1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
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FORM 10-QSB
Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarter ended June 30, 1995
Commission file number: 0-18118
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
--------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 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
--- ---
Number of shares outstanding of each of the issuer's classes of common
stock, as of July 31, 1995:
Common stock, no par value - 4,363,501 shares
2
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PAULSON CAPITAL CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
ASSETS
(unaudited)
6/30/95 12/31/94
------- --------
CURRENT ASSETS
Cash and cash equivalents $ 421,589 $ 145,417
Receivables from brokers or dealers and
clearing organizations 2,753,124 1,342,230
Notes and other receivables 474,050 482,776
Refundable income taxes -- 515,000
Trading securities and investments 1,263,753 1,563,674
Investment Securities 16,500 15,063
Prepaid and deferred expenses 90,516 169,268
Secured demand notes 100,000 100,000
Deferred income taxes 170,000 170,000
--------- ---------
Total current assets 5,289,532 4,503,428
--------- ---------
FURNITURE AND EQUIPMENT, net 137,716 137,254
--------- ---------
DEFERRED INCOME TAXES 12,700 12,700
--------- ---------
$5,439,948 $4,653,382
========= =========
The accompanying notes are an integral part of this statement.
3
PAULSON CAPITAL CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET - CONTINUED
LIABILITIES AND SHAREHOLDERS' EQUITY
(unaudited)
6/30/95 12/31/94
------- --------
CURRENT LIABILITIES
Bank Overdraft $ 14,973 $ 51,888
Accounts payable 303,520 268,146
Brokers or dealers and clearing organ-
izations 1,040,336 1,750,193
Compensation, employee benefits
and payroll taxes 913,461 284,562
Securities sold, not yet purchased, at
market 928,791 197,820
Income taxes payable 35,162 --
Deferred income taxes -- --
Subordinated notes payable 100,000 100,000
--------- ---------
Total current liabilities 3,336,243 2,652,609
--------- ---------
COMMITMENTS AND CONTINGENCIES -0- -0-
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 outstand-
ing, 4,363,501 and 4,363,501,
respectively 775,730 775,730
Retained earnings 1,327,975 1,225,043
--------- ---------
2,103,705 2,000,773
--------- ---------
$5,439,948 $4,653,382
========= =========
The accompanying notes are an integral part of this statement.
4
PAULSON CAPITAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
For the three month For the six month
period ended June 30 period ended June 30
1995 1994 1995 1994
---------- ---------- ---------- -------
REVENUES
Commissions $2,630,375 $2,027,522 $4,705,130 $4,459,454
Corporate Finance 815,339 399,866 1,367,011 749,135
Investment Income 324,318 114,872 326,256 267,525
Trading Income (41,639) (81,994) 113,750 268,620
Interest and Dividends 5,845 3,297 10,447 12,127
Other 4,585 3,434 11,125 6,124
--------- --------- --------- ---------
3,738,823 2,466,997 6,533,719 5,762,985
--------- --------- --------- ---------
EXPENSES
Commissions
and Salaries 2,569,573 1,962,992 4,592,172 4,318,289
Underwriting Expense 290,021 94,882 431,465 159,794
Rent, telephone
and quotation 230,185 308,310 453,610 605,609
services
Interest expense 1,603 1,500 3,373 3,000
Professional fees 103,886 161,717 206,917 340,457
Bad debt expense 85,841 28,300 119,449 59,277
Travel and
entertainment 18,235 40,098 44,215 84,196
Settlements 125,000 133,601 149,250 149,001
Branch office expenses -- (29,208) -- 39,304
Other 182,882 295,996 362,336 487,556
--------- --------- --------- ---------
3,607,226 2,998,188 6,362,787 6,246,483
Earnings (loss)
before income
taxes and extra-
ordinary gain 131,597 (531,191) 170,932 (483,498)
Provision (credit)
for income taxes
Current 52,000 (20,000) 68,000 --
Deferred -- -- -- --
--------- --------- --------- ---------
Net earnings $ 79,597 $ (511,191) $ 102,932 $ (483,498)
========= ========= ========= =========
Earnings (loss)
per share $ .018 $ (.12) $ .024 $ (.11)
========= ========= ========= =========
The accompanying notes are an integral part of this statement.
