SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
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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
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(Exact name of registrant as specified in its charter)
Delaware 94-3165263
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1700 Montgomery Street, Suite 250
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San Francisco, California 94111
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(Address of principal executive offices) (Zip Code)
(415) 394-9467
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
At April 9, 1999 there were 3,326,624 shares of the registrant's Common
Stock outstanding.
<PAGE>
POINT WEST CAPITAL CORPORATION
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INDEX
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Part I Page #
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Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets
March 31, 1999 and December 31, 1998 1
Consolidated Statements of Operations
and Comprehensive Income for the
Three Months Ended March 31, 1999 and 1998 2
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1999 and 1998 3
Condensed Notes to Consolidated Financial Statements 4-11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12-23
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 23
Part II
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Item 1. Legal Proceedings 24
Item 6. Exhibits and Reports on Form 8-K 25
Signatures 26
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(i)
<PAGE>
POINT WEST CAPITAL CORPORATION
CONSOLIDATED BALANCE SHEETS
March 31, 1999 and December 31, 1998
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1999 1998
------------------- --------------------
<S> <C> <C>
Cash and cash equivalents $ 7,243,627 $ 6,668,126
Restricted cash 2,114,616 3,153,513
Investment securities - available-for-sale 34,158,218 2,113,034
Matured policies receivable 300,349 12,000
Loans receivable, net of unearned income of $261,524 and
$117,709, respectively and net of an allowance for
loan losses of $75,000 and $50,000, respectively 15,935,030 10,187,590
Purchased life insurance policies 33,124,945 33,893,017
Non-marketable securities 3,153,617 5,396,607
Deferred financing costs, net of accumulated amortization
of $1,031,531 and $907,848, respectively 693,322 810,545
Furniture and equipment, net of accumulated depreciation of
$6,267 and $4,469, respectively 26,476 25,365
Other assets 259,771 182,964
------------------- --------------------
Total assets $ 97,009,971 $ 62,442,761
=================== ====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued interest expense $ 227,623 $ 263,805
Accounts payable 282,001 192,436
Accrued compensation payable 140,956 222,000
Revolving certificates 11,797,272 5,400,045
Long term notes payable 38,528,914 38,528,914
Debentures 3,000,000 3,000,000
Deferred income taxes 6,598,514 6,000
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Total liabilities 60,575,280 47,613,200
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Stockholders' equity:
Common stock, $0.01 par value; 15,000,000 authorized shares,
4,365,124 and 4,291,824 shares, respectively, issued
3,326,624 and 3,253,324 shares, respectively, outstanding 43,651 42,918
Additional paid-in-capital 30,013,170 29,496,720
Accumulated comprehensive income - net unrealized
investment gains (losses) 21,399,005 (188,966)
Retained deficit (12,147,103) (11,647,079)
Treasury stock, 1,038,500 shares (2,874,032) (2,874,032)
------------------- --------------------
Total stockholders' equity 36,434,691 14,829,561
------------------- --------------------
Total liabilities and stockholders' equity $ 97,009,971 $ 62,442,761
=================== ====================
<FN>
See accompanying condensed notes to consolidated financial statements
</FN>
</TABLE>
1
<PAGE>
POINT WEST CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
For the Three Months Ended March 31, 1999 and 1998
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
------------------- -------------------
<S> <C> <C>
Income:
Earned discounts on matured policies $ 60,734 $ 316,133
Interest income 490,992 351,307
Gain on assets sold - 138,837
Gain on sale of securities 968,348 -
Other 82,021 63,485
------------------- -------------------
Total income 1,602,095 869,762
Expenses:
Interest expense 1,043,033 904,120
Compensation and benefits 347,334 349,559
Other general and administrative expenses 586,271 433,257
Amortization 123,683 62,656
Depreciation 1,798 418
------------------- -------------------
Total expenses 2,102,119 1,750,010
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Loss before net loss in wholly owned
financing subsidiary charged to
reserve for equity interest (500,024) (880,248)
Net loss in wholly owned financing subsidiary charged
to reserve for equity interest - 800,676
------------------- -------------------
Net loss (500,024) (79,572)
Comprehensive income - net unrealized
investment gains 21,587,971 402,655
------------------- -------------------
Total comprehensive income $ 21,087,947 $ 323,083
=================== ===================
Basic loss per share $ (0.15) $ (0.02)
Diluted loss per share (0.15) (0.02)
Weighted average number of shares of common stock
outstanding 3,273,628 3,253,324
Weighted average number of shares of common stock
and common stock equivalents outstanding 3,273,628 3,253,324
<FN>
See accompanying condensed notes to consolidated financial statements
</FN>
</TABLE>
2
<PAGE>
POINT WEST CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 1999 and 1998
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
------------------- -------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (500,024) $ (79,572)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 125,481 63,074
Gain on assets sold - (138,837)
Gain on sale of securities (968,348) -
Earned discounts on policies (60,734) (316,133)
Collections on matured life insurance policies 540,458 1,318,280
Increase in reserve for loans receivable 25,000 -
Increase in other assets (77,354) (91,696)
Decrease (increase) in accrued interest expense (36,182) 14,535
Increase (decrease) in accounts payable 89,565 (55,021)
Decrease in accrued compensation payable (81,044) (143,000)
Decrease in reserve for equity interest in wholly
owned financing subsidiary - (742,938)
Increase in non-marketable securities received (148,840) -
------------------- -------------------
Net cash used in operating activities (1,092,022) (171,308)
------------------- -------------------
Cash flows from investing activities:
Proceeds from sale of other assets - 187,522
Purchase of furniture and equipment (2,909) (1,736)
Decrease in restricted cash 1,038,897 58,408
Purchase of investments and non-marketable securities (1,500,000) (2,650,000)
Sale of investments and non-marketable securities 1,307,148 -
Additions to loans receivable (6,071,387) (2,645,550)
Principal payments on loans receivable 298,947 24,173
------------------- -------------------
Net cash used in investing activities (4,929,304) (5,027,183)
------------------- -------------------
Cash flows from financing activities:
Proceeds from revolving certificates 6,460,000 -
Principal payments on revolving certificates (62,773) -
Increase in financing costs (6,460) -
Proceeds from options exercised 206,060 -
------------------- -------------------
Net cash provided by financing activities 6,596,827 -
