SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
---------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission file number 0-27736
POINT WEST CAPITAL CORPORATION
-------------------------------
(Exact name of registrant as specified in its charter)
Delaware 94-3165263
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1700 Montgomery Street, Suite 250
---------------------------------
San Francisco, California 94111
------------------------- ---------
(Address of principal executive offices) (Zip Code)
(415) 394-9467
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
At July 31, 2000, there were 3,352,624 shares of the registrant's Common
Stock outstanding.
<PAGE>
POINT WEST CAPITAL CORPORATION
------------------------------
INDEX
-----
Part I Financial Information Page
------ ----
Item 1. Consolidated Financial Statements (Unaudited):
Consolidated Balance Sheets
June 30, 2000 and December 31, 1999 1
Consolidated Statements of Operations for the
Three and Six Months Ended June 30, 2000 and 1999 2
Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 2000 and 1999 3
Condensed Notes to Consolidated Financial Statements 4-13
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14-23
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 24
Part II Other Information
-------
Item 1. Legal Proceedings 25
Item 4. Submission of Matters to a Vote of Security Holders 25
Item 5. Other Information 26
Item 6. Exhibits and Reports on Form 8-K 27
Signatures 28
<PAGE>
POINT WEST CAPITAL CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 2000 1999
------------------- -------------------
(unaudited)
<S> <C> <C>
Cash and cash equivalents $ 9,132,639 $ 12,836,125
Restricted cash 642,358 3,074,057
Investment securities:
Held-to-maturity -- 2,504,610
Available-for-sale 1,242,634 6,519,821
Matured policies receivable 331,897 --
Taxes receivable 381,645 --
Loans receivable, net of unearned income of $555,563 and
$540,867, respectively, and net of an allowance for
loan losses of $827,422 and $155,000, respectively 34,498,265 35,467,079
Purchased life insurance policies 30,971,252 31,727,966
Non-marketable securities 14,783,085 5,933,133
Deferred financing costs, net of accumulated amortization
of $1,485,394 and $1,378,623, respectively 778,619 656,376
Furniture and equipment, net of accumulated depreciation of
$20,676 and $12,976, respectively 77,263 34,917
Deferred tax asset 2,417,482 --
Other assets 482,270 2,771,767
------------------- -------------------
Total assets $ 95,739,409 $ 101,525,851
=================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued interest expense $ 202,490 $ 346,483
Accounts payable 388,960 238,326
Accrued compensation payable 326,129 543,400
Accrued litigation settlement -- 2,205,000
Taxes payable -- 141,100
Revolving certificates 4,945,159 4,200,000
Term certificates 24,218,644 24,498,815
Securitized notes payable 36,206,863 38,528,914
Debenture payable 6,500,000 3,000,000
Deferred income taxes -- 281,020
------------------- -------------------
Total 72,788,245 73,983,058
liabilities ------------------- -------------------
Stockholders' equity:
Common stock, $0.01 par value; 15,000,000 authorized shares,
4,391,124 and 4,390,124 shares, respectively, issued
3,352,624 and 3,351,624 shares, respectively, outstanding 43,911 43,901
Additional paid-in-capital 30,091,689 30,088,949
Accumulated comprehensive (loss) income, net of tax (310,707) 2,098,960
Accumulated deficit (3,999,697) (1,814,985)
Treasury stock, 1,038,500 shares (2,874,032) (2,874,032)
------------------- -------------------
Total stockholders' equity 22,951,164 27,542,793
------------------- -------------------
Total liabilities and stockholders' equity $ 95,739,409 $ 101,525,851
=================== ===================
<FN>
See accompanying condensed notes to consolidated financial statements.
</FN>
</TABLE>
1
<PAGE>
POINT WEST CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, June 30,
2000 1999 2000 1999
---------------- ---------------- ---------------- -----------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Income:
Interest income $ 955,089 579,479 3,170,273 1,070,471
Net (loss) gain on securities (3,251,640) 4,256,871 (2,833,369) 5,225,219
Other 82,470 236,319 115,435 318,340
Earned discounts on matured policies -- 50,267 -- 111,001
---------------- ---------------- ---------------- -----------------
Total (loss) income (2,214,081) 5,122,936 452,339 6,725,031
---------------- ---------------- ---------------- -----------------
Expenses:
Interest expense 695,741 1,164,114 1,943,851 2,207,147
Compensation and benefits 671,510 436,446 1,290,967 783,780
Other general and administrative expenses 1,530,455 1,621,814 2,400,315 2,203,285
Amortization 44,543 128,288 106,771 251,971
Depreciation 4,611 1,878 7,700 3,676
---------------- ---------------- ---------------- -----------------
Total expenses 2,946,860 3,352,540 5,749,604 5,449,859
---------------- ---------------- ---------------- -----------------
(Loss) gain before income taxes
and extraordinary gain (5,160,941) 1,770,396 (5,297,265) 1,275,172
Income tax benefit (expense) 1,817,901 (12,700) 1,870,550 (17,500)
---------------- ---------------- ---------------- -----------------
(Loss) gain before extraordinary gain (3,343,040) 1,757,696 (3,426,715) 1,257,672
---------------- ---------------- ---------------- -----------------
Extraordinary gain, net of income taxes of $822,154 -- -- 1,242,003 --
---------------- ---------------- ---------------- -----------------
Net (loss) income $ (3,343,040) $ 1,757,696 (2,184,712) 1,257,672
================ ================ ================ =================
(Loss) income per share before extraordinary gain:
Basic $ (1.00) $ 0.53 (1.02) 0.38
================ ================ ================ =================
Diluted $ (1.00) $ 0.48 (1.02) 0.34
================ ================ ================ =================
Net (loss) income per share:
Basic $ (1.00) $ 0.53 (0.65) 0.38
================ ================ ================ =================
Diluted $ (1.00) $ 0.48 (0.65) 0.34
================ ================ ================ =================
Weighted-average number of shares of common stock
outstanding 3,352,624 3,341,635 3,352,443 3,307,820
Weighted-average number of shares of common stock
and common stock equivalents outstanding 3,352,624 3,657,996 3,352,443 3,680,091
<FN>
See accompanying condensed notes to consolidated financial statements.
</FN>
</TABLE>
2
<PAGE>
POINT WEST CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Six Months Ended June 30,
2000 1999
------------------ ------------------
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (2,184,712) $ 1,257,672
Adjustments to reconcile net (loss) income to net cash
used in operating activities:
Depreciation and amortization 114,471 255,647
Loss on loan receivable -- 140,000
Provision for loan losses 579,964 45,000
Net loss (gain) on securities 2,833,369 (5,225,219)
Interest income received as warrants (1,101,532) (242,164)
Earned discounts on matured policies -- (111,001)
Deferred tax asset (1,922,784) --
Extraordinary gain (1,242,003) --
Changes in operating assets and liabilities:
Collections on matured life insurance policies 441,286 1,175,341
Other assets 68,099 (121,823)
Taxes receivable (522,745) --
Accrued interest expense (143,993) 25,456
Accounts payable 150,634 160,219
Accrued compensation payable (217,271) (44,656)
Accrued litigation settlement -- 945,000
------------------ ------------------
Net cash used in operating activities (3,147,217) (1,740,528)
------------------ ------------------
Cash flows from investing activities:
Proceeds from sale of other assets -- 27,126
Purchase of furniture and equipment (50,047) (2,909)
Decrease in restricted cash 2,431,699 888,806
Proceeds from maturity of held-to-maturity securities 2,504,610 --
Purchase of investment and non-marketable securities (11,932,428) (3,812,227)
Proceeds from sale of investment and non-marketable securities 2,620,215 7,137,420
Additions to loans receivable (2,665,360) (9,450,703)
Principal payments on loans receivable 3,054,210 378,043
------------------ ------------------
Net cash used in investing activities (4,037,101) (4,834,444)
------------------ ------------------
Cash flows from financing activities:
Principal payments on securitized notes payable (257,894) --
Proceeds from SBA debenture 3,500,000 --
Proceeds from revolving certificates 820,000 10,040,000
Principal payments on revolving certificates (74,841) (139,251)
Principal payments on term certificates (280,171) --
Increase in deferred financing costs (229,012) (10,040)
Proceeds from options exercised 2,750 252,686
------------------ ------------------
Net cash provided by financing activities 3,480,832 10,143,395
------------------ ------------------
Net (decrease) increase in cash and cash equivalents (3,703,486) 3,568,423
Cash and cash equivalents, beginning of period 12,836,125 6,668,126
------------------ ------------------
Cash and cash equivalents, end of period $ 9,132,639 $ 10,236,549
================== ==================
Supplemental disclosures:
Supplemental disclosure of non-cash activities:
Unrealized(loss)gain on securities available for sale, net of tax $ (2,409,667) $ 15,161,140
Receipt of warrants $ 1,101,532 $ 242,164
Reduction in securitized notes payable in
connection with extraordinary gain $ 2,064,157 $ --
Accrued litigation settlement offset against other assets $ 2,205,000 $ --
Supplemental disclosure of cash flow information:
Taxes paid $ 587,099 $ 20,606
Cash paid for interest $ 2,368,232 $ 2,181,691
<FN>
See accompanying condensed notes to consolidated financial statements.
