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, 1999

Commission file number: 0-18188

PAULSON CAPITAL CORP.
Exact name of registrant as specified in its charter

|Oregon
(State of incorporation)                                            | 93-0589534
(I.R.S. Employer Identification)
|-------------------------------------------------------------------------- | -------------------------------------------
|                                                                          
|811 S.W. Naito ParkwayPortland, OR
Address of principal
executive offices) | 97204
(Zip Code)                           

Registrant's telephone number, including area code: (503) 243-6000

Check whether the issuer (1) filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.

Yes [X]     No [  ]

Number of shares outstanding of each of the issuer's classes of common stock, as of August 3, 1999:

Common stock, no par value  - 3,685,352 shares

Transitional Small Business Disclosure Format      Yes [  ]    
 No [X]

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PART I  --  INFORMATION

ITEM 1.     FINANCIAL STATEMENTS

PAULSON CAPITAL CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
(unaudited)

|                                                               | 6/30/99              | 12/31/98            
|-------------------------------------------------------------- | -------------------- | --------------------
|ASSETS                                                        
|                                                              
|CURRENT ASSETS                                                
|                                                              
|Cash and cash equivalents                                      | $53,571              | $100,345            
|Receivable from broker-dealers and clearing
     organizations | 7,168,405            | 1,430,586           
|Notes and other receivables                                    | 593,777              | 439,967             
|Trading securities                                             | 4,692,848            | 2,119,737           
|Investment securities                                          | 7,141,787            | 9,697,387           
|Prepaid and deferred expenses                                  | 316,789              | 578,556             
|Deferred income taxes                                          | 1,007,373            | 1,007,373           
|                                                              
|Total current assets                                           | 20,974,550           | 15,542,010          
|                                                              
|FURNITURE AND EQUIPMENT, net                                   | 531,553              | 359,329             
|                                                              
|INVESTMENT IN REAL ESTATE                                      | 169,900              | 169,900             
|                                                               | $21,676,003 | $16,071,239

The accompanying notes are an integral part of these statements.

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PAULSON CAPITAL CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET - CONTINUED
(unaudited)

|                                                                                                                                    | 6/30/99              | 12/31/98            
|----------------------------------------------------------------------------------------------------------------------------------- | -------------------- | --------------------
|LIABILITIES AND 
SHAREHOLDERS' EQUITY                                                                                              
|                                                                                                                                   
|CURRENT LIABILITIES                                                                                                                
|Accounts payable and accrued liabilities                                                                                            | $1,713,296           | $738,155            
|Payable to broker-dealers and clearing 
     organizations                                                                          | 4,432,607            | 753,413             
|Compensation, employee benefits and
     payroll taxes                                                                              | 1,132,559            | 1,240,510           
|Securities sold, not yet purchased                                                                                                  | 41,567               | 61,479              
|                                                                                                                                   
|Total current liabilities                                                                                                           | 7,320,029            | 2,793,557           
|                                                                                                                                   
|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, 
     3,716,852 and 3,796,852, respectively | 759,323              | 775,323             
|Retained earnings                                                                                                                   | 13,596,651           | 12,502,359          
|                                                                                                                                    | 14,355,974           | 13,277,682          
|                                                                                                                                    | $21,676,003 | $16,071,239

The accompanying notes are an integral part of these statements.

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PAULSON CAPITAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
for the three and six month periods ended 
June 30, 1999 and June 30, 1998 (unaudited)

