SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
----------
FORM 10-QSB
Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarter ended September 30, 1997
Commission file number: 0-18188
PAULSON CAPITAL CORP.
Exact name of registrant as specified in its charter
Oregon 93-0589534
(State of incorporation) (I.R.S. Employer Identification)
811 S.W. Front Avenue
Portland, OR 97204
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: (503) 243-6000
Check whether the issuer (1) filed all reports required to be filed by
Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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 No X
--- ---
Number of shares outstanding of each of the issuer's classes of common
stock, as of October 31, 1997:
Common stock, no par value - 3,969,270 shares
Transitional Small Business Disclosure Format Yes No X
--- ---
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAULSON CAPITAL CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
(unaudited)
9/30/97 12/31/96
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents 73,712 185,445
Receivable from broker-dealers and
clearing organizations 1,868,493 5,035,144
Notes and other receivables 342,635 182,859
Trading securities 7,136,872 5,152,783
Investment securities 5,862,386 4,789,270
Refundable income taxes -- 412,261
Prepaid and deferred expenses 200,650 160,121
Secured demand note 100,000 100,000
Deferred income taxes 112,000 112,000
------- -------
Total current assets 15,696,748 16,129,883
---------- ----------
FURNITURE AND EQUIPMENT, net 172,951 150,925
------- -------
DEFERRED INCOME TAXES 10,400 10,400
------ ------
$15,880,099 $16,291,208
=========== ===========
The accompanying notes are an integral part of these statements.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
PAULSON CAPITAL CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET - CONTINUED
(unaudited)
9/30/97 12/31/96
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 279,886 $ 380,707
Payable to broker-dealers and clearing
organizations 825,346 3,690,844
Compensation, employee benefits and
payroll taxes 1,609,921 1,940,422
Securities sold, not yet purchased 162,397 280,688
Income taxes payable 293,646 --
Subordinated note payable 100,000 100,000
------- -------
Total current liabilities 3,271,196 6,392,661
--------- ---------
SHAREHOLDERS' EQUITY
Preferred stock, no par value;
authorized, 500,000 shares; issued and
outstanding, no shares -- --
Common stock, no par value; authorized,
10,000,000 shares; issued and
outstanding, 3,969,270 and
4,081,241, respectively 786,616 733,701
Retained earnings 11,822,287 9,164,846
---------- ---------
12,608,903 9,898,547
---------- ---------
$ 15,880,099 $ 16,291,208
============ ============
The accompanying notes are an integral part of these statements.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
PAULSON CAPITAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
for the three and nine month periods ended
September 30, 1997 and September 30, 1996 (unaudited)
Three months ended Nine months ended
9/30/97 9/30/96 9/30/97 9/30/96
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues
Commissions $ 3,455,578 $ 2,551,998 $ 8,663,743 $ 9,207,515
Corporate finance 783,757 1,127,282 1,632,141 2,875,490
Investment income 2,704,082 998,427 4,952,335 6,283,726
Trading income (loss) 454,040 389,402 1,072,837 1,217,697
Interest and dividends 1,396 2,174 4,136 5,646
Other 6,731 2,647 23,187 11,311
----------- ----------- ----------- -----------
7,405,584 5,071,930 16,348,379 19,601,385
----------- ----------- ----------- -----------
Expenses
Commissions and salaries 3,357,143 2,485,487 8,340,503 9,209,532
Underwriting expenses 140,909 222,637 286,484 546,863
Rent, telephone and
quotation services 234,307 188,789 617,949 600,880
Interest expense 1,500 1,547 4,496 5,504
Professional fees 159,145 148,154 477,377 369,654
Bad debt expense 30,000 45,000 88,513 136,998
Travel and entertainment 44,881 31,271 124,869 102,743
Settlements 37,299 60,990 44,299 130,615
Other 390,520 266,221 1,059,580 779,956
----------- ----------- ----------- -----------
4,395,704 3,450,096 11,044,070 11,882,745
Earnings (loss) before income taxes
3,009,880 1,621,834 5,304,309 7,718,640
Provision for income taxes
Current 1,202,000 648,800 2,122,000 3,087,500
Deferred -- -- -- --
Net Earnings (Loss) $ 1,807,880 $ 973,034 $ 3,182,309 $ 4,631,140
=========== =========== =========== ===========
Earnings (loss) per share $ 0.45 $ 0.24 $ 0.80 $ 1.09
=========== =========== =========== ===========
The accompanying notes are an integral part of these statements
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
PAULSON CAPITAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