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Net increase (decrease) in cash and cash equivalents 575,501 (5,198,491)
Cash and cash equivalents, beginning of period 6,668,126 10,039,560
------------------- -------------------
Cash and cash equivalents, end of period $ 7,243,627 $ 4,841,069
=================== ===================
Supplemental disclosures:
Supplemental disclosure of non-cash activities:
Unrealized gain on securities available for sale $ 21,587,971 $ 402,655
=================== ===================
Receipt of warrants $ 148,840 $ -
=================== ===================
Supplemental disclosure of cash flow information:
Taxes paid $ 6,966 $ 1,930
=================== ===================
Cash paid for interest $ 1,039,857 $ 889,584
=================== ===================
<FN>
See accompanying condensed notes to consolidated financial statements
</FN>
</TABLE>
3
<PAGE>
POINT WEST CAPITAL CORPORATION
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CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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1. General Description
- -- -------------------
The unaudited consolidated financial statements of Point West Capital
Corporation ("Point West") and its consolidated entities (the "Company") as of
March 31, 1999 and for the three month periods ended March 31, 1999 and 1998
have been prepared in accordance with generally accepted accounting principles
("GAAP") for interim financial information, in accordance with Rule 10-01 of
Regulation S-X. Accordingly, such statements do not include all of the
information and notes thereto that are included in the annual consolidated
financial statements. In the opinion of management, all adjustments considered
necessary for a fair presentation have been included. Operating results for the
three month period ended March 31, 1999 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1999. The balance
sheet as of December 31, 1998 has been derived from the audited consolidated
financial statements of the Company. The statements and notes thereto included
herein should be read in conjunction with the audited consolidated financial
statements and notes thereto included in the Company's Annual Report on Form
10-K for the year ended December 31, 1998 (the "Form 10-K").
Point West is a specialty financial services company. The Company's
financial statements consolidate the assets, liabilities and operations of
Dignity Partners Funding Corp. I ("DPFC"), Fourteen Hill Management, LLC
("Fourteen Hill Management"), Fourteen Hill Capital, L.P. ("Fourteen Hill
Capital"), Allegiance Capital, LLC ("Allegiance Capital"), Allegiance Funding
Corp. I ("Allegiance Funding"), Allegiance Capital Trust I ("Allegiance Trust
I") and Point West Securities, LLC ("PWS"). 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.
Until February 1997, the Company provided viatical settlements for
terminally ill persons. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Overview." Subsequently, the Company has
become a more broadly-based specialty financial services company. During 1997,
the Company expanded its financial services business through the operations of
Fourteen Hill, which invests in small businesses and Allegiance, which lends
funds to funeral home and cemetery owners. During 1998, the Company formed PWS,
a broker-dealer licensed by the National Association of Securities Dealers, Inc.
The Company continues to service the life insurance policies held by its wholly
owned special purpose subsidiary, DPFC. The Company continues to evaluate new
business opportunities.
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.
2. Investment Securities
- -- ---------------------
Statement of Financial Accounting Standards No. 115 ("SFAS 115"),
Accounting for Certain Investments 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
available-for-sale are reported at fair market value with unrealized gains and
losses as a separate component of stockholders' equity. Several of the equity
securities classified by the Company as available-for-sale are
4
<PAGE>
securities traded in the over-the-counter ("OTC") market. Fair market value is
estimated by the Company based on the average closing bid of the securities for
the last three trading days of the reporting period and is adjusted to reflect
management's estimate of liquidity constraints. The Company had no
held-to-maturity or trading securities at March 31, 1999 or December 31, 1998.
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.
The costs and estimated fair value of investment securities (before any
minority interest) as of March 31, 1999 and December 31, 1998 are as follows:
<TABLE>
<CAPTION>
March 31, 1999
- ---------------------------------------------------------------------------------------------------------------------
Gross Gross
Cost Unrealized Gains Unrealized
Losses Fair Value
<S> <C> <C> <C> <C>
Available-for-sale
Corporate Bond $ 350,000 $ -- $ (250,000) $ 100,000
Common Stock 5,505,029 29,572,739 (1,019,550) 34,058,218
--------------- --------------- --------------- ---------------
Total available-for-sale $ 5,855,029 $ 29,572,739 $ (1,269,550) $ 34,158,218
</TABLE>
<TABLE>
<CAPTION>
December 31, 1998
- ---------------------------------------------------------------------------------------------------------------------
Gross Gross
Cost Unrealized Gains Unrealized
Losses 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>
Cumulative unrealized gains (losses) on available-for-sale securities
(representing differences between estimated fair value and cost) were $28.3
million and ($189,000) at March 31, 1999 and December 31, 1998, respectively. A
separate component of stockholders' equity called "Accumulated Comprehensive
Income -- Net Unrealized Investment Gains (Losses)" reflects such cumulative
gains (losses), net of applicable taxes. For the three months ended March 31,
1999 and 1998, the Company's total comprehensive income includes unrealized
investment gains for the respective periods, net of applicable taxes. See Note
10.
3. Loans Receivable
- -- ----------------
Loans receivable includes loans made to unaffiliated third parties
through Allegiance and Fourteen Hill. Such loans are reported at amortized cost
net of an allowance for loan losses for the Allegiance loans, and interest is
accrued as earned.
Allegiance had eight loans outstanding at March 31, 1999 in the
aggregate principal amount of $15.4 million, which bear a weighted-average fixed
interest rate per annum of 9.4%. 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
5
<PAGE>
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.
In August 1998, Allegiance put in place a structured financing (the
"Allegiance 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 6. The availability of permanent financing is conditioned on Allegiance
originating at least $30 million of loans by August 31, 1999. At March 31, 1999,
Allegiance had $15.4 million of loans outstanding. Allegiance utilizes futures
contracts to hedge certain interest rate exposure between the time of
origination of the loans and the establishment of permanent fixed rate
financing. 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
Allegiance 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 March 31, 1999, Allegiance had net realized losses on its hedging activities
of $92,000 which increased loans receivable in a like amount. In addition,
Allegiance had unrealized net gains from open hedging positions of $3,000 as of
March 31, 1999.
