** **

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON D.C.20549**

 

----

 

**FORM 10-QSB**

 

 

**ý****QUARTERLY REPORT PURSUANT TO SECTION 13 OR15(d) OF THE**

**SECURITIES EXCHANGE ACT OF 1934**

**For thequarterly period ended June 30, 2002**

 

 

**o****TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE**

**SECURITIES EXCHANGE ACT OF 1934**

**For thetransition period from          to**

 

**Commission filenumber: 0-18188**

 

**PAULSON CAPITAL CORP.**

Exact name of small businessissuer as specified in its charter

 

 

| **811 S.W. Naito Parkway**               |
|------------------------------------------|
| **Portland, OR 97204**                   |
| (Address of principal executive offices) |
|                                     |
| **(503) 243-6000**                       |
| (Issuer’s telephone number)         |

 

 

 

Number of shares outstanding of each of the issuer’s classes of commonstock, as of the latest practicable date:

 

Common stock, no parvalue—3,137,311 shares as of July 31, 2002

 

Transitional Small Business Disclosure Format(check  one): Yes o  No ý

 

 

 

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**PART I —FINANCIAL INFORMATION**

 

ITEM1.  FINANCIAL STATEMENTS

 

PAULSON CAPITAL CORP. ANDSUBSIDIARY

# **CONSOLIDATEDBALANCE SHEETS**

** **
|                                           |   | **6/30/02**     |       | **12/31/01** |   |
|------------------------------------------------|--------|-----------------|------------|--------------|--------|
|                                           |   | **(unaudited)** |       |         |   |
| **ASSETS**                                     |   |            |       |         |   |
|                                           |   |            |       |         |   |
| **Current Assets**                             |   |            |       |         |   |
| Cash and cash  equivalents                     |   | $               | 6,735      |         | $      | 42,938 |   |
| Receivable from  clearing organization         |   | 4,667,084       |       | 8,433,039    |   |
| Notes and other  receivables                   |   | 931,311         |       | 407,716      |   |
| Trading  securities, at market value           |   | 1,914,507       |       | 1,559,960    |   |
| Investment  securities, at market value        |   | 14,685,904      |       | 18,632,580   |   |
| Underwriter  warrants, at estimated fair value |   | 2,796,000       |       | 6,165,000    |   |
| Prepaid and  deferred expenses                 |   | 761,880         |       | 989,750      |   |
| Income taxes  receivable                       |   | 1,272,369       |       | 1,846,100    |   |
| Deferred income taxes                          |   | 1,174,800       |       | —       |   |
|                                           |   |            |       |         |   |
| **Total Current Assets**                       |   | 28,210,590      |       | 38,077,083   |   |
|                                           |   |            |       |         |   |
| FURNITURE AND  EQUIPMENT, net                  |   | 320,718         |       | 344,349      |   |
|                                           |   |            |       |         |   |
| INVESTMENT IN  REAL ESTATE                     |   | 169,900         |       | 169,900      |   |
|                                           |   |            |       |         |   |
| **Total Assets**                               |   | $               | 28,701,208 |         | $      | 38,591,332 |   |

 

 

The accompanyingnotes are an integral part of these statements.

 

 

2

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PAULSON CAPITAL CORP. ANDSUBSIDIARY

CONSOLIDATED BALANCE SHEETS

(continued) 

 

 
|                                                                                                                                |   | **6/30/02**     |       | **12/31/01** |   |
|-------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------|------------|--------------|--------|
|                                                                                                                                |   | **(unaudited)** |       |         |   |
| **LIABILITIES  AND SHAREHOLDERS’ EQUITY**                                                                                      |   |            |       |         |   |
|                                                                                                                                |   |            |       |         |   |
| **Current Liabilities**                                                                                                             |   |            |       |         |   |
| Accounts payable  and accrued liabilities                                                                                           |   | $               | 155,075    |         | $      | 369,977 |   |
| Payable to  clearing organization                                                                                                   |   | 1,510,112       |       | 1,418,779    |   |
| Compensation,  employee benefits and  payroll taxes                                                                            |   | 343,668         |       | 1,335,471    |   |
| Securities sold,  not yet purchased, at market value                                                                                |   | 370,908         |       | 12,846       |   |
| Deferred income  taxes                                                                                                              |   | —          |       | 2,305,200    |   |
|                                                                                                                                |   |            |       |         |   |
| **Total Current Liabilities**                                                                                                       |   | 2,379,763       |       | 5,442,273    |   |
|                                                                                                                                |   |            |       |         |   |
| Deferred income  taxes                                                                                                              |   | 18,100          |       | 18,100       |   |
|                                                                                                                                |   |            |       |         |   |
| **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, 3,137,311  at 6/30/02 and 3,163,062 at 12/31/01 |   | 1,089,615       |       | 1,062,428    |   |
| Retained  earnings                                                                                                                  |   | 25,213,730      |       | 32,068,531   |   |
|                                                                                                                                |   |            |       |         |   |
| **Total Shareholders’ Equity**                                                                                                 |   | 26,303,345      |       | 33,130,959   |   |
|                                                                                                                                |   |            |       |         |   |
| **Total Liabilities and Shareholders’  Equity**                                                                                |   | $               | 28,701,208 |         | $      | 38,591,332 |   |

 

 

The accompanyingnotes are an integral part of these statements.