For the three year period ended December 31, 1996
and the nine months ended September 30, 1997 (unaudited)
Common Stock
------------------------------------------- Retained
Shares Amount Earnings
------------------ ----------------- -----------------
<S> <C> <C> <C>
Balance at December 31, 1993 4,448,541 $ 867,073 $ 2,305,505
Issuance of common stock in lieu
of directors' cash compensation 21,960 16,500 --
Redemption of common stock (107,000) (107,843) --
Net loss for the year -- -- (1,080,462)
------------------ ----------------- -----------------
Balance at December 31, 1994 4,363,501 775,730 1,225,043
Issuance of common stock in lieu
of directors' cash compensation 10,338 10,500 -
Redemption of common stock (49,300) (50,341) -
Net earnings for the year -- -- 2,925,033
------------------ ----------------- -----------------
Balance at December 31, 1995 4,324,539 735,889 4,150,076
Exercise of stock options 38,570 40,892 --
Issuance of common stock in lieu
of directors' cash compensation 3,432 7,500 --
Redemption of common stock (285,300) (50,580) (712,432)
Net earnings for the year -- -- 5,727,202
------------------ ----------------- -----------------
Balance at December 31, 1996 4,081,241 $ 733,701 $ 9,164,846
Exercise of stock options 87,140 89,283 --
Redemption of common stock (199,111) (36,368) (524,868)
Net earnings for the year to date -- 3,182,309
------------------ ----------------- -----------------
Balance at September 30, 1997 3,969,270 $ 786,616 $ 11,822,287
================== ================= =================
The accompanying notes are an integral part of these statements
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
PAULSON CAPITAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
for the nine month periods ended September 30, 1997 and September 30, 1996
9/30/97 9/30/96
--------------- ----------------
<S> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents
Cash flows from operating activities
Net earnings (loss) $ 3,182,309 $ 4,631,140
Adjustments to reconcile net earnings (loss) to
net cash used in operating activities
Unrealized (appreciation) depreciation
on investment securities 18,084 148,513
Realized gain on investment securities (5,006,609) (6,424,895)
Depreciation and amortization 43,422 38,455
Gain from sale of furniture and equipment (6,799) (40)
Change in assets and liabilities
Receivables 3,006,875 1,637,260
Trading securities (1,984,089) (2,794,294)
Refundable income taxes 412,261 (374,916)
Prepaid and deferred expenses (40,529) 207,365
Accounts payable and accrued liabilities (3,296,820) 487,606
Securities sold, not yet purchased (118,291) 68,673
Bank overdraft -- --
Income taxes payable 293,646 --
--------------- ----------------
Net cash provided by (used in) operating activities (3,496,540) (2,375,133)
--------------- ----------------
Cash flows from investing activities
Purchases of investment securities (15,545,898) (14,000,282)
Proceeds from sale of investment securities 19,461,307 16,621,422
Additions to furniture and equipment (68,249) (47,302
Proceeds from sale of furniture and equipment 9,600 40
--------------- ----------------
Net cash provided by (used in) investing activities $ 3,856,760 $ 2,573,878
--------------- ----------------
The accompanying notes are an integral part of these statements
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) - CONTINUED
9/30/97 9/30/96
------------- --------------
<S> <C> <C>
Cash flows from financing activities
Proceeds from exercise of stock options 89,283 40,892
Payments to retire common stock (561,236) (262,034)
Decrease in bank overdraft payable -- --
------------- --------------
Net cash provided by (used in) financing activities (471,953) (221,142)
------------- --------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (111,733) (22,397)
Cash and cash equivalents at beginning of year 185,445 174,029
------------- --------------
Cash and cash equivalents at September 30 $ 73,712 $ 151,632
============= ==============
Cash paid during the three months for
Interest $ 1,500 $ 1,547
============= ==============
Income taxes $ 97,669 $ 2,478,598
============= ==============
The accompanying notes are an integral part of these statements
</TABLE>
7
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions for interim financial statements in
Article 10 of Regulation S-X and, therefore, do not include all information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, the interim financial
statements include all adjustments (consisting only of normal recurring
accruals) necessary to state fairly the information shown therein. The nature of
the Company's business is such that the results of any interim period are not
necessarily indicative of results for a full fiscal year.