Fourteen Hill had two loans outstanding at March 31, 1999 in the
aggregate principal amount of $619,000, 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,
approximately 5 years from the initial loan date.
4. Purchased Life Insurance Policies
- -- ---------------------------------
Purchased life insurance policies consist only of those policies held
by DPFC. The Company has discussed potential sales of DPFC policies with the
Noteholders. The sale of policies held by DPFC, all of which are pledged as
security for the Securitized Notes (as defined in Note 7), requires the consent
of the Company and the Noteholders. 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 in the appropriate period. See Note 7.
5. Non-Marketable Securities
- -- -------------------------
Non-marketable securities include investments in non-marketable equity
securities through Point West and Fourteen Hill. At March 31, 1999 the Company
had 3 investments in convertible preferred shares carried at an aggregate cost
of $2.8 million and 3 investments in warrants carried at an aggregate cost of
$360,000. At December 31, 1998 the Company had 4 investments in convertible
preferred shares carried at an aggregate cost of $5.3 million and 1 investment
in warrants carried at a cost of $98,000. The Company accounts for such
non-marketable securities using the cost method. See the Form 10-K.
6
<PAGE>
During 1998, Fourteen Hill invested $900,000 in convertible preferred
shares (convertible into marketable common shares) of an unaffiliated small
business entity. During the first quarter of 1999, Fourteen Hill converted
approximately 33% of the preferred shares into common shares, which to the
extent still held at March 31, 1999, are marketable securities included in the
March 31, 1999 table in Note 2. The remaining convertible preferred shares held
at March 31, 1999 are reflected as non-marketable securities with a cost of
$600,000. If the remaining convertible preferred shares had been converted to
common shares at March 31, 1999, the Company would have reflected additional
"Accumulated Comprehensive Income--Net Unrealized Investment Gains" and
"Comprehensive Income -- Net Unrealized Investment Gains" of $1.6 million, net
of applicable taxes. For further information regarding Comprehensive Income see
Note 10.
The Company reviews on a quarterly basis all non-marketable securities
and attempts to ascertain whether the value is impaired.
6. 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, the outstanding 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 from other
sources 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. Revolving
certificates receiving ratings were purchased by the Investors, while Allegiance
Funding retained an unrated certificate. The revolving certificates were issued
in August 1998 in four classes, consisting of Class A-R, Class B-R, Class C-R
and Class D-R. The Class D-R certificate is unrated, while the other revolving
certificates received ratings from Duff & Phelps Credit Rating Co. ("Duff &
Phelps") ranging from A to BB. It is also anticipated that the term
certificates, when and if issued, will receive ratings from Duff & Phelps. The
Class A-R certificate, rated A, was partially drawn in March 1999 in the
principal amount of $6.5 million. Such certificate bears interest at a variable
rate based on the one-month LIBOR plus a spread of 2.0%. The Class B-R
certificate, rated BBB, was fully drawn in December 1998 in the principal amount
of $3.3 million. The Class C-R certificate, rated BB, was fully drawn in
November 1998 in the principal amount of $2.1 million. The Class B-R and Class
C-R certificates bear interest at a variable rate based on the one-year U.S.
Treasury Rate plus a weighted-average spread of 3.9%. Any future borrowings
under the revolving certificates will be through increases in the principal
amount of the Class A-R certificate. The weighted-average interest rate of the
certificates at March 31, 1999 was 8.16%. 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 the 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 borrowings
under the Allegiance Financing are reflected on the Consolidated Balance Sheet.
7
<PAGE>
In connection with the Allegiance Financing, Allegiance Capital paid a
$175,000 commitment fee when 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 certificate outstanding under Allegiance Trust I.
7. Long Term Notes Payable
- -- -----------------------
The Senior Viatical Settlement Notes, Series 1995-A, Stated Maturity
March 10, 2005 (the "Securitized Notes") were issued by DPFC. Principal and
interest payments on the Securitized Notes are payable solely from collections
on pledged policies and deposited funds. The Securitized Notes, which are
reported on the balance sheet as long term notes payable, bear a fixed interest
rate of 9.17% per annum.
The Securitized Notes represent the obligations solely of DPFC. The
Company's consolidated financial statements include the assets, liabilities and
operations of DPFC; however, the assets of DPFC are not available to pay
creditors of Point West. The assets of DPFC are the beneficial ownership
interests in the life insurance policies and funds which secure the Securitized
Notes. 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 4. 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 in the appropriate period. Upon the
retirement of the Securitized Notes, the Company will recognize a gain in an
amount approximately equal to any accumulated deficit reflected. For the first
quarter of 1999, the loss associated with DPFC was approximately $1.1 million.
At March 31, 1999, DPFC's accumulated deficit was $2.8 million.
Point West is the servicer of the policies pledged under the Indenture
pursuant to which the Securitized Notes were issued (the "Indenture") and incurs
servicing expenses (which are reimbursed, subject to certain priority payments)
in connection therewith.
8. Debenture
- -- ----------
As of March 31, 1999, 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.
8
<PAGE>
9. Stockholders' Equity
- -- --------------------
Changes in stockholders' equity during the first three months of 1999
reflected the following:
Stockholders' equity, beginning of period $14,829,561
Common stock -- options exercised 733
Additional paid-in-capital -- options exercised 516,450
Accumulated comprehensive incom -- net unrealized
investment gains 21,587,971
Net loss (500,024)
------------
Stockholders' equity, end of period $36,434,691
10. Comprehensive Income -- Net Unrealized Investment Gains
- -- -------------------------------------------------------
Statement of Financial Accounting Standard No. 130 ("SFAS 130"),
Reporting Comprehensive Income, requires the reporting of comprehensive income.
At March 31, 1999, the Company's total comprehensive income includes net
unrealized investment gains, net of applicable taxes of $6.9 million which
represents the increase in the Company's investment securities classified as
available-for-sale.