 

3

----

 

PAULSON CAPITAL CORP. ANDSUBSIDIARY

CONSOLIDATED STATEMENTS OFOPERATIONS

(unaudited)

 

** **
|                                    |   | **Three  months ended** |      | **Six months  ended** |   |
|-----------------------------------------|--------|-------------------------|-----------|-----------------------|--------|
|                                    |   | **6/30/02**             |      | **6/30/01**           |   | **6/30/02** |   | **6/30/01** |   |
|                                    |   |                    |      |                  |   |   |   |   |   |
| **Revenues**                            |   |                    |      |                  |   |   |   |   |   |
| Commissions                             |   | $                       | 1,698,313 |                  | $      | 2,023,916 |   | $ | 3,325,454 |   | $ | 3,955,817 |   |
| Corporate  finance                      |   | 8,332                   |      | 1,456,576             |   | 85,655 |   | 3,045,058 |   |
| Investment  income                      |   | (9,400,728              | )         | 9,940,071             |   | (8,434,392 | ) | 8,152,405 |   |
| Trading income                          |   | (120,335                | )         | 633,178               |   | (428,354 | ) | 849,155 |   |
| Interest and  dividends                 |   | 18,809                  |      | 7,629                 |   | 39,673 |   | 18,493 |   |
| Other                                   |   | 617                     |      | 352                   |   | 734 |   | 1,025 |   |
|                                    |   |                    |      |                  |   |   |   |   |   |
|                                    |   | (7,794,992              | )         | 14,061,722            |   | (5,411,230 | ) | 16,021,953 |   |
| **Expenses**                            |   |                    |      |                  |   |   |   |   |   |
| Commissions and  salaries               |   | 1,738,766               |      | 3,130,003             |   | 3,807,190 |   | 5,146,892 |   |
| Underwriting  expenses                  |   | ——            |      | 161,274               |   | —— |   | 378,671 |   |
| Rent, telephone  and quotation services |   | 210,973                 |      | 254,862               |   | 464,695 |   | 509,966 |   |
| Interest expense                        |   | ——            |      | 40,796                |   | 7,130 |   | 40,799 |   |
| Professional  fees                      |   | 163,715                 |      | 49,935                |   | 307,014 |   | 121,534 |   |
| Bad debt expense                        |   | 30,000                  |      | 30,000                |   | 60,000 |   | 60,000 |   |
| Travel and  entertainment               |   | 93,636                  |      | 82,707                |   | 163,114 |   | 144,908 |   |
| Settlements                             |   | ——            |      | 5,950                 |   | 85,000 |   | 7,000 |   |
| Other                                   |   | 381,760                 |      | 722,824               |   | 704,264 |   | 1,061,640 |   |
|                                    |   |                    |      |                  |   |   |   |   |   |
|                                    |   | 2,618,850               |      | 4,478,351             |   | 5,598,407 |   | 7,471,410 |   |
|                                    |   |                    |      |                  |   |   |   |   |   |
| Earnings (loss)  before income taxes    |   | (10,413,842             | )         | 9,583,371             |   | (11,009,637 | ) | 8,550,543 |   |
|                                         |        |                         |           |                       |        |  |  |  |  |  |  |  |  |

 

 

The accompanying notes are an integral part of thesestatements

 

4

----

** **

PAULSON CAPITAL CORP. ANDSUBSIDIARY

CONSOLIDATED STATEMENTS OFOPERATIONS

(continued) (unaudited)

 

 

 
|                                                    |   | **Three  months ended** |       | **Six months  ended** |   |
|---------------------------------------------------------|--------|-------------------------|------------|-----------------------|--------|
|                                                    |   | **6/30/02**             |       | **6/30/01**           |   | **6/30/02** |   | **6/30/01** |   |
|                                                    |   |                    |       |                  |   |   |   |   |   |
| Provision for  income taxes                             |   |                    |       |                  |   |   |   |   |   |
| Current                                                 |   | (685,000                | )          | 326,730               |   | (920,000 | ) | (200,000 | ) |
| Deferred                                                |   | (3,480,000              | )          | 3,467,000             |   | (3,480,000 | ) | 3,576,000 |   |
|                                                    |   |                    |       |                  |   |   |   |   |   |
| **Net  Earnings (Loss)**                                |   | $                       | (6,248,842 | )                     | $      | 5,789,641 |   | $ | (6,609,637 | ) | $ | 5,174,543 |   |
|                                                    |   |                    |       |                  |   |   |   |   |   |
| Earnings (loss)  per share, basic and diluted           |   | $                       | (1.99      | )                     | $      | 1.77 |   | $ | (2.10 | ) | $ | 1.57 |   |
|                                                    |   |                    |       |                  |   |   |   |   |   |
| Weighted average  number of shares outstanding, basic   |   | 3,142,700               |       | 3,268,066             |   | 3,151,313 |   | 3,286,253 |   |
|                                                    |   |                    |       |                  |   |   |   |   |   |
| Weighted average  number of shares outstanding, diluted |   | 3,142,700               |       | 3,268,066             |   | 3,151,313 |   | 3,289,010 |   |

 

 

The accompanyingnotes are an integral part of these statements

 

5

----

 

PAULSON CAPITAL CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENT OFSHAREHOLDERS’ EQUITY

For the two year periodended December 31, 2001

and the six months endedJune 30, 2002

 

 
|                                    |   | **Common  Stock** |   | **Retained**

** Earnings** |      |
|-----------------------------------------|--------|-------------------|--------|----------------------------------|-----------|
|                                    |   | **Shares**        |   | **Amount**                       |      |   |
| Balance at  December 31, 1999           |   | 3,541,235         |   | $                                | 732,343   |   | $ | 30,388,263 |   |
|                                    |   |              |   |                             |      |   |   |
| Stock option  grants                    |   | —            |   | 317,750                          |      | — |   |
|                                    |   |              |   |                             |      |   |   |
| Stock options  exercised                |   | 16,000            |   | 71,000                           |      | — |   |
|                                    |   |              |   |                             |      |   |   |
| Redemption of  common stock             |   | (189,869          | )      | (41,082                          | )         | (1,235,230 | ) |
|                                    |   |              |   |                             |      |   |   |
| Net loss for the  year                  |   | —            |   | —                           |      | (3,048,214 | ) |
|                                    |   |              |   |                             |      |   |   |
| Balance at  December 31, 2000           |   | 3,367,366         |   | $                                | 1,080,011 |   | $ | 26,104,819 |   |
|                                    |   |              |   |                             |      |   |   |
| Stock options  exercised                |   | 7,000             |   | 31,063                           |      | — |   |
|                                    |   |              |   |                             |      |   |   |
| Redemption of  common stock             |   | (211,304          | )      | (48,646                          | )         | (1,073,350 | ) |
|                                    |   |              |   |                             |      |   |   |
| Net earnings for  the year              |   | —            |   | —                           |      | 7,037,062 |   |
|                                    |   |              |   |                             |      |   |   |
| Balance at  December 31, 2001           |   | 3,163,062         |   | $                                | 1,062,428 |   | $ | 32,068,531 |   |
|                                    |   |              |   |                             |      |   |   |
| Stock options  exercised (unaudited)    |   | 8,000             |   | 35,500                           |      | — |   |
|                                    |   |              |   |                             |      |   |   |
| Redemption of  common stock (unaudited) |   | (33,751           | )      | (8,313                           | )         | (245,164 | ) |
|                                    |   |              |   |                             |      |   |   |
| Net loss for  year to date (unaudited)  |   | —            |   | —                           |      | (6,609,637 | ) |
|                                    |   |              |   |                             |      |   |   |
| Balance at June 30,  2002 (unaudited)   |   | 3,137,311         |   | $                                | 1,089,615 |   | $ | 25,213,730 |   |