|                                             | Three months ended  | Six months ended 
|-------------------------------------------- | ------------------- | -----------------
|                                             | 6/30/99             | 6/30/98          
|Revenues                                    
|Commissions                                  | $3,999,207          | $2,777,981       
|Corporate finance                            | 985,839             | 39,326           
|Investment income                            | 1,696,010           | (795,141)        
|Trading income (loss)                        | 389,739             | 17,535           
|Interest and dividends                       | 10,103              | 1,204            
|Other                                        | 2,905               | 5,366            
|                                            
|                                             | 7,083,803           | 2,046,271        
|Expenses                                    
|Commissions and salaries                     | 3,845,031           | 2,299,006        
|Underwriting expenses                        | 312,267             | 2,503            
|Rent, telephone and 
     quotation services | 196,568             | 207,255          
|Interest expense                             | --                  | 1,046            
|Professional fees                            | 106,442             | 117,128          
|Bad debt expense                             | 30,800              | 30,000           
|Travel and entertainment                     | 52,613              | 75,924           
|Settlements                                  | 2,250               | --               
|Other                                        | 422,429             | 308,635          
|                                            
|                                             | 4,968,400           | 3,041,497        
|                                            
|Earnings (loss) before 
     income taxes    | 2,115,403           | (995,226)        
|                                            
|Provision for income taxes                  
|Current                                      | 846,200             | (115,736)        
|Deferred                                     | --                  | --               
|                                            
|Net Earnings (Loss)                          | $1,269,203  | $(879,490)
|                                            
|Earnings (loss) per share                    | $0.34       | $(0.22)  

The accompanying notes are an integral part of these statements

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PAULSON CAPITAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
For the three year period ended December 31, 1998
and the six months ended June 30, 1999 (unaudited)

|                                                                      | Common Stock       | Retained        
|--------------------------------------------------------------------- | ------------------ | ----------------
|                                                                      | Shares             | Amount          
|Balance at December 31, 1995                                          | 4,324,539          | 735,889         
|Exercise of stock options                                             | 38,570             | 40,892          
|Issuance of common stock in lieu
     of directors' cash compensation | 3,432              | 7,500           
|Redemption of common stock                                            | (285,300)          | (50,580)        
|Net earnings for the year                                             | -                  | -               
|Balance at December 31, 1996                                          | 4,081,241          | $733,701        
|Exercise of stock options                                             | 87,140             | 89,283          
|Issuance of common stock in lieu
     of directors' cash compensation | 2,266              | 8,000           
|Redemption of common stock                                            | (200,111)          | (36,568)        
|Net earnings for the year                                             | -                  | -               
|Balance at December 31, 1997                                          | 3,970,536          | $794,416        
|Exercise of stock options                                             | -                  | -               
|Issuance of common stock in lieu
     of directors' cash compensation | 4,283              | 16,500          
|Redemption of common stock                                            | (177,967)          | (35,593)        
|Net loss for the year                                                 | -                  | -               
|Balance at December 31, 1998                                          | 3,796,852          | $775,323        
|Redemption of common stock                                            | (80,000)           | (16,000)        
|Net earnings for the year to date                                     | -                  | -               
|Balance at June 30, 1999                                              | 3,716,852  | $759,323 

The accompanying notes are an integral part of these statements

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PAULSON CAPITAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
for the six month periods ended June 30, 1999 and June 30, 1998

|                                                                                                | 6/30/99              | 6/30/98             
|----------------------------------------------------------------------------------------------- | -------------------- | --------------------
|Increase (Decrease) in Cash and Cash Equivalents                                               
|                                                                                               
|Cash flows from operating activities                                                           
|Net earnings (loss)                                                                             | $1,382,166           | $(705,886)          
|Adjustments to reconcile net earnings (loss) to
          net cash used in operating activities
|Unrealized (appreciation) depreciation
     
     
          on investment securities           | 872,211              | 1,695,237           
|Realized gain on investment securities                                                          | (2,960,351)          | (1,233,070)         
|Depreciation and amortization                                                                   | 62,541               | 37,320              
|Gain from sale of furniture and 
     
     
     
     equipment                               | --                   | (300)               
|Change in assets and liabilities                                                               
|Receivables                                                                                     | (5,891,629)          | 3,083,421           
|Trading securities                                                                              | (2,573,111)          | 5,406,855           
|Refundable income taxes                                                                         | 168,059              | (894,940)           
|Prepaid and deferred expenses                                                                   | 261,767              | 210,257             
|Accounts payable and accrued 
     
