction in staff with the cessation
of application  processing of new policies.  Subsequent to the AIDS  Conference,
the number of employees decreased from 27 on July 16, 1996 to 15 at December 31,
1996.  Partially offsetting the staff reduction was the increase in compensation
and benefits for remaining employees (including Point West's executive officers)
in 1997.

         Other   General  and   Administrative   Expenses.   Other  general  and
administrative expenses decreased 22.9% to $925,000 in 1998 from $1.2 million in
1997. This decrease was due primarily to a decrease in legal expenses in 1998 in
the amount of $228,000 incurred in connection with the federal and state alleged
class action  lawsuits  filed against Point West and its officers and directors.
See "Item 3 -- Legal  Proceedings."  This  decrease  was largely a result of the
retention  limit being  satisfied,  requiring the insurance  carrier to fund the
majority of the continuing  costs of such  litigation.  Point West expects legal
expenses  to  increase  substantially  in 1999  since the case is  currently  in
discovery  and the  trial  date is set  for  October  1999.  Other  general  and
administrative  expenses decreased 14.3% in 1997 from $1.4 million in 1996. This
decrease is due to an aggregate  reduction in the amount of $548,000  consisting
of a decrease in general legal expenses,  marketing expenses,  professional fees
and the elimination of medical review costs  associated with Point West's former
viatical settlement  business.  Partially  offsetting this was $412,000 in legal
expenses  recorded in 1997 in  connection  with federal and state  alleged class
action lawsuits filed against the Company and its officers and directors.

         The Company's  current lease expires in May 1999. The Company is in the
process  of  evaluating  other  locations  and  renewal  terms  at its  existing
facilities.  If the Company remains in its current space, 

                                       24
<PAGE>

the  Company's  monthly  rent is likely to  increase  from  $5,240  per month to
approximately $12,000 per month.

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

     The Company
     
         At present,  neither Point West nor PWS has an external  funding source
from which to fund its working capital and general corporate needs. During 1998,
Point West  supported its operations and the operations of PWS and Fourteen Hill
primarily  from cash balances.  The Company  generated cash primarily from sales
proceeds of life  insurance  policies  and  investment  securities.  The Company
invested the cash in the growth of its  businesses.  At December  31, 1998,  the
Company's cash and cash equivalents were $6.7 million.  The Company continues to
analyze its current and future needs for  financing,  which will be dependent on
its ability to develop the businesses of Fourteen  Hill,  Allegiance and PWS and
any other business  opportunities the Company pursues.  See "Consideration Under
the  Investment  Company Act of 1940." There can be no assurance that Point West
or PWS will be successful in obtaining  external financing on satisfactory terms
assuming  the Company  determines  additional  funds are  needed.  Point West at
present anticipates having sufficient  liquidity to meet its working capital and
operational needs through 1999, using current cash and cash equivalents.

     DPFC

         DPFC  does  not  have  operations.  Point  West,  as  servicer,  incurs
administrative  costs  associated  with the  Securitized  Notes.  Point  West is
reimbursed  for these costs  subject to  priority  provisions  contained  in the
Indenture.  As of December 31, 1998,  the  outstanding  principal  amount of the
Securitized  Notes was $38.5 million.  As of the same date,  DPFC had restricted
cash of $2.9  million,  which  cannot  be  accessed  by Point  West  except  for
reimbursement  of costs  incurred in connection  with its activities as servicer
under the Indenture.  Principal and interest  payments on the Securitized  Notes
are payable solely from  collections  on policies  pledged to secure the payment
thereof and do not  require  Point West to expend  cash or obtain  financing  to
satisfy such principal and interest obligations.

     Fourteen Hill

         Fourteen  Hill's  activities  have  generally been supported by capital
investments by Point West.  During 1997,  Point West contributed $2.5 million to
Fourteen Hill. During 1998, Point West contributed an additional $2.5 million to
Fourteen Hill.  During the first two months of 1999,  Point West has contributed
an additional $800,000 to Fourteen Hill.

         Fourteen Hill Capital has an SBA debenture license and, therefore,  may
be permitted to borrow up to $7.5  million  from the SBA.  Any  borrowings  bear
interest at the rate for ten year debentures issued by SBIC's and funded through
public sales of  certificates  bearing the SBA's guarantee  ("Debenture  Rate").
Interest is payable  semi-annually.  In addition,  there is a leverage fee of 3%
and a fee of 1% per  annum  on the  outstanding  amount  of  debt.  Among  other
requirements,  an SBIC  with an SBIC  debenture  license  must  maintain  proper
diversification of its portfolio. This requirement generally means that in order
to borrow funds from the SBA, no single  investment may exceed 20% of the SBIC's
regulatory capital plus its net unrealized investment gains.  Additionally,  the
portfolio must consist of a proper mix of debt and equity investments.

         On July 16, 1998,  Fourteen  Hill Capital  borrowed $3 million from the
SBA. At present, Fourteen Hill Capital is unable to borrow additional funds from
the SBA because (1) two  investments  each represents an amount greater than 20%
of its  regulatory  capital  plus its net  unrealized  investment  gains 


                                       25

<PAGE>

and (2) Fourteen Hill Capital has negative retained earnings. The Company cannot
determine  when,  if ever, it will be able to borrow  additional  funds from the
SBA. In addition,  if Fourteen  Hill Capital does not liquidate a portion of its
investment  portfolio  or  obtain  additional  regulatory  capital,  the SBA may
accelerate  the  repayment of the  debenture.  The Company  believes that if its
holdings in FlashNet become marketable securities, the only reason it may not be
able to borrow  additional  funds from the SBA is that  Fourteen Hill Capital is
not profitable.

         Fourteen Hill may not have sufficient liquidity,  at least in the short
term, to grow its business.

     Allegiance

         At December 31, 1998,  Point West made the only capital contribution to
 Allegiance  Capital in the amount of $4.6 million.

         On August 19, 1998,  Allegiance put in place the  Allegiance  Financing
which may provide up to $56.4 million  solely to support any lending  activities
of Allegiance. The Allegiance Financing provides interim floating rate financing
through August 31, 1999. The Company  anticipates that the Allegiance  Financing
will  ultimately  provide 15 year fixed and floating  rate  financing  for loans
originated by Allegiance.  However, if Allegiance does not originate $30 million
in loans by  August  31,  1999,  the term  certificates  may not be  issued  and
Allegiance  would be responsible for finding an alternative  financing source to
repay the interim  financing.  As of December 31, 1998,  Allegiance had borrowed
the  principal  amount of $5.4  million  under  the  Allegiance  Financing.  See
"Description of Revolving Certificates."

         The  Company  expects  that  the  Allegiance   Financing  will  provide
sufficient funds to support Allegiance's lending activities through August 1999.

Description of Revolving Certificates
-------------------------------------

         Pursuant  to  the  Allegiance  Financing,  a  consortium  of  insurance
companies (the "Investors") will provide funding of approximately  $26.4 million
through August 31, 1999 on a non recourse revolving certificate basis to be used
for the  purchase  or funding of loans  originated  by  Allegiance  Capital  and
transferred to Allegiance  Funding.  Upon the earlier of the incurrence of $26.4
million  of  revolving   certificates   or  August  31,  1999,   such  revolving
certificates  will be repaid through the issuance of term  certificates  with an
approximate 15-year maturity.  In addition,  the Allegiance Financing provides a
commitment to provide up to an additional $30 million of funding  through August
31, 1999 through 15-year term loans. In the event that term certificates are not
issued  by August  31,  1999,  Allegiance  will be  required  to  refinance  any
revolving certificates outstanding under the Allegiance Financing.

         The Allegiance  Financing  contemplates the issuance of various classes
of revolving and term  certificates  through  Allegiance  Trust I.  Certificates
receiving ratings are to be purchased by the Investors, while Allegiance Funding
will retain unrated  certificates.  The revolving  certificates received ratings
from Duff & Phelps Credit Rating Co.  ranging from A to BB and it is anticipated
that the term certificates,  when and if issued,  will also receive ratings from
Duff & Phelps.  Allegiance Trust I issued the Class B-R, Class C-R and Class D-R
revolving  certificates  in 1998.  The Class  C-R  certificates  were  issued in
November 1998 in the  principal  amount of $2.1 million and received a rating of
BB from Duff & Phelps.  The Class B-R certificates  were issued in December 1998
in the principal amount of $3.3 million and received a rating of BBB from Duff &
Phelps. Such certificates bear interest at a variable rate based on the one-year
U.S. Treasury Rate plus a weighted-average  spread of 3.9%. The weighted-average
interest  rate of the  certificates  at December 31, 1998 was 8.17%.  Allegiance
initially  retained the unrated Class D-R revolving  certificate  with a maximum
aggregate principal amount of $3,650,000.  This certificate represents the right
to  receive  all  excess  cash flow from  Allegiance  Trust I.  Allegiance  also
anticipates   

                                      26


<PAGE>

retaining   unrated  term   certificates   following   retirement  of  revolving
certificates. Because of Allegiance's right to redeem the certificates if 15% or
less  in  principal  amount  of  certificates  is  outstanding,  the  Allegiance
Financing does not qualify for sale treatment under SFAS 125.  Accordingly,  the
Allegiance Financing will not receive gain on sale treatment under SFAS 125. The
loans and any borrowings under the Allegiance Financing will be reflected on the
Company's consolidated balance sheet.

         In connection with the Allegiance Financing,  Allegiance Capital paid a
$175,000  commitment  fee when the  funds  were  initially  borrowed  under  the
Allegiance Financing. Of such commitment fee, $58,000 will be amortized over the
expected  life of the  revolving  certificates  (10 months) and $117,000 will be
amortized  over the expected life of the Allegiance  Financing (15 years).  This
allocation  was  based on an  estimate  of the  portion  of the  commitment  fee
attributable to the revolving certificates and the term certificates.

         Allegiance's  ability to borrow under the Allegiance Financing is based
on the  delivery  of loans  meeting  certain  eligibility  criteria  relating to
loan-level  and pool-level  credit  criteria,  form of security and  appropriate
legal   documentation.   The  loan-level   credit   criteria  and  security  and
documentation   requirements   generally  follow   Allegiance's   basic  lending
guidelines.  The  pool-level  criteria  create  requirements  with  respect to a
variety of  parameters  intended  to achieve  certain  overall  levels of credit
quality and credit diversification. The ability to borrow is also subject to the
non-occurrence of certain events of default,  some of which are curable and some
of which result in permanent loss of borrowing rights. Permanent loss of funding
will result from, among other things, the following: (i) non-payment of interest
on the revolving certificates;  (ii) any event of default by the servicer, Point
West, or special servicer,  Allegiance Capital,  (as described below), not cured
or waived within 30 days;  (iii) the occurrence of certain events of bankruptcy,
insolvency or reorganization  with respect to Allegiance  Funding;  and (iv) the
occurrence of certain  specified levels of delinquent or defaulted loans or loan
losses.  Temporary loss of funding will result from exceeding  certain specified
levels of delinquent or defaulted loans or loan losses,  or from  non-compliance
with required liquidity account levels (as described below).

         Under the  Allegiance  Financing,  a liquidity  account  (the  "Reserve
Account") is required to be maintained, generally at 1% of the aggregate balance
of  loans  underlying  the  revolving  certificates,  subject  to a  minimum  of
$250,000.  The  required  amount  can  increase  by a  formula  amount  upon the
incurrence of, and based on a fraction of the dollar amount of, any  delinquent,
defaulted or underperforming loans.

         Point West acts as  servicer  and  Allegiance  Capital  acts as special
servicer   pursuant  to  a  Servicing   Agreement  (the  "Allegiance   Servicing
Agreement").  As servicer,  Point West is required to provide monthly reports to
the trustee regarding loan collections, to maintain the loan payment records and
to provide related monitoring  services.  Point West receives a fee of 0.20% per
annum on the  outstanding  balance  of the loan pool  underlying  the  revolving
certificates,  and bears all  expenses  related  to its  duties,  as well as the
trustee fee. As special servicer,  Allegiance Capital provides quarterly reports
to the trustee  regarding loan  collateral  performance  and is responsible  for
managing any  delinquencies,  defaults or  liquidations.  An unaffiliated  third
party provides additional services with respect to loan collateral monitoring as
servicing  advisor.  Allegiance Capital receives a fee of 0.20% per annum on the
outstanding balance of the loan pool underlying the revolving certificates,  and
bears all expenses  related to its duties,  as well as the  servicing  advisor's
fees. Point West,  Allegiance  Capital and the servicing advisor are entitled to
receive  reimbursement  from loan  collections for certain expenses which may be
incurred with respect to loan defaults,  work-outs or dispositions.  All amounts
owed to Point West and Allegiance  Capital are subject to  availability  of cash
after payment of certain other priority amounts pursuant to the Allegiance Trust
Agreement.  An event of default under the  Allegiance  Servicing  Agreement will
occur upon, among other things, (i) failure by the servicer, special servicer or
servicing  advisor to remit any loan collections  received by them; (ii) failure
by the servicer,  special  servicer or 

                                       27


<PAGE>

servicing  advisor to deliver the reports  required to be delivered by them;  or
(iii)  the   occurrence  of  certain   events  of   bankruptcy,   insolvency  or
reorganization  with  respect to the  servicer,  special  servicer or  servicing
advisor. If an event of default occurs and is not remedied, the offending party,
servicer, special servicer, or servicing advisor, may be replaced at the request
of the Investors and replaced by a nominee of Allegiance Funding, subject to the
approval of the Investors.

Description of Securitized Notes
--------------------------------

         The  Securitized  Notes bear  interest at a fixed annual rate of 9.17%.
The principal amount of the Securitized Notes to be repaid in any month is equal
to  proceeds of  policies  collected  during the  preceding  month less  certain
required  monthly  payments (such as interest and servicing and trustee fees) to
be paid on such date.