 

 

The accompanying notes are an integral part of thesestatements

 

6

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PAULSON CAPITAL CORP. ANDSUBSIDIARY

CONSOLIDATED STATEMENTSOF CASH FLOWS

(unaudited)

 

 
|                                                                                                   |   | **Six months ended June 30,** |       |
|--------------------------------------------------------------------------------------------------------|--------|-------------------------------|------------|
|                                                                                                   |   | **2002**                      |       | **2001** |   |
| Increase  (Decrease) in Cash and Cash Equivalents                                                      |   |                          |       |   |   |
|                                                                                                   |   |                          |       |   |   |
| Cash flows from  operating activities                                                                  |   |                          |       |   |   |
| Net earnings  (loss)                                                                                   |   | $                             | (6,609,637 | ) | $ | 5,174,543 |   |
| Adjustments to  reconcile net earnings (loss) to net cash provided by (used in) operating  activities: |   |                          |       |   |   |
| Receipt of  underwriter warrants                                                                       |   | (68,391                       | )          | — |   |
| Unrealized  (appreciation) depreciation on investment securities                                       |   | 8,698,671                     |       | (7,040,027 | ) |
| Realized (gain)  loss on investment securities                                                         |   | (264,279                      | )          | (3,173,752 | ) |
| Depreciation and  amortization                                                                         |   | 96,103                        |       | 100,191 |   |
| Deferred income  taxes                                                                                 |   | (3,480,000                    | )          | 3,576,000 |   |
| Change in assets  and liabilities                                                                      |   |                          |       |   |   |
| Receivables                                                                                            |   | 3,242,360                     |       | 2,545,760 |   |
| Trading  securities                                                                                    |   | (354,547                      | )          | (1,129,878 | ) |
| Prepaid and  deferred expenses                                                                         |   | 227,870                       |       | 637,862 |   |
| Accounts payable  and accrued liabilities                                                              |   | (1,115,372                    | )          | 1,436,305 |   |
| Securities sold,  not yet purchased                                                                    |   | 358,062                       |       | 101,797 |   |
| Income taxes  payable/receivable                                                                       |   | 573,731                       |       | (3,606,438 | ) |
|                                                                                                   |   |                          |       |   |   |
| Net cash provided  by (used in) operating activities                                                   |   | 1,304,571                     |       | (1,377,637 | ) |
|                                                                                                   |   |                          |       |   |   |
| Cash flows from  investing activities                                                                  |   |                          |       |   |   |
| Purchases of  investment securities                                                                    |   | (10,561,492                   | )          | (19,118,044 | ) |
| Proceeds from  sale of investment securities                                                           |   | 9,511,167                     |       | 21,310,980 |   |
| Additions to  furniture and equipment                                                                  |   | (72,472                       | )          | (16,920 | ) |
|                                                                                                   |   |                          |       |   |   |
| Net cash  provided by (used in) investing activities                                                   |   | $                             | (1,122,797 | ) | $ | 2,176,016 |   |

 

 

The accompanyingnotes are an integral part of these statements

 

7

----

 

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

(continued) (unaudited)

** **

** **
|                                                  |   | **Six months ended June 30,** |   |
|-------------------------------------------------------|--------|-------------------------------|--------|
|                                                  |   | **2002**                      |   | **2001** |   |
| Cash flows from  financing activities                 |   |                          |   |   |   |
| Proceeds from  exercise of stock options              |   | 35,500                        |   | — |   |
| Payments to  retire common stock                      |   | (253,477                      | )      | (774,085 | ) |
|                                                  |   |                          |   |   |   |
| Net cash  provided by (used in) financing activities  |   | (217,977                      | )      | (774,085 | ) |
|                                                  |   |                          |   |   |   |
| NET INCREASE  (DECREASE) IN CASH AND CASH EQUIVALENTS |   | (36,203                       | )      | 24,294 |   |
|                                                  |   |                          |   |   |   |
| Cash and cash  equivalents at beginning of period     |   | 42,938                        |   | 104,309 |   |
|                                                  |   |                          |   |   |   |
| Cash and cash  equivalents at end of period           |   | $                             | 6,735  |   | $ | 128,603 |   |
|                                                  |   |                          |   |   |   |
| Cash paid during  the three months for                |   |                          |   |   |   |
|                                                  |   |                          |   |   |   |
| Interest                                              |   | —                        |   | $ | 40,796 |   |
|                                                  |   |                          |   |   |   |
| Income taxes                                          |   | —                        |   | $ | 2,596,650 |   |
|                                                       |        |                               |        |  |  |  |  |

 

 

The accompanyingnotes are an integral part of these statements

 

8

----

** **

**NOTES TO CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS**

(unaudited)

1. Basis of Presentation

 

                The accompanying unauditedconsolidated financial statements have been prepared in accordance with theinstructions for interim financial statements in Item 310(b) of Regulation S–Band, therefore, do not include all information and footnotes required bygenerally accepted accounting principles for complete financialstatements.  In the opinion ofmanagement, the interim financial statements include all adjustments(consisting only of normal recurring adjustments) necessary to state fairly theinformation shown therein.  The natureof the Company’s business is such that the results of any interim period arenot necessarily indicative of results for a full fiscal year.

 

2. Securities Owned

 

                Gains and lossesfrom the disposition of securities are reflected as trading revenues in theincome statement for the period.