     
     
          liabilities                           | 4,546,384            | (6,505,871)         
|Securities sold, not yet purchased                                                              | (19,912)             | 56,279              
|Bank overdraft                                                                                  | --                   | --                  
|Income taxes payable                                                                            | --                   | --                  
|                                                                                               
|Net cash provided by (used in) operating 
          activities                                  | (4,151,875)          | 1,149,302           
|                                                                                               
|Cash flows from investing activities                                                           
|Purchases of investment securities                                                              | (22,707,588)         | (13,861,429)        
|Proceeds from sale of investment securities                                                     | 27,351,328           | 12,934,064          
|Additions to furniture and equipment                                                            | (234,765)            | (124,979)           
|Proceeds from sale of furniture and equipment                                                   | --                   | 300                 
|                                                                                               
|Net cash provided by (used in) investing 
          activities                                  | $4,408,975  | $(1,052,044)

The accompanying notes are an integral part of these statements

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PAULSON CAPITAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) - CONTINUED

|                                                                             | 6/30/99           | 6/30/98          
|---------------------------------------------------------------------------- | ----------------- | -----------------
|Cash flows from financing activities                                        
|Proceeds from exercise of stock options                                      | -                 | -                
|Payments to retire common stock                                              | (303,874)         | (75,260)         
|Decrease in bank overdraft payable                                           | -                 | -                
|                                                                            
|Net cash provided by (used in) financing 
          
     activities         | (303,874)         | (75,260)         
|                                                                            
|NET INCREASE (DECREASE) IN 
     
     
     
     CASH AND CASH EQUIVALENTS | (46,774)          | 21,998           
|                                                                            
|Cash and cash equivalents at beginning of year                               | 100,345           | 73,220           
|                                                                            
|Cash and cash equivalents at June 30                                         | $53,571  | $95,218 
|                                                                            
|Cash paid during the three months for                                       
|                                                                            
|Interest                                                                     | $       --  | $1,046      
|                                                                            
|Income taxes                                                                 | $10,200     | $819,940  

The accompanying notes are an integral part of these statements

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1.    Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions for interim financial statements in Article 10 of Regulation S-X and, therefore, do not include all information and footnotes required
by generally accepted accounting principles for complete financial statements.  In the opinion of management, the interim financial statements include all adjustments (consisting only of normal recurring accruals) necessary to state fairly the information
shown therein.  The nature of the Company's business is such that the results of any interim period are not necessarily indicative of results for a full fiscal year.

2.     Securities Owned

Any losses from the disposition of securities are reflected in trading revenues on the income statement for the period.

3.     Commitments and Contingencies

The Company and PIC are defendants in Holly Millar and Bertram Ostrau v. Pearce Systems International, Inc., et al., filed in San Francisco Superior Court, State of California, in March 1996.  An asserted class action, plaintiffs allege
violations of the California securities law, deceit, negligent misrepresentation and unfair business practices relating to alleged misstatements in the prospectus used in connection with a February 1994, $5 million public offering in which PIC acted as
the managing underwriter.  Plaintiffs seek rescission of the offering as well as actual damages, interest, attorney fees and punitive damages.  No class has been certified.  No date for a trial has been set.  Pursuant to a tolling agreement with the
plaintiff, the Company (but not PIC) expects to be dismissed without prejudice from the lawsuit.  PIC and plaintiffs have reached a settlement of this matter.  The settlement is subject to court approval.  The total payment by PIC under the settlement
would depend upon the number of purchasers in the public offering who file valid claims.  PIC believes the maximum total payment by PIC under the settlement would be approximately $920,000, but the actual payment could be less, depending upon the number
of valid claims filed.