</FN>
</TABLE>
3
<PAGE>
POINT WEST CAPITAL CORPORATION
------------------------------
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
1. General Description
-- -------------------
The unaudited consolidated financial statements of Point West Capital
Corporation ("Point West Capital") and its consolidated entities (the "Company")
as of June 30, 2000 and for the three and six month periods ended June 30, 2000
and 1999 have been prepared in accordance with accounting principles generally
accepted in the United States ("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 and six month periods ended June 30, 2000 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 2000. The consolidated balance sheet as of December 31, 1999
has been derived from the audited consolidated financial statements of the
Company. These statements and notes thereto 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, 1999 (the
"Form 10-K").
Point West Capital is a specialty financial services company. The
Company's financial statements consolidate the assets, liabilities and
operations of Point West Venture Management, LLC ("Point West Management"),
Point West Ventures, L.P. ("Point West Ventures"), Allegiance Capital, LLC
("Allegiance Capital"), Allegiance Funding I, LLC ("Allegiance Funding"),
Allegiance Capital Trust I ("Allegiance Trust I"), Allegiance Management Corp.
("Allegiance Management"), Dignity Partners Funding Corp. I ("DPFC"), Point West
Securities, LLC ("PWS") and SocietyPool.com, LLC ("SocietyPool"). References
herein to Ventures include Point West Management and Point West Ventures.
References herein to Allegiance include Allegiance Capital, Allegiance Funding,
Allegiance Trust I and Allegiance Management.
During 1997, the Company expanded its financial services business
through the operations of Ventures, which makes loans to and invests in small
businesses that are generally focused in the areas of e-commerce, Internet and
telecommunications; and Allegiance, which lends to funeral home and cemetery
owners. During 1998, the Company formed PWS, a broker-dealer licensed by the
National Association of Securities Dealers, Inc ("NASD"). On May 8, 2000, the
Company formed SocietyPool, a company that plans to offer a new type of
financial product. In addition, in connection with the principal business
activity of the Company through February 1997 (which was to provide viatical
settlements for terminally ill persons), Point West continues to service the
life insurance policies held by its wholly-owned special purpose subsidiary,
DPFC. The Company continually evaluates new business opportunities. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Overview."
2. Investment Securities
-- ---------------------
Investment securities consist of marketable debt and equity securities.
Statement of Financial Accounting Standards No. 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 in
the consolidated balance sheets at fair value with any cumulative unrealized
gains and losses, net of any tax effect, included in comprehensive income and
reported as a separate component of stockholders' equity. Management
4
<PAGE>
estimates fair value, considering factors such as the bid and offer prices of
securities and volume. Securities classified as held-to-maturity included U.S.
Treasury bills reported at cost with original maturities greater than three
months, but less than one year. Cash and cash equivalents included U.S. Treasury
bills with maturities less than three months of $7.0 million and $8.3 million at
June 30, 2000 and December 31, 1999, respectively. Any realized gains and
losses, interest and dividends and unrealized losses on securities judged to be
other-than-temporary are reported in the consolidated statements of operations.
The cost and estimated fair value of investment securities reflected in
the consolidated balance sheets as of June 30, 2000 and December 31, 1999 are as
follows:
<TABLE>
<CAPTION>
June 30, 2000
----------------------------------------------------------------------------------------------------------------------
Gross Gross
Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
Available-for-sale:
Corporate bonds................. $ 350,000 $ --- $ (292,500) $ 57,500
Common stock................... 1,409,057 --- (223,923) 1,185,134
------------------ ------------------ ------------------ ------------------
Total available-for-sale $ 1,759,057 $ --- $ (516,423) $ 1,242,634
================= ================= ================= =================
</TABLE>
<TABLE>
<CAPTION>
December 31, 1999
----------------------------------------------------------------------------------------------------------------------
Gross Gross
Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
Held-to-maturity:
U.S. Treasury bills .............. $ 2,504,610 $ --- $ --- $ 2,504,610
----------------- ----------------- ------------------ -----------------
Total held-to-maturity $ 2,504,610 $ --- $ --- $ 2,504,610
================= ================= ================== =================
Available-for-sale:
Corporate bonds................. $ 350,000 $ --- $ (297,500) $ 52,500
Common stock................... 2,678,633 4,201,560 (412,872) 6,467,321
------------------ ------------------ ------------------ ------------------
Total available-for-sale $ 3,028,633 $ 4,201,560 $ (710,372) $ 6,519,821
================= ================= ================= =================
</TABLE>
Cumulative net unrealized gains (losses) on available-for-sale
securities (representing differences between estimated fair value and cost) were
($516,000) and $3.5 million at June 30, 2000 and December 31, 1999,
respectively. These cumulative net unrealized gains (losses), net of applicable
taxes, are included in accumulated comprehensive (loss) income, a separate
balance sheet component of stockholders' equity. See Note 8.
3. Loans Receivable
-- ----------------
Loans receivable includes loans made to unaffiliated third parties
through Allegiance and Ventures. Such loans are reported at the principal amount
outstanding, net of unearned income, hedging gains and losses and the allowance
for loan losses. Loan origination fees and direct loan origination costs are
netted and 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, Accounting for Nonrefundable Fees and Costs
Associated with Originating or Acquiring Loans and Initial Direct Costs of
Leases.
5
<PAGE>
Allegiance had 24 loans outstanding at June 30, 2000 in an aggregate
principal amount of $36.0 million, which bore a weighted-average fixed interest
rate per annum of 9.8%. Allegiance had 21 loans outstanding at December 31, 1999
in an aggregate principal amount of $33.8 million, which bore a weighted-average
fixed interest rate per annum of 9.8%. Principal and interest payments are due
monthly on such loans, and such loans mature, subject to permitted prepayments,
approximately fifteen years from the initial loan date. At June 30, 2000 and
December 31, 1999, one loan was in default and on non-accrual status. Based on
recent bids received for businesses and other collateral securing the defaulted
loan, management believes that Allegiance will incur a loss in connection with
such loan. Management believes such loss will be approximately $650,000 and,
therefore, has recorded a reserve in connection therewith in such amount.
From time to time, Allegiance uses futures contracts to hedge certain
interest rate exposure between the time of loan origination and the expected
issuance of term certificates. See Note 5. The futures contracts are intended to
protect a portion of the net interest margins expected to be earned on the
loans. Any realized gain or loss related to these hedges is 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,
Accounting for Futures Contracts, all such deferred amounts are reflected in the
consolidated balance sheets 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 June 30, 2000, Allegiance had cumulative net realized gains on
its hedging activities of $197,000, which reduced loans receivable in a like
amount. As of December 31, 1999, Allegiance had cumulative net realized gains on
its hedging activities of $215,000, which reduced loans receivable in a like
amount. In addition, Allegiance had net unrealized gains from open hedging
positions of $3,000 as of June 30, 2000. As of December 31, 1999, Allegiance had
no open hedges.
Ventures had no loans outstanding at June 30, 2000. Ventures had two
loans outstanding at December 31, 1999 in an aggregate principal amount of $2.6
million, one of which was originated in January 1998 and bore interest at a
fixed interest rate per annum of 15% and the other of which was originated in
November 1999 and bore interest at a variable rate based on the prime rate plus
4% (at December 31, 1999 the prime rate was 8.5%). The loan originated in
January 1998 was repaid in January 2000. The other loan matured and was repaid
on April 30, 2000.
4. Purchased Life Insurance Policies
-- ---------------------------------
Purchased life insurance policies consist only of those policies held
by DPFC. The policies held by DPFC are pledged as security for the Securitized
Notes (as defined in Note 6). As a result of the imminent default of DPFC under
the terms of the Securitized Notes, Point West Capital and the holders of the
Securitized Notes (the "Noteholders") entered into an agreement (the "DPFC
Agreement") that amends certain of the terms of the Securitized Notes. Pursuant
to the DPFC Agreement, which is effective from March 2000 through June 2002, the
Noteholders will provide funds to pay servicing fees, premiums and certain other
costs of DPFC in the event policy collections are insufficient. Under the DPFC
Agreement, Point West Capital will continue to act as servicer for a fee of
$18,000 per month for the period March 2000 through June 2002. The DPFC
Agreement also provides the Noteholders with an option to purchase from Point
West Capital the DPFC outstanding stock for a nominal amount on June 30, 2002.
