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Paulson Capital Corp. Reports Operating Results (10-K)

March 10, 2011 | About:

Paulson Capital Corp. (PLCC) filed Annual Report for the period ended 2010-12-31.

Paulson Capital Corp. has a market cap of $6.6 million; its shares were traded at around $1.1501 with and P/S ratio of 0.4.

Highlight of Business Operations:

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant was $3,645,577, computed by reference to the last sales price ($1.38) as reported by the Nasdaq Capital Market, as of the last business day of the Registrants most recently completed second fiscal quarter (June 30, 2010).

Because we operate in the financial services industry, our revenues and earnings are substantially affected by general conditions in financial markets. Further, past performance is not necessarily indicative of results to be expected in future periods. In our securities brokerage business, the amount of our revenues depends on levels of market activity requiring the services we provide. Our corporate finance activity, which consists of acting as the managing underwriter of initial and follow-on public offerings, private investments in public equity (PIPEs) and private placements for smaller companies, is similarly affected by the strength of the market for new equity offerings, which has historically experienced substantial cyclical fluctuation. Global IPO volume increased significantly in 2010 compared to 2009 with China and the U.S. being the most active markets. During 2010, there were 154 IPOs in the U.S., with proceeds totaling $38.7 billion, and the outlook for 2011 is strong. This compares to 63 IPOs in the U.S. during 2009 with proceeds totaling $21.9 billion. Although we attempt to match operating costs with activity levels, many of our expenses are either fixed or difficult to change on short notice. Accordingly, fluctuations in brokerage and corporate finance revenues tend to result in sharper fluctuations, on a percentage basis, in net income or loss.

In 2010, we completed one initial public offering in which we, together with a co-underwriter, raised $15.4 million for S&W Seed Company. In addition, we completed two follow-on public offerings in which we raised $6.0 million for BioCurex, Inc. and $0.7 million for Healthy Fast Food, Inc.

From time to time, we make investments as a principal in companies that are, or are expected to be, corporate finance clients. The investment may be as convertible debt in anticipation of a public offering, in which case, if the offering is successful, the principal and interest are either converted to equity or repayable from the offering proceeds. If the offering is not successful, the debt is typically converted to equity. We also make investments in companies that are not anticipating an immediate public offering. In such cases, the investment is typically made in the form of the purchase of restricted equity securities. Typically, these type of investments have ranged from $50,000 to $1.0 million. At December 31, 2010, we held securities of 4 privately-held companies in our investment accounts with a fair value of $2.9 million.

We are a member of the Securities Investor Protection Corporation (SIPC), which provides, in the event of the liquidation of a broker-dealer, protection for customers accounts (including the customer accounts of other securities firms when it acts on their behalf as a clearing broker) held by the firm of up to $500,000 for each customer, subject to a limitation of $100,000 for claims for cash balances. SIPC is funded through assessments on registered broker-dealers.

We are required to maintain minimum net capital under the SECs net capital rule of not less than 6.67% of our aggregate indebtedness or $100,000, whichever is greater. In general, net capital consists of the broker-dealers net worth, adjusted by numerous factors specified in the applicable regulations. In particular, the value of securities that can be included in net capital is subject to reduction in fair value or principal amount. The amount of the required reduction, or haircut, depends on the nature of the security. As of December 31, 2010, we had net capital of $9.4 million, which exceeded our minimum requirement of $0.1 million by $9.3 million. The ratio of aggregate indebtedness of $1.7 million to net capital of $9.4 million at December 31, 2010, was 0.18 to 1.

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