5
PAULSON CAPITAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Three year period ended December 31, 1994 and the six
months ended June 30, 1995 (unaudited)
Retained
Common Stock Earnings
Shares Amount (Deficit)
--------- -------- --------
Balance at January 1, 1992 4,569,016 $990,573 $775,214
Issuance of common stock in
lieu of Directors' cash
compensation 10,080 17,500 -
Redemption of common stock (10,000) (10,600)
Net earnings for the year - - 693,815
--------- ------- ---------
Balance at December 31, 1992 4,569,096 $997,473 $1,469,029
Issuance of common stock in
lieu of Directors' cash
compensation 7,745 10,000 -
Redemption of common stock (128,300) (140,400)
Net earnings for the year - - 836,476
--------- ------- ---------
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
Net earnings for year to date - - 102,932
--------- ------- ---------
Balance June 30, 1995 4,363,501 $775,730 $1,327,975
========= ======= =========
The accompanying notes are an integral part of this statement.
6
PAULSON CAPITAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
for the six month period ended June 30, 1995 and June 30, 1994
6/30/95 6/30/94
------- -------
Increase (Decrease) in cash and cash equivalents
Cash flows from operating activities
Net earnings (loss) $ 102,932 $(483,498)
--------- --------
Adjustments to reconcile net earnings
(loss) to net cash provided by operating
activities
Unrealized (appreciation) loss in
investment securities (4,000) (15,668)
Realized gain on investment
securities (319,693) (251,856)
Depreciation and amortization 24,994 25,187
Gain from sale of furniture
and equipment (338) --
Change in assets and liabilities
Increase in receivables (1,402,168) (244,961)
(Increase) decrease in
refundable income taxes 515,000 (147,589)
(Increase) decrease in
trading securities 299,921 (47,998)
(Increase) decrease in prepaid
and deferred expenses 78,752 (105,482)
Increase (decrease) in accounts
payable and accrued expenses (45,586) (48,475)
Increase (decrease) in securities
sold, not yet purchased 730,971 779,633
Increase (decrease) in income taxes
payable 35,162 (130,475)
Decrease in bank overdraft (36,915) (74,717)
--------- --------
Total adjustments (123,900) (262,401)
--------- --------
Net cash provided by (used in)
operating activities (20,968) (745,899)
--------- --------
The accompanying notes are an integral part of this statement.
7
PAULSON CAPITAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - CONTINUED
6/30/95 6/30/94
------- -------
Cash flows from investing activities
Purchases of short-term investment
securities (154,200) (1,416,431)
Proceeds from sale of short-term
investment securities 476,458 1,601,005
Additions to furniture and equipment (25,818) (66,611)
Proceeds from sale of furniture
and equipment 700 --
-------- ------
Net cash provided by (used in)
investing activities 297,140 117,963
-------- -------
Cash flows from financing activities
Additions to notes payable -- --
Payments on contracts payable and
obligations under capital leases -- --
Payments on subordinated notes payable -- --
Payments to retire common stock -- (101,594)
-------- --------
Net cash provided by (used in)
financing activities -- (101,594)
-------- --------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 276,172 (729,530)
Cash and cash equivalents
at beginning of year 145,417 941,048
-------- --------
Cash and cash equivalents at June 30 $ 421,589 $ 211,518
======== ========
Cash paid during the three months
Interest $ 3,373 $ 3,000
======== ========
Income taxes $ 27,200 $ 80,856
======== ========
The accompanying notes are an integral part of this statement.