The Company originally reported "Comprehensive Income -- Net Unrealized
Investment Gains" of $3.1 million for the first quarter of 1998 in its Form 10-Q
for the period ended March 31, 1998. Of the $3.1 million, $2.7 million related
to unrealized gains on certain convertible preferred shares originally
classified as available-for-sale. In this Form 10-Q, the Company has reported
"Comprehensive Income -- Net Unrealized Investment Gains" for the same period of
$403,000. The difference in numbers reported is due to a reclassification of
those convertible preferred shares from available-for-sale to non-marketable
securities, which are carried at cost. See Notes 2 and 5. In both periods, such
securities were convertible into marketable securities but nonetheless should
have been reflected at March 31, 1998 as non-marketable securities under GAAP
and carried at cost with corresponding footnote disclosure regarding any
significant appreciation or decline in value. During the first quarter of 1999,
a portion of such securities was converted into common shares and classified as
available-for-sale. See Note 5.
11. Earnings per Share
- -- ------------------
Statement of Financial Accounting Standards No.128 ("SFAS 128"),
Earnings per Share, requires earnings per share ("EPS") to be reported as two
separate calculations: Basic EPS, similar to the previous primary EPS excluding
stock equivalents; and, Diluted EPS, similar to the previous fully diluted EPS.
Diluted EPS for the three months ended March 31, 1999 and 1998 do not include
any common stock equivalents due to their anti-dilutive effect
12. Litigation
- -- ----------
On December 19, 1996, a complaint was filed in the United States
District Court, Northern District of California (the "Court") (Docket No.
C96-4558) against Dignity Partners, Inc. (now Point West Capital Corporation)
and each of its directors by three individuals purporting to act on behalf of
themselves and an alleged class consisting of all purchasers of the Company's
common stock during the period February 14, 1996 to July 16, 1996. The complaint
alleged that the defendants violated Section 10(b) of the Securities Exchange
Act of 1934 and Rule 10b-5 thereunder and Section 11 of the Securities Act of
1933 and seeks, among other things, compensatory damages, interest, fees and
costs. The allegations were based on alleged misrepresentations in and omissions
from the Company's registration
9
<PAGE>
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. On November 13, 1998,
the Court granted plaintiff's motion for class certification. On March 11, 1999,
defendants filed a motion for summary judgement which is scheduled to be heard
in May 1999. 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.
13. Segment Reporting
- -- -----------------
Financial Accounting Standard No. 131 ("SFAS 131"), Disclosures about
Segments of an Enterprise and Related Information, 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.
10
<PAGE>
The Company's reportable operating segments include Viatical
Settlements, Fourteen Hill and Allegiance. 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 in the Form 10-K.
The following table represents the Company's results from segments for March 31,
1999 and 1998.
<TABLE>
<CAPTION>
March 31, 1999
-----------------------------------------------------------------------------------------
Viatical Fourteen
Settlements (1) Hill Allegiance Other Total
--------------- ----- ---------- ----- -----
<S> <C> <C> <C> <C> <C>
Interest income...... $ 27,603 $ 187,400 $ 221,422 $ 54,567 $ 490,992
Other revenue........ 69,589 650,898 -- 390,616 1,111,103
Interest expense...... 883,275 51,337 108,421 -- 1,043,033
Depreciation &
Amortization....... 58,720 7,500 57,463 1,798 125,481
Contributed income
(loss) (2).............. (997,127) 779,389 (103,632) (178,654) (500,024)
Comprehensive
income............... -- 21,647,971 -- (60,000) 21,587,971
Segment assets...... 39,968,455 37,225,397 17,571,849 6,244,270 97,009,971
</TABLE>
<TABLE>
<CAPTION>
March 31, 1998
-----------------------------------------------------------------------------------------
Viatical Fourteen
Settlements (1) Hill Allegiance Other Total
--------------- ----- ---------- ----- -----
<S> <C> <C> <C> <C> <C>
Interest income...... $ 52,389 $ 43,892 $ 140,430 $ 114,596 $ 351,307
Other revenue........ 515,004 -- 3,451 -- 518,455
Interest expense...... 904,120 -- -- -- 904,120
Depreciation &
Amortization....... 58,720 2,508 1,428 418 63,074
Contributed income
(loss) (2).............. 203,837 35,872 101,955 (421,236) (79,572)
Comprehensive
income............... -- 402,655 -- -- 402,655
Segment assets...... 40,561,766 10,868,158 6,068,671 7,545,796 65,044,391
<FN>
- --
(1) The viatical settlements segment includes results of operations in
connection with viatical settlements for DPFC, and Point West
(2) Corporate overhead is not generally allocated between segments and is
included in the other segment.
</FN>
</TABLE>
A reconciliation of the totals reported for the operating segments to
the applicable line items in the consolidated financial statements is as
follows:
March 31, 1999 March 31, 1998
Income
------
Interest income $ 490,992 $ 351,307
Other revenue 1,111,103 518,455
------------- --------------
Total income $ 1,602,095 $ 869,762
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
------------------------------------
The following is a discussion and analysis of the consolidated
financial condition of the Company as of March 31, 1999, and of the results of
operations for the Company for the three months ended March 31, 1999 and 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 unaudited consolidated financial statements and related notes appearing
elsewhere herein. For the reasons set forth below (including the inception of
two new businesses in the second half of 1997 which generated substantially more
activity in the first quarter of 1999 compared to the first quarter of 1998) the
Company's results of operations and cash flows for the three months ended March
31, 1999 are not comparable to those for the three months ended March 31, 1998.
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. See the Form 10-K and Condensed Notes to
Consolidated Financial Statements (contained herein) for further information
regarding these entities.
The principal business activity of the Company through February 1997
was to provide viatical settlements for terminally ill persons. See the Form
10-K for further information regarding the Company's former principal business
activity. Subsequently, 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, which invests in
small businesses and Allegiance, which lends funds to funeral home and cemetery
owners. During 1998, the Company formed PWS, a broker-dealer licensed by the
National Association of Securities Dealers, Inc. The Company continues to
service the life insurance policies held by its wholly owned special purpose
subsidiary, DPFC.
Information regarding the revenues, contributed income (loss) and
identifiable assets for each of the Company's business segments is contained in
Note 13 of the Condensed Notes to Consolidated Financial Statements (contained
herein).
The Company continues to evaluate other business opportunities.