 

3. Commitments and Contingencies

 

                In January 2001, V.J.E.Enterprises, Inc. and Vincent and Diana Nartker, former PIC customers,filed a customer complaint with PIC regarding the handling of their account byPIC and one of its registered representatives. They have asserted that theiraccount was mismanaged and that PIC failed to supervise its registeredrepresentative. They have requested that PIC pay them $275,100. PIC isinvestigating this claim, but believes it has meritorious defenses and intendsto defend this matter vigorously if an arbitration is filed.

 

                In May 2001, PIC received noticethat Eugene V. Doty, a former PIC customer, had made a customer complaint aboutthe handling of his account at PIC.  Mr.Doty alleges that his account was traded excessively but has not identifiedwhat amount, if any, he seeks from PIC or its former broker.  PIC is investigating this claim, butbelieves it has meritorious defenses and intends to defend this mattervigorously if an arbitration is filed.

 

                On November 7, 2001, the Companyand PIC were named as defendants in a lawsuit filed by Spirit Partners, L.P.and Tech-Trade Capital LLC.  The lawsuitwas filed in the Supreme Court of the State of New York for the County of NewYork.  The lawsuit alleges that PICcommitted fraud and was unjustly enriched in connection with the redemption ofwarrants issued in the initial public offering of audiohighway.com, for whichPIC served as underwriter.  According toplaintiffs, the warrant agreement and prospectus contain different provisionsgoverning the redemption of the warrants. This allegedly occurred because the redemption provisions were changedduring the registration process, and the warrant agreement was not amended toreflect the change in provisions. audiohighway.com’s redemption was proper under the terms of theprospectus, which contains the updated redemption provisions and allowed theissuer to redeem when the closing bid price of the common stock was at least$13.50 for 10 calendar days.  Plaintiffsallege that the redemption was improper under the terms of the warrantagreement, which they allege contains the original redemption provisions andallows the issuer to redeem when the closing bid price of the common stockexceeded $13.50 for 20 consecutive trading days.  Plaintiffs also allege that counsel for audiohighway.com and PICfraudulently concealed the alleged discrepancy between the prospectus andwarrant agreement by amending the warrant agreement to be consistent with theprospectus. 

 

9

----

 

Plaintiffsclaim unspecified monetary damages and seek $3 million in punitive damages. Thelawsuit has been stayed, pending mandatory arbitration before the NASD.  The arbitration is in a very early stage andPIC has not yet conducted discovery. However, PCC and PIC believe that they have meritorious defenses tothese claims and intend to defend the case vigorously.

 

                In January 2002, PIC was servedin an arbitration brought by one of its former customers, Patricia Weber,against PIC and its registered representative Melvin Vuckevich.  The arbitration claim alleges unsuitablesecurities recommendations, misrepresentation, breach of fiduciary duty andnegligence.  The claimant is seekingdamages of $255,000, interest, an additional return on her portfolio, punitivedamages and attorney fees.  PIC hasfiled its answer.  PIC believes it hasmeritorious defenses and intends to defend these matters vigorously.

 

InMarch 2002, PIC and one of its registered representatives, Marvin Cox, werenamed as defendants in lawsuits filed by Louis Barinaga and Stuart Mackenzie,former PIC customers.  The claims ofBarinaga and Mackenzie relate to purchases of convertible notes of E.com, whichwere purchased directly from E.com. Barinaga and Mackenzie allege that PIC and Mr. Cox participated in andmaterially aided the sale of the notes and, therefore, are liable under statesecurities law.  Barinaga and Mackenzieallege damages of $717,000 and $165,000, respectively, plus interest andattorney fees. PIC has asserted that the claims are subject to arbitration andboth plaintiffs have agreed to pursue their claims in arbitration.  PIC has not had an opportunity to fullyinvestigate these claims, but believes it has meritorious defenses and intendsto defend this matter vigorously.

 

                In March 2002, PIC and one of its registeredrepresentatives, Melvin Vuckevich, were named as respondents in arbitrationclaims filed by former customers Paul and Mary Herold.  The Herolds claim they were misled intopurchasing unsuitable securities and allege damages of $70,000 plus unspecifiedpunitive damages.  This case is in theearly stages of discovery, but PIC believes it has meritorious defenses andintends to defend this matter vigorously.

 

                In addition to the mattersdescribed above, PIC has information that certain former customers may fileclaims against it; however, no such claims have been asserted at thistime.  PIC has no information regardingwhat amounts, if any, may be sought from PIC but believes the amounts may bematerial.  PIC has not had anopportunity to fully investigate these claims, but believes it has meritoriousdefenses and intends to defend these matters vigorously if any claims arefiled.

 

                An adverse outcome in certain ofthe matters described above could have a material adverse effect on PIC or theCompany. PIC also has been named in certain other legal proceedings and hasreceived notice that certain customers may commence legal proceedings againstPIC. The Company believes, based upon information received to date and, wherethe Company believes it appropriate, discussions with legal counsel, thatresolution of this additional pending or threatened litigation will have nomaterial adverse effect on the consolidated financial condition, results ofoperations, or business of the Company.

 

10

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ITEM 2.  MANAGEMENT’S DISCUSSIONAND ANALYSIS OR PLAN OF OPERATION

 

                **General**

 

                                FORWARD-LOOKINGSTATEMENTS

 

                This report, including, withoutlimitation, “Item 2: Management’s Discussion and Analysis or Plan ofOperation,” contains or incorporates both historical and “forward-looking”statements within the meaning of Section 27A of the Securities Act of 1933, asamended, and Section 21E of the Securities Exchange Act of 1934, asamended.  Words such as “anticipates”,“believes”, “expects”, “intends”, “future” and similar expressions identifyforward-looking statements.  Any suchforward-looking statements in this report reflect our current views withrespect to future events and financial performance and are subject to a varietyof factors that could cause our actual results to differ materially fromhistorical results or from anticipated results expressed or implied by suchforward-looking statements.  Because ofsuch factors, we cannot assure you that the results anticipated in this reportwill be realized.  As noted elsewhere inthis report, various aspects of our business are subject to extreme volatilityoften as a result of factors beyond our ability to anticipate or control.  In particular, factors, such as thecondition of securities markets, which are in turn based on popular perceptionsof the health of the economy generally, can be expected to affect the volume ofour business as well as the value of the securities maintained in our tradingand investment accounts.  Other factorsthat may affect our future financial condition or results of operations includethe following:

 

| • |   | The  performance of companies whose securities we have underwritten or otherwise  sold to our customers may affect our reputation with other potential  syndicate and selling group members and institutional and other retail  accounts and may also affect the amount of money in our customers’ portfolios  available for the kinds of investments that we offer.                                                                        |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| • |   | The  value of our investment portfolio, including the value of securities without  a readily ascertainable market value, that we have estimated for the purpose  of reporting on our financial condition and results of operations, may be  significantly and adversely affected by changes in the value of the companies  themselves or of comparable companies whose stock values we use in estimating  the value of our portfolio securities. |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| • |   | We  are subject to a very high degree of regulation and are responsible for  compliance with applicable regulations by all of our personnel.  A significant regulatory infraction by us  or any of our registered representatives could result in significant  penalties, including the loss of our license to conduct securities business  in one or more jurisdictions.                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| • |   | Alternatives  available to our customers to transact securities trades could affect our  ability to continue to execute our brokerage customers’ transactions.                                                                                                                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| • |   | The  loss of our Chairman, Chester Paulson, could have a material adverse impact  on our business.                                                                                                                                                                                                                                                                                                                                               |

 

11

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** **

**Overview**

 

                Substantially all of ourbusiness consists of the securities brokerage and investment banking activitiesof our wholly owned subsidiary, Paulson Investment Company, Inc., or PIC.PIC has operations in four principal categories, all of them in the financialservices industry. These categories are:

 

| • |   | securities  brokerage activities for which PIC earns commission revenues;                                                                                                     |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                          |
| • |   | securities  trading from which PIC records profit or loss, depending on trading results;                                                                                      |
|   |   |                                                                                                                                                                          |
| • |   | corporate  finance revenues consisting principally of underwriting discounts,  underwriter warrants received, and other compensation from investment banking  activities; and |
|   |   |                                                                                                                                                                          |
| • |   | investment  income resulting from earnings on, and increases or decreases in the value  of, PIC’s investment portfolio.                                                  |

 

                Because we operate in thefinancial services industry, our revenues and earnings are substantiallyaffected by conditions in financial markets generally. In our securitiesbrokerage and corporate finance businesses, the amount of our revenues dependssubstantially on levels of market activity requiring the services we provide.For example, our investment banking activity, which consists primarily ofacting as managing or participating underwriter of initial and follow-on publicofferings for smaller companies, depends on the market for new equityofferings, which has historically experienced substantial cyclical fluctuation.Although we attempt to match operating costs with activity levels, many of ourexpenses are either fixed or difficult to change on short notice. Accordingly,fluctuations in brokerage and corporate finance revenues tend to result insharper fluctuations, on a percentage basis, in net income or loss.

 

                Our investment income or lossand, to a lesser extent, our trading income or loss are affected by changes inmarket valuation of securities generally and, in particular, by changes invaluation of the equity securities of microcap companies in which ourinvestments and trading activities tend to be concentrated. Equity markets ingeneral, and microcap equity markets in particular, have always experiencedsignificant volatility and this volatility has in recent years been extreme.The results of this volatility on the value of our investment portfolio andsecurities held in connection with our trading and investment activitiesinclude large quarterly fluctuations in income or loss from these operationsand substantial increases or decreases in our net worth as our securitiesholdings are marked to market.

 

                A substantial portion of ourinvestment banking business consists of acting as managing underwriter ofinitial and follow-on public offerings for microcap companies. As a part of ourunderwriter compensation for this activity, we typically receive warrantsexercisable to purchase securities identical to those that we offer and sell tothe public. The warrants are not exercisable for the first year after theoffering in which they are earned and are thereafter exercisable for fouryears, after which they expire. The exercise price is typically 120% of theprice at which we initially sold the securities to the public. Accordingly,unless there is at least a 20% increase in the price of these securities atsome time more than one and less than five years after the offering, thewarrants will remain “under water” and will ultimately expire unexercised.

 

12

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                We are required to estimate thevalue of all derivative securities that we hold at the date of any financialstatements and to include that value, and changes in such value, in thosefinancial statements.  Accordingly, theaggregate estimated value of our warrants as of the date of any balance sheetis recorded as an asset on that balance sheet. When a new warrant is earned asa result of our investment banking activity, its estimated value is included incorporate finance revenue for the period in which it is earned. In subsequentperiods, any change in estimated value is recorded as investment income or lossfor the period. If, and when, a warrant is exercised, the book value isadjusted to reflect the value of the securities purchased, net of the exerciseprice, and the adjustment amount is recorded as income or loss for the relevantperiod. If the warrant expires unexercised, the book value is adjusted to zeroand the decrease is recorded as a loss in the relevant period.

 

                Weare estimating the value of our underwriter warrants using the Black–ScholesOption Pricing Model.  The Black-Scholesmodel requires us to use historical price data combined with variousassumptions and judgments to develop the inputs for the model. In particular,we have calculated a volatility factor for each company’s warrants that isbased on its own stock price movements as well as an index: as our warrants get closer totheir expiration date their volatility factor is almost entirely based on eachcompany’s own historical prices. We cannot assure you that we will ultimatelybe able to exercise any of our warrants in a way that will realize the valuethat we attribute to them in our financialstatements based on this model.

 

                As a result of the factorsdescribed above, our revenues and earnings are subject to substantialfluctuation from period to period based on circumstances many of which arebeyond our control. An increase in financial market activity generally, and/oran increase in equity valuations generally, will normally result in increasesin revenue, earnings and net worth as our activity levels and the value of ourinvestment portfolio increase. Conversely, a general market retrenchment willtypically lead to decreased revenue, earnings and net worth as a result both ofdecreased activity and the need to adjust high investment portfolio values tolower levels. Accordingly, results for any historical period are notnecessarily indicative of similar results for any future period.