         The ownership  interest in policies purchased by DPFC is nominally held
by an unaffiliated  third party trustee under the Indenture but the policies are
beneficially  owned by DPFC. The Company accounts for this  securitization  as a
debt  financing  and not as a sale of assets,  which is in  accordance  with the
accounting literature in effect for bankruptcy remote entities with non-recourse
debt. The assets,  liabilities  and operations of DPFC are  consolidated  in the
Company's consolidated financial statements.

         The Indenture contains certain covenants  restricting the activities of
DPFC.  DPFC is  required  to maintain  in an account  under the  Indenture  (the
"Liquidity  Account") a balance of 10% of the outstanding  principal  balance of
the Securitized Notes. Subject to certain  restrictions,  funds in the Liquidity
Account may be used to pay,  among other  things,  servicing  and trustee  fees,
principal and interest and taxes.  Events of default under the Indenture include
(i) a default in payment of principal or interest on the Securitized  Notes when
due,  (ii) a default by DPFC in the  performance  of any material  covenant or a
material  breach of a  representation  or  warranty  of DPFC  which is not cured
within  30  days,  and  (iii)  certain  events  of  bankruptcy,  insolvency  and
reorganization involving DPFC.

         Point  West  acts  as  servicer  under  the  Indenture  pursuant  to  a
Contribution,  Sale and Servicing Agreement (the "DPFC Servicing Agreement") and
receives monthly,  pursuant and subject to the terms of the Indenture,  a fee of
$36,000  until the earlier to occur of  collection of the face value of the last
policy in the Pool or payment in full of the  Securitized  Notes.  Point West is
required under the DPFC Servicing  Agreement to monitor each policy and to cause
the  collection  and  remittance  to the  trustee  of the face  value of matured
policies. Point West pays all expenses related to such monitoring and collection
services,  including  paying  premiums and back-end  fees, and is reimbursed for
certain expenses.  All amounts owed to Point West pursuant to the monitoring and
collecting activities are subject to availability of cash after payment of other
priority  amounts as provided in the  Indenture.  The DPFC  Servicing  Agreement
contains certain covenants  restricting Point West's  activities,  including (i)
restrictions  on mergers,  (ii)  provisions  related to respecting  the separate
legal  status of DPFC,  (iii) a  requirement  that no person  will own a greater
percentage  of the  aggregate  voting power of equity  securities  of Point West
entitled to vote in the election of directors than the  percentage  collectively
beneficially  owned by the Point West's  executive  officers and no person other
than Point West's  executive  officers will own more than 20% of such  aggregate
voting power, (iv) a requirement that Point West's executive officers constitute
a majority of the Board,  and (v) a requirement  that Point West employ at least
two of Point  West's  executive  officers  (or such other  personnel  reasonably
acceptable to the Noteholders) in their respective current capacities.  An event
of default will occur under the DPFC Servicing Agreement if, among other things,
(i) an event of default  occurs under the  Indenture,  or (ii) certain events of
bankruptcy, insolvency or reorganization occur with respect to Point West. If an
event of default  occurs under the DPFC Servicing  Agreement,  Point West can be
replaced as servicer  under the Indenture.  The back-up  servicer is the trustee
under the Indenture.

                                       28

<PAGE>

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

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

     Nonetheless,  the  Company  believes  it is not  engaged  primarily  in the
business of investing,  reinvesting or trading in securities  within the meaning
of the 1940 Act and the  rules of the SEC  promulgated  thereunder  and does not
believe  that  it  should  be  deemed  to be an  investment  company  under  the
Percentage Tests. In addition,  the company does not believe it holds itself out
as an investment company.  However,  the Company believes that it may exceed the
Percentage Tests in the future as a result of the following:

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

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

         *        The  success  of  Fourteen  Hill,  which  holds  a  number  of
                  investment securities, has exceeded expectations.

         The  bulk of  investment  securities  held  by the  Company  have  been
acquired  since  January  1998.  The aggregate  value of these  investments  has
increased  substantially since the purchase dates. In particular,  Fourteen Hill
will hold 1,120,266 shares of FlashNet common stock,  after giving effect to the
3.4 to 1 stock split and  assuming  the initial  public  offering of FlashNet is
consummated. FlashNet has announced its intention to complete its initial public
offering in the middle of March.  Based on preliminary  price  indications,  the
Company  expects  the  value of the  FlashNet  shares  that it owns to  increase
dramatically  if the  initial  public  offering  occurs.  Given the value of the
Company's  other assets,  the Company  believes that the increased  value of the
FlashNet  shares may cause the  Company to exceed the  Percentage  Tests even if
those Percentage Tests have not yet been exceeded.

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

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

         *        continuing   to  develop   Allegiance's   commercial   lending
                  business; and

         *        disposing of  investment  securities  and/or  restricting  the
                  growth of Fourteen Hill's business.

                                       29
<PAGE>


Growth of New Business
----------------------

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

Accelerating the Growth of Allegiance

         The  Company  will use all  reasonable  efforts to grow the  commercial
lending business of Allegiance.  However,  the growth of Allegiance is dependent
on the market's  acceptance of the product offerings and services of Allegiance,
Allegiance's   continued   ability  to  raise   financing  for  its  activities,
Allegiance's  ability to find suitable  creditworthy  borrowers and  competitive
pressures in the lending industry.

Disposing of Investment Securities/Limiting Growth of Fourteen Hill

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

         The  Company  may also  determine  that it needs to limit the growth of
Fourteen  Hill's  business to avoid being an  investment  company under the 1940
Act.  Limiting  Fourteen  Hill's  growth  may  materially  adversely  affect the
Company's future financial condition and results of operations.

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

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

         The Company expects to spend  approximately  $50,000 to $100,000 in the
aggregate to modify its computer  information systems enabling proper processing
of  transactions  relating to the year 2000 and beyond ("Year 2000  Compliant").
During 1998,  the Company made an assessment of Year 2000  Compliant  issues and
determined  that it needed to modify or replace  certain  third  party  computer
hardware and software. As the Company has implemented solutions to the Year 2000
Compliant  issues,  

                                       30
<PAGE>

in  some  circumstances  it has  determined  that  replacing  existing  systems,
hardware,  or  equipment  may be more  efficient  and  also  provide  additional
functionality.  The Company has completed the majority of such modifications and
replacements.  Through  December  31, 1998,  the Company had incurred  Year 2000
Compliant costs of approximately $24,000, of which $19,000 has been capitalized.
The Company does not believe the amounts  expected to be expensed  over the next
year will have a  material  effect  on its  financial  position  or  results  of
operations.  However,  there can be no assurance  that actual costs (i) will not
materially  exceed  expected  costs  and (ii) will not have a  material  adverse
effect on the  Company's  financial  condition  and  results of  operation.  The
Company is currently assessing its electronic office equipment such as the phone
system,  copiers,  fax  machines,  printers,  and the like to  determine if such
equipment  is date  sensitive  and will  require  upgrades.  The Company is also
assessing the readiness of its  business-critical  spreadsheets  and  customized
databases and plans to make modifications of those systems as necessary.  During
1999, the Company will test and make any system refinements that may be needed.

         The Company has begun  assessing  the  readiness of external  entities,
such  as  vendors,  suppliers,  investments  and  financial  institutions  which
interface  with the Company and plans to have this  assessment  complete by June
30, 1999. The Company plans to determine  whether those parties have appropriate
plans to  remediate  Year 2000 issues  where their  systems  interface  with the
Company's  systems or  otherwise  impact its  operations.  The Company  plans to
assess  the  extent  to  which  its  operations  are  vulnerable   should  those
organizations fail to properly  remediate their computer systems.  The Company's
Year 2000 team is made up of three  internal  staff  members.  While the Company
believes  its planning  efforts are adequate to address its Year 2000  concerns,
there can be no  guarantee  that the  systems  of other  companies  on which the
Company's  systems and  operations  rely will be Year 2000 Compliant on a timely
basis.  Although the Company believes it is unlikely,  there can be no assurance
that the failure of the Company or a third party on which it is  dependent to be
Year 2000  Compliant  will not have a material  adverse  effect on the Company's
operations, prospects, financial condition or results of operations.

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

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

         This report includes forward looking  statements  within the meaning of
the Private Securities Litigation Reform Act of 1995. All statements made herein
which are not based on historical  facts are forward  looking and,  accordingly,
involve  risks and  uncertainties  that  could  cause  actual  results to differ
materially from those discussed.  Such forward looking  statements include those
under  "Management's  Discussion and Analysis of Financial Condition and Results
of Operations" relating to (i) the ability of Allegiance to finance the loans at
the expected  rating levels,  (ii)  sufficiency  of the Company's  liquidity and
capital resources (See "Liquidity and Capital  Resources"),  (iii) the Company's
ability to continue not being subject to registration  and regulation  under the
1940 Act (See  "Considerations  Under the Investment Company Act of 1940"), (iv)
expected  expenses in connection with the federal and state alleged class action
lawsuits  filed  against the  Company and its  officers  and  directors  and (v)
expected expenses to make the Company's computer  operations Year 2000 Compliant
and   expectations   regarding  

                                       31
<PAGE>

the Year 2000 Compliance of the Company,  third-parties  on which the Company is
dependent and the efficacy of contingency plans related thereto. Such statements
are based on management's  belief,  judgment and analysis as well as assumptions
made by and information  available to management at the date hereof. In addition
to any  assumptions  and cautionary  factors  referred to  specifically  in this
report in connection  with such forward looking  statements,  factors that could
cause actual results to differ materially from those contemplated by the forward
looking  statements  include (i) Allegiance's  ability to originate a sufficient
number  and  amount  of  loans,  the  market's  acceptance  of the  asset  class
consisting of the loans held by Allegiance and  Allegiance's  ability to finance
the loans on terms acceptable to the market and Allegiance,  (ii) the results of
the Company's consideration of strategic options and any costs associated with a
chosen  option,  (iii)  availability  and  cost of  capital,  (iv)  the  factors
described under "Management's Discussion and Analysis of Financial Condition and
Results of  Operations --  Considerations  Under the  Investment  Company Act of
1940," (v) the outcome of the federal and state  alleged  class action  lawsuits
filed against the Company and its officers and directors and (vi) the ability of
the Company's suppliers and vendors to become Year 2000 Compliant.

ITEM 7A--QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
--------------------------------------------------------------------

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

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

         Beginning  in 1999,  because  of the  recent  volatility  of the  stock
market,  particularly in internet and internet  related  stocks,  Point West has
hedged a portion of its  exposure and may  increase  its hedging  activities  to
reduce its  exposure to such  volatility.  Such  hedging has  included  shorting
stocks of certain competitors of the Company's holdings.  However, under GAAP it
is unlikely that such hedging  activities will constitute hedges under Statement
of Financial  Accounting  Standards No. 80 ("SFAS 80"),  Accounting  for Futures
Contracts. Therefore, such hedging activities will be reflected in the Company's
Consolidated Statement of Operations and Comprehensive Income (Loss).

         Allegiance's  variable rate debt consist of Trust certificates totaling
$5.4 million which bear interest based on the one-year U.S. Treasury Rate plus a
weighted  average spread of 3.9%. See Note 5 of Notes to Consolidated  Financial
Statements.


                                       32

<PAGE>


         The table below  represents  principal cash flows and weighted  average
interest rates for the Allegiance loans outstanding at December 31, 1998:
<TABLE>
<CAPTION>

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


Fixed rate loans (1)   $208,620  $243,757  $267,424 $293,394 $321,891 $7,768,381
Average interest rates  9.3%      9.3%      9.3%     9.3%     9.3%     9.3%

--
<FN>

(1)  The Company hedges its interest rate exposure  related to the loans made by
     Allegiance  because  the  interest  rate at  which  Allegiance  anticipates
     issuing  term  certificates  will be set in the future at some point before
     August  31,  1999,  when  approximately  $30  million  of loans  have  been
     originated. Allegiance utilizes futures contracts to hedge certain interest
     rate exposure between the time of origination of the loans and the issuance
     of term certificates. The Company sold 10-year Treasury Notes to hedge such
     interest rate risk.

</FN>
</TABLE>

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


ITEM 8--FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
---------------------------------------------------

         See pages 34 through 57.

ITEM  9--CHANGES  IN  AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
--------------------------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------

         None.

                                       33

<PAGE>

KPMG LLP
Three Embarcadero Center
San Francisco, CA 94111


                          Independent Auditors' Report
                          ----------------------------

The Board of Directors and Stockholders of
Point West Capital Corporation:

We have  audited  the  accompanying  consolidated  balance  sheets of Point West
Capital  Corporation  as of  December  31,  1998  and  1997,  and  the  related
consolidated   statements  of  operations   and   comprehensive   income (loss),
stockholders'  equity,  and cash  flows for each of the years in the  three-year
period ended December 31, 1998. These consolidated  financial statements are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the financial position of Point West Capital
Corporation as of December 31, 1998 and 1997,and the results of their operations
and  their  cash  flows  for each of the years in the  three-year  period  ended
December 31, 1998,  in conformity with generally accepted accounting principles.