Fourteen Hill, Allegiance and PWS, whose business activities are described
below, may or may not be indicative of the types of business opportunities the
Company will continue to pursue. 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. The Company is seeking advice from
financial advisors to assist it in its strategy of developing or acquiring new
operating businesses. See "Considerations Under the Investment Company Act of
1940."
Results of Operations for the Company
- -------------------------------------
Three Months Ended March 31, 1999 Compared to Three Months Ended March 31,
--------------------------------------------------------------------------
1998
----
Total Income. Total income increased 83.9% to $1.6 million in the first
quarter of 1999 from $870,000 in the first quarter of 1998 due to $651,000 of
gains on sales of securities recognized by Fourteen Hill, $317,000 of gains on
sales of securities recognized by Point West in connection with its hedging
activities of internet related stocks and $140,000 increase in interest income.
See "Item 3 -- Quantitative and Qualitative Disclosure About Market Risk."
Offsetting this increase was a $255,000
12
<PAGE>
decrease in earned discounts on matured policies. The 1998 period also included
a $139,000 gain on assets sold.
Total Expenses. Total expenses increased 16.7% to $2.1 million in the
first quarter of 1999 from $1.8 million in the first quarter of 1998 due
primarily to a $139,000 increase in interest expense related to borrowings by
Allegiance and Fourteen Hill in the second half of 1998. In addition, total
expenses reflect a $110,000 increase from the prior period in other general and
administrative expenses due primarily to legal expenses incurred in connection
with the federal class action and state alleged class action lawsuits filed
against Point West and its officers and directors. See "Results of Operations by
Segment -- Other -- Other General and Administrative Expenses."
Net Loss in Wholly Owned Financing Subsidiary Charged to Reserve for
Equity Interest. The DPFC net loss of $801,000 recorded in the first quarter of
1998 was included in the Company's loss before net loss in wholly owned
financing subsidiary charged to reserve for equity interest. Prior to the
depletion of the reserve during the third quarter of 1998, losses were charged
against the reserve for equity interest in wholly owned financing subsidiary.
After the reserve was fully depleted during the third quarter of 1998, DPFC's
losses have been reflected in the Company's Consolidated Statement of Operations
and Comprehensive Income. All additional losses of DPFC will be reflected in the
Company's Consolidated Statement of Operations and Comprehensive Income for the
periods in which such losses occur. See the Form 10-K for additional
information.
Comprehensive Income -- Net Unrealized Investment Gains. Comprehensive
income -- net unrealized investment gains reported herein increased to $21.6
million in the first quarter of 1999 from $403,000 in the first quarter of 1998,
primarily as a result of one of Fourteen Hill's investments, FlashNet
Communications, Inc. ("FlashNet"), completing an initial public offering. The
Company originally reported "Comprehensive Income -- Net Unrealized Investment
Gains" of $3.1 million for the first quarter of 1998 in its Form 10-Q for the
period ended March 31, 1998. Of the $3.1 million, $2.7 million related to
unrealized gains on certain convertible preferred shares originally classified
as available-for-sale. In this Form 10-Q, the Company has reported
"Comprehensive Income -- Net Unrealized Investment Gains" for the same period of
$403,000. The difference in numbers reported is due to a reclassification of
those convertible preferred shares from available-for-sale to non-marketable
securities, which are carried at cost. In both periods, such securities were
convertible into marketable securities but nonetheless should have been
reflected at March 31, 1998 as non-marketable securities under GAAP and carried
at cost with corresponding footnote disclosure regarding any significant
appreciation or decline in value. During the first quarter of 1999, a portion of
such securities was converted into common shares and classified as
available-for-sale. See "Results of Operations by Segment -- Fourteen Hill" and
Notes 5 and 10 of the Condensed Notes to Consolidated Financial Statements.
Results of Operations by Segment
- --------------------------------
Viatical Settlements
--------------------
The viatical settlements segment includes results of operations in
connection with viatical settlements for DPFC and Point West.
Method of Accounting for Viatical Settlements
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 as of March 31, 1999 and December 31,
13
<PAGE>
1998. In 1996, the Company also established a reserve for loss of Point West's
equity interest in DPFC. By the end of the third quarter of 1998, the equity
reserve was fully depleted. See "Certain Accounting Implications for DPFC."
During both 1998 and 1999, the Company recognized 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.
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 March 31, 1999, $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 $2.8 million at March 31, 1999.
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 the first quarter of 1999, the total loss realized by DPFC was $1.1
million, which was reflected in the Company's Consolidated Statement of
Operations and Comprehensive Income. The loss for the first quarter of 1999
decreased basic EPS by $0.34. The average historical quarterly losses in DPFC
have been approximately $1.1 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.
Three Months Ended March 31, 1999 Compared to Three Months Ended March
31, 1998
Earned Discounts. Earned discounts on matured polices decreased 80.7%
to $61,000 in the first quarter of 1999 from $316,000 in the first quarter of
1998. The decrease is due primarily to fewer deaths of insureds and secondarily
to a decrease in the size of the Company's portfolio of life insurance policies.
During the first quarter of 1999, earned discounts on matured policies were
recognized on 12 policies with a face value of $834,000, compared to 24 policies
with a face value of $1.7 million in the first quarter of 1998. See "Method of
Accounting for Viatical Settlements." As of March 31, 1999, the Company held 494
policies with an aggregate carrying value of $33.2 million and an aggregate face
value of $38.8 million. Virtually all of the policies are pledged as security
for the Securitized Notes.
Interest Income. Interest income declined to $28,000 in the first
quarter of 1999 from $52,000 in the first quarter of 1998, as a result of lower
cash balances attributable to DPFC. DPFC's cash balances are affected by the
amount and timing of any policy collections and by the amount and timing of
expenses
14
<PAGE>
(such as interest, trustee fees, premium costs and servicing fees) related to
its portfolio. The cash generated by DPFC is restricted under the Indenture.
Gain on Assets Sold. The Company did not collect any proceeds on
policies sold during the first quarter of 1999. In the first quarter of 1998,
the Company collected the sale proceeds on 4 policies and recorded a gain on
assets sold of $139,000. The realized gain 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.
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
declined to $9,000 in the first quarter of 1999 from $60,000 in the first
quarter of 1998 due to the decrease in the number of matured policies.