If the Noteholders do not exercise such option, Point West Capital may liquidate
DPFC. See Note 6.
5. Revolving and Term Certificates
-- -------------------------------
Allegiance finances its loans receivable under a structured financing
arrangement established in August 1998 (the "Allegiance Financing"). Under the
Allegiance Financing, various classes of revolving
6
<PAGE>
and term certificates of Allegiance Trust I have been issued. At June 30, 2000,
revolving certificates held by third parties were outstanding in the aggregate
principal amount of $4.9 million. At June 30, 2000, such certificates bore
interest at fixed and variable rates based on the one-year U.S. Treasury yield
plus a weighted-average spread of 4.3%. The weighted-average interest rate of
the revolving certificates held by third parties at June 30, 2000 was 10.1%.
Allegiance funded and retained an unrated revolving certificate in the principal
amount of $2.2 million. The unrated certificate represents the right to receive
all excess cash flow from Allegiance Trust I related to the revolving
certificates. The revolving certificates held by third parties received ratings
from Duff & Phelps Credit Rating Co. ranging from A to B. At June 30, 2000, the
term certificates held by third parties were outstanding in the aggregate
principal amount of $24.2 million. The weighted-average fixed interest rate of
the term certificates held by third parties was 8.1%. Allegiance funded and
retained an unrated term certificate that represents the right to receive a
17.5% coupon subject to other priority payments on the senior certificates. At
June 30, 2000, the outstanding principal balance of the unrated term certificate
was $2.6 million. Allegiance retained an additional unrated term certificate
that represents the right to receive 90% of the excess cash flow from Allegiance
Trust I related to the term certificates. This term certificate does not have a
principal balance. The term certificates held by third parties received ratings
from Duff & Phelps Credit Rating Co. ranging from AA to B.
In April 2000, the Company and a consortium of insurance companies (the
"Investors") executed amendments that extended the Allegiance Financing through
December 15, 2000. The Investors agreed to continue to provide revolving debt,
subject to certain limitations, through December 15, 2000, on terms similar to
those under the original Allegiance Financing revolving certificates. In
addition, the Investors agreed to provide up to approximately $20.0 million of
additional term financing, subject to certain limitations, through December 15,
2000, on terms similar to those under the original Allegiance Financing term
certificates. The fixed interest on the additional term certificates will be
based on the ten-year U.S. Treasury yield plus a spread ranging from 2.05% to
8.5%.
The Allegiance Financing does not qualify for sale treatment under
Statement of Financial Accounting Standards No. 125, Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities, because
its terms entitle Allegiance Funding to repurchase loans prior to the point at
which the cost of servicing them becomes burdensome. As such, the loans and
borrowings under the Allegiance Financing are reflected in the consolidated
balance sheets.
In connection with the Allegiance Financing and the extensions
thereunder, Allegiance Capital paid an aggregate of $375,000 in commitment fees
when funds were initially borrowed. Of such commitment fees, $100,000 was
amortized over the expected life of the initial revolving certificates, $25,000
is being amortized over the expected life of the revolving certificates
currently outstanding (8 months) and $250,000 is being amortized over the
expected life of the term certificates (15 years). These allocations were based
on an estimate of the portion of the commitment fee attributable to the
revolving certificates and the term certificates.
In connection with the extension of the Allegiance Financing,
Allegiance agreed to pay a non-usage fee ranging from zero to $100,000,
depending upon the amount of term debt issued between March 31, 2000 and
December 15, 2000.
6. Securitized Notes Payable
-- -------------------------
In 1995, DPFC issued its Senior Viatical Settlement Notes, Series
1995-A with a stated maturity of March 10, 2005 (the "Securitized Notes").
Principal and interest payments on and other costs of the Securitized Notes are
payable solely from collections on pledged policies, deposited funds and funds
provided by the Noteholders. The Securitized Notes bear a fixed interest rate of
9.17% per annum. Point
7
<PAGE>
West Capital is the servicer of the policies pledged under the Indenture
pursuant to which the Securitized Notes were issued and incurs servicing
expenses and receives servicing income. See Note 4 for further information
regarding the servicing of DPFC.
The DPFC Agreement discussed in Note 4, was negotiated due to the
imminent default of DPFC under the terms of the Securitized Notes and,
accordingly, has been accounted for as a troubled debt restructuring. As such,
during the first quarter of 2000, an extraordinary gain of $1.2 million, net of
taxes of $822,000, was recorded and the stated amount of the Securitized Notes
of $38.5 million was reduced to $36.4 million, reflecting the maximum future
cash payments the Noteholders could receive under the DPFC Agreement. The $36.4
million is equal to the face value of the life insurance policies and restricted
cash held by DPFC as of March 31, 2000.
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 Capital. The assets of DPFC are the beneficial ownership
interests in the life insurance policies and funds which secure the Securitized
Notes.
7. Debenture Payable
- -----------------
Point West Ventures has issued two debentures payable to the SBA in the
principal amount of $6.5 million. One debenture was issued in July 1998 in the
principal amount of $3.0 million 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. The debenture is subject to a prepayment penalty if repaid
prior to September 1, 2003. The other debenture was issued on May 24, 2000 in
the principal amount of $3.5 million with semi-annual interest only payments at
an interim rate of 7.4% (plus a 1% annual fee) and a scheduled maturity date of
September 27, 2010. On September 27, 2000, the SBA will set the fixed rate on
the $3.5 million debenture. The debenture is subject to a prepayment penalty if
repaid prior to September 27, 2005. In addition, Point West Ventures paid a fee
of $227,500 (3.5% of the total borrowings) to the SBA to borrow such money.
8. Stockholders' Equity
-- --------------------
<TABLE>
<CAPTION>
Changes in stockholders' equity during the first six months of 2000
reflected the following:
<S> <C>
Stockholders' equity, beginning of period .................. $27,542,793
Comprehensive income:
Net loss........................................................ (2,184,712)
Other comprehensive loss:.......................................
Net unrealized investment losses, net of tax benefit
of $1.6 million ............................................. (2,409,667)
-----------
Comprehensive loss.......................................... (4,594,379)
Common stock -- options exercised ............................... 10
Additional paid-in-capital -- options exercised ................. 2,740
-----------
Stockholders' equity, end of period............................... $22,951,164
===========
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Changes in stockholders' equity during the first six months of 1999
reflected the following:
<S> <C>
Stockholders' equity, beginning of period .................. $14,829,561
Comprehensive income:
Net Income ....................................................... 1,257,672
Other comprehensive income: ....................................
Net unrealized investment gains, net of tax
of $3.6 million ............................................. 15,161,140
----------
Comprehensive income ....................................... 16,418,812
Common stock -- options exercised ............................... 973
Additional paid-in-capital -- options exercised ................. 589,989
-----------
Stockholders' equity, end of period............................... $31,389,335
===========
</TABLE>
9
<PAGE>
9. Earnings Per Share
-- ------------------
The weighted-average number of common stock shares and additional
common stock equivalent shares used in computing income (loss) per share for the
three and six months ended June 30, 2000 and 1999 are set forth below. The
following is a reconciliation of the numerator and denominator of basic and
diluted net income (loss) per share:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Numerator:
(Loss) income before extraordinary
gain.................................... $ (3,343,040) $ 1,757,696 $ (3,426,715) $ 1,257,672
Extraordinary gain ....................... -- -- 1,242,003 --
------------- ------------- ------------- -------------
Net (loss) income....................... $ (3,343,040) $ 1,757,696 $ (2,184,712) $ 1,257,672
============= ============= ============= =============
Denominator:
Weighted-average shares.............. 3,352,624 3,341,635 3,352,443 3,307,82
------------- ------------- ------------- -------------
Denominator for basic net income (loss),
basic and diluted loss before
extraordinary gain and diluted net loss
calculation......... 3,352,624 3,341,635 3,352,443 3,307,820
Weighted-average effect of dilutive
securities:
Employee stock options............ -- 181,853 -- 221,829
Warrants.............................. -- 134,508 -- 150,442
------------- ------------- ------------- -------------
Denominator for diluted net income and
extraordinary gain calculation . 3,352,624 3,657,996 3,352,443 3,680,091
============= ============= ============= =============
(Loss) income per share:
Basic
(Loss) income before
extraordinary gain............... $ (1.00) $ 0.53 $ (1.02) $ 0.38
Extraordinary gain .................. -- -- 0.37 --
------------- ------------- ------------- -------------
Net (loss) income.................... $ (1.00) $ 0.53 $ (0.65) $ 0.38
============= ============= ============= =============
Diluted
Loss (income) before
extraordinary gain............... $ (1.00) $ 0.48 $ (1.02) $ 0.34
Extraordinary gain.................. -- -- 0.37 --
Net (loss) income.................... $ (1.00) $ 0.48 $ (0.65) $ 0.34
============= ============= ============= =============
</TABLE>
Options outstanding during the three and six months ended June 30, 1999
to purchase approximately 30,000 shares of common stock were not included in the
computation of diluted income per share because the exercise price of the
options was greater than the average market price of the common stock during the
period and, therefore, would be anti-dilutive. As a result of the net loss for
the three and six months ended June 30, 2000, options and warrants outstanding
during this period were not included in the computation of diluted loss per
share because of the anti-dilutive effect.