                                       KPMG LLP
San Francisco, California
February 27, 1999

                                       34

<PAGE>




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

<TABLE>
<CAPTION>




                                                                               December 31,         December 31,
                                 ASSETS                                            1998                 1997
                                                                            -------------------   ------------------

<S>                                                                                   <C>                     <C>    

Cash and cash equivalents                                                 $          6,668,126  $        10,039,560
Restricted cash                                                                      3,153,513            3,756,714
Investment securities
          Held-to-maturity                                                                  --            2,220,000
          Available-for-sale                                                         2,113,034            3,597,343
Matured policies receivable                                                             12,000              305,435
Loans receivable, net of unearned income of $117,709 and
          $59,884, respectively and net of an allowance on
          loan losses of $50,000 and $0, respectively                               10,187,590            4,015,716
Purchased life insurance policies                                                   33,893,017           36,586,788
Non-marketable securities                                                            5,396,607            1,658,478
Deferred financing cost, net of accumulated amortization
         of $907,848 and $617,026, respectively                                        810,545              525,433
Furniture and equipment, net of accumulated depreciation of
          $4,469 and $341, respectively                                                 25,365                6,862
Other assets                                                                           182,964              256,924
                                                                            -------------------   ------------------

          Total assets                                                    $         62,442,761  $        62,969,253
                                                                            ===================   ==================

                  LIABILITIES AND STOCKHOLDERS' EQUITY

Accrued interest expense                                                  $            263,805  $           183,150
Accounts payable                                                                       192,436              216,851
Accrued compensation payable                                                           222,000              193,000
Reserve for equity interest in wholly owned financing
          subsidiary                                                                        --            2,300,037
Revolving certificates                                                               5,400,045                   --
Long term notes payable                                                             38,528,914           38,804,107
Debentures payable to Small Business Administration                                  3,000,000                   --
Deferred income taxes                                                                    6,000                6,000
                                                                            -------------------   ------------------

          Total liabilities                                                         47,613,200           41,703,145
                                                                            -------------------   ------------------

Stockholders' equity:
          Common stock, $0.01 par value; 15,000,000 authorized shares,
               4,291,824 shares issued
               3,253,324 shares outstanding                                             42,918               42,918
          Additional paid-in-capital                                                29,496,720           29,496,720
          Accumulated comprehensive income-- net unrealized
               investment gains (losses)                                             (188,966)            2,597,239
          Retained deficit                                                        (11,647,079)          (7,996,737)
          Treasury stock, 1,038,500 shares                                         (2,874,032)          (2,874,032)
                                                                            -------------------   ------------------

          Total stockholders' equity                                                14,829,561           21,266,108
                                                                            -------------------   ------------------

          Total liabilities and stockholders' equity                      $         62,442,761  $        62,969,253
                                                                            ===================   ==================
<FN>


          See accompanying notes to consolidated financial statements.

</FN>
</TABLE>
                                       35

<PAGE>

                         POINT WEST CAPITAL CORPORATION
      CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
                For the Years Ended December 1998, 1997 and 1996


<TABLE>
<CAPTION>

 
                                                                             1998             1997             1996
                                                                        ----------------  --------------   --------------

<S>                                                                          <C>              <C>             <C>    
Income:
     Earned discounts on life insurance policies                      $              -- $            --  $     3,697,032
     Earned discounts on prior maturities                                            --              --          802,471
     Earned discounts on matured policies                                       438,792         488,563          979,611
     Interest income                                                          1,494,079       1,183,919          783,115
     Net gain on sale of non-marketable
           securities                                                                --         679,665               --
     Gain (loss) on assets sold                                                 165,346       1,463,080        (179,548)
     Other                                                                      309,354         102,663          322,141
                                                                        ----------------  --------------   --------------
           Total income                                                       2,407,571       3,917,890        6,404,822

Expenses:
     Interest expense                                                         3,679,566       3,599,487        3,983,606
     Compensation and benefits                                                1,514,812       1,151,574        1,196,291
     Other general and administrative expenses                                1,728,169       1,474,916        1,388,338
     Amortization                                                               352,181         240,194          449,631
     Depreciation                                                                 4,128             341           19,967
     Provision for loss on assets held for sale                                      --         328,236        3,139,588
     Loss on investment in wholly owned financing
           subsidiary                                                                --              --        6,940,189
     Loss on non-marketable securities                                        1,073,494              --                --
                                                                        ----------------  --------------   --------------
           Total expenses                                                     8,352,350       6,794,748       17,117,610
                                                                        ----------------  --------------   --------------

           Loss before income taxes and net loss
               in wholly owned financing subsidiary
              charged to reserve for equity interest                        (5,944,779)     (2,876,858)     (10,712,788)

Income tax (expense) benefit                                                    (5,600)         (4,000)          525,711

Net loss in wholly owned financing subsidiary charged
     to reserve for equity interest                                           2,300,037       3,891,494          487,600

                                                                        ----------------  --------------   --------------
           Net income (loss)                                                (3,650,342)       1,010,636      (9,699,477)

Comprehensive income -- net unrealized
     investment gains (losses)                                                2,786,205       2,597,239               --
                                                                        ----------------  --------------   --------------
Total comprehensive income (loss)                                     $     (6,436,547) $     3,607,875  $   (9,699,477)
                                                                        ================  ==============   ==============

Basic earnings (loss) per share                                       $          (1.12) $          0.29  $        (2.46)
Diluted earnings (loss) per share                                                (1.12)            0.28           (2.46)

Weighted average number of shares of common stock
     outstanding                                                              3,253,324       3,521,736        3,942,166
Weighted average number of shares of common stock
     and common stock equivalents outstanding                                 3,253,324       3,605,674        3,942,166

<FN>


          See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
                                       36

<PAGE>


                         POINT WEST CAPITAL CORPORATION
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
              For the years ended December 31, 1998, 1997 and 1996

<TABLE>
<CAPTION> 


                                                                              Accumulated
                                                                               
                                                                              Comprehensive  
                                                                                
                                                                               Income-Net
                                                                                    
                                                                     Additional  unrealized  Retained               
                                                                                                                                   
                          Preferred Stock        Common Stock        paid-in     investment  earnings       Treasury
                          ------------------     --------------
                          Shares    Amount     Shares      Amount    -capital      gains    (deficit)        Stock         Total
                          ------- ----------  ---------   -------    ----------  ---------  ------------  ------------  -----------
 
<S>                          <C>      <C>        <C>        <C>          <C>            <C>       <C>          <C>             <C>
 
January 1, 1996            35,260   $3,488,013  1,589,324   $15,893 $   669,594  $       -- $    692,104  $        --   $ 4,865,604
Issuance of preferred
 stock dividend               580           --         --       --          --          --           --           --             --
Issuances of common stock
     (February 1996)      (35,840)  (3,488,013) 2,702,500   27,025  28,734,956          --           --           --    25,273,968
Purchase of treasury stock     --           --         --       --          --          --           --     (390,000)     (390,000)
Grant of warrants  
 (September 1996)              --           --         --       --      92,170          --           --           --        92,170
Net loss                       --           --         --       --          --          --  (9,699,477)           --    (9,699,477)
                           -------- ----------  --------- --------  -----------  ---------  ------------ ------------  ------------
Balances at December 31,
  1996                         --           --  4,291,824  $42,918 $29,496,720 $        -- $(9,007,373)  $  (390,000)   20,142,265
                           -------- ----------  --------- --------  -----------  ---------  ------------ ------------  ------------
Net unrealized investment
 gains                         --           --         --       --          --   2,597,239           --           --     2,597,239
Purchase of treasury stock     --           --         --       --          --          --           --   (2,484,032)   (2,484,032)
Net income                     --           --         --       --          --          --    1,010,636           --     1,010,636
                           -------- ----------  --------- --------  -----------  ---------  ------------ ------------  ------------
Balances at December 31,  
 1997                          --   $       --  4,291,824  $42,918 $29,496,720  $2,597,239 $ (7,996,737)  $(2,874,032)  $21,266,108
                           --------  ----------  ---------  -------- ----------- ----------  ------------------------ ------------
Net unrealized investment
 losses                         --          --         --       --         --   (2,786,205)          --             --  (2,786,205)
Net loss                        --          --         --       --         --          --    (3,650,342)            --  (3,650,342)
                           -------- ----------  ---------  --------  ---------   ---------  ------------  ------------  -----------
Balances at December 31, 
 1998                          --   $       --  4,291,824  $42,918 $29,496,720  $(188,966) $(11,647,079) $(2,874,032)  $14,829,561
                          ========= ==========  =========  ======== =========== ==========  ============ ============  ============

<FN>

          See accompanying notes to consolidated financial statements.

</FN>
</TABLE>
                                       37
<PAGE>



                         POINT WEST CAPITAL CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
              For the Years Ended December 31, 1998, 1997 and 1996

<TABLE>
<CAPTION>




                                                                         1998               1997                1996
                                                                   -----------------   ---------------   -------------------

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

Cash flows from operating activities:
   Net income (loss)                                             $      (3,650,342) $       1,010,636 $         (9,699,477)
   Adjustments to reconcile net income (loss) to net cash
        (used in) provided by operating activities:
        Depreciation and amortization                                       356,309           240,535               469,599
        Loss (gain) on sale of assets                                     (165,346)       (1,463,080)               191,851
        Net gain on sale of non-marketable securities                            --         (679,665)                    --
        Provisions for loss on sale of assets                                    --           328,236             3,139,587
        Warrants granted to consultants                                          --                --                92,170
        Earned discounts on policies                                      (438,792)         (488,563)           (5,479,114)
        Purchase of life insurance policies                                      --         (882,848)          (23,912,464)
        Collections on matured life insurance policies                    3,209,114         6,051,149            15,523,569
        Decrease in unearned income on policies                                  --                --             (715,883)
        Increase in reserve for loans receivable                             50,000                --                    --
        Decrease (increase) in other assets                                  11,600          (25,096)              (15,519)
        Decrease in deferred taxes                                               --                --             (525,711)
        Increase (decrease) in accrued interest expense                      80,655           (7,744)             (138,933)
        Decrease in accounts payable                                       (24,415)         (103,726)              (56,627)
        Decrease in IPO financing costs payable                                  --                --             (306,900)
        Decrease in payable to related party                                     --                --           (1,482,170)
        Increase (decrease) in accrued compensation payable                  29,000             6,610             (662,758)
        Increase (decrease) in reserve for equity interest in
        wholly
               owned financing subsidiary                               (2,084,412)       (3,891,494)             6,452,589
        Increase in non-marketable securities received                     (97,816)                --                    --
        Loss on non-marketable securities                                 1,073,494                --                    --
                                                                   -----------------   ---------------   -------------------
               Net cash (used in) provided by operating                 (1,650,951)            94,950          (17,126,191)
               activities
                                                                   -----------------   ---------------   -------------------

Cash flows from investing activities:
   Proceeds from sale of other assets                                       229,067        12,692,793             6,533,523
   Purchase of furniture and equipment                                     (22,630)           (7,203)               (6,776)
   Decrease (increase) in restricted cash                                   603,201           868,949              (58,818)
   Purchase of investments and non-marketable securities                (6,808,817)       (3,220,000)           (3,000,000)
   Sale of investments and non-marketable securities                      3,013,010         2,021,187                    --
   Additions to loans receivable                                        (6,549,689)       (4,015,716)                    --
   Principal payments on loans receivable                                   327,815                --                    --
                                                                   -----------------   ---------------   -------------------
               Net cash (used in) provided by investing                 (9,208,043)         8,340,010             3,467,929
               activities
                                                                   -----------------   ---------------   -------------------

Cash flows from financing activities:
   Proceeds from long term notes payable                                         --                --             6,375,000
   Principal payments on long term notes payable                          (275,193)       (2,414,098)           (4,261,933)
   Proceeds from debentures payable to the Small Business                 3,000,000                --                    --
   Administration
   Proceeds from revolving certificates                                   5,400,045                --                    --
   Proceeds from other long term debt                                            --                --             5,540,132
   Principal payments on other long term debt                                    --                --           (6,984,402)
   Distribution to limited partners                                              --                --             (783,313)
   Purchase of limited partners' interest in investment                          --                --           (5,081,184)
   partnership
   Principal payment on loan from stockholder                                    --                --           (1,162,170)
   Proceeds from issuances of common stock                                       --                --            25,273,968
   Purchase of treasury stock                                                    --       (2,484,032)             (390,000)
   Increase in financing costs                                            (637,292)          (83,717)              (88,000)
   Reimbursement of IPO financing costs                                          --                --               750,000
                                                                   -----------------   ---------------   -------------------
               Net cash provided by (used in) financing                   7,487,560       (4,981,847)            19,188,098
               activities
                                                                   -----------------   ---------------   -------------------

               Net (decrease) increase in cash and cash                 (3,371,434)         3,453,113             5,529,836
               equivalents

Cash and cash equivalents, beginning of period                           10,039,560         6,586,447             1,056,611
                                                                   -----------------   ---------------   -------------------

Cash and cash equivalents, end of period                         $        6,668,126 $      10,039,560 $           6,586,447
                                                                   =================   ===============   ===================


Supplemental disclosures:
Supplemental disclosure of non-cash activities:
   Unrealized (loss) gain on securities available for sale              $(2,786,205) $      2,597,239 $                  --
                                                                   =================   ===============   ===================
     Receipt of warrants                                         $           97,816  $             -- $                  --
                                                                   =================   ===============   ===================
Supplemental disclosure of cash flow information:
   State taxes paid                                              $       19,680      $         40,233 $               6,389
                                                                             
                                                                   =================   ===============   ===================
   Cash paid for interest                                        $        3,598,911  $      3,607,231 $           4,113,703
                                                                   =================   ===============   ===================
<FN>


          See accompanying notes to consolidated financial statements.

</FN>
</TABLE>

                                       38

<PAGE>

                         Point West Capital Corporation

                   Notes to Consolidated Financial Statements


                       December 31, 1998, 1997 and 1996


1.       Summary of Significant Accounting Policies
         ------------------------------------------

         a.   General Description

         Point West  Capital  Corporation  ("Point  West") and its  consolidated
entities (the "Company"), is a specialty financial services company.

         The principal  business  activity of the Company through  February 1997
was to provide  viatical  settlements  for  terminally  ill persons.  A viatical
settlement  is the payment of cash in return for an  ownership  interest in, and
right to receive the death benefit (face value) of, a life insurance  policy. In
February 1997,  Point West's Board of Directors  (the "Board")  decided to cease
the Company's viatical settlement  business.  The Board's decision resulted from
(i) accounts of research results reported at the  International  AIDS Conference
held in Vancouver,  British Columbia in July 1996 (the "AIDS Conference"),  (ii)
the Board's belief regarding  increased risks of purchasing and holding policies
insuring the lives of individuals  diagnosed with HIV or AIDS, (iii) accounts of
subsequent  research results which appeared to confirm the reports from the AIDS
Conference, and (iv) a determination by the Board that it was not viable for the
Company  to  continue  to  operate a  viatical  settlement  business  solely for
non-AIDS policies. Also as a result of the accounts of research results reported
at the AIDS Conference, the Company decided in the third quarter of 1996 to sell
all or substantially  all of its assets.  Through December 31, 1997, the Company
had entered into agreements to sell 373 policies with an aggregate face value of
$29.2 million and had consummated the sale of (or otherwise collected) all but 7
of such  policies  (having an aggregate  face value of $436,000) at December 31,
1998.