2. Securities Owned
Any losses from the disposition of securities are reflected in trading
revenues on the income statement for the period.
3. Commitments and Contingencies
The Company and PIC are defendants in Holly Millar v. Pearce Systems
International, Inc., et al., filed in San Francisco Superior Court, State of
California, in March 1996. An asserted class action, plaintiff alleges
violations of the California securities law, deceit, negligent misrepresentation
and unfair business practices relating to alleged misstatements in the
prospectus used in connection with a February 1994 public offering in which PIC
acted as the managing underwriter. The offering consisted of 675,000 units at a
price of $7.25 per unit. Plaintiff seeks rescission of the offering as well as
actual damages, interest, attorney fees and punitive damages. No class has been
certified, although a motion for class certification is pending. The case is
expected to be set for trial January 18, 1999. Discovery in this matter is still
in the early stages. Therefore, the Company and PIC have not had an opportunity
to investigate this matter fully but believe they have meritorious defenses and
intend to defend this matter vigorously. Pursuant to a tolling agreement with
the plaintiff, the Company (but not PIC) expects to be dismissed without
prejudice from the lawsuit.
An additional lawsuit has been filed against PIC by Bertram Ostrau,
asserting essentially the same class action allegations as the Millar case.
Bertram Ostrau v. Paulson Investment Company, Inc. was filed in San Francisco
Superior Court, State of California in September 1997, but has been removed by
PIC to the United States District Court for the Northern District of California.
The plaintiff has moved to remand this case and intends to seek consolidation
with the Millar case. As in the Millar case, discovery is still in the early
stages. Therefore, PIC has not had an opportunity to investigate this matter
fully but believes it has meritorious defenses and intends to defend this matter
vigorously.
8
<PAGE>
Richard Toscano Claim In November 1996, Richard Toscano, a former PIC
customer, asserted claims against PIC and Jeff Hudson, a former PIC broker,
alleging various securities law violations, including unsuitability and
misrepresentation, in connection with his account with PIC. He has also alleged
that PIC failed to supervise Mr. Hudson. Mr. Toscano has demanded an amount in
excess of $130,000 plus interest in order to settle this matter. At this time,
no arbitration claim has been filed. PIC has not had an opportunity to fully
investigate this claim, but intends to defend this matter vigorously if an
arbitration claim is filed.
Philip Cutler Claim In March 1996, Philip Cutler, a former PIC customer,
asserted various claims against Todd Bollman, a former PIC broker, and PIC
alleging unsuitability and churning in his account with PIC. Mr. Cutler has
indicated that his losses approach $90,000, not including commissions. PIC has
indicated to Mr. Cutler that it believes he is an experienced, sophisticated
investor who spoke regularly with Mr. Bollman and was well informed with respect
to the risks involved in the trading that he selected in his account. Although
Mr. Cutler indicated that he would seek arbitration, no arbitration has been
filed at this time. PIC has not had an opportunity to fully investigate this
matter, but believes it has meritorious defenses and intends to defend this
matter vigorously if an arbitration claim is filed.