10
<PAGE>
10. Segment Reporting
--- -----------------
Statement of Financial Accounting Standards No. 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. Point West Capital's chief
operating decision making group is comprised of the Chairman of the Board, the
President and the Chief Financial Officer.
The Company's reportable operating segments include Ventures,
Allegiance and Viatical Settlements. The Other segment includes Point West
Capital, PWS and SocietyPool. 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.
11
<PAGE>
The following tables represent the Company's results from segments for
the three months ended June 30, 2000 and 1999.
<TABLE>
<CAPTION>
Three Months Ended June 30, 2000
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Viatical
--------
Ventures Allegiance Settlements(1) Other Total
--------- ----------- ------------- ----- -----
Interest income...... $ 68,719 $ 855,618 $ -- $ 30,752 $ 955,089
Net loss on
securities ........ (3,251,640) -- -- -- (3,251,640)
Other income ......... 3,794 -- 78,406 270 82,470
------------ ------------ ------------ ------------ ------------
Total (loss) income . (3,179,127) 855,618 78,406 31,022 (2,214,081)
Interest expense...... 82,117 613,624 -- -- 695,741
Depreciation and
amortization....... 12,917 31,626 -- 4,611 49,154
Income tax
(expense) benefit
(2) ................. (800) (4,015) -- 1,822,716 1,817,901
Extraordinary gain .. -- -- -- -- --
Contributed net
(loss) income (2).... $(3,297,938) $ (715,745) $ 78,406 $ 592,237 $ (3,343,040)
============= ============= ============= ============= =============
Identifiable assets... $ 21,584,916 $ 35,784,138 $ 31,634,428 $ 6,735,927 $ 95,739,409
============= ============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended June 30, 1999
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Viatical
--------
Ventures Allegiance Settlements(1) Other Total
--------- ----------- ------------- ----- -----
Interest income...... $ 132,183 $ 370,942 $ 18,087 $ 58,267 $ 579,479
Net gain on
securities ........ 4,256,871 -- -- -- 4,256,871
Other income ......... 46,458 -- 93,937 146,191 286,586
------------ ------------ ------------ ------------ ------------
Total income.......... 4,435,512 370,942 112,024 204,458 5,122,936
Interest expense...... 51,907 241,002 871,205 -- 1,164,114
Depreciation and
amortization....... 7,500 62,068 58,720 1,878 130,166
Income tax expense
(2) ................. (800) (8,700) (800) (2,400) (12,700)
Contributed net
income (loss) (2).... $ 4,369,931 $ (86,634) $ (884,676) $(1,640,925) $ 1,757,696
============= ============= ============= ============= =============
Identifiable assets... $ 32,012,940 $ 19,529,868 $ 34,955,555 $ 9,403,932 $ 95,902,295
============= ============= ============= ============= =============
</TABLE>
12
<PAGE>
The following tables represent the Company's results from segments for
the six months ended June 30, 2000 and 1999.
<TABLE>
<CAPTION>
Six Months Ended June 30, 2000
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Viatical
--------
Ventures Allegiance Settlements(1) Other Total
--------- ----------- ------------- ----- -----
Interest income...... $ 1,371,854 $ 1,678,380 $ 6,818 $ 113,221 $ 3,170,273
Net loss on
securities ........... (2,833,369) -- -- -- (2,833,369)
Other income ......... 2,093 3,188 97,242 12,912 115,435
------------ ------------ ------------ ------------- ------------
Total (loss) income.. (1,459,422) 1,681,568 104,060 126,133 452,339
Interest expense...... 134,024 1,220,977 588,850 -- 1,943,851
Depreciation and
amortization....... 22,917 83,854 -- 7,700 114,471
Income tax
(expense) benefit
(2)................... (800) (4,585) -- 1,875,935 1,870,550
Extraordinary gain .. -- -- 1,242,003 -- 1,242,003
Contributed net
(loss)income (2).... $ (1,640,374) $ (1,028,552) $ 623,774 $ (139,560) $ (2,184,712)
============= ============= ========== ========== =============
Identifiable assets... $ 21,584,916 $35,784,138 $31,634,428 $ 6,735,927 $ 95,739,409
============= ============= =========== ========== =============
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended June 30, 1999
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Viatical
Ventures Allegiance Settlements (1) Other Total
-------- ---------- --------------- ----- -----
Interest income...... $ 319,583 $ 592,364 $ 45,690 $ 112,834 $ 1,070,471
Net gain on
securities .......... 4,907,769 -- -- 317,450 5,225,219
Other income........ 46,458 -- 163,526 219,357 429,341
------------ ------------ ------------ ------------- ------------
Total income ......... 5,273,810 592,364 209,216 649,641 6,725,031
Interest expense...... 103,244 349,423 1,754,480 -- 2,207,147
Depreciation and
amortization....... 15,000 119,531 117,440 3,676 255,647
Income tax expense
(2) ................ . (800) (13,500) (800) (2,400) (17,500)
Contributed net
income(loss) (2).... $ 5,149,320 $ (190,266) $ (1,881,803) $(1,819,579) $ 1,257,672
=========== =========== ============ =========== ===========
Identifiable assets... $ 32,012,940 $19,529,868 $ 34,955,555 $ 9,403,932 $ 95,902,295
=========== =========== ============ =========== ===========
<FN>
--
(1) The Viatical Settlements segment includes results of operations in
connection with viatical settlements for DPFC and Point West.
(2) Corporate overhead and income tax (expense) benefit are not generally
allocated between segments and are included in the Other segment.
</FN>
</TABLE>
13
<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 June 30, 2000, and of the results of
operations for the Company for the three and six months ended June 30, 2000 and
1999, 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.
Overview
--------
Point West Capital is a specialty financial services company. The
Company's financial statements consolidate the assets, liabilities and
operations of Ventures, Allegiance, DPFC, PWS and SocietyPool. See the Form 10-K
and Condensed Notes to Consolidated Financial Statements (contained herein) for
further information regarding these entities.
During 1997, the Company expanded its financial services business
through the operations of Ventures, which makes loans to and invests in small
businesses that are generally focused in the areas of e-commerce, Internet and
telecommunications; and Allegiance, which lends funds to funeral home and
cemetery owners. During 1998, the Company formed PWS, a broker-dealer licensed
by the NASD. On May 8, 2000, the Company formed SocietyPool, a company that
plans to offer a new type of financial product. In addition, in connection with
the principal business activity of the Company through February 1997 (which was
to provide viatical settlements for terminally ill persons), the Company
continues to service the life insurance policies held by its wholly-owned
special purpose subsidiary, DPFC. See Note 4 of the Condensed Notes to
Consolidated Financial Statements. See the Form 10-K for further information
regarding the Company's former principal business activity.
Information regarding the revenues, contributed income (loss) and
identifiable assets for each of the Company's business segments is contained in
Note 10 of the Condensed Notes to Consolidated Financial Statements.
The Company continually evaluates new business opportunities. In May
2000, the Company provided $1.8 million to fund exploratory research for a newly
formed entity, SocietyPool, which is 51% owned by Point West Capital and plans
to offer a new type of financial product. The Company has the option to provide
up to an additional $4.4 million of funding. The Company's ownership percentage
could be reduced if it chooses not to provide additional funding. A dispute
involving Point West Capital and two of the other members of SocietyPool is
currently the subject of an arbitration proceeding. That proceeding may affect
the Company's decisions concerning the additional funding of SocietyPool and,
thus, its ownership percentage, and may also affect SocietyPool's financial
condition. Ventures, 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
-------------------------------------
Total (Loss) Income. Total loss was $2.2 million during the three
months ended June 30, 2000 compared to total income of $5.1 million during the
three months ended June 30, 1999. The total loss during the three months ended
June 30, 2000 was primarily due to a $3.3 million net loss on securities
14
<PAGE>
related to Ventures. See "Results of Operations by Segment -- Ventures -- Three
and Six Months Ended June 30, 2000 Compared to the Three and Six Months Ended
June 30, 1999 -- Net (Loss) Gain on Securities." Offsetting the net loss during
the three months ended June 30, 2000 was a $376,000 increase in interest income
primarily related to an increase in loans held by Allegiance. Total income
decreased 93.3% to $452,000 during the six months ended June 30, 2000 from $6.7
million during the six months ended June 30, 1999, primarily due to a $2.8
million net loss on securities related to Ventures. Offsetting the decrease
during the six months ended June 30, 2000 was a $2.1 million increase in
interest income primarily related to an increase in loans held by Allegiance and
Ventures.