In October 1998, Russell W. Cummings, a former PIC customer, filed a lawsuit in California state court asserting claims against PIC and a former PIC registered representative alleging violations of the California Consumers Legal Remedies Act, fraud,
negligent misrepresentation, breach of contract, tortious breach of the implied covenant of good faith and fair dealing, breach of fiduciary duty and negligence.  Prior to filing the complaint, plaintiff demanded payment of $250,000.  The complaint seeks
damages in excess of $100,000 in connection with options and short sales transactions beginning in 1996.  Plaintiff has agreed to arbitrate the matter before the NASD.  PIC has not had an opportunity to fully investigate this claim, but believes it has
meritorious defenses and intends to defend this matter vigorously.  Discovery has not yet commenced.

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In October 1998, Masood Asif, a former PIC customer, filed a lawsuit in California state court against PIC, an officer and director of PIC, and a former PIC registered representative alleging breach of fiduciary duty, negligent misrepresentation,
suppression of facts and churning.  Plaintiff seeks damages of $100,000 and punitive damages of $100,000.  Subsequently, the former customer has agreed to arbitrate his claims and to have his state court case stayed until the arbitration is completed.
PIC has not had an opportunity to fully investigate this claim, but believes it has meritorious defenses and intends to defend this matter vigorously.

In January 1999, Shahid and Lita Choudhry and Iqbal Waraich, former customers of PIC, filed an NASD arbitration claim against PIC and a former PIC registered representative alleging that the registered representative managed their account improperly,
failed to follow claimant's instructions on particular transactions and failed to provide ongoing investment advice. Claimants allege negligence, fraud, unsuitability, breach of fiduciary duty, violations of the federal securities laws, failure to
supervise and violation of NASD rules, seeking damages of $115,000, plus punitive damages and interest.  PIC has not had an opportunity to fully investigate this claim, but believes it has meritorious defenses and intends to defend this matter vigorously.

In June 1998, Natalie Tirrell, a former PIC customer, filed an NASD arbitration claim asserting claims against PIC and a PIC registered representative alleging misrepresentations and excessive commissions.  Claimant alleges damages in excess of
$50,000.  Based on PIC's investigation of the claim, PIC has answered denying all liability.  This matter is set for arbitration before the NASD on October 13, 1999.  PIC believes it has meritorious defenses and intends to defend this matter vigorously.

In April 1999, Philip Cutler, a former PIC customer, filed an NASD arbitration claim asserting claims against PIC for alleged misrepresentations, excessive commissions and a failure to supervise.  Claimant alleges damages in excess of $100,000.  PIC
has not had an opportunity to investigate this matter fully, but believes it has meritorious defenses and intends to defend this matter vigorously.

An adverse outcome in certain of the matters described above could have a material adverse effect on PIC or the Company.  PIC has been named in certain other legal proceedings and has received notice that certain customers may commence legal
proceedings against PIC.  The Company believes, based upon information received to date and, where the Company believes it appropriate, discussions with legal counsel, that resolution of this additional pending or threatened litigation will have no
material adverse effect on the consolidated financial condition, results of operations, or business of the Company.

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ITEM 2.     MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

Three Months Ended June 30, 1999 vs. Three Months Ended June 30, 1998

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

|                           | Quarter Ended June 30
1999 vs. 1998 | Six Months Ended June 30
1999 vs. 1998
|-------------------------- | ----------------------------------- | --------------------------------------
|Revenues:                 
|Sales Commissions          | $1,221,226                          | 44.0%                                 
|Corporate Finance          | 946,513                             | N/A                                   
|Investment Income          | 2,491,151                           | N/A                                   
|Trading Income             | 372,204                             | N/A                                   
|Other                      | 6,438                               | 98.0%                                 
|                          
|Total                      | $5,037,532                          | 246.2%                                
|                          
|Expenses:                 
|Commissions and Salaries   | $1,546,025                          | 67.2%                                 
|Underwriting Expenses      | 309,764                             | N/A                                   
|Rent, Telephone and Quotes | (10,687)                            | (5.2 %)                               
|                          
|Other                      | 81,801                              | 15.4%                                 
|                          
|Total                      | $1,926,903                          | 63.4%                                 
|                          
|Pretax Income              | $3,110,629                          | N/A                                   