Interest Expense. Interest expense decreased 2.3% to $883,000 in the
first quarter of 1999 from $904,000 in the first quarter of 1998 as a result of
modest principal repayments under the Securitized Notes. Average borrowings
under the Securitized Notes were $38.5 million in the first quarter of 1999
compared to $38.8 million in the first quarter of 1998.
Other General and Administrative Expenses. Other general and
administrative expenses decreased 24.4% to $152,000 in the first quarter of 1999
from $201,000 in the first quarter of 1998. This decrease was due primarily to a
$43,000 write-off of a life insurance policy recorded in the first quarter of
1998. In addition, other general and administrative expenses decreased as a
result of a decrease in life insurance policy premium costs. Although premium
costs decreased as a result of the decrease in size of the Company's portfolio,
the Company believes that if the life insurance policies continue to mature
slowly, life insurance premium costs are likely to increase in future periods.
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 available-for-sale are reported at fair market value
with unrealized gains and losses as a separate component of stockholders'
equity. The Company had no held-to-maturity or trading securities at March 31,
1999 or December 31, 1998. 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. For further information regarding accounting for securities classified
as available-for-sale, see "Results of Operations for the Company -- Three
Months Ended March 31, 1999 Compared to Three Months Ended March 31, 1998 --
Comprehensive Income -- Net Unrealized Investment Gains" and notes 2 and 10 to
the Condensed Notes to Consolidated Financial Statements. Any realized gains and
losses, accrued interest and dividends and unrealized losses 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.
See Note 2 of the Condensed Notes to Consolidated Financial Statements.
Beginning in 1999, because of the volatility of internet and internet
related stocks, Point West shorted stocks of certain competitors of FlashNet so
as to partially hedge its holdings in FlashNet. However, under GAAP such hedging
activities do not constitute hedges under SFAS 80. Therefore, such hedging
activities are reflected in the Company's Consolidated Statement of Operations
and Comprehensive Income. At March 31, 1999 no such hedges were in place. The
Company recognized a
15
<PAGE>
$317,000 gain in connection with such hedging activities
during the first quarter of 1999. See "Item 3 -- Quantitative and Qualitative
Disclosures About Market Risk."
The Company accounts for loans by accruing interest on outstanding
balances. At March 31, 1999 and December 31, 1998, 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. See Note 3 of the Condensed Notes to Consolidated
Financial Statements.
Three Months Ended March 31, 1999 Compared to Three Months Ended March
31, 1998
Interest Income. Interest income increased $143,000 to $187,000 in the
first quarter of 1999 from $44,000 in the first quarter of 1998. This increase
was due to $149,000 of interest income recognized as a result of a warrant
(valued using the Black-Scholes option-pricing model) received in connection
with one of Fourteen Hill's loans.
Gain on Sales of Securities. Fourteen Hill recognized a net gain of
$651,000 in the first quarter of 1999 in connection with the sale a portion of
two of its investments. See Note 5 to the Condensed Notes to Consolidated
Financial Statements.
Interest Expense. Interest expense was $51,000 in the first quarter of
1999 due to the interest on funds borrowed in July 1998. The interest rate
(including a 1% annual fee) is 6.9%. Prior to July 1998, Fourteen Hill had no
debt.
Amortization. Amortization costs increased $5,000 to $8,000 in the
first quarter of 1999 from $3,000 in the first quarter of 1998 because of the
financing costs associated with the borrowed funds.
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 March 31, 1999 and December 31, 1998 the
allowance for loan losses was $75,000 and $50,000, respectively. 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 March 31, 1999, no loans were delinquent and no loans
were placed on non-accrual status.
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
provided that 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 SFAS 125. Accordingly, the Allegiance
Financing will not receive gain on sale treatment under SFAS 125. The loans and
borrowings under the Allegiance Financing are reflected on the Consolidated
Balance Sheet. Allegiance utilizes futures contracts to hedge certain interest
rate exposure between the time of
16
<PAGE>
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 by Allegiance
over the life of the related loan as an adjustment of interest income. Pursuant
to SFAS 80 all such deferred amounts are reflected on the balance sheet as an
increase (in the case of a hedging loss) or decrease (in the case of a hedging
gain), in the carrying value of loans receivable. As of March 31, 1999,
Allegiance had net realized losses on its hedging activities of $92,000 which
increased loans receivable in a like amount. In addition, Allegiance had
unrealized net gains from open hedging positions of $3,000 as of March 31, 1999.
See "Item 3 -- Quantitative and Qualitative Disclosures About Market Risk."
Three Months Ended March 31, 1999 Compared to Three Months Ended March
31, 1998
Interest Income. Interest income increased 57.9% to $221,000 in the
first quarter of 1999 from $140,000 in the first quarter of 1998. This increase
was due to increased loans made by Allegiance. Allegiance had eight loans
outstanding in the aggregate amount of $15.4 million at March 31, 1999 as
compared to two loans outstanding in the amount of $5.9 million at March 31,
1998. The weighted-average interest rate on the loans outstanding during the
first quarter of 1999 was 9.3% compared to 9.5% during the first quarter of
1998.
Interest Expense. Interest expense for Allegiance was $108,000 in the
first quarter of 1999 as a result of the interest paid under the Allegiance
Financing. During the first quarter of 1999, the weighted-average interest rate
under the Allegiance Financing was 8.16%. Prior to November 1998, Allegiance had
no debt.
Compensation and Benefits. Compensation and benefits increased to
$55,000 in the first quarter of 1999 from $37,000 in the first quarter of 1998.
This increase resulted from the hiring of one new employee in March 1999 and two
part-time employees in January 1999 to support Allegiance's lending activities.
Other General and Administrative Expenses. Other general and
administrative expenses increased to $99,000 in the first quarter of 1999 from
$50,000 in the first quarter of 1998 due primarily to a $25,000 increase in
allowance for loan losses recorded in the first quarter of 1999. In addition,
the increase was due to an increase in Allegiance's activities.
Amortization. Amortization costs increased $56,000 to $57,000 in the
first quarter of 1999 from $1,000 in the first quarter 1998. Such costs
increased due to the financing costs associated with the Allegiance Financing.
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 the first quarter of 1998.