An adverse outcome in certain of the matters described above could have a
material adverse effect on PIC or the Company. PIC has been named in certain
other legal proceedings and has received notice that certain customers may
commence legal proceedings against PIC. The Company believes, based upon
information received to date and, where the Company believes it appropriate,
discussions with legal counsel, that resolution of this additional pending or
threatened litigation will have no material adverse effect on the consolidated
financial condition, results of operations, or business of the Company.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Three Months Ended September 30, 1997 vs. Three Months Ended September 30, 1996
Results of Operations
The revenues and operating results of the Company's operating subsidiary,
Paulson Investment Company, Inc. ("PIC"), are influenced by fluctuations in the
equity underwriting markets as well as general economic and market conditions,
particularly conditions in the over-the-counter market, where PIC's investment
account, trading inventory positions and underwriter warrants are heavily
concentrated. Significant fluctuations can occur in PIC's revenues and operating
results from one period to another. PIC's operations depend upon many factors,
such as the number of companies that are seeking public financing, the quality
and financial condition of those companies, market conditions in general, the
performance of previous PIC underwritings and interest in certain industries by
investors. As a result, revenues and income derived from these activities may
vary significantly from period to period. In the table below, "Trading Income"
is the net gain or loss from trading positions before commissions paid to the
representatives in the trading department. "Investment Income" includes amounts
received, if any, from the exercise of PIC's underwriter warrants.
Summary of Changes in Major Categories
of Revenues and Expenses
<TABLE>
<CAPTION>
Quarter Ended Sept. 30 Nine Months Ended Sept. 30
1997 vs. 1996 1997 vs. 1996
<S> <C> <C> <C> <C>
Revenues:
Sales Commissions $ 903,580 35.4% $ (543,772) ( 5.9%)
Corporate Finance (343,525) (30.5%) (1,243,349) (43.2%)
Investment Income 1,705,655 170.8% (1,331,391) (21.2%)
Trading Income 64,638 16.6% (144,860) (11.9%)
Other 3,306 68.6% 10,366 61.1%
----------- -------- ------------ --------
Total $ 2,333,654 46.0% $ (3,253,006) (16.6%)
Expenses:
Commissions and Salaries $ 871,656 35.1% $ (869,029) ( 9.4%)
Underwriting Expenses (81,728) (36.7%) (260,379) (47.6%)
Rent, Telephone and Quotes 45,518 24.1% 17,069 2.8%
Other 110,162 19.9% 273,664 17.9%
----------- -------- ------------ --------
Total $ 945,608 27.4% $ (838,675) (7.1%)
Pretax Income $ 1,388,046 85.6% $ (2,414,331) (31.3%)
</TABLE>
10
<PAGE>
Total revenues for the third quarter of 1997 rose 46.0 percent from the
third quarter of 1996, from $5,071,930 to $7,405,584. As shown in the table
above, sales commissions rose $903,580, or 35.4 percent, from $2,551,998 in the
third quarter of 1996 to $3,455,578 in the comparable 1997 period. This increase
resulted primarily from the more favorable price movements and trading levels in
smaller capitalization issues in the 1997 quarter, compared to less favorable
levels in 1996. The Nasdaq Industrial Index rose 16.3 percent in the third
quarter of 1997 compared to a fall of 1.1 percent in the 1996 quarter. Corporate
finance revenues fell 30.5 percent, or $343,525, in the third quarter of 1997
compared to the third quarter of 1996. One corporate finance transaction was
completed in the 1997 quarter in which PIC acted as the managing underwriter,
raising a total of $ 7.9 million for the issuer; two transactions totaling $25
million were completed in the 1996 quarter. Investment income rose $1,705,655,
or 170.8 percent, from $998,427 in the third quarter of 1996 to $2,704,082 in
the third quarter of 1997, primarily due to substantial realized gains on
several positions in the investment account compared to smaller realized gains
on fewer positions in the investment account in the 1996 quarter. Trading income
rose $64,638, or 16.6 percent, to $454,040 in the third quarter of 1997 from
$389,402 in the comparable 1996 period. This increase was also due to the
generally favorable conditions in over-the-counter stocks in 1997.