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Total revenues for the second quarter of 1999 rose 246.2 percent from the second quarter of 1998, to $7,083,803 from $2,046,271.  As shown in the table above, sales commissions rose $1,221,226, or 44.0 percent, to $3,999,207 in the second quarter of
1999 from $2,777,981 in the comparable 1998 period.  This increase resulted primarily from the active trading levels in smaller capitalization issues in the 1999 quarter compared to 1998, particularly in companies for which PIC had recently completed
public offerings.  Corporate finance revenues rose $946,513 in the second quarter of 1999 compared to the second quarter of 1998.  Two corporate finance transactions were completed in the 1999 quarter in which PIC acted as the managing underwriter,
raising a total of $23 million for the issuer; only one private placement raising $690,000 was completed in the 1998 quarter.  Investment income rose $2,491,151 from a loss of $795,141 in the second quarter of 1998 to a gain of $1,696,010 in the second
quarter of 1999.  One underwriter warrant was exercised in the second quarter of 1999, while no underwriter warrants were exercised in the comparable 1998 quarter.  The increase was due to this warrant exercise and substantial realized gains on positions
in the investment account in the 1999 quarter and substantial losses in the investment account in 1998.  Trading income rose $372,204 to $389,739 in the second quarter of 1999 from $17,535 in the comparable 1998 period due primarily to active trading and
gains on inventory positions in 1999 compared to losses on inventory positions in the 1998 quarter.

Total expenses rose $1,926,903 in the second quarter of 1999 from the comparable 1998 period, an increase of 63.4 percent, from $3,041,497 to $4,968,400.  Commissions and salaries rose $1,546,025, or 67.2 percent, from $2,299,006 in the 1998 period to
$3,845,031 in 1999.  This increase was primarily due to (i) increased commission revenues resulting
in a higher level of commissions paid to employee salespersons (higher percentage
commission levels are generally paid to employee registered representatives at higher
production levels) and (ii) an increased percentage of commission revenues coming
from independent salespersons in branch offices.  Independent salespersons in branch
offices receive a higher percentage of commission revenues than employee salespersons in PIC's offices in Portland and Salem. Underwriting expenses increased by $309,764, due to the lack of any completed public corporate finance transactions in the 1998
quarter compared to the two transactions completed in the second quarter of 1999.  Rent, telephone and quote expenses decreased slightly from $207,255 in the 1998 period to $196,568 in 1999, a decrease of 5.2 percent.  Other expenses increased 15.4
percent from $532,733 in the second quarter of 1998 to $614,534 in the second quarter of 1999, primarily due to increased profit sharing contributions for employees.

The Company had a pretax loss of $995,226 in the second quarter of 1998 compared to a pretax profit of $2,115,403 in the second quarter of 1999.  The biggest factor in this improvement was the increase in investment income in the 1999 quarter, which
added to increases in PIC's corporate finance and trading activities.  Significant fluctuations can occur in PIC's revenues and operating results from one period to another.

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The Company also accrued a refund of $115,736 in income taxes for the second quarter of 1998, compared to an accrual for income taxes in the second quarter of 1999 of $846,200.  Independent of investment income, the Company would have had a loss before
income taxes of $200,085 in the second quarter of 1998 compared to a profit before income taxes of $419,393 in the second quarter of 1999.

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 1997, early 1998 and 1999 was combined with a general increase in the liquidity of the markets for these securities.  The decline in prices for the OTC securities traded by PIC in late 1998 was combined with
a general decrease in the liquidity of the markets for these securities.  PIC's investment account and trading inventory accounts are stated at fair market value, which is at or below quoted market price.