8
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
PIC and Chester L.F. Paulson, Paulson Capital's president, are defendants
in Kevin J. O'Rourke, et. al v. With Design In Mind International, Inc., filed
in U.S. District Court for the Central District of California in February 1993,
an asserted class action alleging violations of Section 11 and 12(2) of the
Securities Act of 1933, relating to alleged misstatements in the prospectus used
in connection with a May 1991 public offering in which PIC acted as the managing
underwriter. Mr. Paulson has not been served with the complaint. PIC sold $4.96
million of securities in the offering. PIC believes it has meritorious defenses
to the lawsuit. The lawsuit has been settled between the parties but no final
settlement has yet been presented to the court for approval.
The Company, PIC, Chester Paulson and various current and former officers
and directors of the Company and PIC have been named as defendants in Amstutz
and Cockreham et al. v. Paulson Investment Company, Inc., et al., filed in
Multnomah County Circuit Court in July 1994. The plaintiffs are four former
customers of PIC who purchased limited partnership interests and other
securities several years ago. The claims involve allegations of breach of
fiduciary duty, gross negligence, fraud, securities fraud and Oregon RICO
violations. The principal damages alleged are approximately $500,000. Plaintiffs
are also seeking punitive damages of $1.7 million, treble damages, lost
investment opportunity, interest and attorney fees. PIC, the Company and the
other defendants believe they have meritorious defenses and intend to defend
these claims vigorously.
9
PIC has been named as a defendant in Denardo, et al. v. Paulson Investment
Company, Inc., et al., filed in U.S. District Court for the District of
Connecticut in June 1995. Plaintiffs allege that an individual claiming to be an
agent of PIC took approximately $105,000 from them. The claims allege violations
of federal and state securities laws, state unfair trade practice statutes,
gross negligence, breach of fiduciary duties, common law fraud and conversion.
Plaintiffs are seeking compensatory damages, punitive damages and attorney's
fees. PIC has not had an opportunity to fully investigate this claim and is
unable to assess its merit.
PIC has been named as respondent in Carimi v. Paulson Investment Company,
Inc., an NASD arbitration filed in December 1994. Claimant alleges that PIC is
liable for prematurely exercising various cashless options without
authorization. Claimant seeks $45,000 in compensatory damages and $100,000 in
punitive damages. PIC has not had an opportunity to fully investigate this claim
and is unable to assess its merit.
PIC has been named as respondent in Mokhtari v. Paulson Investment
Company, Inc., et al., an NASD arbitration, filed in February 1995. Claimants
allege breach of fiduciary duty, negligence, fraud and securities fraud.
Claimants seek $27,000 in compensatory damages and $73,000 in punitive damages.
PIC believes it has meritorious defenses and intends to defend this matter
vigorously.
PIC has been named as respondent in Rosner v. Investors Associates, Inc.,
et al. and MRS Investments v. Investors Associates, Inc., et al., NASD
arbitrations filed in April and May 1995, respectively. Claimants assert claims
for violation of Sections 12(2) and 15 of the Securities Act of 1933 and
Connecticut securities law in connection with investments by claimants in a
company for which PIC had entered into a non-binding letter of intent to conduct
a public offering. Claimants seek a total of $200,000 in compensatory damages,
interest and attorney's fees. PIC believes it has meritorious defenses and
intends to defend these matters vigorously.
PIC has been named as respondent in Elliot v. Paulson Investment Company,
Inc., et al., an NASD arbitration filed in July 1995. Claimant asserts claims
for violation of the Texas Deceptive Trade Practices-Consumer Protection Act,
securities fraud, violation of NASD rules, sale of an unregistered security and
negligence. Claimant seeks $30,000 in compensatory damages, treble damages
pursuant to state law, and punitive damages in an unspecified amount. PIC has
not had an opportunity to fully investigate this claim and is unable to assess
its merit.
10
PIC has been named as respondent in Eaton v. Paulson Investment Company,
Inc., an NASD arbitration filed in July 1995. Claimant asserts claims for
equitable rescission of the trades made in her account, breach of fiduciary
duty, negligence, fraud, negligent misrepresentation and securities fraud.
Claimant seeks approximately $42,000 in compensatory damages. PIC has not had an
opportunity to fully investigate this claim and is unable to assess its merit.