Total expenses rose $945,608 in the third quarter of 1997 from the
comparable 1996 period, an increase of 27.4 percent, from $3,450,096 to
$4,395,704. Commissions and salaries rose $871,656, or 35.1 percent, from
$2,485,487 in the 1996 period to $3,357,143 in 1997. This increase was primarily
due to increased commission revenues resulting in a higher level of commissions
paid. (Higher percentage commission levels are generally paid to employee
registered representatives at higher production levels.) Underwriting expenses
fell by $81,728 due primarily to the single corporate finance transaction
completed in the 1997 quarter; two larger transactions were completed in the
1996 quarter. Rent, telephone and quote expenses increased from $188,789 in the
1996 period to $234,307 in 1997, an increase of 24.1 percent, primarily due to
increased transaction-related quotation charges and the initial costs of
creating an internet web site. Other expenses increased 19.9 percent, from
$553,183 in the second quarter of 1996 to $663,345 in the second quarter of
1997. The largest factor in this increase was a $130,260 increased accrual for
employee profit sharing.
The Company had a pretax profit of $3,009,880 in the second quarter of 1997
compared to a pretax profit of $1,621,834 in the comparable 1996 period. The
biggest factor in this increase was the increase in investment income in the
1997 quarter, which added to increases in PIC's general securities and trading
activities. Significant fluctuations can occur in PIC's revenues and operating
results from one period to another.
The Company also accrued $1,202,000 in income taxes for the third quarter
of 1997, compared to an accrual for income taxes in the third quarter of 1996 of
$648,800. Independent of investment income, the Company would have had a profit
before income taxes of $305,798 in the
11
<PAGE>
third quarter of 1997 compared to a profit before income taxes of $623,407 in
the third quarter of 1996.
Liquidity and Capital Resources
The majority of PIC's assets are cash and assets readily convertible to
cash. PIC's securities inventory is stated at market value. The liquidity of the
market for many of PIC's securities holdings, however, varies with trends in the
stock market. Since many of the securities held by PIC are thinly traded, and
PIC is in many cases a primary market maker in the issues held, any significant
sales of PIC's positions could adversely affect the liquidity of the issues
held. In general, falling prices in OTC securities (which make up most of PIC's
trading positions) lead to decreased liquidity in the market for these issues,
while rising prices in OTC issues tend to increase the liquidity of the market
for these securities. The overall increase in prices for the OTC securities
traded by PIC in 1995, 1996 and so far in 1997 was combined with a general
increase in the liquidity of the markets for these securities. The decline in
prices for the OTC securities traded by PIC in 1994 was combined with a general
decrease in the liquidity of the markets for these securities. PIC's investment
account and trading inventory accounts are stated at fair market value, which is
at or below quoted market price.
PIC owed $100,000 at September 30, 1997 pursuant to a subordinated loan
from an investor. PIC also borrows money from its clearing firm in the ordinary
course of its business, pursuant to an understanding under which the clearing
firm agrees to finance PIC's trading accounts. As of September 30, 1997, no net
loans were outstanding pursuant to this arrangement. PIC and the Company are
generally able to meet their compensation and other obligations out of current
liquid assets.
Another source of capital to PIC and the Company has been the exercise of
underwriter warrants issued to PIC in connection with its corporate finance
activities and the sale of the underlying securities. These warrants are not
reflected on the balance sheet of PIC or Paulson Capital. While the warrants and
the securities issuable upon exercise of the warrants are not immediately
saleable, PIC receives the right to require the issuer to register the
underlying securities for resale to the public. Profits, if any, from the
warrants are realized based upon the difference between the market price and the
exercise price on the date of exercise. Further profits or losses are
subsequently realized when the underlying securities are sold. Profits and
losses realized from the warrants are recorded as "Investment Income." There is
no public market for the underwriter warrants. The securities receivable upon
exercise of the underwriter warrants cannot be resold unless the issuer has
registered these securities with the SEC and the states in which the securities
will be sold or exemptions are available. Any delay or other problem in the
registration of these securities would have an adverse impact upon PIC's ability
to obtain funds from the exercise of the underwriter warrants and the resale of
the underlying securities. At September 30, 1997, PIC owned 30 underwriter
warrants (from 29 issuers), of which 26 were currently exercisable and 11 had an
exercise price below the current market price of the securities receivable
12
<PAGE>
upon exercise. The value of the firm's underwriter warrants depends on the
prices of the underlying securities. These prices are influenced by general
movements in the prices of OTC securities as well as the success of the issuers
of the underwriter warrants.