         Subsequent   to   February   1997,   the  Company  has  become  a  more
broadly-based  specialty  financial  services company.  The Company continues to
evaluate business opportunities. During 1997, the Company expanded its financial
services  business  through the  operations  of Fourteen  Hill  Management,  LLC
("Fourteen Hill  Management")  and Fourteen Hill Capital,  L.P.  ("Fourteen Hill
Capital"),  which  invest  in small  businesses;  and  Allegiance  Capital,  LLC
("Allegiance  Capital"),  Allegiance Funding Corp. I ("Allegiance  Funding") and
Allegiance  Capital Trust I ("Allegiance  Trust I"), which lend funds to funeral
home and cemetery owners. During 1998, the Company formed Point West Securities,
LLC ("PWS"), a broker-dealer  licensed by the National Association of Securities
Dealers, Inc. ("NASD"). References herein to Fourteen Hill include Fourteen Hill
Management and Fourteen Hill Capital.  References  herein to Allegiance  include
Allegiance  Capital,  Allegiance  Funding  and  Allegiance  Trust I. The Company
continues  to service  the life  insurance  policies  held by its  wholly  owned
special purpose subsidiary, Dignity Partners Funding Corp. I ("DPFC").

         Point West was  incorporated  in the State of Delaware on  September 8,
1992 as Dignity Partners,  Inc.  Effective August 1, 1997, Point West's name was
changed to Point West Capital Corporation.

         b.   Accounting Principles

         The  consolidated  financial  statements  are  presented on the accrual
basis of accounting in conformity with generally accepted accounting principles.
The Company has not presented the viatical settlement business as a discontinued
operation  because a substantial  portion of the Company's assets are related to
the  viatical  settlement  business.  All  policies  held by DPFC are pledged as
security for the Securitized Notes.

                                       39
<PAGE>

                         Point West Capital Corporation

                   Notes to Consolidated Financial Statements



         c.   Principles of Consolidation

         The Company consolidates the assets,  liabilities and operations of its
wholly owned special purpose subsidiary, DPFC.

         The Company also consolidates the assets, liabilities and operations of
Fourteen Hill Management, a wholly owned limited liability company, and Fourteen
Hill  Capital,  a related  limited  partnership,  both  formed on June 3,  1997.
Fourteen Hill Capital  received its small business  investment  company ("SBIC")
license from the Small Business  Administration  (the "SBA") effective September
26, 1997.  Fourteen Hill Management is the sole general partner of Fourteen Hill
Capital, and owns 99.978% of the partnership interests. Point West is one of the
two limited  partners of Fourteen Hill Capital and owns 0.02% of the partnership
interests.  The remaining  0.002% of the  partnership  interests is owned by one
unaffiliated  limited partner.  Fourteen Hill Capital  provides loans,  debt and
equity capital to small  companies as defined by the SBA.  Fourteen Hill Capital
commenced operations in August 1997.

         On September 5, 1997, the Company formed Allegiance  Capital, a limited
liability company,  to provide senior secured loans to funeral home and cemetery
owners.  Point  West has a 65%  ownership  interest  and 95%  voting  control in
Allegiance  Capital and serves as the  managing  member of  Allegiance  Capital.
Allegiance Capital's president and its vice president of marketing, each of whom
was hired in  September  1997,  have the balance of such  interests  and have an
option to acquire from Point West 5% of the equity interests (but not the voting
power) if certain events occur. Point West made the only capital contribution to
Allegiance  Capital in the amount of $4.6 million.  During 1998,  Point West was
allocated all interest on loans through November 20, 1998, which was the initial
funding  date for the  Allegiance  Financing.  Additionally,  Point West will be
allocated  interest  (based on the  weighted-average  interest rate of all loans
outstanding)  to the extent that Point West's  capital  investment in Allegiance
exceeds $3.0 million.  Net profits of Allegiance  Capital for each calendar year
will be allocated  first to Point West in an amount equal to a return of 10% per
annum, compounded monthly, on the amount of its capital contribution, but not in
excess of such net profits.  Any shortfall will be carried forward  indefinitely
to the next calendar  year or years in which net profits are  sufficient to make
this  allocation.  An  additional  5%  return  for each  calendar  year  will be
allocated first to Point West to the extent that in each year sufficient profits
are available with no carry forward  provided.  Allegiance  Capital owns 100% of
Allegiance Funding,  which is a special purpose subsidiary formed to acquire and
securitize loans originated by Allegiance Capital.

         At December 31, 1998, Allegiance had funded five loans in the aggregate
principal  amount of $9.1 million.  The Allegiance  Financing  contemplates  the
issuance  of  various  classes  of  revolving  and  term  certificates   through
Allegiance  Trust to finance its lending  operations.  The Allegiance  Financing
does not qualify for sale  treatment  under  Statement of  Financial  Accounting
Standards  No. 125 ("SFAS  125"),  Accounting  for  Transfers  and  Servicing of
Financial Assets and Extinguishments of Liabilities. Accordingly, the Allegiance
Financing will not receive gain on sale treatment  under SFAS 125. The loans and
any  borrowing  under  the  Allegiance   Financing  will  be  reflected  on  the
consolidated balance sheet. The Company consolidates the assets, liabilities and
operations of Allegiance Capital, Allegiance Funding and Allegiance Trust I.

         The Company consolidates the assets, liabilities and operations of PWS,
a wholly owned limited liability  company,  formed on July 7, 1998. PWS received
its  license  from the NASD to become a  licensed  securities  broker-dealer  on
December 3, 1998. In addition, PWS is registered with the SEC and as of February
28, 1999 was registered as a broker-dealer in California,  New York and 18 other
states.  Point West  capitalized  PWS with $414,000.  Operations for PWS in 1998
were immaterial.


                                       40

<PAGE>

                         Point West Capital Corporation

                   Notes to Consolidated Financial Statements


         Through June 1996,  Point West was the sole general  partner of Dignity
Viatical Settlement Partners, L.P. ("Dignity Viatical"),  a limited partnership.
Because Point West  controlled  the  partnership,  the assets,  liabilities  and
operations of the partnership were consolidated with the assets, liabilities and
operations of the Company, and the interests of the former limited partners were
reflected as minority interest in the accompanying  financial statements through
December 31, 1995.  On June 25, 1996,  Point West  purchased  all of the limited
partnership  interests in Dignity Viatical for approximately  $5.2 million which
resulted in an elimination of the minority interest on the balance sheet.

         d.   Loans Receivable and Allowance for Loan Losses

         Loans are stated at the principal amount  outstanding,  net of unearned
income and the  allowance  for loan  losses.  The  allowance  for loan losses is
estimated  by  management  based on a review of the loans and  factors  which in
management's  judgement deserve  recognition under current economic  conditions.
Management  believes  that the  allowance  for loan  losses is  adequate.  While
management  uses  available  information  to recognize  losses on loans,  future
additions  to the  allowance  may be  necessary  based on  changes  in  economic
conditions.  At December  31,  1997,  the  Company  evaluated  Allegiance's  one
outstanding  loan and  determined  that an  allowance  for loan  losses  was not
necessary.  In addition, the Company evaluated Fourteen Hill's outstanding loans
and  determined  that an allowance for loan losses was not necessary at December
31, 1998 or  December  31,  1997.  A loan is placed on  non-accrual  status when
analysis  indicates the following  conditions are  occurring:  the loan is being
maintained on a cash basis and/or where it is determined to have deteriorated to
the point where payment in full of principal or interest has been in default for
a period of 90 days or more unless the obligation is well secured and in process
of  collection.  A loan can be returned  to accrual  status  once  analysis  has
determined that the above noted factors are no longer  occurring and the loan is
current. See Note 3.

         e.   Purchased Life Insurance Policies

         Through  June  30,  1996,  the  Company   recognized   income  ("earned
discount") on each  purchased  policy by accruing,  over the period  between the
acquisition date of the policy and the Company's estimated date of collection of
the face  value of the  policy  (the  "Accrual  Period"),  the  difference  (the
"unearned  discount")  between (a) the death benefit  payable (face value) under
the policy less the amount of fees,  if any,  payable to a referral  source upon
collection of the face value, and (b) the carrying value of the policy.  Through
June 30, 1996, the carrying value for each policy was reflected on the Company's
consolidated  balance  sheet  under  "purchased  life  insurance  policies"  and
consisted of the purchase price, other capitalized costs and the earned discount
on the policy  accrued to the balance  sheet date.  The Company  capitalized  as
incurred the following costs of a purchased policy:  (i) the purchase price paid
for the  policy,  (ii)  policy  premiums,  if any,  paid by the  Company,  (iii)
amounts,  if any, paid to referral  sources upon  acquisition  of the policy and
(iv) amounts paid to  Company-retained  physicians or other medical  consultants
("Consultants") who estimated the insured's life expectancy.  The carrying value
of a policy  changed  over time,  and was adjusted  quarterly to reflect  earned
discounts  accrued on the  policy and  amounts  paid for any  additional  future
increases in coverage,  any additional  premium payments and any premium refunds
if the policy becomes  covered by premium waiver  provisions.  The length of the
Accrual Period was determined by the Company based upon its estimate of the date
on which it would collect the face value of the policy.  Such estimate was based
upon the Company's estimate of the life expectancy of the insured,  after review
of the medical records of the insured by one or more  Consultants,  and was also
adjusted to reflect the historical  accuracy of the life expectancies  estimated
by the Company's  Consultants and the typical period (collection period) between
the date of an insured's  death and the date on which the Company  collected the
face value of the policy.

                                       41

<PAGE>
                         Point West Capital Corporation

                   Notes to Consolidated Financial Statements



         The unearned  discount  was accrued  over the Accrual  Period using the
"level yield"  interest  method.  Under the "level yield" method,  the yield was
held constant such that when the yield was applied to the carrying  value of the
policy on a compounded basis over the course of the Accrual Period, the unearned
discount was fully accrued as earned discount by the end of the Accrual Period.

     Beginning  in the  third  quarter  of 1996,  the  Company  began  generally
recognizing income with respect to its viatical settlement business upon receipt
of proceeds on policies  (either  pursuant to sale of the policy or the death of
the insured).  The income is equal to the difference between the policy proceeds
(less any back-end  sourcing  fees) and the carrying value of the policies after
giving effect to any reserve for loss on the sale of such policies.  

         Effective July 1996,  purchased life insurance  policies consisted only
of those  policies held by DPFC. The sale of policies held by DPFC, all of which
are  pledged  as  security  for the  Securitized  Notes (as  defined in Note 6),
requires  the  consent of the  Company  and the  Noteholders.  The  Company  has
discussed  potential sales of DPFC policies with the Noteholders.  However,  the
Company has not decided whether it will sell such policies and cannot  determine
whether the  Noteholders  will  consent to a sale or whether such a sale of DPFC
policies  is  feasible.  A reserve  was  recorded  in 1996 in the amount of $6.9
million to reflect the estimated  loss of Point West's equity  interest in DPFC.
The  reserve  provided  for  the  write-off  of the  unrealized  residual  value
associated  with DPFC. The losses of DPFC were charged first against the reserve
which,  during the third quarter of 1998, was fully depleted.  Losses associated
with DPFC after  depletion of the reserve  during the third quarter of 1998 have
been,  and all future  losses  associated  with DPFC will be,  reflected  in the
Company's  consolidated  statement of operations and comprehensive income (loss)
in the appropriate period. See Note 6.

         f.   Deferred Financing and Organizational Costs

         In 1995,  financing  costs of $1.1 million were  incurred in connection
with the  Securitized  Notes.  These costs have been  deferred and are amortized
straight-line  over the term of the Securitized  Notes. In 1997,  organizational
costs  of  $50,000  were   incurred  in   connection   with  Fourteen  Hill  and
organizational  costs of $16,000 were  incurred in connection  with  Allegiance.
These  costs  have been  fully  amortized  as of  December  31,  1998.  In 1998,
financing costs of $500,000 were incurred to obtain the Allegiance Financing (as
defined  in  Note  5).  These  costs  have  been   deferred  and  are  amortized
straight-line  over the  respective  terms  of the  financing  arrangements.  At
December 31, 1998 and 1997 the total deferred  financing costs were $811,000 and
$525,000, respectively.

         g.   Furniture and Equipment

         As a result of the  Company's  decision in the third quarter of 1996 to
sell all or substantially all of its assets, furniture and equipment at December
31, 1996 were valued on the assumption that  miscellaneous  office equipment had
no sales value. Furniture and equipment purchased in 1997 and 1998 in support of
the Company's  expanded financial services business are stated at purchased cost
net of accumulated  depreciation.  Depreciation  is provided on a  straight-line
basis over the  estimated  useful lives of the assets,  which is generally  five
years.

         h.  Other Assets

         Other assets primarily include assets held for sale. As a result of the
Company's decision in the third quarter of 1996 to sell all or substantially all
of its assets,  it reclassified all assets owned as of that date, other than the
assets of DPFC, to a  "held-for-sale"  category.  Accordingly,  these assets are
recorded on the balance  sheet as of December  31, 1998 and 1997 at the lower of
carrying value or fair value less

                                       42

<PAGE>

                         Point West Capital Corporation

                   Notes to Consolidated Financial Statements

estimated  cost to sell.  In  connection  with its decision to sell assets,  the
Company  established  a reserve for loss on sale of assets in 1996.  The Company
reevaluates the reserve each quarter.

         i.   Income Taxes

         The Company  accounts  for income  taxes using the asset and  liability
method.  Under  the  asset  and  liability  method,   deferred  tax  assets  and
liabilities   are   recognized  for  the  estimated   future  tax   consequences
attributable to differences  between the financial statement carrying amounts of
existing  assets  and  liabilities  and their  respective  tax basis  (temporary
differences). Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those  temporary
differences are expected to be recovered or settled.  The effect on deferred tax
assets and  liabilities  of a change in tax rates is recognized in income in the
period that includes the enactment date of the tax change.