PIC 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, 1999, no net loans were outstanding pursuant to this
arrangement.  PIC had no subordinated loans at June 30, 1999.  PIC and the Company are generally able to meet their compensation and other obligations out of current liquid assets.

Another source of capital to PIC and the Company has been the exercise of underwriter warrants issued to PIC in connection with its corporate finance activities and the sale of the underlying securities.  These warrants are not reflected on the balance
sheet of PIC or Paulson Capital.  While the warrants and the securities issuable upon exercise of the warrants are not immediately saleable, PIC receives the right to require the issuer to register the underlying securities for resale to the public.
Profits, if any, from the warrants are realized based upon the difference between the market price and the exercise price on the date of exercise.  Further profits or losses are subsequently realized when the underlying securities are sold.  Profits and
losses realized from the warrants are recorded as "Investment Income."  There is no public market for the underwriter warrants. The securities receivable upon exercise of the underwriter warrants cannot be resold unless the issuer has registered these
securities with the SEC and the states in which the securities will be sold or exemptions are available.  Any delay or other problem in the registration of these securities would have an adverse impact upon PIC's ability to obtain funds from the exercise
of the underwriter warrants and the resale of the underlying securities.  At June 30,

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1999, PIC owned 31 underwriter warrants (from 29 issuers), of which 27 were currently exercisable.  Eight of the exercisable warrants 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 six months ended June 30, 1999, $4,151,875 of net cash was used by operating activities of the Company.  The major adjustments to reconcile this result to the Company's net profit included an increase in receivables of $5,891,629, a realized
gain on investment securities of $2,960,351 and an increase in trading securities of $2,573,111 more than offsetting an increase in accounts payable and accrued liabilities of $4,546,384 and unrealized depreciation on investment securities of $872,211.
In the first six months of 1999, $4,408,975 of net cash was provided by investing activities, primarily resulting from $27,351,328 of proceeds from the sale of short-term investment securities more than offsetting the purchase of $22,707,588 of short-term
investment securities and the purchase of $234,765 in furniture and equipment.  In the first six months of 1999, $303,874 of net cash was used in financing activities to retire common stock.  The net decrease in cash and cash equivalents for the six month
period totaled $46,774.  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, 1999, the Company had no material commitments for capital expenditures.

In general, the primary ongoing sources of PIC's, and therefore the Company's, liquidity, including PIC's trading positions, borrowings on those positions and profits realized upon the exercise of underwriter warrants, all depend in large part on the
trend in the general markets for OTC securities.  Rising OTC price levels will tend to increase the value and liquidity of PIC's trading positions, the amount that can be borrowed from its clearing firm based upon those positions, and the value of PIC's
underwriter warrants.  The Company believes its liquidity is sufficient to meet its needs for the foreseeable future.

Inflation

Because PIC's assets are primarily liquid, they are not significantly affected by inflation.  The rate of inflation affects PIC's expenses, such as employee compensation, office leasing and communications costs.  These costs may not readily be
recoverable in the price of services offered by the Company.  To the extent inflation results in rising interest rates and has other adverse effects in the securities markets and the value of securities held in inventory or PIC's investment account, it
may adversely affect the Company's financial position and results of operations.

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Year 2000 Efforts

The Company has begun to address the issue of computer programs and embedded computer chips being unable to distinguish between the year 1900 and the year 2000 (the "Y2K" issue).  The Company has no proprietary operating system or applications
software, nor do any of its operations use mainframe or mini-computer systems.  Therefore, the Company's focus with respect to the Y2K issue is: (1) its PC hardware and software purchased from third parties; and (2) external suppliers and service providers.

The general phases of the Company's Y2K efforts are: (1) inventorying computer hardware and software and other items which may be affected by the Y2K issue; (2) assigning priorities to identified items; (3) assessing the Y2K compliance of items
determined to be material to the Company; (4) repairing or replacing material items that are determined not to be Y2K compliant; (5) testing material items; and (6) designing and implementing contingency and business continuation plans for the Company.