In the nine months ended September 30, 1997, $3,496,540 of net cash was
used in operating activities of the Company. The major adjustments to reconcile
this result to the Company's net profit included a decrease in accounts payable
and accrued liabilities of $3,296,820, a realized gain on investment securities
of $5,006,609, an increase in trading securities of $1,984,089 and a decrease in
securities sold but not yet purchased of $118,291, partially offset by a
decrease in receivables of $3,006,875, a decrease in refundable income taxes of
$412,261 and an increase in income taxes payable of $293,646. In the first nine
months of 1997, $3,856,760 of net cash was provided to the Company from
investing activities, primarily resulting from $19,461,307 of proceeds from the
sale of short-term investment securities more than offsetting the purchase of
$15,545,989 of short-term investment securities. In the first nine months of
1997, $471,953 of net cash was used in financing activities, consisting of
$561,236 used to retire common stock partially offset by $89,283 in proceeds
from the exercise of stock options. The net decrease in cash and cash
equivalents for the period totaled $111,733. See "Financial Statements --
Consolidated Statements of Cash Flows."
As a securities broker-dealer, the Company's wholly owned subsidiary, PIC,
is required by SEC regulations to meet certain liquidity and capital standards.
At September 30, 1997, the Company had no material commitments for capital
expenditures.
In general, the primary ongoing sources of PIC's, and therefore the
Company's, liquidity, including PIC's trading positions, borrowings on those
positions and profits realized upon the exercise of underwriter warrants, all
depend in large part on the trend in the general markets for OTC securities.
Rising OTC price levels will tend to increase the value and liquidity of PIC's
trading positions, the amount that can be borrowed from its clearing firm based
upon those positions, and the value of PIC's underwriter warrants. The Company
believes its liquidity is sufficient to meet its needs for the foreseeable
future.
Inflation
Because PIC's assets are primarily liquid, they are not significantly
affected by inflation. The rate of inflation affects PIC's expenses, such as
employee compensation, office leasing and communications costs. These costs may
not readily be recoverable in the price of services offered by the Company. To
the extent inflation results in rising interest rates and has other adverse
effects in the securities markets and the value of securities held in inventory
or PIC's investment account, it may adversely affect the Company's financial
position and results of operations.
13
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
See Note 3 of Notes to Condensed Consolidated Financial Statements in
Item 1.
Item 2. Changes in Securities.
None
Item 3. Defaults upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K
None
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PAULSON CAPITAL CORP.
Date: NOVEMBER 11, 1997 By: CHESTER L.F. PAULSON
------------------------ -------------------------------------
Chester L.F. Paulson
President
Date: NOVEMBER 10, 1997 By: CAROL RICE
------------------------ -------------------------------------
Carol Rice
Principal Accounting Officer
15
<PAGE>
EXHIBIT INDEX
Exhibit Sequential
No. Description Page No.
------- ----------- --------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> BD
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET OF PAULSON CAPITAL CORP. AND SUBSIDIARY AS OF
SEPTEMBER 30, 1997 AND THE RELATED CONSOLIDATED STATEMENTS OF OPERATIONS,
SHAREHOLDERS' EQUITY AND CASH FLOWS FOR THE NINE MONTHS IN THE PERIOD ENDED
SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 74
<RECEIVABLES> 2,211
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 12,999
<PP&E> 173
<TOTAL-ASSETS> 15,880
<SHORT-TERM> 100
<PAYABLES> 3,009
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 162
<LONG-TERM> 0
0
0
<COMMON> 787
<OTHER-SE> 11,822
<TOTAL-LIABILITY-AND-EQUITY> 15,880
<TRADING-REVENUE> 1,073
<INTEREST-DIVIDENDS> 4
<COMMISSIONS> 8,664
<INVESTMENT-BANKING-REVENUES> 1,632
<FEE-REVENUE> 0
<INTEREST-EXPENSE> 4
<COMPENSATION> 8,341
<INCOME-PRETAX> 5,304
<INCOME-PRE-EXTRAORDINARY> 5,304
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,182
<EPS-PRIMARY> .80
<EPS-DILUTED> .80
</TABLE>