Assessment from State of California PIC began receiving notices of
assessment from the Employment Development Department (the "EDD") of the State
of California in July 1994 with respect to various amounts which the EDD
believes should have been withheld from compensation paid to most of the
registered representatives of PIC based in California. The most recent
assessment received by PIC, which included penalties and interest, was
approximately $575,000, covering the period from April 1991 through March 1994.
The EDD takes the position that the registered representatives are employees of
PIC, subject to withholding taxes and other California employment taxes. PCC
believes the registered representatives are independent contractors, for which
no withholding is required. PIC has filed petitions requesting that the
assessment be withdrawn or, in the alternative, that the amount owing be
recomputed with credits for the taxes paid by the independent contractors, and
the EDD has pended the matter. PIC believes it has meritorious arguments with
respect to the assessment and intends to defend this matter vigorously. The
Company is unable to predict the financial impact of this matter.
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. Management of the Company believes,
based upon information received to date and, where management believes it
appropriate, discussions with counsel, that resolution of this additional
pending litigation will have no material adverse effect on the consolidated
financial condition, results of operations, or business of the Company.
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Six Months Ended June 30, 1995 vs. Six Months Ended June 30, 1994
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
2nd Quarter 1st Half
1995 vs. 1994 1995 vs. 1994
------------- -------------
Revenues:
Sales Commissions $ 602,853 29.7% $ 245,676 5.5%
Corporate Finance 415,473 103.9% 617,876 82.5%
Investment Income 209,446 182.3% 58,731 22.0%
Trading Income 40,355 N/A (154,870) (57.6%)
Other 3,699 55.0% 3,321 18.2%
Total 1,271,826 51.6% 770,734 13.4%
Expenses:
Commissions/Salaries 606,581 30.9% 273,883 6.3%
Underwriting Expenses 195,139 205.7% 271,671 170.0%
Rent, Telephone/Quotes (78,125) (25.3%) (151,999) (25.1%)
Other (114,557) (18.1%) (277,251) (23.8%)
Total 609,038 20.3% 116,304 1.9%
Pretax Income 662,788 N/A 654,430 N/A
Total revenues for the second quarter of 1995 rose 51.6 percent from the
second quarter of 1994, from $2,466,997 to $3,738,823. As shown in the table
above, sales commissions rose
12
$602,853, or 29.7 percent, from $2,027,522 in the second quarter of 1994 to
$2,630,375 in the comparable 1995 period. This increase resulted primarily from
the more favorable price movements and trading levels in OTC issues in the 1995
quarter, compared to a down market with lower trading levels in 1994. Corporate
finance revenues rose 103.9 percent, or $415,473, in the second quarter of 1995
compared to the second quarter of 1994. Only one transaction was completed in
the 1994 quarter, raising a total of $7.5 million for the issuer; two
transactions were completed in the 1995 quarter, raising an aggregate of $12.2
million for corporate finance clients. Corporate finance revenue is directly
related to the amount of money raised in completed transactions. Investment
income increased $209,446, from $114,872 in the second quarter of 1994 to
$324,318 in the 1995 quarter. One underwriter warrant was exercised in each
quarter, but the value of the warrant exercised in 1995 was greater. Trading
income rose $40,355, from a loss of $81,994 in the 1994 quarter to a loss of
$41,639 in the 1995 period. The 1995 quarter's loss was due primarily to losses
from positions in two previous corporate finance clients whose stocks declined
in the quarter.