Total Expenses. Total expenses decreased 14.7% to $2.9 million during
the three months ended June 30, 2000 from $3.4 million during the three months
ended June 30, 1999. This decrease was due to $945,000 of litigation expense
recorded in the second quarter of 1999 reflecting the amount of the then
proposed settlement arrangement of the pending federal class action and state
alleged class action lawsuits not covered by insurance. The court approved the
settlement of these lawsuits in February 2000. In addition, the decrease in the
second quarter of 2000 was due to a $871,000 decrease in interest expense
related to DPFC. See "Results of Operations by Segment -- Viatical Settlements
-- Certain Accounting Implications for DPFC." Offsetting the decrease during the
three months ended June 30, 2000 was (i) a $650,000 reserve related to a
delinquent loan held by Allegiance, (ii) $479,000 in royalty fees and
organizational and research expenses related to SocietyPool and (iii) a $373,000
increase in interest expense related to borrowings by Allegiance. Total expenses
increased 5.6% to $5.7 million during the six months ended June 30, 2000 from
$5.4 million during the six months ended June 30, 1999. This increase was due to
(i) a $851,000 increase in interest expense related to borrowings by Allegiance,
(ii) a $650,000 reserve related to a delinquent loan held by Allegiance, (iii) a
$507,000 increase in compensation and benefits due primarily to salary increases
and secondarily to additional employees and (iv) $479,000 in expenses related to
SocietyPool described above. Offsetting the increase during the six months ended
June 30, 2000 was a $1.2 million decrease in interest expense related to DPFC
and the $945,000 estimated litigation expense described above.
Extraordinary Gain. In accordance with Statement of Financial
Accounting Standards No. 15 "Accounting by Debtors and Creditors for Troubled
Debt Restructurings," the Company recognized an extraordinary gain on a troubled
debt restructuring in the amount of $1.2 million, net of income taxes in the
amount of $822,000, during the three months ended March 31, 2000 in connection
with the DPFC Agreement described in Notes 4 and 6 of the Condensed Notes to
Consolidated Financial Statements. As a result of the DPFC Agreement, the
Company reduced the outstanding principal amount of the Securitized Notes on the
consolidated balance sheet as of March 31, 2000 by $2.1 million to $36.4 million
(which is equal to the face value of the life insurance policies and restricted
cash held by DPFC as of that date) and recognized income in a like amount. See
"Results of Operations by Segment -- Viatical Settlements -- Certain Accounting
Implications for DPFC."
Results of Operations by Segment
--------------------------------
Ventures
--------
Accounting Considerations
Beginning in 1999, because of the volatility of Internet and Internet
related stocks, Point West Capital shorted stocks of certain competitors of one
of the investments held by Ventures. The effect of those hedging activities is
reflected in the Company's consolidated statement of operations during the three
months ended March 31, 1999. During 2000, no such hedges were in place. The
Company
15
<PAGE>
recognized a $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."
Three and Six Months Ended June 30, 2000 Compared to the Three and Six
Months Ended June 30, 1999
Interest Income. Interest income decreased to $69,000 during the three
months ended June 30, 2000 from $132,000 during the three months ended June 30,
1999. This decrease was primarily due to $93,000 of interest income recognized
during the three months ended June 30, 1999 as a result of a warrant (valued
using the Black-Scholes option-pricing model) received in connection with one of
Ventures' loans. Interest income for the three months ended June 30, 2000,
reflected higher cash balances held by Ventures. Interest income increased to
$1.4 million during the six months ended June 30, 2000 from $320,000 during the
six months ended June 30, 1999. This increase was primarily due to $1.1 million
of interest income recognized during the three months ended March 31, 2000 as a
result of a warrant (valued using the Black-Scholes option-pricing model)
received in connection with one of Ventures' debt securities.
Net (Loss) Gain on Securities. Net loss on securities was $3.3 million
during the three months ended June 30, 2000 compared to a net gain on securities
of $4.3 million during the three months ended June 30, 1999. Net loss on
securities was $2.8 million during the six months ended June 30, 2000 compared
to a net gain on securities of $4.9 million during the six months ended June 30,
1999. The net loss on securities during the three and six months ended June 30,
2000 was primarily the result of the write-down of impaired investments. The
write-downs were a result of the market downturn related to Internet and other
technology stocks. Ventures determined that an aggregate $3.9 million investment
in the securities of four different companies was impaired at June 30, 2000, and
therefore wrote-down the cost of such investments. Ventures determined that a
$750,000 investment in non-marketable securities of one company was impaired at
March 31, 2000, and therefore wrote-off the entire $750,000 carrying value of
such investment during the three months ended March 31, 2000. Such write-offs
were substantially larger than those in 1999. During the three months ended
March 31, 1999, no investments were written-off and during the three months
ended June 30, 1999, only $535,000 of investments were written-off.
Interest Expense. Interest expense increased to $82,000 during the
three months ended June 30, 2000 from $52,000 during the three months ended June
30, 1999 and to $134,000 during the six months ended June 30, 2000 from $103,000
during the six months ended June 30, 1999 due to an increase in funds borrowed
from the SBA in May 2000. During the three and six months ended June 30, 2000,
the weighted-average interest rate on the funds borrowed from the SBA was 7.4%
and 7.2%, respectively, and the weighted-average borrowings were $4.4 million
and $3.7 million, respectively, compared to the weighted-average interest rate
of 6.9% and weighted-average borrowings of $3.0 million during the three and six
months ended June 30, 1999.
Allegiance
----------
Accounting Considerations
In connection with the Allegiance Financing, Point West Capital agreed
to provide additional cash to Allegiance Trust I in the event that monthly LIBOR
interest rates exceed 6.16%. To date Point West Capital has been required to
make payments in an immaterial amount. The amount of additional cash, if any, to
be provided is a function of several variables including the monthly LIBOR
interest rate and the outstanding balance of one of the Allegiance Financing
revolving certificates.
16
<PAGE>
For information regarding accounting for the loans held by Allegiance
and the Allegiance Financing and loan levels, see Notes 3 and 5 of the Condensed
Notes to Consolidated Financial Statements.
Three and Six Months Ended June 30, 2000 Compared to the Three and Six
Months Ended June 30, 1999
Interest Income. Interest income increased to $856,000 during the three
months ended June 30, 2000 from $371,000 during the three months ended June 30,
1999 and $1.7 million during the six months ended June 30, 2000 from $592,000
during the six months ended June 30, 1999, due primarily to increased lending
activity by Allegiance. During the three and six months ended June 30, 2000, the
weighted-average interest rate earned on the loans was 9.2% and the
weighted-average principal amounts outstanding were $35.9 million and $34.9
million, respectively, compared to the weighted-average interest rate of 8.6%
and 8.9%, respectively, and the weighted-average principal amounts outstanding
of $16.5 million and $12.9 million, respectively, during the three and six
months ended June 30, 1999. The weighted-average interest rate calculations
include one loan in the principal amount of $2.1 million which was delinquent
and on non-accrual status.
Interest Expense. Interest expense increased to $614,000 during the
three months ended June 30, 2000 from $241,000 during the three months ended
June 30, 1999 and $1.2 million during the six months ended June 30, 2000 from
$349,000 during the six months ended June 30, 1999 as a result of increased
borrowings under the Allegiance Financing. During the three and six months ended
June 30, 2000, the weighted-average interest rate under the Allegiance Financing
was 8.4% and the weighted-average borrowings were $29.1 million and $28.8
million, respectively, compared to the weighted-average interest rate of 7.5%
and 7.7%, respectively, and weighted-average borrowings of $12.8 million and
$9.1 million, respectively, during the three and six months ended June 30, 1999.
Compensation and Benefits. Compensation and benefits increased $18,000
to $79,000 during the three months ended June 30, 2000 from $61,000 during the
three months ended June 30, 1999 and $87,000 to $202,000 during the six months
ended June 30, 2000 from $115,000 during the six months ended June 30, 1999.
This increase resulted from the hiring of additional employees in the second
half of 1999 to support Allegiance's lending activities.