The Company has been conducting a comprehensive review and analysis of its information systems since early 1998 and completed an inventory of its computer technology and a determination of material items in the third quarter of 1998.  Material items
are those believed by the Company to have a risk involving property damage or affecting revenues.  During the first half of 1999, the Company upgraded and replaced certain components of its computer technology.  The Company replaced a large number of its
desktop personal computers with newer Y2K compliant models, and it also upgraded server hardware and software for certain of its network systems.  The Company is also conducting further hardware and software testing through the end of 1999.  All testing
of hardware and software will be performed by the Company in conjunction with certain of its external suppliers.  The Company also expects to upgrade or convert operating system and applications software that is not Y2K compliant.  The Company believes
the upgrade or conversion of its desktop hardware and applications and operating system software was substantially completed by June 30, 1999.  Contingency planning for the desktop computers and related software began in the third quarter of 1998 and is
expected to be completed by the third quarter of 1999.

The Company's efforts with respect to external suppliers and service providers involves identifying and prioritizing critical suppliers and communicating with them about their plans and progress in addressing the Y2K issue.  Detailed evaluations of the
most critical third parties have been initiated.  These evaluations have been followed by the development of contingency plans, which were updated during the second quarter of 1999.  The Company believes these efforts were on schedule as of June 30, 1999.
 The most critical service provider to PIC, the Company's operating subsidiary, is its clearing firm, Correspondent Services Corporation ("CSC") and CSC's parent company, PaineWebber, which serves as the custodian for PIC's brokerage customers.  CSC has
established a plan to thoroughly address the Y2K issue, which the Company has reviewed.  PIC has worked with CSC to upgrade certain of PIC's computer systems.  CSC provided PIC with newer, Y2K compliant networking hardware and software for its home office
in Portland, Oregon and its branch office in Salem, Oregon.  CSC also provided PIC with newer, faster circuits for its computer systems. PIC has incurred a nominal net monthly increase in its ongoing fee to CSC for these and related services.

The total cost associated with required modifications to become Y2K compliant is not expected to be material to the Company's financial position.  The estimated total cost of the Company's Y2K efforts is estimated to be between $240,000 and $280,000.
The total amount expended on the Y2K issue by the Company through June 30, 1999 was approximately $208,000.  Of these expenditures, approximately $184,000 related to the cost to repair or replace software and related hardware problems and approximately
$24,000 related to the cost of identifying and communicating with external suppliers and working with them on the Y2K issue.  The estimated future cost of completing the Company's Y2K efforts is estimated to be between $32,000 and $72,000, which is
comprised of $30,000 to $60,000 to repair or replace software and related hardware and $2,000 to $12,000 to identify and communicate with external suppliers.  Funds for these costs are provided from PIC's operating budget.

PIC's network of independent contractor branch offices ("branch offices") has also been upgrading computer hardware and software and other items which may be affected by the Y2K issue.  PIC has required its branch offices, at their expense, to
inventory, upgrade, and/or replace assets that are not Y2K compliant.  PIC has mandated that any branch offices that are not Y2K compliant by August 30, 1999 will be subject to fines and/or other disciplinary actions.  Paulson believes its branch offices
are largely Y2K compliant based on correspondence with its branch offices and operational compatibility with CSC's computer systems.

The failure to correct a material Y2K problem could result in an interruption in, or a failure of, certain normal business activities or operations.  These failures could materially and adversely affect the Company's results of operations, liquidity
and financial condition.  Due to the general uncertainty inherent in the Y2K problem, resulting in part from the uncertainty of the Y2K readiness of third-party suppliers, the Company is unable to determine at this time whether the consequences of Y2K
failures will have a material impact on the Company's results of operations, liquidity or financial condition.  The Company's Y2K efforts are expected to significantly reduce the Company's level of uncertainty about the Y2K problem and, in particular,
about the Y2K compliance and readiness of its material external suppliers.  The Company believes that, with the implementation of new business systems and completion of the project as scheduled, the possibility of significant interruptions of normal
operations should be reduced.