Total expenses rose $609,038 in the second quarter of 1995 from the
comparable 1994 period, an increase of 20.3 percent from $2,998,188 to
$3,607,226. Commissions and salaries rose $606,581, or 30.9 percent, from
$1,962,992 in the 1994 period to $2,569,573 in 1995. This increase was primarily
due to increased commission revenues resulting in a higher level of commissions
paid. Higher commissions are generally paid to employee registered
representa-tives at higher production levels. Underwriting expenses increased by
$195,139, or 205.7 percent, due primarily to increased legal fees for the two
corporate finance transactions completed in the 1995 quarter compared to the
single transaction completed in the 1994 quarter and the write-off of expenses
related to a potential transaction that was not consummated. Rent, telephone and
quote expenses decreased from $308,310 in the 1994 period to $230,185 in 1995, a
decrease of 25.3 percent, due primarily to the closing of three branch offices
in Utah and Colorado for which PIC was responsible for overhead expenses. Other
expenses decreased 18.1 percent, from $632,004 in the second quarter of 1994 to
$517,447 in the second quarter of 1995. This decrease was primarily due to a
$57,831 decline in professional fees related to litigation, a $21,863 decrease
in travel and entertainment expenses and general cutbacks in overhead expenses,
offset partially by a $57,541 increase in bad debt expense.
The Company had a pretax profit of $131,597 in the second quarter of 1995
compared to a pretax loss of $531,191 in the comparable 1994 period. The primary
reasons for this increase were the general increase in commission business, an
increase in the number of corporate finance transactions, and an increase in
13
investment income. Significant fluctuations can occur in PIC's
revenues and operating results from one period to another.
The Company also accrued a credit of $20,000 for an income tax refund for
the second quarter of 1994, compared to an accrual for income taxes in the
second quarter of 1995 of $52,000. Independent of investment income, the Company
would have had a loss before income taxes of $192,721 in the second quarter of
1995 compared to a loss before income taxes of $646,063 in the comparable 1994
period.
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 was combined with a general increase in the liquidity of
the markets for these securities. Markets in 1994 for OTC securities generally
declined. 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 June 30, 1995 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 June 30, 1995, 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
14
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 June 30, 1995, PIC owned 39 underwriter warrants (from 36
issuers), of which 33 were currently exercisable and 11 had an exercise price
below the current market price of the securities receivable 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 second quarter of 1995, $20,968 of net cash was used in operating
activities by the Company. The major adjustments to reconcile this result to the
Company's net profit included an increase in receivables of $1,402,168 and a
realized gain on investment securities of $319,693, offset by a decrease in
refundable income taxes of $515,000, an increase in securities sold but not yet
purchased of $730,971, and a decrease in trading securities of $299,921. In the
quarter, $297,140 of net cash was provided to the Company by investing
activities, primarily resulting from $476,458 of proceeds from the sale of
short-term investment securities offset partially by the purchase of $154,200 of
short-term investment securities. No net cash was used in financing activities
in the quarter. The net increase in cash and cash equivalents for the quarter
totaled $276,172. 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 June 30, 1995, 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.
15
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.
16
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities.
None
Item 3. Defaults upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
The Company held its annual meeting on June 29, 1995. The three existing
Company directors (Chester L.F. Paulson, Jacqueline M. Paulson and Kenneth T.
LaMear) were elected for additional one year terms. In addition, the Company's
shareholders approved a proposal to authorize an amendment to the articles of
incorporation of the Company to effect a 1-for-4 reverse split of the Common
Stock of the Company upon the occurrence of certain events, with 3,060,759
shares voting for the proposal, 41,100 shares voting against the proposal, with
3,100 votes abstaining. Under the proposal, the Company's directors would be
authorized to effect the reverse split if the closing bid of the Company's
common stock falls below $1.00 and the directors determine that the reverse
split is in the best interests of the Company's shareholders. The purpose of the
proposal was to enable the Company to maintain a listing for the Company's
common stock on the Nasdaq System.
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 - Financial Data Schedule
(b) Reports on Form 8-K
None
17
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: AUGUST 4, 1995 By: CHESTER L.F. PAULSON
------------------ ---------------------
Chester L.F. Paulson
President
Date: AUGUST 8, 1995 By: CAROL RICE
------------------ ---------------------
Carol Rice
Principal Accounting Officer
18
EXHIBIT INDEX
Exhibit Sequential
No. Description Page No.
- ------- ----------- ----------
27 Financial Data Schedule