Three Months Ended March 31, 1999 Compared to Three Months Ended March
31, 1998
Interest Income. Interest income declined to $55,000 in the first
quarter of 1999 from $115,000 in the first quarter of 1998. This decrease is due
to lower cash balances.
17
<PAGE>
Gain on Sales of Securities. Point West recognized a $317,000 gain in
the first quarter of 1999 in connection with shorting internet related stocks.
See "Item 3 -- Quantitative and Qualitative Disclosures About Market Risk."
Other Income. Other income was $73,000 in the first quarter of 1999.
Such amount included a $66,000 placement fee received by PWS in connection with
an investment made by co-investors of Fourteen Hill Capital in an unaffiliated
small business entity and $7,000 in trading commissions generated by PWS.
Compensation and Benefits. Compensation and benefits decreased 6.7% to
$292,000 in the first quarter of 1999 from $313,000 in the first quarter of
1998. This decrease resulted primarily from a reduction in staff related to
activities other than Allegiance.
Other General and Administrative Expenses. Other general and
administrative expenses increased 48.0% to $330,000 in the first quarter of 1999
from $223,000 in the first quarter of 1998. This increase was due primarily to
an increase in legal expenses in the first quarter of 1999 in the amount of
$110,000 incurred in connection with the federal and state alleged class action
lawsuits filed against Point West and its officers and directors. See Note 12 of
the Condensed Notes to Consolidated Financial Statements. Point West expects
legal expenses to increase substantially in 1999 relative to 1998 since the case
is currently in discovery and the trial date is set for October 1999.
The Company's current lease expires in May 1999. The Company is in the
process of negotiating a renewal of the lease on its current space. The
Company's monthly rent is likely to increase from $5,240 per month to
approximately $16,000 per month.
Liquidity and Capital Resources
- -------------------------------
Point West and PWS
At present, neither Point West nor PWS has an external funding source
from which to fund its working capital and general corporate needs. During the
first quarter of 1999, the Company supported the operations of Point West, PWS
and Fourteen Hill primarily from cash balances. In prior periods, 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 March 31, 1999, the Company's cash and cash equivalents were $7.2
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 "Considerations 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 March 31, 1999, the outstanding principal amount of the
Securitized Notes was $38.5 million. As of the same date, DPFC had restricted
cash of $1.9 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
18
<PAGE>
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 quarter 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. The net unrealized
investment gains may be used in this calculation only if the SBIC has positive
retained earnings. Additionally, the portfolio must consist of a proper mix of
debt and equity investments. In July 1998, Fourteen Hill Capital borrowed $3
million from the SBA.
Fourteen Hill may not have sufficient liquidity, at least in the short
term, to grow its business. In addition, because of substantial appreciation in
investments, the Company may be required to restrict Fourteen Hill's growth in
order to avoid registration under the Investment Company Act of 1940 at some
time in the future. See "Considerations Under the Investment Company Act of
1940."
Allegiance
As of March 31, 1999, Point West has made the only capital contribution
to Allegiance Capital in the aggregate amount of $5.7 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, permanent financing will not be available under the
Allegiance Financing and Allegiance would be responsible for finding an
alternative financing source to repay the interim financing. As of March 31,
1999, Allegiance had borrowed $11.8 million under the Allegiance Financing. The
Company expects Allegiance to originate $30 million in loans by August 1999.
The Company expects that the Allegiance Financing will provide
sufficient funds to support Allegiance's lending activities through August 1999.
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
19
<PAGE>
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.
Although the Company believes that it did not exceed the Percentage
Tests at March 31, 1999, it is possible that it may exceed the Percentage Tests
in the near 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;
* The success of Fourteen Hill, which holds a number of
investment securities, has exceeded expectations; and
* The success of other investments by the Company exceeding
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
holds 1,120,266 shares of FlashNet common stock that was acquired for $2
million. FlashNet consummated an initial public offering in March 1999. FlashNet
priced at $17 per share, but has traded between $30 and $51.
In any event, the Company does not believe that it should be deemed to
be an investment company because 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 hold itself out
as an investment company.
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.
Growth of New Operating Businesses
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
20
<PAGE>
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.
Continuing 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. As previously discussed, Allegiance does not
have an external funding source beyond August 31, 1999. In addition, Allegiance
may need to find financing to repay its existing external interim funding
source.
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. 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 of any sale 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 $25,000 to $50,000 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, 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 March 31, 1999, the Company had incurred
Year 2000 Compliant costs of approximately $26,000, 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
21
<PAGE>
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 the remainder of 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 avail itself of the
benefits of the Allegiance Financing beyond August 1999, (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, (v) expected future life insurance policy premium
costs and (vi) expected expenses to make the Company's computer operations Year
2000 Compliant and expectations regarding the Year 2000 Compliance of the
Company, third-parties on which the Company is dependent and the efficacy of
contingency plans related thereto. Such statements are based on management's
belief, judgment and analysis as well as assumptions made by and information
available to management at the date hereof. In addition to any assumptions and
cautionary factors referred to specifically in this report in connection with
such forward looking statements, factors that could cause actual results to
differ materially from
22
<PAGE>
those contemplated by the forward looking statements include (i) Allegiance's
ability to originate a sufficient number and amount of loans, (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, (vi) the maturity rate
of DPFC's portfolio of life insurance policies and (vii) the ability of the
Company's suppliers and vendors to become Year 2000 Compliant.
ITEM 3--QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- ------------------------------------------------------------------
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 volatility of internet and internet
related stocks, Point West shorted stocks of certain competitors of FlashNet so
as to partially hedge its holdings in FlashNet. At March 31, 1999 no such hedges
were in place. The Company recognized a $317,000 gain in connection with such
hedging activities during the first quarter of 1999.
Allegiance's variable rate debt consist of trust certificates totaling
$6.5 million which bear interest based on the one-month LIBOR plus a spread of
2.0% and $5.3 million which bear interest based on the one-year U.S. Treasury
Rate plus a weighted average spread of 3.9%. See Note 6 of the Condensed Notes
to Consolidated Financial Statements.