         Deferred tax assets are recognized for deductible temporary differences
and operating loss and tax credit carryforwards,  and then a valuation allowance
is established to reduce that deferred tax asset if it is "more likely than not"
that the related tax benefits will not be realized in future years. See Note 8.

         j.   Cash and Cash Equivalents

         The Company considers as cash equivalents all highly liquid investments
with an original maturity of three months or less.

         k.   Concentration of Credit Risk

         Financial  instruments  that  subject the Company to  concentration  of
credit risk consist primarily of receivables from insurance  companies which are
the obligors under insurance  policies owned by the Company.  As of December 31,
1998,  the  aggregate  face value of  policies  issued by any one  insurer  with
respect to the  Company's  portfolio of insurance  policies  approximated  7% of
total assets.

         Other financial  instruments  that subject the Company to concentration
of credit risk include a loan made by  Allegiance to an  unaffiliated  entity in
the amount of $3.7 million,  which  approximated  6% of total assets at December
31, 1998.

         l.   Earnings Per Share

         Statement  of  Financial  Accounting  Standards  No. 128,  Earnings per
Share,  requires  earnings per share ("EPS") is  calculated  and reported as two
separate  calculations:  Basic EPS, similar to the previous primary earnings per
share  excluding  common stock  equivalents;  and,  Diluted EPS,  similar to the
previous fully diluted  earnings per share.  EPS is calculated using the average
number of Common Stock and Common Stock equivalents outstanding.  See Note 11.

         m.   Terminology

         Matured policies  receivable  represents policies for which the Company
has received notification that the insured has died and for which the Company is
awaiting collection of the face value.

         Loans  receivable  includes  hedging gains and losses,  net of unearned
income and allowance for loan losses.  Unearned  income  represents fees paid by
borrowers to Allegiance Capital net of direct expenses.

                                       43

<PAGE>

                         Point West Capital Corporation

                   Notes to Consolidated Financial Statements


         n.   Profit Sharing Plan

         Point West has a profit  sharing plan (the  "Plan") for its  employees.
Each  employee who has been employed for at least one year becomes a participant
in the Plan. The Plan provides for discretionary  annual  contributions by Point
West for the  account  of each  participant.  In any  year in which  the Plan is
"top-heavy"  within the meaning of the Internal  Revenue Code (the "Code"),  the
Plan requires, consistent with the Code, that a minimum contribution be made for
non-key  employees.  The contribution is allocated among  participants  based on
their  compensation under an allocation formula integrated with Social Security.
Participants  vest  20% in their  Plan  accounts  after  two  years  of  service
(excluding  any service prior to 1993) and an  additional  20% after each of the
next four years of service.  Upon termination  following permanent disability or
on retirement  at age 65, all amounts  credited to a  participant's  account are
distributed,  in a lump sum or in installments,  as directed by the participant.
Upon death, all amounts credited to a participant's  account become fully vested
and  are  distributed  to  the  participant's  surviving  spouse  or  designated
beneficiary. Each year, profit sharing contributions,  if any, are determined by
the Compensation Committee. The Plan contribution expenses which are included in
compensation  and benefits during 1998, 1997 and 1996 were $85,000,  $86,000 and
$70,000, respectively.

         o.   Use of Estimates

         Management   of  the  Company  has  made  a  number  of  estimates  and
assumptions  relating  to the  reporting  of  assets  and  liabilities  and  the
disclosure  of contingent  assets and  liabilities  to prepare  these  financial
statements in conformity with generally accepted accounting  principles.  Actual
results could differ from those estimates.

         p.   Stock-Based Employee Compensation

         The Company  applies APB Opinion No. 25 in accounting for its two stock
compensation  plans. No  compensation  cost has been recognized for these plans.
See Note 15.

         q.   Recent Accounting Developments

         During 1998, the Financial  Accounting  Standards Board ("FASB") issued
Financial  Accounting  Standard No. 133 ("SFAS 133"),  Accounting for Derivative
Instruments  and  Hedging  Activities.  SFAS  133 is  effective  for all  fiscal
quarters of fiscal  years  beginning  after June 15, 1999.  Management  is still
reviewing  the  impact  of  this  pronouncement.  During  1998,  the  Accounting
Standards  Executive  Committee  issued Statement of Position 98-5 ("SOP 98-5"),
Reporting on Costs of Start-Up  Activities.  SOP 98-5 requires costs of start-up
activities and organizational costs to be expensed as incurred.  Management will
comply with this statement.


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

         Statement  of  Financial  Accounting  Standards  No. 115 ("SFAS  115"),
Accounting  for  Certain  Instruments  in Debt and Equity  Securities,  requires
marketable debt and equity  securities to be classified  into  held-to-maturity,
available-for-sale   and   trading   categories.    Securities   classified   as
held-to-maturity   are  reported  at  amortized   cost  and   available-for-sale
securities are reported at fair market value with unrealized gains and losses as
a separate  component of  stockholders'  equity.  Many of the equity  securities
classified by the Company as  available-for-sale  are  securities  traded in the
over-the-counter  ("OTC") market.  Fair market value is estimated by the Company
based on the average  closing bid of the  securities  for the last three trading
days of the reporting period and is adjusted to reflect management's


                                       44
<PAGE>

                         Point West Capital Corporation

                   Notes to Consolidated Financial Statements


estimate of  liquidity  constraints.  The Company had no trading  securities  at
December 31, 1998 or December 31, 1997. Any realized  gains and losses,  accrued
interest and dividends and unrealized  losses on securities  judged to be other-
than-temporary  are  reported  on an  appropriate  line item above  "Net  Income
(Loss)" on the consolidated  statements of operations and  comprehensive  income
(loss).

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


                                                 December 31, 1998
---------------------------------------------------------------------------------------------------------------------
                                                          Gross            Gross
                                      Amortized Cost   Unrealized Gains    Unrealized
                                                                             Loss            Fair Value
<S>                                  <C>                <C>                 <C>               <C>    


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

</TABLE>
 
<TABLE>
<CAPTION>

                                                December 31, 1997
-----------------------------------------------------------------------------------------------------------------------
                                                            Gross            Gross
                                      Amortized Cost   Unrealized Gains    Unrealized
                                                                              Loss          Fair Value

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


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

      Available-for-sale
           Common stock              $     1,000,000   $     2,597,343   $          --     $     3,597,343
                                     ---------------   ---------------   ---------------    ---------------   
      Total available-for-sale       $     1,000,000   $     2,597,343   $          --     $     3,597,343     


</TABLE>

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

         Cumulative unrealized gains (losses) on  available-for-sale  securities
(representing  differences  between estimated fair value and cost) of ($189,000)
and $2.6  million at December  31, 1998 and 1997,  respectively,  are shown as a
separate  component of stockholders'  equity called  "Accumulated  Comprehensive
Income -- Net Unrealized  Investment  Gains  (Losses)." At December 31, 1998 and
1997, the Company's  total  comprehensive  income (loss) includes net unrealized
investment  gains  (losses)  which  represents  the increase  (decrease)  in the
Company's marketable securities classified as available-for-sale.


                                       45

<PAGE>


                         Point West Capital Corporation

                   Notes to Consolidated Financial Statements


          


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

         Loans  receivable  includes  loans made to  unaffiliated  third parties
through  Allegiance  and  Fourteen  Hill  Capital.  Such loans are  reported  at
amortized  cost  net of the  allowance  for  loan  losses  of  $50,000  for  the
Allegiance loans, and interest is accrued as earned. See Note 1d.

         Allegiance  had five loans  outstanding  at  December  31,  1998 in the
aggregate principal amount of $9.1 million,  which bear a weighted-average fixed
interest  rate per annum of 9.3%.  Principal  payments  are due  monthly on such
loans, and such loans mature, subject to permitted prepayments, in approximately
fifteen years from the initial loan date. Loan  origination fees and direct loan
origination  costs are  capitalized  and recognized over the life of the related
loan as an adjustment of yield (interest income) in accordance with Statement of
Financial Accounting Standards No. 91 ("SFAS 91"),  Accounting for Nonrefundable
Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct
Costs of Leases.

         On August 19,  1998,  Allegiance  put in place a  structured  financing
which provides short term financing and may provide long term financing, subject
to certain  limitations,  with respect to loans  Allegiance has made in the past
and may make in the future. It is anticipated that this transaction will provide
interim floating rate financing and ultimately permanent fixed and floating rate
financing for loans  originated by Allegiance.  See Note 5. The interest rate at
which it is anticipated that term certificates will be issued will be set in the
future when approximately $30 million of loans have been originated.  Allegiance
utilizes  futures  contracts to hedge certain interest rate exposure between the
time of  origination  of the loans and the  issuance of term  certificates.  The
futures  contracts are to protect the margins earned on the loans.  Any realized
gain or loss related to these hedges are deferred and  recognized by the Company
over the life of the related loan as an adjustment of interest income.  Pursuant
to Statement of Financial  Accounting  Standards No. 80 ("SFAS 80"),  Accounting
for Futures  Contracts,  all such deferred  amounts are reflected on the balance
sheet as an increase (in the case of a hedging loss) or decrease (in the case of
a hedging gain), in the carrying value of loans  receivable.  As of December 31,
1998, the Company had net realized losses on its hedging  activities of $261,000
which increased loans receivable in a like amount. In addition,  the Company had
unrealized  net losses from open  hedging  positions  of $800 as of December 31,
1998. The Company had no hedging activities at December 31, 1997.

        Fourteen  Hill had two loans  outstanding  at December  31, 1998 in the
aggregate  principal amount of $864,000,  one of which was originated in January
1998 and bears  interest at a fixed interest rate per annum of 15% and the other
of which was originated in September 1998 and bears interest at a fixed interest
rate per annum of 14%. Such loans mature, subject to permitted  prepayments,  in
approximately  5 years. A partial  payment in the amount of $181,000 was made in
October 1998 on the loan that was originated in January 1998.

4.       Non-Marketable Securities
--       -------------------------

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

        On November 4, 1996,  Point West  purchased  21.5  million  convertible
preferred  shares for $3.0 million  (representing  a less than 50%  interest) in
American Information  Company,  Inc., commonly known as Car Club ("Car Club"), a
privately held company which, among other things,  provides information services
to individuals owning or purchasing  automobiles.  On March 18, 1997, Point West
                                       46
<PAGE>


                         Point West Capital Corporation

                   Notes to Consolidated Financial Statements


converted 8.2 million  shares of  convertible  preferred  stock into 8.2 million
shares  of  common  stock  of Car  Club  and  sold  such  non-marketable  shares
(approximately  38%  of  Point  West's  equity  investment  in Car  Club)  to an
unaffiliated  third party for $1.83 million.  The Company  recognized a $700,000
pre-tax gain on this  transaction in 1997. Point West had an option that expired
on October 26, 1997 to purchase,  for  approximately  $1.1 million,  8.2 million
additional shares of common stock of Car Club. Since Point West did not exercise
this option,  a $20,000  pre-tax loss was recognized in 1997. As of December 31,
1998 and 1997, the carrying value of the remaining $13.3 million  non-marketable
convertible preferred shares was $1.7 million.

         In 1998,  Fourteen Hill invested $750,000 in the convertible  preferred
shares  (convertible  into common  shares) of one  unaffiliated  small  business
entity  and $1  million  in the debt  securities  (which  are  convertible  into
preferred  shares,  which in turn are convertible into common shares) of another
unaffiliated small business entity.

         Fourteen  Hill also  invested  $900,000  in the  convertible  preferred
shares  (convertible into common shares) of another  unaffiliated small business
entity.  Such  convertible  preferred  shares  held at  December  31,  1998  are
reflected as  non-marketable  securities with a cost of $900,000.  Approximately
33% of these  securities  with a cost basis of $297,000 were converted to common
shares in February 1999. Had 100% of these  securities  been converted to common
shares at  December  31,  1998,  the  Company  would have  reflected  additional
"Accumulated  Comprehensive  Income--Net  Unrealized  Investment  Gains" of $4.1
million.  

     In  addition,  Fourteen  Hill  invested  $2 million in 329,490  convertible
preferred  shares  of  FlashNet  Communications,  Inc.  ("FlashNet"),  which was
carried on the balance  sheet at December  31, 1998 at an  aggregate  cost of $2
million.  FlashNet is an internet service provider which serves  individuals and
businesses  across  the  United  States.  In  December  1998,  FlashNet  filed a
registration  statement  with  the  SEC  for  an  initial  public  offering.  In
connection with such initial public offering,  Fourteen Hill will hold 1,120,266
convertible  preferred  shares of FlashNet,  after  giving  effect to a 3.4 to 1
stock split which is authorized to occur prior to the initial  public  offering.
If the FlashNet initial public offering occurs,  the Flashnet shares will become
marketable  securities.  As a  result,  any  unrealized  gains or losses in such
investment   will  be  reflected  as  "Accumulated   Comprehensive   Income--Net
Unrealized  Investment  Gains" in stockholders'  equity.  Pursuant to a standard
lock-up  agreement,  Fourteen Hill will not be able to sell or otherwise dispose
of its FlashNet shares until six months after the initial public offering.

         The Company reviews on a quarterly basis all non-marketable  securities
and  attempts to ascertain  whether the value is  impaired.  As a result of such
review, the Company determined that $1.1 million of non-marketable securities of
one company was impaired at September  30, 1998,  and  therefore  wrote-off  the
entire $1.1 million carrying value of such security.