CAUTIONARY STATEMENT FOR THE PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

The Company is including the following cautionary statement to take advantage of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995 for any forward-looking statement made by, or on behalf of, the Company.  The factors
identified in this cautionary statement are important factors (but not necessarily all important factors) that could cause actual results to differ materially from those expressed in any forward-looking statement made by, or on behalf of, the Company.
Where any forward-looking statement includes a statement of the assumptions or bases underlying the forward-looking statement, the Company cautions that, while it believes the assumptions or bases to be reasonable and makes them in good faith, assumed
facts or bases almost always vary from actual results, and the differences between assumed facts or bases and actual results can be material, depending on the circumstances.  Where, in any forward-looking statement, the Company expresses an expectation or
belief as to future results, that expectation or belief is expressed in good faith and believed to have a reasonable basis, but there is no assurance that the statement of expectation or belief will result or be achieved or accomplished.  Taking into
account the foregoing, the following are identified as important risk factors that could cause actual results to differ materially from those expressed in any forward-looking statement made by, or on behalf of, the Company.

The dates on which the Company believes the Company's Y2K efforts will be completed are based on its best estimates, which were derived using numerous assumptions of future events, including the continued availability of certain resources, third-party
modification plans and other factors.  However, there is no guarantee that these estimates will be achieved or that there will not be a delay in, or increased costs associated with, the implementation of the Y2K efforts described above.  A delay in the
Y2K corrections by CSC could also impact the Company's readiness.  Specific factors that might cause differences between the estimates and actual results include, but are not limited to, the availability and cost of personnel trained in these areas, the
ability to locate and correct all relevant computer code, timely responses to and corrections by third-parties and suppliers, the ability to implement interfaces between the new systems and the systems not being replaced, and similar uncertainties.  Due
to the general uncertainty inherent in the Y2K problem, resulting in part from the uncertainty of the Y2K readiness of third-parties, the Company cannot ensure its ability to timely and cost-effectively resolve problems associated with the Y2K issue that
may affect its operations and business, or expose it to third-party liability.

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PART II
OTHER INFORMATION

Item 1.     Legal Proceedings.

See Note 3 of Notes to Condensed Consolidated Financial Statements in Item 1.

Item 2.     Changes in Securities.

None

Item 3.    Defaults upon Senior Securities.



None

Item 4.     Submission of Matters to a Vote of Security Holders.

The Company held its annual meeting on June 15, 1999.  The six existing Company directors (Chester L.F. Paulson, Jacqueline M. Paulson, Kenneth T. LaMear, Shannon P. Pratt, Paul Shoen and John Westergaard) were elected for additional one year terms and
one new director (Glen Davis) was also elected to a one year term.  For each director 3,593,355 shares were voted for and 2,600 shares were withheld.  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 3,518,626 shares voting for the proposal,  75,929 shares voting against the proposal, with  1,400 votes
abstaining.  Under the proposal, the Company's directors are 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

|ExhibitNo. | Description            
|---------- | -----------------------
|27         | Financial Data Schedule

No Reports on Form 8-K were filed during the quarter ended June 30, 1999.

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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 the undersigned thereunto duly authorized.

|                       | PAULSON CAPITAL CORP.                                              
|---------------------- | -------------------------------------------------------------------
|                      
|Date:  August 10, 1999 | By: CHESTER L.F. PAULSON
      Chester L.F. Paulson
      President
|                      
|Date: August 9, 1999   | By: CAROL RICE
      Carol Rice
      Principal Accounting Officer 

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EXHIBIT INDEX

|ExhibitNo. | Description             | SequentialPage No.
|---------- | ----------------------- | ------------------
|27         | Financial Data Schedule

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