 

                **Results ofOperations**

 

                The revenues and operatingresults of the Company’s operating subsidiary, Paulson Investment Company, Inc.(“PIC”), are influenced by fluctuations in the equity underwriting markets aswell as general economic and market conditions, particularly conditions in theover-the-counter market, where PIC’s investment account, trading inventorypositions and underwriter warrants are heavily concentrated.  Significant fluctuations can occur in PIC’srevenues and operating results from one period to another.  PIC’s financial results depend upon manyfactors, such as the number of companies that are seeking public financing, thequality and financial condition of those companies, market conditions ingeneral, the performance of previous PIC underwritings and interest in certainindustries by investors.  As a result,revenues and income derived from these activities may vary significantly fromperiod to period.  In the table below,“Trading Income” is the net gain or loss from trading positions beforecommissions paid to the representatives in the trading department.

 

13

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**Summary of Changes in MajorCategories**

**of Revenues and Expenses**

increase/(decrease)

 
|                        |   | **Quarters  Ended June 30** |        | **Six Months  Ended June 30** |   |
|-----------------------------|--------|-----------------------------|-------------|-------------------------------|--------|
|                        |   | **2002 vs.  2001**          |        | **2002 vs.  2001**            |   |
| **Revenues:**               |   |                        |        |                          |   |   |   |   |   |
| Sales  Commissions          |   | $                           | (325,603    | )                             | (16.1  | )% | $ | (630,363 | ) | (15.9 | )% |
| Corporate  Finance          |   | (1,448,244                  | )           | (99.4                         | )%     | (2,959,403 | ) | (97.2 | )% |
| Investment  Income          |   | (19,340,799                 | )           | N/A                           |   | (16,586,797 | ) | N/A |   |
| Trading Income              |   | (753,513                    | )           | N/A                           |   | (1,277,509 | ) | N/A |   |
| Other                       |   | 11,445                      |        | 145.0                         | %      | 20,889 |   | 107.0 | % |
|                        |   |                        |        |                          |   |   |   |   |   |
| Total                       |   | $                           | (21,856,714 | )                             | N/A    |   | $ | (21,433,183 | ) | N/A |   |
|                        |   |                        |        |                          |   |   |   |   |   |
| **Expenses:**               |   |                        |        |                          |   |   |   |   |   |
| Commissions and  Salaries   |   | $                           | (1,391,237  | )                             | (44.4  | )% | $ | (1,339,702 | ) | (26.0 | )% |
| Underwriting  Expenses      |   | (161,274                    | )           | (100.0                        | )%     | (378,671 | ) | (100.0 | )% |
| Rent, Telephone  and Quotes |   | (43,889                     | )           | (17.2                         | )%     | (45,271 | ) | (8.9 | )% |
| Other                       |   | (263,101                    | )           | (28.2                         | )%     | (109,359 | ) | (7.6 | )% |
|                        |   |                        |        |                          |   |   |   |   |   |
| Total                       |   | $                           | (1,859,501  | )                             | (41.5  | )% | $ | (1,873,003 | ) | (25.1 | )% |
|                        |   |                        |        |                          |   |   |   |   |   |
| Pretax Income               |   | $                           | (19,997,213 | )                             | N/A    |   | $ | (19,560,180 | ) | N/A |   |

 

**ThreeMonths Ended June 30, 2002 vs. Three Months Ended June 30, 2001**

 

                Total revenues forthe second quarter of 2002 decreased $21,856,714, to a loss of $7,794,992, fromtotal revenues of  $14,061,722 for thesecond quarter of 2001.  As shown in thetable above, sales commissions fell $325,603, or 16.1 percent, from $2,023,916in the second quarter of 2001 to $1,698,313 in the comparable 2002 period.  This decrease resulted from less favorableprice movements and trading levels in the very small capitalization issues (theprimary focus of PIC’s investment banking and trading businesses) in the 2002quarter compared to the same period in 2001. In addition, generally weak market conditions related to the lingeringeffects of the recession and terrorist attack, and a serious lack of investorconfidence in the securities markets in general, due particularly to thefinancial accounting problems reported by various major corporations during thelast six months, have resulted in significantly decreased securities pricesacross almost all sectors. The Nasdaq composite fell 20.6 percent in the secondquarter of 2002 compared to an increase of 23.3 percent in the second quarterof 2001.  Corporate finance revenuesfell $1,448,244 in the second quarter of 2002 compared to the second quarter of2001, to $8,332 from $1,456,576.  Onecorporate finance transaction generating gross proceeds of $10.4 million wascompleted in the second quarter of 2001, while no transactions were completedin the comparable 2002 quarter. Corporate finance revenue is directly related to the amount of moneyraised in completed transactions. Investment income fell from a gain of $9,940,071 in the second quarterof 2001 to a loss of $9,400,728 in the second quarter of 2002.  Investment income in the 2001 periodconsisted of net profits in investment securities unrelated to underwriterwarrants and an increase in the fair value of underwriter warrants.  In the 2002 quarter, there was a significantdecrease in the value of underwriter warrants and a large, unrealized loss inthe value of investment securities.

 

14

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No underwriterwarrants were exercised in either the 2001 or 2002 quarters. Trading incomedecreased $753,513 to a loss of $120,335 in the second quarter of 2002, from again of $633,178 in the comparable 2001 period.  This decrease was primarily due to adverse marketconditions.  Other income increased$11,445, from $7,981 in the second quarter of 2001 to $19,426 in the 2002quarter, due primarily to an increase in interest and dividend income.

 

                Total expensesdecreased $1,859,501 in the second quarter of 2002 from the comparable 2001period, a decrease of 41.5 percent, from $4,478,351 to $2,618,850.  Commissions and salaries fell $1,391,237, or44.4%, from $3,130,003 in the 2001 period to $1,738,766 in 2002.  This decrease was primarily due to lowercommissions paid on reduced revenues. Underwrit­ing expenses fell $161,274, or100.0 percent, from $161,274 in the 2001 quarter to $0 in the second quarter of2002.  One corporate finance transactiongenerating total gross proceeds of $10.4 million was completed in the 2001period, while no corporate finance transactions were completed in second quarterof 2002.  Rent, telephone and quote expensesdecreased from $254,862 in the 2001 period to $210, 973 in 2002, a decrease of17.2 percent, primarily due to expenses related to improvements in quotationsystems in the 2001 quarter that did not recur in the comparable 2002 quarter.  The aggregate of all other expenses fell28.2 percent, from $932,212 in the second quarter of 2001 to $669,111 in thesecond quarter of 2002, primarily due to a decrease in accruals for profitsharing and elimination of annual conference expenses, partially offset by anincrease in professional fees.