5.       Revolving Certificates
--       ----------------------

     Pursuant to the Allegiance  Financing,  a consortium of insurance companies
(the  "Investors")  will provide funding of approximately  $26.4 million through
August 31, 1999 on a non recourse revolving certificate basis to be used for the
purchase or funding of loans originated by Allegiance Capital and transferred to
Allegiance  Funding.  Upon the  earlier of the  incurrence  of $26.4  million of
revolving  certificates or August 31, 1999, such revolving  certificates will be
repaid through the issuance of term  certificates  with an  approximate  15-year
maturity. In addition, the Allegiance Financing provides a commitment to provide
up to an  additional  $30 million of funding  through  August 31,  1999  through
15-year term loans. In the event that term certificates are not issued by August
31, 1999,  Allegiance  will be required to refinance any revolving  certificates
outstanding under the Allegiance Financing.

                                       47

<PAGE>


                         Point West Capital Corporation

                   Notes to Consolidated Financial Statements



         The Allegiance  Financing  contemplates the issuance of various classes
of revolving and term  certificates  through  Allegiance  Trust I.  Certificates
receiving ratings are to be purchased by the Investors, while Allegiance Funding
will retain unrated  certificates.  The revolving  certificates received ratings
from Duff & Phelps Credit Rating Co.  ranging from A to BB and it is anticipated
that the term certificates,  when and if issued,  will also receive ratings from
Duff & Phelps.  Allegiance Trust I issued the Class B-R, Class C-R and Class D-R
revolving  certificates  in 1998.  The Class  C-R  certificates  were  issued in
November 1998 in the  principal  amount of $2.1 million and received a rating of
BB from Duff & Phelps.  The Class B-R certificates  were issued in December 1998
in the principal amount of $3.3 million and received a rating of BBB from Duff &
Phelps. Such certificates bear interest at a variable rate based on the one-year
U.S. Treasury Rate plus a weighted-average  spread of 3.9%. The weighted-average
interest  rate of the  certificates  at December 31, 1998 was 8.17%.  Allegiance
initially  retained the unrated Class D-R  revolving  certificate with a maximum
aggregate principal amount of $3,650,000.  This certificate represents the right
to  receive  all  excess  cash flow from  Allegiance  Trust I.  Allegiance  also
anticipates   retaining  unrated  term  certificates   following  retirement  of
revolving certificates. Because of Allegiance's right to redeem the certificates
if 15%  or  less  in  principal  amount  of  certificates  is  outstanding,  the
Allegiance  Financing  does not qualify for sale  treatment  under  Statement of
Financial  Accounting  Standards No. 125 ("SFAS 125"),  Accounting for Transfers
and  Servicing  of  Financial   Assets  and   Extinguishments   of  Liabilities.
Accordingly,  the  Allegiance  Financing will not receive gain on sale treatment
under SFAS 125. The loans and any borrowings under the Allegiance Financing will
be reflected on the consolidated balance sheet.

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


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

6.       Long Term Notes Payable
--       -----------------------

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

     The  Securitized  Notes  represent  the  obligations  solely  of DPFC.  The
Company's consolidated financial statements include the assets,  liabilities and
operations  of  DPFC;  however,  the  assets  of DPFC are not  available  to pay
creditors  of  Point  West.  The  assets  of DPFC are the  beneficial  ownership
interests in the life insurance  policies and funds which secure the Securitized
Notes.  From 1996 through the third quarter of 1998, losses associated with DPFC
were charged  against the reserve which was  originally  established in 1996 for
the estimated  loss of Point West's equity  interest in DPFC. See Note 1e. Since
the third quarter of 1998,  losses  associated  with DPFC after depletion of the
reserve  have  been  reflected  in  the  Company's   consolidated  statement  of
operations and comprehensive  income (loss) in the appropriate  period. Upon the
retirement of the Securitized Notes, the Company will recognize a gain in
                                       48

<PAGE>


                         Point West Capital Corporation

                   Notes to Consolidated Financial Statements

an amount approximately equal to any accumulated deficit reflected.  At December
31, 1998, DPFC's accumulated  deficit was $1.7 million.  In 1998, the total loss
realized by DPFC was $4.0 million, $2.3 million of which was charged against the
reserve  for equity  interest in wholly  owned  financing  subsidiary,  and $1.7
million  of  which  was  otherwise  reflected  in  the  Company's   consolidated
statements of operations and comprehensive income (loss).

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

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


         As of December 31, 1998, Fourteen Hill Capital had issued one debenture
in  the  principal   amount  of  $3  million   payable  to  the  Small  Business
Administration  ("SBA") with semi-annual  interest only payments at a fixed rate
of 5.9% (plus a 1% annual fee) and a scheduled  maturity  date of  September  1,
2008. In addition, Fourteen Hill Capital paid to the SBA a $105,000 fee (3.5% of
the total  borrowings)  to borrow  such  money.  The  debenture  is subject to a
prepayment penalty if paid prior to September 1, 2003.

         At present,  Fourteen Hill Capital is unable to borrow additional funds
from the SBA because (1) two investments  each represents an amount greater than
20% of its regulatory  capital plus its net unrealized  investment gains and (2)
Fourteen  Hill  Capital has  negative  retained  earnings.  The  Company  cannot
determine  when,  if ever, it will be able to borrow  additional  funds from the
SBA. In addition,  if Fourteen  Hill Capital does not liquidate a portion of its
investment  portfolio  or  obtain  additional  regulatory  capital,  the SBA may
accelerate  the  repayment of the  debenture.  The Company  believes that if its
holdings in FlashNet become marketable securities, the only reason it may not be
able to borrow  additional  funds from the SBA is that  Fourteen Hill Capital is
not profitable.


8.       Income Taxes
--       ------------

         The  components  of  the  provision  for  income  tax  included  in the
statements of operations for the years ended December 31, are as follows:

<TABLE>
<CAPTION>


                                                                1998              1997                  1996
                                                                ----              ----                  ----

                <S>                                              <C>               <C>                <C>    
                Federal:
                     Current (benefit)expense..............  $     --          $     --           $        --      
                                    
                     Deferred (benefit) expense...........         --                --              (210,113)   
                State:                                                                                                            
                     Current (benefit) expense .............    5,600             4,000                    --     
                     Deferred (benefit) expense ...........        --                --              (315,598)    
                                                            ------------        ------------      -------------
                                                                                                               
                                                                                                                             

                Total tax (benefit) expense...............      5,600          $  4,000           $  (525,711)      
                                                            =============     ==============      =============

</TABLE>

                                       49

<PAGE>

                         Point West Capital Corporation

                   Notes to Consolidated Financial Statements



         The tax effects of temporary  differences that give rise to significant
portions of the deferred tax assets and deferred tax  liabilities as of December
31, are presented  below.  Amounts for the current year are based upon estimates
and assumptions as of the date of this report and could vary  significantly from
amounts shown on the tax returns as filed.  Accordingly,  the variances from the
amounts  previously  reported for 1997 are primarily a result of  adjustments to
conform to tax returns as filed.

   <TABLE>
<CAPTION>
                                                                                             1998                  1997
                                                                                             ----                  ----
      
                      <S>                                                                      <C>                <C>   
          Deferred tax assets:
                         Revenue and expenses recognized on the cash
                            basis for tax purposes....................................... $   270,173             $ 236,218       
                          Depreciation, amortization and other...........................       6,961                13,606      
                          Provision for assets held for sale.............................      66,407               158,878     
                          Provision for loss on investment in subsidiary ................           --              916,206      
                          Provision for loss on non-marketable securities................     427,620                    -- 
                          Allowance for loan losses......................................      19,917                    --
                          Unrealized loss on securities available for sale..............       75,265                    --
                          Net operating loss carryforwards...............................   5,773,727             4,098,144      
                                                                                            --------------   -----------------
                                                                                            6,640,070             5,423,052 
                          Valuation allowance ..........................................   (4,296,383)           (1,867,064) 
                                                                                            --------------   ----------------- 
                          Deferred tax assets net of valuation allowance ..............     2,343,687            3,555,988     


                Deferred tax liabilities:
                          Unrealized gain  on securities available for sale.............           --             1,034,522   
                          Accretion recognized on a cash basis for tax purposes........     2,349,687             2,527,466       
                                                                                           -----------------  ------------------
                                                                                            2,349,687             3,561,988        
                                                                                           -----------------  ------------------
                Net deferred tax asset (liability).....................................   $ (6,000)                 (6,000)        
                                                                                            -----------------  -----------------
</TABLE>
         Prior to  September  30,  1996,  the Company had  provided for deferred
income taxes related to income  accrued on purchased  life  insurance  policies.
Based on the  provision  for loss on sale of assets  and the  reserve to reflect
estimated  loss of Point West's equity  interest in DPFC,  the Company  believes
that it does not have a federal tax  liability  related to these  assets and has
therefore  reversed all related  liabilities for 1996. The Company believes that
it does not have a federal  tax  liability  for 1998 and 1997 as a result of the
net  operating  loss  carryforward.  The  Company  has  recorded a deferred  tax
liability  related to the  unrealized  appreciation  for the  marketable  equity
securities.  The Company has also provided for miscellaneous state income taxes.
A  valuation  allowance  has been  recorded  equivalent  to the  portion  of the
deferred tax asset for which  management  cannot conclude that it is more likely
than not that the deferred tax asset will be realized.

                                       50
<PAGE>

                         Point West Capital Corporation

                   Notes to Consolidated Financial Statements




 
        The differences between the statutory income tax rate and the Company's
effective tax rate for the years ended December 31, are as follows:
<TABLE>
<CAPTION>

                                                           1998                   1997                  1996
                                                           ----                   ----                  ----
<S>                                                       <C>                      <C>                    <C>    


       Tax expense at statutory rate (34%)......      $  (1,239,212)          $     344,976       $   (3,476,564)
       State taxes net of federal benefits........          (76,409)                189,173             (627,622)
       Change in valuation allowance (1).......            1,319,532              (530,149)             3,431,001
       Other.........................................          1,689                     --               147,474
                                                     ------------------    -------------------    ------------------
                     Total  tax  (benefit)  expense   $        5,600                 4,000              (525,711)
                                                     ------------------    -------------------    ------------------
<FN>


--
 (1)     $1,109,787 of the change in tax valuation  allowance has been reflected
         in the statement of changes in stockholders'  equity in connection with
         the  unrealized  gain on securities  available-for-sale.  The remaining
         increase of $1,319,532 is based on management's  determination that the
         resulting deferred assets are not more likely than not to be realized.

</FN>
</TABLE>


         At December  31,  1998,  the Company has an  estimated  federal tax net
operating loss  carryforward of $15,132,165  expiring in the years 2009 to 2019,
and  a  California  tax  net  operating  loss   carryforward  of   approximately
$10,777,311 expiring in the years 1999 to 2004.

9.       Common Stock

         In February 1996, the Company  completed an initial public  offering of
an  aggregate  of  2,702,500  shares of Point  West  Common  Stock at the public
offering price of $12.00 per share. Of such shares, 2,381,356 shares were issued
and sold by Point West and 321,144 shares  (representing all shares issuable and
issued  pursuant to the conversion in full of the Convertible  Preferred  Stock)
were sold by Bradley Rotter,  a director and Chairman of the Board.  The Company
did not receive any proceeds of the shares sold by Bradley Rotter.

         The Company received the following  proceeds from the offering and such
proceeds had been applied in 1996 for the following purposes:
<TABLE>
                        <S>                                           <C>                   <C>    

             Proceeds:
                         Proceeds, net of underwriters' discount   $26,575,933
                         Less offering expenses ...............     (1,301,965)
                                                                   ------------
                   Net Proceeds                                                            $25,273,968
                                                                                           ===========
             Uses:
                          Policy purchases.....................    $17,832,821
                          Payments to related party............      2,191,007
                          Accrued compensation payable.........        833,750
                          Taxes on accrued and unpaid salaries..        20,187
                          Repayment of other short term debt...       1,162,170
                          Repayment of long term debt..........       3,234,033
                                                                     ----------
                   Total uses..................................     $25,273,968
                                                                     ===========
</TABLE>
         In October 1996, the Board approved a share repurchase program pursuant
to which  the  Company  was  authorized  to  purchase  from time to time up to 1
million shares of Common Stock at prevailing  market prices.  Such authority was
increased by the Board in June 1997 to 1.04 million  shares of Common Stock.  In
June  1997,  the  Company  completed  the  share  repurchase   program,   having
repurchased an aggregate of 1.04 million  shares at a weighted  average price of
$2.77 per share.

                                       51

<PAGE>


                         Point West Capital Corporation

                   Notes to Consolidated Financial Statements




10.      Earned Discounts
--       ----------------
 
         Earned  discounts  on life  insurance  policies  reflect  the amount of
accretion  recorded in the first six months of 1996.  With the  decision to sell
all or substantially all of the Company's assets, the unearned discount included
in the unearned  income on the balance  sheet at June 30, 1996 relating to early
maturities on or before June 30, 1996 has now been recorded as earned  discounts
on prior  maturities.  Any  income  since  the  third  quarter  of 1996 has been
recorded  as  earned  discounts  on  matured  policies  and  recorded  upon  the
notification of death of the insured. See Note 1e.

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

         The  weighted  average  number of common  stock  shares and  additional
common stock equivalent shares used in computing EPS are set forth below for the
periods indicated.
<TABLE>
<CAPTION>

                                                              1998           1997           1996
                                                              ----           ----           ----

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

    Weighted average number of shares of common   
      stock outstanding....................................   3,253,324    3,521,736       3,942,166 
    Additional common stock equivalents...............               --       83,938             --
                                                              ----------   ----------      ----------  
    Weighted average number of shares of common
         stock and common stock equivalents
        outstanding......................................    3,253,324    3,605,674       3,942,166
                                                              =========    =========       =========
</TABLE>


         Diluted  EPS  for  1998  and  1996  do not  include  any  common  stock
equivalents due to their anti-dilutive effect. Common Stock equivalents for 1997
include, to the extent they do not have an anti-dilutive effect,  employee stock
options,   non-employee  director  stock  options  and  warrants  issued  to  an
investment banking firm.