Other General and Administrative Expenses. Other general and
administrative expenses increased $758,000 to $843,000 during the three months
ended June 30, 2000 from $85,000 during the three months ended June 30, 1999 and
$1.0 million to $1.2 million during the six months ended June 30, 2000 from
$185,000 during the six months ended June 30, 1999. This increase was due
primarily to a $650,000 reserve related to a delinquent loan held by Allegiance.
Based on recent bids received for businesses and other collateral securing the
defaulted loan, management believes that Allegiance will incur a loss in
connection with such loan. Management believes such loss will be approximately
$650,000 and, therefore, has recorded a reserve in connection therewith in such
amount. In addition, the increase was due to increases in legal expense and
other professional fees related to the delinquent loan and fees related to due
diligence for a potential loan portfolio acquisition.
Viatical Settlements
--------------------
The Viatical Settlements segment includes results of operations in
connection with viatical settlements for DPFC and Point West Capital.
17
<PAGE>
Certain Accounting Implications for DPFC
From June 30, 1996 through the effective date of the DPFC Agreement,
the Company recognized income (earned discounts) 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). Income recognized was 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.
In March 2000, the Company and the Noteholders entered into the DPFC
Agreement pursuant to which the Noteholders will provide funds through June 30,
2002, to pay servicing fees, premiums and certain other costs of DPFC in the
event policy collections are insufficient. Under the DPFC Agreement, Point West
Capital will continue to act as servicer for a fee of $18,000 per month for the
period March 2000 through June 2002. The DPFC Agreement also provides the
Noteholders with an option to purchase from Point West Capital the DPFC
outstanding stock for a nominal amount on June 30, 2002. If the Noteholders do
not exercise such option, Point West Capital may liquidate DPFC. "See Results of
Operations for the Company -- Extraordinary Gain."
As a result of the DPFC Agreement, the Company will not recognize any
future gain or loss related to DPFC until the Noteholders purchase the DPFC
stock or DPFC is liquidated pursuant to the DPFC Agreement. The Company expects
to recognize a pre-tax gain in an amount approximately equal to the $4.6 million
accumulated deficit of DPFC upon the occurrence of either of these events.
Additionally, when the DPFC stock is purchased or DPFC is liquidated, the
Company will have income tax liability associated with the gain from debt
forgiveness. The Company may be able to use the carryforward losses from DPFC to
offset such liability, unless the carryforward losses have been previously
utilized. The Company will recognize the $18,000 monthly servicing fee paid to
Point West Capital as other income in the consolidated statement of operations
from March 2000 through June 2002.
The Securitized Notes represent the obligations solely of DPFC. Point
West Capital did not guarantee repayment of the Securitized Notes and is not
required to fund any cash flow deficiencies thereunder.
Three and Six Months Ended June 30, 2000 Compared to the Three and Six
Months Ended June 30, 1999
Interest Income. DPFC did not recognize any interest income during the
three months ended June 30, 2000 and will not recognize any interest income in
any future period. See "Certain Accounting Implications for DPFC." DPFC
recognized interest income in the amount of $18,000 for the three months ended
June 30, 1999. Interest income declined to $7,000 during the six months ended
June 30, 2000 from $46,000 during the six months ended June 30, 1999, as a
result of the DPFC Agreement.
Earned Discounts on Matured Policies. DPFC did not recognize any earned
discounts on matured policies during 2000 and will not recognize any earned
discounts in any future period. See "Certain Accounting Implications for DPFC."
Earned discounts on matured polices was $50,000 and $111,000 during the three
and six months ended June 30, 1999, respectively. During the three months ended
June 30, 2000, 11 policies matured with a face value of $633,000, compared to 12
policies with a face value of $622,000 during the three months ended June 30,
1999. During the six months ended June 30, 2000, 20 policies matured with a face
value of $837,000, compared to 24 policies with a face value of $1.5 million
during the six months ended June 30, 1999. As of June 30, 2000, the Company held
450 policies with an aggregate carrying value of $31.3 million (comprised of
"matured policies receivable," "purchased life insurance policies" and a portion
of "other assets") and an aggregate face value of $36.3
18
<PAGE>
million. All of the "matured policies receivable" and "purchased life insurance
policies" are pledged as security for the Securitized Notes.
Interest Expense. DPFC did not recognize any interest expense for the
three months ended June 30, 2000. As a result of the DPFC Agreement, DPFC will
not recognize any interest expense related to the Securitized Notes in any
future period (approximately $900,000 per quarter). See "Certain Accounting
Implications for DPFC." DPFC recognized interest expense in the amount of
$871,000 for the three months ended June 30, 1999. Interest expense declined to
$589,000 during the six months ended June 30, 2000 from $1.8 million during the
six months ended June 30, 1999.
Other General and Administrative Expenses. DPFC did not recognize any
general and administrative expenses for the three months ended June 30, 2000 and
will not recognize any general and administrative expenses in any future period.
See "Certain Accounting Implications for DPFC." DPFC recognized other general
and administrative expense in the amount of $67,000 for the three months ended
June 30, 1999. Other general and administrative expenses declined to $133,000
during the six months ended June 30, 2000 from $219,000 during the six months
ended June 30, 1999 as a result of the DPFC Agreement.
Other
-----
The Other segment includes operating results for Point West Capital,
PWS and SocietyPool. 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 during the three
and six months ended June 30, 2000 and 1999.
Three and Six Months Ended June 30, 2000 Compared to the Three and Six
Months Ended June 30, 1999
Interest Income. Interest income decreased to $31,000 during the three
months ended June 30, 2000 from $58,000 during the three months ended June 30,
1999 primarily due to a decrease in cash balances. Interest income was $113,000
for both the six months ended June 30, 2000 and June 30, 1999.
Net Gain on Securities. Point West Capital recognized a $317,000 gain
during the six months ended June 30, 1999 in connection with hedging activities
of Internet-related stocks. See "Item 3 -- Quantitative and Qualitative
Disclosures About Market Risk." There were no hedging activities during the six
months ended June 30, 2000.
Other Income. Other income declined 99.8% to $270 during the three
months ended June 30, 2000 from $146,000 during the three months ended June 30,
1999 and 94.1% to $13,000 during the six months ended June 30, 2000 from
$219,000 during the six months ended June 30, 1999 as a result of a decline in
fees received by PWS for investment banking services. The amount and timing of
these services in future periods cannot be predicted because of the limited
operations of PWS.
Compensation and Benefits. Compensation and benefits increased 57.4% to
$592,000 during the three months ended June 30, 2000 from $376,000 during the
three months ended June 30, 1999 due primarily to the hiring of additional
employees in 2000 to support Point West Capital and SocietyPool's activities and
secondarily to an increase in salaries for existing employees. Compensation and
benefits increased 64.7% to $1.1 million during the six months ended June 30,
2000 from $668,000 during the six months ended June 30, 1999. This increase was
due primarily to an increase in salaries for existing employees in 2000 and
secondarily to the hiring of additional employees in 2000 to support Point West
Capital and SocietyPool's activities.
19
<PAGE>
Other General and Administrative Expenses. Other general and
administrative expenses decreased 55.7% to $665,000 during the three months
ended June 30, 2000 from $1.5 million during the three months ended June 30,
1999. This decrease was primarily due to $945,000 of litigation expense recorded
in the second quarter of 1999 reflecting the amount of the then proposed
settlement arrangement of the pending federal class action and state alleged
class action lawsuits not covered by insurance. The court approved the
settlement of these lawsuits in February 2000. In addition, other general and
administrative expenses decreased due to a $133,000 decrease in legal fees
related to the litigation and a $140,000 write-off of a loan during the second
quarter of 1999. Offsetting such decrease was $479,000 in royalty fees and
organizational and research expenses related to SocietyPool. Other general and
administrative expenses decreased 44.4% to $1.0 million during the six months
ended June 30, 2000 from $1.8 million during the six months ended June 30, 1999
primarily due to the $945,000 litigation expense described above. In addition,
other general and administrative expenses decreased due to a $269,000 decrease
in legal fees related to the litigation and a $140,000 write-off of a loan
during the second quarter of 1999. Offsetting such decrease was $479,000 in
expenses related to SocietyPool. The federal class action and state alleged
class action lawsuits were settled in the first quarter of 2000, and, as a
result, the Company expects legal expenses to decline substantially in 2000
relative to 1999.