 

                The Company had apretax loss of $10,413,842 in the second quarter of 2002 compared to a pretaxprofit of $9,583,371 in the comparable 2001 period, primarily due to a decreasein investment income, trading income, and corporate finance revenues in the2002 period.  Independent of investmentincome, the Company would have had a pretax loss of $1,013,114 for the secondquarter of 2002 compared to a pretax loss of $356,700 in second quarter of2001. Significant fluctuations can occur in PIC’s revenues and operatingresults from one period to another.

 

                The Company alsoaccrued $3,793,730 in income taxes for the second quarter of 2001, compared toan estimated tax benefit in the second quarter of 2002 of $4,165,000.

 

**Six Months EndedJune 30, 2002 vs. Six Months Ended June 30, 2001**

 

**               **Totalrevenues for the first six months of 2002 decreased $21,433,183, to a lossof  $5,411,230 from total revenues of$16,021,953 for the first six months of 2001. As shown in the table above, sales commissions decreased $630,363, or15.9 percent, from $3,955,817 for the first six months of 2001 to $3,325,454for the first six months of 2002.  Thisdecrease resulted from lower transaction volume and reduced price levels,particularly in the very small capitalization sector, which is the primaryfocus of the Company’s business, during the first six months of 2002 comparedto the same period in 2001.  As notedabove, weak market conditions due to the recession, fears of further terroristattacks and reports of significant accounting irregularities by several largepublic companies contributed to a serious loss of confidence by investors inthe securities markets during the first half of 2002.  The Nasdaq composite fell 24.9 percent from January 1, 2002 throughJune 30, 2002, compared to a decrease of 12.5 percent during the first half of2001.  Corporate finance revenues fell$2,959,403, or 97.2%, for the first six months of 2002, from $3,045,058 for thefirst two quarters of 2001 to $85,655 for the first two quarters of 2002.  No corporate finance transactions werecompleted during the first half of 2002; in the same period in 2001, twocorporate finance transactions generating total gross proceeds of $20.4 millionwere completed.

 

15

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Corporate finance revenues are directlyrelated to the amount of money raised in completed transactions.  Investment income decreased by $16,586,797to a loss of $8,434,392 for the first six months of 2002 compared to a gain of$8,152,405 for the first six months of 2001. During the first half of 2002, themarket value of investment securities and the fair value of underwriterwarrants decreased significantly compared to the same period in 2001 when bothinvestment securities and the fair value of underwriter warrants showedincreases.   No underwriter warrantswere exercised in either period. Trading income decreased $1,277,509 to a loss of $428,354 for the firsthalf of 2002 compared to a profit of $849,155 during the first half of2001.  This decrease was the result oflower trading volume and reduced price levels for many securities during the2002 period.  Other income, includinginterest and dividends, for the first half of 2002 increased to $40,407compared to $19,518 for the first half of 2001, primarily due to increases individend and interest income.

 

                Totalexpenses for the first half of 2002 decreased $1,873,003, or 25.1 percent, to$5,598,407 down from $7,471,410 for the first half of 2001.  Commissions and salaries decreased 26percent, or $1,339,702, from $5,146,892 for the first half of 2001 to$3,807,190 for the first half of 2002. This decrease was primarily due to lower commissions paid on reducedrevenues during the 2002 period. Underwriting expenses decreased 100 percent during the first half of2002 since no corporate finance transactions were closed during the period,down from $378,671 for the first half of 2001, in which two transactions werecompleted.  Rent, telephone and quoteexpenses were down $45,271, or 8.9 percent, for the first six months of 2002 to$464,695 from $509,966 for the first half of 2001.  The 2001 period included expenses related to improvements toquotation systems.  The aggregate of allother expenses decreased $109,359, or 7.6 percent, for the first half of 2002,to $1,326,522 from $1,435,881 for the first half of 2001.  The decrease for the first half of 2002 isdue primarily to a decrease in accrual for profit sharing contribution and eliminationof annual conference expenses, partially offset by an increase in professionalfees.

 

                TheCompany had a pretax loss of $11,009,637 for the first six months of 2002compared to a pretax profit of $8,550,543 for the first half of 2001, primarilydue to significant decreases in corporate finance revenues and investment andtrading income during the first half of 2002. Independent of investment income, the Company would have had a pretaxloss of $2,575,245 for the first half of 2002 compared to a pre-tax profit of$398,138 for the first half of 2001. Significant fluctuations can occur in PIC’s revenues and operatingresults from one period to another, particularly in highly volatile marketssuch as the period ended June 30, 2002.

 

                TheCompany also accrued $3,376,000 in income taxes for the first six months of2001, compared to an estimated tax benefit of $4,400,000 for the first half of2002.

 

**Liquidity andCapital Resources**

 

                The majority ofPIC’s assets are cash and assets readily convertible to cash.  PIC’s securities inventory is stated atmarket value.  The liquidity of themarket for many of PIC’s securities holdings, however, varies with trends inthe stock market.  Since many of thesecurities held by PIC are thinly traded, and PIC is in many cases a primarymarket maker in the issues held, any significant sales of PIC’s positions couldadversely affect the liquidity of the issues held.  In general, falling prices in OTC securities (which make up mostof PIC’s trading positions) lead to decreased liquidity in the market for theseissues, while rising prices in OTC issues tend to increase the liquidity of themarket for these securities.

 

16

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The overall increase in prices for the OTC securities traded by PIC inearly 2001 was combined with a general increase in the liquidity of the marketsfor these securities.  The significantdecline in prices for the OTC securities traded by PIC to date in 2002 wascombined with a general decrease in the liquidity of the markets for thesesecurities.  PIC’s investment accountand trading inventory accounts are stated at fair market value, which is at orbelow quoted market price.

 

                PIC borrows moneyfrom its clearing firm in the ordinary course of its business, pursuant to anunderstanding under which the clearing firm agrees to finance PIC’s tradingaccounts.  As of June 30, 2002, no netloans were outstanding pursuant to this arrangement.  PIC and the Company are generally able to meet their compensationand other obligations out of current liquid assets.