12.      Commitments
--       -----------

         The Company has a lease  obligation for its California  office space of
approximately  5,900 sq. ft. The lease expires on May 31, 1999,  and the monthly
rent is  $8,062,  of which the  Company  pays  $5,240 and The  Echelon  Group of
Companies,  LLC ("New  Echelon  LLC") pays  $2,822.  The  Company  is  currently
evaluating  its  leasing  alternatives.  If the  Company  remains in its current
space, the Company's monthly rent is likely to increase to approximately $12,000
per month.

         Future minimum rental  payments (less amounts to be paid by New Echelon
LLC) at December 31, 1998,  under  operating  leases with an initial term of one
year or more, are as follows:

                 Year ended December 31, 1999..........  $     26,202
                 Year ended December 31, 2000..........            --
                                                         -------------
                 Total.................................  $     26,202
                                                         =============

13.      Litigation
--       -----------

         From time to time, the Company is involved in routine legal proceedings
incidental  to  its  business,  including  litigation  in  connection  with  the
collection of amounts owed by insurance company  obligors.  The Company does not
expect that these  proceedings,  individually  or in the aggregate,  will have a
material  adverse  effect on the  Company's  financial  position,  liquidity  or
results of operations.

                                       52

<PAGE>


                         Point West Capital Corporation

                   Notes to Consolidated Financial Statements




         On  December  19,  1996,  a  complaint  was filed in the United  States
District  Court,  Northern  District of  California  (the  "Court")  (Docket No.
C96-4558)  against Dignity Partners,  Inc. (now Point West Capital  Corporation)
and each of its  directors by three  individuals  purporting to act on behalf of
themselves  and an alleged class  consisting of all  purchasers of the Company's
common stock during the period February 14, 1996 to July 16, 1996. The complaint
alleged that the defendants  violated  Section 10(b) of the Securities  Exchange
Act of 1934 and Rule 10b-5  thereunder  and Section 11 of the  Securities Act of
1933 and seeks, among other things,  compensatory  damages,  interest,  fees and
costs. The allegations were based on alleged misrepresentations in and omissions
from the Company's  registration statement and prospectus related to its initial
public  offering and certain  documents  filed by the Company under the Exchange
Act. On April 24, 1998,  the Court granted the  Company's and other  defendants'
motion to  dismiss as it related to the  Section 11 claims  with  prejudice  but
denied the motion to dismiss the claims under Section 10(b) and Rule 10b-5 as to
all  defendants  other than Mr. Bow, one of Point West's  directors.  Plaintiffs
have  appealed this  dismissal to the United States  Circuit Court for the Ninth
Circuit.  Plaintiffs have also filed a motion for class  certification which the
remaining  defendants  have  opposed.  On November 13, 1998,  the Court  granted
plaintiff's motion for class certification.  The case is currently in discovery.
A trial  date  has  been  set for  October  1999.  The  Company  and each of the
remaining defendants intend to continue to defend the action vigorously.

         On February 13, 1997,  a complaint  was filed in the Superior  Court of
California, City and County of San Francisco (Docket No. 984643) against Dignity
Partners,  Inc.,  and each of its  executive  officers and New Echelon LLC by an
individual  purporting  to  act on  behalf  of  himself  and  an  alleged  class
consisting of all  purchasers  of the  Company's  common stock during the period
February 14, 1996 to July 16, 1996.  The complaint  alleges that the  defendants
violated  section 25400 of the  California  Corporate  Code and seeks to recover
damages. The allegations are based on alleged misstatements,  concealment and/or
misrepresentations and omissions of allegedly material information in connection
with the Company's initial public offering and subsequent disclosures.  The case
has been stayed since its inception by agreement of the parties. The Company and
each of the defendants intend to continue to defend the action vigorously.

14.      Fair Value of Financial Instruments
--       -----------------------------------

         The following  methods and  assumptions  were used to estimate the fair
value of each class of financial instruments:

         Cash  and  cash   equivalents,   restricted   cash,   matured  policies
receivable,  accrued interest expense, accounts payable and accrued compensation
payable are stated at  approximate  fair value because of the short  maturity of
these  instruments.  All balances have maturities  within 60 days of the balance
sheet date.

         Investment  securities  are stated at fair market value based on quoted
market prices.

         Loans  receivable  are stated at cost which  approximates  fair  market
value.

         The portfolio of purchased  life  insurance  policies is stated at cost
plus accretion through June 1996 which approximates fair market value.


         Due to the unique nature of the Company's  investment in non-marketable
securities, it is not practical to estimate fair value.

         The  revolving  certificates,  long term notes  payable and  debentures
payable to the SBA are all stated at cost.  The  revolving  certificates  bear a
variable interest rate of the weighted-average spread of 

                                       53

<PAGE>


                         Point West Capital Corporation

                   Notes to Consolidated Financial Statements




3.9% over the one-year U.S.  Treasury  rate.  The long term notes payable bear a
fixed  interest rate of 9.17% and are  equivalent  to newly  acquired debt at 1%
over prime interest rates. The debenture bears a fixed interest rate of 6.9%.

15.      Stock-Based Compensation
--       ------------------------

         The Company has two stock option plans.  Under the Amended and Restated
1995 Stock Option Plan  ("Employee  Plan"),  Point West may grant options to its
employees for up to 450,000 shares of common stock.  Under the Stock Option Plan
For Non-Employee Directors ("Director Plan"), options for up to 75,000 shares of
common  stock may be  granted  to  non-employee  directors  of Point  West.  The
exercise price of each granted option  generally  equals the market price of the
Common Stock on the date of grant. Each option generally expires ten years after
the date of grant.  Under the Employee Plan, each granted option generally vests
20% per year over five  years.  Under the  Director  Plan,  initially,  each new
non-employee  director,  when joining the board,  is granted 10,000 options that
vest 34%,  33% and 33% at the next three  annual  meetings  following  the grant
date.  At each annual  meeting,  each  non-employee  director  is granted  5,000
options that vest at the next annual meeting. Incentive stock options granted to
10%  stockholders  under the Employee Plan have  different  terms than generally
described  above.  These options have an exercise  price equal to 110% of market
value on the date of grant,  vest 20% per year  over 4 years and  expire 5 years
after the date of grant.

         The fair value of each option is  estimated  on the date of grant using
the   Black-Scholes   option-pricing   model.  The  following   weighted-average
assumptions were used for grants:

                                     1998             1997               1996
                                     ----             ----               ----

           Expected volatility       75%              75%                20%

           Employee Plan:
           Risk-free interest rate   5.0%             5.8%               6.3%
           Expected life            6 years          7 years            7 years

           Director Plan:
           Risk-free interest rate   4.6%             5.6%               6.0%
           Expected life            2 years          2 years            4 years

                                       54

<PAGE>


                         Point West Capital Corporation

                   Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>

 
                               1998                      1997                        1996 
                               ----                      ----                        ----
                          ====================      ====================       ====================
                                     Weighted-             Weighted-                    Weighted
                                     Average               Average                      Average
                                     Exercise              Excercise                    Excercise
                         Shares      Price     Shares      Price        Shares          Price

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

                                                                            
Outstanding at
  Beginning of year    273,000      $  3.40     181,000     $  3.33         --               --
Granted                125,500      $  3.41      96,000     $  3.44    407,000           $  8.18
Exercised                   --           --          --          --         --               --
Forfeited             (13,000)      $  1.85      (4,000)    $  1.38    (75,000)          $  12.18
Canceled                    --           --          --          --    (151,000)         $  12.01
                      ------------            -------------          -------------
Outstanding at end
  of year              385,500      $  3.45     273,000      $  3.40    181,000          $  3.33
                      ------------            -------------           -------------

Options exercisable
  at year-end          111,400      $ 5.03       53,733      $ 6.47       6,667          $  13.50
Weighted-average
  fair value of each
  option granted
  during year          $  2.20                  $  2.38                  $  3.11

</TABLE>



         The following table  summarizes  information  about fixed stock options
outstanding at December 31, 1998:

<TABLE>
<CAPTION>



                                Options Outstanding                              Options Exercisable             
                    --------------------------------------------------------   -------------------------------------
                                        Weighted-Average
      Range of            Number            Remaining       Weighted-Average          Number          Weighted
    Exercisable       Outstanding at    Contractual Life     Exercise Price        Exercisable        -Average
       Prices            12/31/98                                                    12/31/98      Exercise Price

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


   $1.38 - $1.38            137,000                 7.55            $  1.38             54,800            $  1.38
   $2.25 - $2.75             82,500                 5.71            $  2.41                 --                 --
   $3.44 - $3.44             93,000                 8.84            $  3.44             26,600            $  3.44
   $5.00 - $6.50             43,000                 9.50            $  5.35                 --                 --
  $12.38 - $13.50            30,000                 7.28            $ 13.13             30,000             $13.13
  ---------------            ------                 ----             ------            ------             ------
   $1.38 - $13.50           385,500                 7.66            $  3.45            111,400            $  5.03

</TABLE>



         The Company applies APB Opinion No. 25 and related  Interpretations  in
accounting  for its option plans.  Accordingly,  no  compensation  cost has been
recognized  for its fixed stock  option  plans.  Had  compensation  cost for the
Company's two stock-based  compensation  plans been  determined  consistent with
FASB Statement No.123, the Company's net income (loss) and net income (loss) per
share would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>


                                                                1998                 1997               1996
                                                          -----------------    ----------------    -----------------

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


    Net income (loss)                     As reported        $ (3,650,342)         $ 1,010,636        $ (9,699,477)
                                          Pro forma          $ (3,878,265)         $   799,444        $ (9,881,226)
    Basic earnings (loss) per share       As reported             $ (1.12)             $  0.29             $ (2.46)
                                          Pro forma               $ (1.19)             $  0.23             $ (2.51)
    Diluted earnings (loss) per share     As reported             $ (1.12)             $  0.28             $ (2.46)
                                          Pro forma               $ (1.19)             $  0.22             $ (2.51)
</TABLE>

                                       55

<PAGE>

                         Point West Capital Corporation

                   Notes to Consolidated Financial Statements


         In addition to the above mentioned stock option plans, on September 16,
1996 Point West granted 300,000  warrants at a purchase price of $6.00 per share
to an investment  banking firm. These warrants were exercisable  immediately and
expire on September  16,  2001.  The expense for these  warrants was  determined
consistent with FASB Statement No.123,  and the Company's net income was reduced
by $92,167 in 1996.  The fair value of each  warrant is estimated on the date of
grant  using  the   Black-Scholes   option-pricing   model  with  the  following
weighted-average  assumptions:  expected  volatility of 20%;  risk-free interest
rate of 6.2%; and expected life of 5 years.

16.      Segment Reporting
--       -------------------

         Financial  Accounting Standard No. 131 ("SFAS 131"),  Disclosures about
Segments of an Enterprise and Related  Information,  was issued in June 1997 and
is effective  for periods  beginning  after  December 15,  1997.  The  Statement
establishes  standards for reporting  information  about  operating  segments in
annual financial  statements and requires  selected  information about operating
segments  in  interim  financial  reports.  Operating  segments  are  defined as
components  of an  enterprise  about which  separate  financial  information  is
available that is evaluated  regularly by the chief operating decision maker, or
decision  making group,  in deciding how to allocate  resources and in assessing
performance. The Company's chief operating decision making group is comprised of
the Chairman of the Board, President and Chief Financial Officer of Point West.

         The  Company's   reportable   operating   segments   include   Viatical
Settlements,  Fourteen Hill and  Allegiance.  The  activities of each  operating
segment are described in Note 1c. The Other Segment includes Point West and PWS.
The  accounting  policies  of the  operating  segments  are the  same  as  those
described in the summary of significant accounting policies. The following table
represents the Company's  results from segments for 1998.  Segment reporting for
1997 has not been included  since the operations of Fourteen Hill and Allegiance
were  insignificant  as of such date.  Segment  reporting  for 1996 has not been
included since Fourteen Hill and Allegiance did not exist as of such date.
<TABLE>
<CAPTION>


                               Viatical          Fourteen
                           Settlements (1)         Hill            Allegiance          Other             Total
                           ---------------         -----           ----------          -----             -----

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


Interest income......     $      199,782    $        299,842       $  588,639       $  405,816       $  1,494,079
Other revenue........            776,797              24,691          (8,050)          120,054            913,492
Interest expense......         3,550,664              98,372           30,530               --          3,679,566
Depreciation &
  Amortization.......            234,880              61,733           55,568            4,128            356,309
Contributed  income
(loss) (2)..............      (1,102,563)           (874,293)         129,611        (1,803,097)       (3,650,342)
Comprehensive
  Income...............              --            1,345,286               --               --          1,345,286
Segment assets......          37,078,882           7,140,917       10,162,182         8,060,780        62,442,761

<FN>

--
(1) The  viatical   settlements   segment  includes  results  of  operations  in
    connection  with  viatical  settlements  for DPFC,  Point  West and  Dignity
    Viatical.
(2) Corporate  overhead is not  generally  allocated  between  segments  and is
    included in the other segment.


</FN>
</TABLE>

                                       56

<PAGE>

                         Point West Capital Corporation

                   Notes to Consolidated Financial Statements


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

         Income
         ------
         Interest income            $  1,494,079
         Other revenue                   913,492
                                    --------------
         Total income               $  2,407,571

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

     On January 5, 1999  Fourteen  Hill made an investment of $500,000 in equity
of a small business  entity to which it had loaned funds in 1998. On January 21,
1999,  such  small  business  entity  made a partial  payment  in the  amount of
$245,000 of its $250,000  loan. In addition,  on February 17, 1999 Fourteen Hill
made an investment of $1 million in equity of a small business entity.  Fourteen
Hill also sold  $191,000  at cost of a  $750,000  equity  investment  in a small
business  entity and recognized a gain of $45,000 in 1999. On February 24, 1999,
Fourteen Hill converted 55,970 preferred shares of a total of 167,910  preferred
shares it holds of a small  business  entity.  Fourteen  Hill  received  223,880
common shares upon such conversion and recorded a gain in 1999. 