The table below represents principal cash flows and weighted average
interest rates for the Allegiance loans outstanding at March 31, 1999:
<TABLE>
<CAPTION>
1999 2000 2001 2002 2003 Thereafter
---- ---- ---- ---- ---- ----------
<S> <C> <C> <C> <C> <C> <C>
Fixed rate loans (1) $ 247,356 $ 394,203 $ 432,784 $ 475,148 $ 521,666 $13,368,363
Average interest rates 9.4% 9.4% 9.4% 9.4% 9.4% 9.4%
- --
<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, provided that 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 certificate outstanding under Allegiance Trust I.
23
<PAGE>
PART II. OTHER INFORMATION
- -------- -----------------
Item 1. Legal Proceedings
- -------------------------
On December 19, 1996, a complaint was filed in the United States
District Court, Northern District of California (the "Court") (Docket
No. C96-4558) against Dignity Partners, Inc. (now Point West Capital
Corporation) and each of its directors by three individuals purporting
to act on behalf of themselves and an alleged class consisting of all
purchasers of the Company's common stock during the period February 14,
1996 to July 16, 1996. The complaint alleged that the defendants
violated Section 10(b) of the Securities Exchange Act of 1934 and Rule
10b-5 thereunder and Section 11 of the Securities Act of 1933 and
seeks, among other things, compensatory damages, interest, fees and
costs. The allegations were based on alleged misrepresentations in and
omissions from the Company's registration statement and prospectus
related to its initial public offering and certain documents filed by
the Company under the Exchange Act. On April 24, 1998, the Court
granted the Company's and other defendants' motion to dismiss as it
related to the Section 11 claims with prejudice but denied the motion
to dismiss the claims under Section 10(b) and Rule 10b-5 as to all
defendants other than Mr. Bow, one of Point West's directors.
Plaintiffs have appealed this dismissal to the United States Circuit
Court for the Ninth Circuit. On November 13, 1998, the Court granted
plaintiff's motion for class certification. On March 11, 1999,
defendants filed a motion for summary judgement which is scheduled to
be heard in May 1999. 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.
24
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Number Description
---------- ------------
27 Financial Data Schedule
99.1 Press Release for Fourteen Hill Capital, L.P.
(b) Reports on Form 8-K filed during the quarter ended March 31, 1999:
Date Item Reported Matter Reported
January 11, 1999 5 The Company issued a press
release regarding the
formation of Point West
Securities.
March 5, 1999 5 The Company issued a press
release regarding its
results of operations for
1998.
25
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized
POINT WEST CAPITAL CORPORATION
DATED: April 13, 1999 /s/ ALAN B. PERPER
--------------------------------
ALAN B. PERPER
President
(Duly Authorized Officer)
DATED: April 13, 1999 /s/ JOHN WARD ROTTER
--------------------------------
JOHN WARD ROTTER
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
26
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM
10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANICAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Jan-01-1999
<PERIOD-END> Mar-31-1999
<CASH> 9,358,243
<SECURITIES> 37,311,835
<RECEIVABLES> 16,235,379 <F1>
<ALLOWANCES> 0
<INVENTORY> 33,124,945 <F2>
<CURRENT-ASSETS> 979,569
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 97,009,971
<CURRENT-LIABILITIES> 19,046,366
<BONDS> 41,528,914 <F3>
0
0
<COMMON> 43,651
<OTHER-SE> 36,391,040
<TOTAL-LIABILITY-AND-EQUITY> 97,009,971
<SALES> 60,734
<TOTAL-REVENUES> 1,602,095
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,059,086
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,043,033
<INCOME-PRETAX> (500,024)
<INCOME-TAX> 0
<INCOME-CONTINUING> (500,024)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (500,024)
<EPS-PRIMARY> (0.15)
<EPS-DILUTED> (0.15)
<FN>
<F1> INCLUDES MATURED POLICIES RECEIVABLE AND LOANS RECEIVABLE.
<F2> INCLUDES PURCHASED LIFE INSURANCE POLICIES.
<F3> REPRESENTS LONG TERM BORROWINGS OF THE COMPANY.
</FN>
</TABLE>
April 8, 1999
FOURTEEN HILL CAPITAL, L.P.
---------------------------
ANNOUNCES FIRST QUARTER FINANCINGS
-----------------------------------
SAN FRANCISCO-(April 8, 1999) Fourteen Hill Capital, L.P., a majority owned
affiliate of Point West Capital Corporation (which trades on NASDAQ under the
symbol PWCC) today announced that, during the first quarter of 1999, it closed
two financings.
Fourteen Hill purchased in a private placement $500,000 of common stock
of Homeseekers.com, Inc. (HMSK). In connection with a $250,000 loan previously
made to HMSK, Fourteen Hill also received from HMSK a warrant to purchase 50,000
shares of common stock of HMSK at $2 15/32 per share.
HMSK (www.homeseekers.com) is a leading provider of online residential
real estate listing information for use by home buyers, real estate agents,
mortgage and title insurance companies and others. The Company's website
currently has approximately 680,000 residential real estate listings. HMSK
trades on the OTC bulletin board under the symbol HMSK.
Fourteen Hill also purchased $1,000,000 of common stock and warrants in
a private placement by DBS Industries, Inc. (DBSS). DBSS is designing and
developing an automated meter reading service utilizing low earth orbiting
("LEO") satellites. LEO satellites orbit the earth at regular intervals and,
with DBSS's technology, are capable of collecting data from energy meters in
many hard-to-access locations around the globe. Collected data are downloaded to
earth stations and then distributed via the Internet. This process results
<PAGE>
in a substantial reduction in the costs of retrieving such
information. DBSS trades on the OTC bulletin board under the symbol DBSS.
Fourteen Hill is a Small Business Investment Company licensed by the
Small Business Administration. Fourteen Hill provides capital to small
businesses (generally businesses whose tangible net worth does not exceed $18
million and whose average net income during the preceding two years did not
exceed $6 million) whose primary businesses are located in the United States.
Additional information about Fourteen Hill Capital is available on the
company's Web site, http://www.fourteenhill.com, or by calling 415-394-9467.
(KEYWORD CALIFORNIA AND INDUSTRY KEYWORD: Venture Capital, Internet).
CONTACTS: FOURTEEN HILL CAPITAL, SAN FRANCISCO.
CHRIS RODSKOG, 415/394-9467
[email protected]