Liquidity and Capital Resources
-------------------------------
Point West Capital, PWS and SocietyPool
At present, neither Point West Capital, PWS nor SocietyPool has an
external funding source from which to fund its working capital and general
corporate needs. During the six months ended June 30, 2000, the Company
supported the operations of Point West Capital, PWS and SocietyPool primarily
from existing cash balances. In prior periods, the Company generated cash
primarily from sales proceeds of investment securities and life insurance
policies. The Company used the cash to grow its businesses. At June 30, 2000,
Point West Capital, PWS and SocietyPool's cash and cash equivalents were $2.5
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
Ventures, Allegiance, PWS and SocietyPool, and any other business opportunities
the Company pursues. See "Considerations Under the Investment Company Act of
1940." Assuming the Company determines additional funds are needed, there can be
no assurance that it will be successful in obtaining external financing on
satisfactory terms or at all. The Company at present anticipates having
sufficient liquidity to meet the working capital and operational needs of Point
West Capital, PWS and SocietyPool through December 31, 2000, using current cash
and cash equivalents, proceeds from sales of investment securities and
distributions from Ventures.
Ventures
Ventures' activities have generally been supported by capital
contributions from Point West Capital, by the sale of investments, by loans from
the SBA and the repayment by obligors of loans. Point West Capital has
contributed $5.8 million to Ventures since inception. During 1999, Ventures
generated $21.3 million of cash proceeds (net of commissions) from the sale of
securities and repayment of loans. During the six months ended June 30, 2000,
Ventures generated $5.3 million of cash proceeds (net of commissions) from the
sale of securities and repayment of loans. At June 30, 2000, Ventures' cash and
cash equivalents were $6.3 million.
Point West Ventures has an SBA debenture license and, therefore, may be
permitted, based on capital contributions by Point West Capital and realized
gains on the sale of securities, to borrow up to $16.6 million from the SBA,
subject to complying with SBA requirements. Any borrowings bear interest at the
rate for ten year debentures issued by Small Business Investment Companies and
funded through public certificates bearing the SBA's guarantee. Interest is
payable semi-annually. In addition, there is a
20
<PAGE>
leverage and underwriting fee of 3.5% and a fee of 1% per annum on the
outstanding amount of debt. In July 1998, Point West Ventures borrowed $3.0
million from the SBA and on May 24, 2000, Point West Ventures borrowed an
additional $3.5 million.
Ventures may not have sufficient liquidity, at least in the short term,
to grow its business. In addition, because of laws and regulations regarding the
Investment Company Act of 1940 (the "1940 Act"), the Company may be required to
restrict Ventures' growth or dispose of investments in order to avoid
registration under the 1940 Act at some time in the future. See "Considerations
Under the Investment Company Act of 1940."
Allegiance
As of June 30, 2000, Point West Capital had invested $7.7 million in
Allegiance Capital. In August 1998, Allegiance arranged the Allegiance
Financing. The Company expects that the Allegiance Financing will provide
sufficient funds to support Allegiance's current level of lending activities
through December 15, 2000. See Note 5 of the Condensed Notes to Consolidated
Financial Statements. Allegiance is attempting to acquire a portfolio of loans
with an outstanding principal amount in excess of $125 million. The acquisition
is dependent on Allegiance obtaining an external financing source.
DPFC
DPFC operations are in run-off. Point West Capital, as servicer under
the Securitized Notes, performs monitoring and collection activities for DPFC
and incurs administrative costs associated with these activities. Point West
Capital is reimbursed for these costs subject to priority provisions contained
in the Indenture. Principal, interest payments and other costs on the
Securitized Notes are payable solely from collections on policies pledged to
secure the payment thereof and do not require Point West Capital to expend cash
or obtain financing to satisfy such obligations.
Considerations Under 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). Companies that are subject to the 1940 Act must register with
the SEC as investment companies and upon registration become subject to
extensive regulation. The Company believes, based on its current activities and
the nature of its assets, that it should not 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.
There are also various percentage of assets and income tests and other
subjective tests under the 1940 Act and related rules that are relevant in
considering whether a company is deemed to be an investment company.
21
<PAGE>
Although the Company believes that it should not be deemed to be an
investment company, it is possible that it could be deemed one in the near
future as a result of the following:
* Allegiance has not grown its commercial lending business a
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 Ventures, which holds a number of investment
securities, has exceeded expectations; and
The success of other investments by the Company has exceeded
expectations.
The majority 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 and the Company has realized
substantial gains in connection with the sales of some of these investments.
Since 1999, Ventures sold some of its investments in part to address these
issues. The proceeds of these sales have been invested in U.S. Government
securities pending final use, which has included further investments by
Ventures.
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
* Continuing to dispose of investment securities and/or restricting
the growth of Ventures' business. Although the Company intends to
continue Ventures' investment activities, the Company does not
intend to contribute more capital to Ventures.
Growth of New Operating Businesses
The Company continues to seek 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.
Continuing the Growth of Allegiance
The Company will use all reasonable efforts to continue to grow the
commercial lending business of Allegiance. However, the growth of Allegiance is
dependent on the market's acceptance of the product
22
<PAGE>
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 Ventures
The Company may determine that it must dispose of additional 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. Given the volatile nature of the market, and, in some cases, lack
of a market, for some of these investments, sales could occur at severely
depressed prices. In addition, the dispositions may result in disadvantageous
tax consequences. The Company intends to use any proceeds of any additional sale
to support its working capital (including further investments by Ventures).
Pending final use, proceeds of any additional sale will likely be invested in
U.S. Government securities.
The Company also currently intends to limit the growth of Ventures'
business. Although Ventures intends to continue investing in investment
securities, the Company does not intend to contribute more capital to Ventures.
Limiting Ventures' growth may materially adversely affect the Company's future
financial condition and 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 (1) the amount of any loss and potential foreclosure
and liquidation of one of the loans made by Allegiance, (2) sufficiency of the
Company's liquidity and capital resources (see "Liquidity and Capital
Resources"), (3) 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"), (4) amounts of additional cash to be
contributed to Allegiance Trust I, (5) the ability of Point West Ventures to
borrow funds from the SBA and (6) SocietyPool's plans to offer a new type of
financial product. 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 (1)
Allegiance's ability to foreclose on the collateral at a price at least equal to
the carrying value, giving effect to the reserve, of such loan and the outcome
of the pending counterclaim filed in connection with the foreclosure action, (2)
the results of the Company's consideration of strategic options and any costs
associated with a chosen option, (3) availability and cost of capital, (4) the
factors described under "Considerations Under the Investment Company Act of
1940," (5) increases in the LIBOR rate and future amounts outstanding under the
Class A-R revolving certificates, (6) Point West Venture's ability to originate
a sufficient amount of investments that qualify for financing under the SBA
regulations and (7) the market's acceptance of SocietyPool's new financial
product and the feasibility of it.
23
<PAGE>
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 the Company's investments in the
stock of public and private companies, fixed rate loans and debt investments
made by Allegiance and Ventures 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.
During 1999 the Company hedged a position it held in an Internet
service provider and realized a $317,000 gain in connection with such hedging
activity. At June 30, 2000 no hedges were in place. However, the Company may
hedge certain positions in the future.
The table below represents principal cash flows and weighted-average
interest rates for the Allegiance loans outstanding at June 30, 2000:
<TABLE>
<CAPTION>
2000 2001 2002 2003 2004 Thereafter
---- ---- ---- ---- ---- ----------
<S> <C> <C> <C> <C> <C> <C>
Fixed rate loans (1)(2) $ 399,420 $ 915,093 $1,008,589 $1,111,669 $1,225,318 $29,304,889
Average interest
rates (1) 9.8% 9.8% 9.8% 9.8% 9.8% 9.8%
<FN>
--
(1) The principal cash flows for fixed rate loans and average interest rates
do not include one delinquent loan.
(2) 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 in connection with the extension of the
Allegiance Financing will be set in the future at some point. Allegiance
utilizes futures contracts to hedge certain interest rate exposure between
the time of origination of the loans and the expected issuance of such term
certificates.
</FN>
</TABLE>
In connection with the Allegiance Financing, Point West Capital agreed
to provide additional cash to Allegiance Trust I in the event that monthly LIBOR
interest rates exceed 6.16%. To date Point West Capital has been required to
make immaterial payments. The amount of additional cash, if any, to be provided
is a function of several variables including the monthly LIBOR interest rate and
the outstanding balance of one of the Allegiance Financing revolving
certificates.