 

                Anothersource of capital to PIC and the Company has been the underwriter warrantsissued to PIC in connection with its corporate finance activities and the saleof the underlying securities.  Theseunderwriter warrants are not exercisable for the first year after the offeringsin which they are earned and are thereafter exercisable for four years, afterwhich they expire.  The exercise priceis typically 120% of the price at which we initially sold the securities to thepublic.  Accordingly, unless there is atleast a 20% increase in the price of these securities at some time more thanone and less than five years after the offering, the warrants will remain“under water” and will ultimately expire unexercised.  There is no public market for the underwriter warrants. Thesecurities receivable upon exercise of the underwriter warrants cannot beresold unless the issuer has registered these securities with the SEC and thestates in which the securities will be sold or exemptions are available.  Any delay or other problem in theregistration of these securities would have an adverse impact upon PIC’sability to obtain funds from the exercise of the underwriter warrants and theresale of the underlying securities.  AtJune 30, 2002, PIC owned 27 underwriter warrants (from 22 issuers), of which 25were currently exercisable; two had an exercise price below the current marketprice of the securities receivable upon exercise. These prices are influencedby general movements in the prices of OTC securities as well as the success ofthe issuers of the underwriter warrants.  The prices ofthe securities underlying the underwriter warrants are very volatile, andsubstantial fluctuations in the Company’s estimate of their value can beexpected in the future.

 

                In the six monthsended June 30, 2002, $1,304,571 of net cash was provided by operatingactivities of the Company.  The majoradjustments to reconcile this result to the Company’s net loss of $6,609,637include unrealized depreciation on investment securities of $8,698,671, adecrease in accounts receivable of $3,816,091, and an increase in securitiessold, but not yet purchased, of $358,062, partially offset by a change indeferred income taxes of $3,480,000, a decrease in accounts payable of$1,115,372 and an increase in the value of trading securities of $354,547.  In the period, $1,122,797 of net cash wasused by the Company’s investing activities, the result of $9,511,167 inproceeds from the sale of investment securities being more than offset by thepurchase of $10,561,492 of investment securities and $72,472 of additions tofurniture and equipment.  $217,977 incash was used in financing activities by the Company in the six month period,the result of payments to retire common stock of $253,477, partially offset by$35,500 in proceeds from the exercise of stock options.  See “Financial Statements — ConsolidatedStatements of Cash Flows.”

 

17

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                As a securitiesbroker–dealer, the Company’s wholly owned subsidiary, PIC, is required bySEC regulations to meet certain liquidity and capital standards.  At June 30, 2002, the Company had nomaterial commitments for capital expenditures.

 

                In general, theprimary ongoing sources of PIC’s, and therefore the Company’s, liquidity,including PIC’s trading positions, borrowings on those positions and profitsrecognized from underwriter warrants, all depend in large part on the trend inthe general markets for OTC securities. Rising OTC price levels will tend to increase the value and liquidity ofPIC’s trading positions, the amount that can be borrowed from its clearing firmbased upon those positions, and the value of PIC’s underwriter warrants.  The Company believes its liquidity is sufficientto meet its needs for the foreseeable future.

 

**Inflation**

 

                Because PIC’sassets are primarily liquid, they are not significantly affected byinflation.  The rate of inflationaffects PIC’s expenses, such as employee compensation, office leasing andcommunications costs.  These costs maynot readily be recoverable in the price of services offered by theCompany.  To the extent inflationresults in rising interest rates and has other adverse effects in thesecurities markets and the value of securities held in inventory or PIC’sinvestment account, it may adversely affect the Company’s financial positionand results of operations.

 

18

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**PART II**

**OTHER INFORMATION**

 

Item 1. Legal Proceedings.

 

                                SeeNote 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.

 

           The Company held its annual meeting on June 13,2002.  The seven Company directors(Chester L.F. Paulson, Jacqueline M. Paulson, Glen Davis, Steve Kleeman,Shannon P. Pratt, Paul Shoen and John Westergaard) were elected for additionalone year terms.  For each director3,076,325 shares were voted for and 2,805 shares abstained.

 

 

Item 5. Other Information.

                                None

 

Item 6. Exhibits and Reports on Form 8-K

 

 
| Exhibits  - | 99.1  Certification Pursuant to 18 U.S.C. Section 1350, as Adopted |
|-------------|--------------------------------------------------------------------|
|        |                                                               | Pursuant  to Section 906 of the Sarbanes-Oxley Act of 2002 |
|        | 99.2  Certification Pursuant to 18 U.S.C. Section 1350, as Adopted |
|        |                                                               | Pursuant  to Section 906 of the Sarbanes-Oxley Act of 2002 |

 

 

No Reports on Form 8-K were filed during the quarter ended June 30,2002.

 

19

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**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 theundersigned thereunto duly authorized.

 

 
|   |            |   |   | PAULSON  CAPITAL CORP.    |
|--------|-----------------|--------|--------|---------------------------|
|   |            |   |   |                      |   |
|   |            |   |   |                      |   |
| Date:  | August  8, 2002 |   | By:    | /s/  CHESTER L.F. PAULSON |
|   |            |   |   |                      | Chester L.F. Paulson |
|   |            |   |   |                      | President |
|   |            |   |   |                      |   |
|   |            |   |   |                      |   |
| Date:  | August  8, 2002 |   | By:    | /s/  CAROL RICE           |
|   |            |   |   |                      | Carol  Rice |
|   |            |   |   |                      | Principal  Accounting Officer |
|   |            |   |   |                      |   |
|   |            |   |   |                      |   |

 

 

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** **

**                                                                                         EXHIBITINDEX**

 
| 99.1   |   | Certification  Pursuant to U.S.C. Section 1350, as Adopted |
|--------|--------|------------------------------------------------------------|
|   |   | Pursuant  to Section 906 of the Sarbanes-Oxley Act of 2002 |
|   |   |                                                       |
| 99.2   |   | Certification  Pursuant to U.S.C. Section 1350, as Adopted |
|   |   | Pursuant  to Section 906 of the Sarbanes-Oxley Act of 2002 |

 

 

 

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