                                       57

<PAGE>



                                    PART III
                                    --------

ITEM 10--DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
-----------------------------------------------------------

         Information  regarding  directors  of the  Company  and  the  Executive
Officers  (each of whom is a  director)  will be set  forth  under  the  caption
"Directors and Executive  Officers" in the Company's proxy statement  related to
its  1999  annual  meeting  of  stockholders  (the  "Proxy  Statement")  and  is
incorporated herein by reference. Information required by Item 405 of Regulation
S-K  will  be set  forth  under  caption  "Section  16(a)  Beneficial  Ownership
Reporting  Compliance"  in the Proxy  Statement  and is  incorporated  herein by
reference.

ITEM 11--EXECUTIVE COMPENSATION
-------------------------------

         Information  required  by this item will be set forth under the caption
"Executive  Compensation" in the Proxy Statement and, except for the information
under  the  captions  "Executive  Compensation  --  Report  of the  Compensation
Committee on Executive  Compensation" and "Executive Compensation -- Performance
Graph," is incorporated herein by reference.

ITEM 12--SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
-----------------------------------------------------------------------

         Information  required  by this item will be set forth under the caption
"Security  Ownership of Certain  Beneficial  Owners and Management" in the Proxy
Statement and is incorporated herein by reference.

ITEM 13--CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
-------------------------------------------------------


         Information regarding certain relationships and related transactions of
directors  and executive  officers will be set forth under the caption  "Certain
Relationships   and  Related   Transactions"  in  the  Proxy  Statement  and  is
incorporated herein by reference.


                                     PART IV
                                     --------
  
ITEM 14--EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON   
--------------------------------------------------------------
          FORM 8-K
           --------

           (a) 1. The following  designated  financial statements and the report
           thereon of KPMG LLP dated  February 27, 1999 are  included  herein at
           pages 34 through 57:

                                    Independent Auditors' Report.

                                    Consolidated  Balance  Sheets as of December
                                    31, 1998 and 1997
    
                                    Consolidated  Statements of  Operations  and
                                    Comprehensive  Income  (Loss)  for the years
                                    ended December 31, 1998, 1997 and 1996.

                                    Consolidated   Statements  of  Stockholders'
                                    Equity  for the  years  ended  December  31,
                                    1998, 1997 and 1996. 

         
                                       58

<PAGE>

                                    

                                    Consolidated  Statements  of Cash  Flows for
                                    the years ended December 31, 1998,  1997 and
                                    1996.

                                    Notes to Consolidated Financial Statements.

                  2.       All  schedules  are  omitted   because  the  required
                           information  is not  presented  or is not  present in
                           amounts  sufficient  to  require  submission  of  the
                           schedule,  or because  the  required  information  is
                           included in the consolidated  financial statements or
                           notes thereto.

                  3.       Exhibits:

              Exhibit
              Number       Description of Document
              -------      -----------------------
                 3.1       Composite of Second Amended and Restated  Certificate
                           of  Incorporation,  as amended through August 1, 1997
                           (Incorporated  by  reference  to  Exhibit  3  of  the
                           Company's  Quarterly  Report  on  Form  10-Q  for the
                           quarter ended June 30, 1997).

                 3.2       Amended   and   Restated   Bylaws   of  the   Company
                           (Incorporated  by  reference  to  Exhibit  3.2 of the
                           Company's   Registration   Statement   on  Form   S-1
                           (Registration    No.33-98708)    (the    Registration
                           Statement")).

                 4.1       Indenture,   dated  as  of   February  1,  1995  (the
                           "Indenture") among the Company, as Servicer, DPFC, as
                           Issuer,  and  Bankers  Trust  Company,  as  Indenture
                           Trustee ("Bankers Trust")  (Incorporated by reference
                           to Exhibit 10.12 of the Registration Statement).

                 4.2       Amendment  No. 1 to the  Indenture  (Incorporated  by
                           reference  to  Exhibit  10.13  of  the   Registration
                           Statement).

                 4.3       Amendment No.2 to the  Indenture,  dated as of August
                           5, 1996. (Incorporated by reference to Exhibit 4.3 of
                           the  Company's  Annual  Report  on Form  10-K for the
                           fiscal year ended December 31, 1997).

                 4.4       Amendment No.3 to the Indenture,  dated as of July 2,
                           1997  (Incorporated by reference to Exhibit 10 of the
                           Company's  Quarterly  Report  on  Form  10-Q  for the
                           quarter ended June 30, 1997).

                 4.5       Amendment No.4 to the Indenture, dated as of November
                           4, 1997. (Incorporated by reference to Exhibit 4.5 of
                           the  Company's  Annual  Report  on Form  10-K for the
                           fiscal year ended December 31, 1997).

                10.1*      Point West Capital  Corporation  Amended and Restated
                           1995 Stock Option Plan  (Incorporated by reference to
                           Exhibit 10 of the Company's  Quarterly Report on Form
                           10-Q for the quarter ended June 30, 1998).

                10.2*      Stock   Option   Plan  for   Non-Employee   Directors
                           (Incorporated  by  reference  to Exhibit  10.2 of the
                           Registration Statement).



                                       59

<PAGE>


                10.3*      Form of option  agreement  dated  November  17,  1997
                           granted to each of Bradley N. Rotter,  Alan B. Perper
                           and John Ward Rotter.  (Incorporated  by reference to
                           Exhibit 10.4 of the  Company's  Annual Report on Form
                           10-K for the fiscal year ended December 31, 1997).

                10.4*      Form of option  agreement  dated  November  25,  1998
                           granted to each of Bradley N. Rotter,  Alan B. Perper
                           and John Ward Rotter.

                10.5       Office Lease/Francisco Bay Office Park by and between
                           HHC  Investments,  Ltd. and Echelon  (Incorporated by
                           reference  to  Exhibit   10.3  of  the   Registration
                           Statement).

                10.6       Assignment and Assumption  Agreement  dated September
                           30, 1995  (Incorporated by reference to Exhibit 10.16
                           of the Registration Statement).

                10.7       Agreement  between  the  Company  and New Echelon LLC
                           regarding   allocation  of  costs   (Incorporated  by
                           reference  to  Exhibit   10.4  of  the   Registration
                           Statement).

                10.8*      Profit  Sharing  Plan  (Incorporated  by reference to
                           Exhibit 10.5 of the Registration Statement).

                10.9       Contribution,    Sale   and    Servicing    Agreement
                           ("Servicing  Agreement") dated as of February 1, 1995
                           among   the   Company,   DPFC   and   Bankers   Trust
                           (Incorporated  by reference  to Exhibit  10.14 of the
                           Registration Statement).

                10.10      Amendment No.1 to Servicing  Agreement  (Incorporated
                           by  reference  to Exhibit  10.15 of the  Registration
                           Statement).

                10.11      Amendment    No.2   to   the   Servicing    Agreement
                           (Incorporated  by reference  to Exhibit  10.10 of the
                           Company's  Annual  Report on Form 10-K for the fiscal
                           year ended December 31, 1995).

                10.12      Master  Agreement  for  Purchase  of  Life  Insurance
                           Policies dated  September 27, 1996  (Incorporated  by
                           reference  to Exhibit 10 of the  Company's  Quarterly
                           Report on Form 10-Q for the quarter  ended  September
                           30, 1996).

                10.13      Amendment  dated as of  November  13,  1996 to Master
                           Agreement for Purchase of Insurance Policies dated as
                           of September 27, 1996  (Incorporated  by reference to
                           Exhibit 10.11 of the Company's  Annual Report on Form
                           10-K for the fiscal year ended December31, 1996).

                10.14      Purchase and Sale  Agreement  dated as of January 16,
                           1997  (Incorporated  by reference to Exhibit 10.12 of
                           the  Company's  Annual  Report  on Form  10-K for the
                           fiscal year ended December 31, 1996).

                10.15      Second  Master  Agreement  for  Purchase of Insurance
                           Policies dated as of February 10, 1997  (Incorporated
                           by reference to Exhibit 10.13 of the Company's Annual
                           Report  on  Form  10-K  for  the  fiscal  year  ended
                           December 31, 1996).



                                       60
<PAGE>


                10.16      Third  Master  Agreement  for  Purchase of  Insurance
                           Policies dated as of March 24, 1997  (Incorporated by
                           reference to Exhibit  10.14 of the  Company's  Annual
                           Report  on  Form  10-K  for  the  fiscal  year  ended
                           December 31, 1996).

                10.17      Indemnification  Agreement, dated September 30, 1995,
                           between the Company (as successor to Echelon) and New
                           Echelon LLC  (Incorporated  by  reference  to Exhibit
                           10.18 of the Registration Statement).

                10.18      Limited  Liability  Company  Agreement of  Allegiance
                           Capital,  LLC  (Incorporated  by reference to Exhibit
                           10.1 of the Company's  Quarterly  Report on Form 10-Q
                           for the quarter ended September 30, 1997).

                10.19      Amended  and  Restated  Limited   Liability   Company
                           Agreement of Allegiance Capital, LLC (Incorporated by
                           reference to Exhibit 10.5 of the Company's  Quarterly
                           Report on Form 10-Q for the quarter  ended  September
                           30, 1998).

                10.20      Fourteen  Hill  Capital,  L.P.  Agreement  of Limited
                           Partnership  (Incorporated  by  reference  to Exhibit
                           10.2 of the Company's  Quarterly  Report on Form 10-Q
                           for the quarter ended September 30, 1997).

                10.21      Fourteen Hill Management,  LLC Operating Agreement by
                           Point West Capital and Fourteen Hill Management,  LLC
                           as of June 9,  1997  (Incorporated  by  reference  to
                           Exhibit  10.3 of the  Company's  Quarterly  Report on
                           Form 10-Q for the quarter ended September 30, 1997).

                10.22**    Trust  Agreement,  dated as of August 1, 1998,  among
                           Allegiance Funding Corp. I, Manufacturers and Traders
                           Trust  Company  and Point  West  Capital  Corporation
                           (Incorporated  by  reference  to Exhibit  10.1 of the
                           Company's  Quarterly  Report  on  Form  10-Q  for the
                           quarter ended September 30, 1998).

                10.23**    Supplement to Trust  Agreement  for Revolving  Series
                           1998-1,  dated as of August 1, 1998 among  Allegiance
                           Funding  Corp.  I,  Manufacturers  and Traders  Trust
                           Company   and   Point   West   Capital    Corporation
                           (Incorporated  by  reference  to Exhibit  10.2 of the
                           Company's  Quarterly  Report  on  Form  10-Q  for the
                           quarter ended September 30, 1998).

                10.24**    Loan  Acquisition  Agreement,  dated as of  August 1,
                           1998, between Allegiance Capital,  LLC and Allegiance
                           Funding Corp. I (Incorporated by reference to Exhibit
                           10.3 of the Company's  Quarterly  Report on Form 10-Q
                           for the quarter ended September 30, 1998).

                10.25**    Servicing  Agreement,  dated as of  August  1,  1998,
                           among  Point  West  Capital  Corporation,  Allegiance
                           Capital,    LLC,    Allegiance   Funding   Corp.   I,
                           Manufacturers  and  Traders  Trust  Company and other
                           party thereto  (Incorporated  by reference to Exhibit
                           10.4 of the Company's  Quarterly  Report on Form 10-Q
                           for the quarter ended September 30, 1998).

                10.26      Point West  Securities  LLC  Operating  Agreement  by
                           Point  West  Capital   Corporation   and  Point  West
                           Securities, LLC as of July 8, 1998.

                21.1       Subsidiaries of the Company.

                                       61

<PAGE>


                23.1       Consent of Independent Certified Public Accountants.

                24.1       Powers of Attorney.

                27          Financial Data Schedule.

*        Management  contract or compensation plan or arrangement.

**       Certain information omitted pursuant to an order for confidential
         treatment granted by the SEC.


         (b)  Reports on Form 8-K:

               Date                  Item Reported          Matter Reported
               ----                  -------------          ----------------
               November 16, 1998       5                    November  16, 1998 5
                                                            The Company issued a
                                                            press        release
                                                            regarding        its
                                                            results           of
                                                            operations  for  the
                                                            third   quarter   of
                                                            1998.

                                       62

<PAGE>

                                   SIGNATURES

         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

Dated March 5,1999                             POINT WEST CAPITAL CORPORATION
                                                 /s/Alan B. Perper
                                                 -----------------------------
                                                  Alan B. Perper
                                                  President

         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this  report has been  signed  below by the  following  persons on behalf of the
registrant and in the capacities indicated on March 5, 1999:


/s/ Alan B. Perper                                   *
-----------------------------                     -----------------------------
Alan B. Perper                                    John Ward Rotter
President and Director                            Executive Vice President,
(Principal Executive Officer)                     Chief Financial Officer
                                                  and Director
                                                  (Principal Financial and 
                                                  Accounting Officer)
                                    

    *                                                *
-----------------------------                     -----------------------------
Bradley N. Rotter                                 Stephen T. Bow
Chairman of the Board and Director                Director



    *
-----------------------------
Paul A. Volberding, M.D.
Director


*       The  undersigned  by signing his name  hereunto  has hereby  signed this
        report on  behalf  of the  above-named  directors,  on March   5,  1999
        pursuant to a power of attorney executed on behalf of each such director
        and filed with the Securities and Exchange Commission as Exhibit 24.1 to
        this report.

By:   /s/ Alan B. Perper
     ---------------------
      Alan B. Perper

                                       63