24
<PAGE>
PART II. OTHER INFORMATION
------- -----------------
Item 1. Legal Proceedings
-------------------------
In May 2000, Point West Capital and three individuals formed
SocietyPool, an entity that plans to offer a new type of financial
product. Point West Capital is a member and manager of SocietyPool with
51% voting and economic interests. One of the other members is the
former chief executive officer (the "Former CEO") of SocietyPool with a
15.67% voting interest and a 15.44% economic interest. Another member
is a former special consultant (the "Former Special Consultant") of
SocietyPool and owns 33.33% voting interest and a 28.66% economic
interest. The third other member has a 4.90% economic interest and no
voting interest. In May 2000, Point West Capital provided $1.8 million
to fund exploratory research of SocietyPool's proposed new product and
business plan. On July 20, 2000, the Former Special Consultant filed a
claim with the American Arbitration Association seeking arbitration of
a dispute with Point West Capital concerning SocietyPool. The claim
sought emergency relief on issues relating to the control and
management of SocietyPool and its assets. The emergency relief sought
by the Former Special Consultant has been denied. On July 27, 2000, the
Former CEO resigned as such claiming that certain actions of Point West
Capital which are at issue in the arbitration constituted constructive
termination of his employment. On August 11, 2000, SocietyPool
terminated for cause the Former Special Consultant. On August 10, 2000,
Point West Capital filed an answer, affirmative defenses and
counterclaim against the Former Special Consultant and a third-party
complaint against the Former CEO. The matter is continuing through the
arbitration process.
Under SocietyPool's Operating Agreement, Point West Capital has the
option to provide up to an additional $4.4 million of funds to
SocietyPool. Point West Capital's ownership percentage in SocietyPool
could depend on the amount of additional funding it chooses to provide.
The outcome of this matter cannot be determined at this time; however,
the Company does not believe that the Former Special Consultant is
entitled to the requested relief. Point West Capital cannot predict
whether or to what extent this matter will affect Point West Capital's
decision to invest additional funds in SocietyPool, the timing or
implementation of SocietyPool's business plan, Point West Capital's
role or ownership percentage in SocietyPool or SocietyPool's financial
condition.
See the Form 10-K for further information regarding legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
-----------------------------------------------------------
On May 16, 2000, the Company held an Annual Meeting of its
stockholders. The election of two directors, the proposal to amend the
Company's 1995 Stock Option Plan and the proposal to amend the
Company's Stock Option Plan for Non-Employee Directors as set forth in
the proxy statement were presented. Alan B. Perper and Paul A.
Volberding were re-elected to the Board of Directors for a term
expiring in 2003.
The voting tallies were:
Director Votes For Votes Withheld
-------- --------- --------------
Alan B. Perper 3,105,229 100,730
Paul A. Volberding 3,105,029 100,930
25
<PAGE>
The other directors whose term of office continued after the meeting
are: John Ward Rotter (term expiring in 2001), Bradley N. Rotter (term
expiring in 2002) and Stephen T. Bow (term expiring in 2002).
The proposal to amend the Company's 1995 Stock Option Plan was also
approved. The voting tallies were:
<TABLE>
<CAPTION>
Votes For Votes Against Votes Abstain Broker Non-Votes
--------- ------------- ------------- ----------------
<S> <C> <C> <C> <C>
Proposal to amend the
Company's 1995
Stock Option Plan 1,351,466 152,842 12,485 1,689,166
</TABLE>
The proposal to amend the Company's Stock Option Plan for Non-Employee
Directors was also approved. The voting tallies were:
<TABLE>
<CAPTION>
Votes For Votes Against Votes Abstain Broker Non-Votes
--------- ------------- ------------- ----------------
<S> <C> <C> <C> <C>
Proposal to amend the
Company's
Stock Option Plan for
Non-Employee
Directors 1,394,060 108,083 14,650 1,689,166
</TABLE>
Item 5. Other Information
-------------------------
On May 16, 2000, the Board of Directors amended Sections 1.9 and 2.4 of
Point West Capital's By-Laws ("Order of Business" and "Nominations of
Directors; Election") in response to changes in Rule 14a-4 of the
Securities and Exchange Commission promulgated under the Securities
Exchange Act of 1934. The amended By-Laws provide that the Secretary of
the Company must receive written notification describing any business
(including nominations for director) proposed to be presented by a
stockholder at an annual meeting at least 60 days before the date on
which the Company mailed its proxy materials for the prior year's
annual meeting.
The amendments to Sections 1.9 and 2.4 became effective upon adoption
by the Board of Directors and will apply to Point West Capital's 2001
annual meeting of stockholders. Notice of any business proposed to be
presented by a stockholder at Point West Capital's 2001 annual meeting
of stockholders must be received by the Secretary of Point West Capital
no later than February 13, 2001. If notification is not received by
that date, the notice will be considered untimely and Point West
Capital's proxy for the 2001 annual meeting of stockholders will grant
discretionary authority to the persons named therein to exercise their
voting discretion with respect to such business. Sections 1.9 and 2.4
contain additional requirements that apply to stockholders who wish to
bring business before an annual meeting. These requirements are
included in the composite copy of Point West Capital's amended By-Laws
filed as Exhibit No. 3.1 to this report.
26
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
----------------------------------------
(a) Exhibits:
Number Description
3.1 Amended By-laws of the Company.
10.1 Amendment No.1 to Point West Capital Corporation's
Amended and Restated 1995 Stock Option Plan.
10.2 Amendment No.1 to Point West Capital Corporation's
Stock Option Plan for Non-Employee Directors.
10.3** Third Amended and Restated Supplement to Trust
Agreement for Revolving Series 1998-1, dated as of
April 14, 2000, among Allegiance Funding I, LLC,
Manufacturers and Traders Trust Company and Point
West Capital Corporation.
10.4** Amended and Restated Supplement to Trust Agreement
for Term Series 1999-1, dated as of April 14,
2000, among Allegiance Funding I, LLC,
Manufacturers and Traders Trust Company and Point
West Capital Corporation.
10.5 First Amendment to Amended and Restated Limited
Liability Company Agreement of Allegiance Capital,
LLC, dated as of May 22, 2000, among Point West
Capital Corporation, Michael W. McDermitt and
Daniel M. Isard.
10.6 Limited Liability Company Agreement of
SocietyPool.com, LLC, dated as of May 10, 2000,
among Point West Capital Corporation, Robert M.
Janes, Paul G. Kahn and Michael D. London.
10.7 First Amendment to Limited Liability Company
Agreement of SocietyPool.com, LLC, dated as of
June 26, 2000, among Point West Capital
Corporation, Robert M. Janes, Paul G. Kahn and
Michael D. London.
27.1 Financial Data Schedule.
** Certain information omitted pursuant to a request for
confidential treatment filed with the SEC.
(b) Reports on Form 8-K filed during the quarter ended June 30, 2000:
Date Item Reported Matter Reported
---- ------------- ---------------
May 12, 2000 5 The Company issued
a press release
regarding its results
of operations for the
first quarter of 2000.
27
<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: August 11, 2000 /s/ ALAN B. PERPER
--------------------------------
ALAN B. PERPER
President
(Duly Authorized Officer)
Dated: August 11, 2000 /s/ JOHN WARD ROTTER
--------------------------------
JOHN WARD ROTTER
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
28
<PAGE>
EXHIBIT INDEX
=============
====================== ================================ =======================
Exhibit Number Document Description Sequential
Page Number
============== ===================== ============
====================== ================================ =======================
3.1 Amended By-laws of the Company.
32
====================== ================================ =======================
10.1 Amendment No.1 to Point West
Capital Corporation's Amended
and Restated 1995 Stock Option
Plan. 42
====================== ================================ =======================
10.2 Amendment No.1 to Point West
Capital Corporation's Stock
Option Plan for Non-Employee
Directors. 43
====================== ================================ =======================
10.3 Third Amended and Restated
Supplement to Trust Agreement for
Term Series 1998-1, dated as of
April 14, 2000, among Allegiance
Funding 1, LLC, Manufacturers and
Traders Trust Company and Point
West Capital Corporation. 45
====================== ================================ =======================
10.4 Amended and Restated Supplement
to Trust Agreement for Term
Series 1999-1, dated as of April
14, 2000, among Allegiance
Funding 1, LLC, Manufacturers
and Traders Trust Company and
Point West Capital Corporation. 95
====================== ================================ =======================
10.5 First Amendment to Amended and
Restated Limited Liability
Company Agreement of Allegiance
Capital, LLC, dated as of May
22, 2000, among Point West
Capital Corporation, Michael W.
McDermitt and Daniel M. Isard. 162
====================== ================================ =======================
10.6 Limited Liability Company
Agreement of SocietyPool.com,
LLC, dated May 10, 2000, among
Point West Capital Corporation,
Robert M. Janes, Paul G. Kahn
and Michael D. London. 172
====================== ================================ =======================
10.7 First Amendment to Limited
Liability Company Agreement of
SocietyPool.com, LLC, dated as
of June, 26, 2000, among Point
West Capital Corporation, Robert
M. Janes, Paul G. Kahn and
Michael D. London. 208
====================== ================================ =======================
27.1 Financial Data Schedule. 211
====================== ================================ =======================
====================== ================================ =======================
