<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION

                              WASHINGTON D.C. 20549
                                   ----------
                Annual Report Pursuant to Section 13 or 15(d) of
                       the Securities Exchange Act of 1934

For the fiscal year ended                       Commission file number: 0-18188
   December 31, 1999
                                  FORM 10-KSB

                               (Amendment No. 1)

                              PAULSON CAPITAL CORP.
                              ---------------------
            Name of small business issuer as specified in its charter

          OREGON                                            93-0589534
          ------                                            ----------
(State or other jurisdiction of                         (I.R.S. Employer
  incorporation or organization)                         Identification No.)


811 S.W. Naito Parkway, Suite 200
      Portland, OR                                         97204
------------------------                                   -----
 (Address of principal                                   (Zip Code)
  executive offices)

Issuer's telephone number, including area code: (503) 243-6000
                                                --------------
Securities registered pursuant to Section 12(b) of the Act:

                                      None
                                      ----
Securities registered pursuant to Section 12(g) of the Act:

                           Common Stock, no par value
                           --------------------------
                                 Title of class



Check whether the issuer (1) filed all reports required to be filed by Section
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
     ---     ---

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part II of this Form 10-KSB
or any amendment to this Form 10-KSB.
                                     -----------------


                                       1
<PAGE>


State issuer's revenues for its most recent fiscal year:

                                  $39,186,582

         As of March 17, 2000, 3,549,535 shares of the registrant's common
stock, no par value, were outstanding and the aggregate market value of the
shares of common stock of the Registrant held by non-affiliates (based upon the
average of the closing bid and asked prices of Registrant's shares in the
over-the-counter market as of such date) was $15,162,624.

                DOCUMENTS INCORPORATED BY REFERENCE


         Portions of the Registrant's definitive proxy statement for the 2000
annual meeting of shareholders to be filed with the Securities and Exchange
Commission are incorporated by reference into Part III.

         Transitional Small Business Disclosure Format:

Yes     No  X
   ---     ---


                                       2
<PAGE>

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

                             SELECTED FINANCIAL DATA

                     (in thousands except per share amounts)

                          INCOME STATEMENT INFORMATION
<TABLE>
<CAPTION>

                                                   YEARS ENDED DECEMBER 31,
                                             1999            1998            1997
                                      ----------------------------------------------
<S>                                         <C>             <C>             <C>
Revenues                                    $39,187         $11,749         $27,684
Commissions and Salaries                     15,693          10,371          12,552
Other Expenses                                4,183           4,108           4,003
Total Expenses                               19,876          14,479          16,555
Pretax Income (loss)                         19,311          (2,730)         11,129
Net Income (loss)                            11,711          (1,769)          6,950
Diluted Earnings (loss)                       $3.16           ($.45)          $1.74
 per share
Average number of common shares               3,704           3,918           4,005
 outstanding


                                                 BALANCE SHEET INFORMATION

                                                        DECEMBER 31,
                                            1999            1998            1997
                                      --------------------------------------------
<S>                                         <C>             <C>             <C>
Total Assets                                $37,451         $17,605         $27,473
Working Capital                              23,619          14,282          16,678
Short-Term Debt                                   0               0             100
Long-Term Debt                                    0               0               0
Shareholders' Equity                        $25,415         $14,812         $17,051

</TABLE>

During the fourth quarter of 1999, the Company changed its method of accounting
for underwriter warrants. Previously the Company recognized no value for these
warrants. Upon reconsideration, it was determined that it is appropriate under
generally accepted accounting principles to carry these securities at their
estimated fair value. Accordingly, the financial statements for previous periods
have been restated to reflect this change. See Note N on page F-16 in "Notes to
Consolidated Financial Statements."

RESULTS OF OPERATIONS

         PIC's revenues and operating results 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


                                       3
<PAGE>

underwriter warrants are heavily concentrated. Significant fluctuations can
occur in PIC's revenues and operating results from one period to another.
PIC's results of 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 year to year. In the tables 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 and
unrealized appreciation or depreciation in the value of PIC's unexercised
underwriter warrants.

                     SUMMARY OF CHANGES IN MAJOR CATEGORIES
                             OF REVENUES AND EXPENSE
<TABLE>
<CAPTION>

                                                      1999 VS. 1998                          1998 VS. 1997
<S>                                            <C>               <C>                <C>                <C>
Revenues:
   Sales Commissions                            $3,751,155           33.1%           ($1,404,382)        (11.0%)
   Corporate Finance                               398,928           23.2%            (2,208,823)        (56.3%)
   Investment Income                            23,589,542            N/A            (11,741,273)       (119.9%)
   Trading Income                                 (272,663)         (46.2%)             (605,763)        (50.7%)
   Other                                           (29,912)         (44.1%)               25,712          61.0%
                                                 ---------         --------              --------         -----

Total                                          $27,437,050          233.5%           (15,934,529)        (57.6%)

Expenses:
   Commissions and Salaries                     $5,321,954           51.3%           ($2,180,827)        (17.4%)
   Underwriting Expenses                           352,144           35.3%               235,911          31.0%
   Rent, Telephone & Quotes                         48,271            5.7%                 6,965           0.8%
   Other                                          (326,472)         (14.4%)             (137,933)         (5.7%)

Total                                           $5,395,897           37.3%           ($2,075,884)        (12.5%)

Pretax Income                                  $22,041,153            N/A           ($13,858,645)       (124.5%)
</TABLE>

1999 COMPARED TO 1998

         Total revenues for 1999 rose 233.5 percent from 1998, from
$11,749,532 to $39,186,582. As shown in the table above, sales commissions
rose $3,751,155, or 33.1 percent, from $11,324,412 in 1998 to $15,075,567 in
1999. This increase resulted primarily from the more favorable price
movements and trading levels in smaller capitalization OTC issues in 1999
compared to 1998. The Nasdaq Industrial Average rose less in 1999 (11.37
percent) than in 1998 (17.97 percent), but PIC's focus is on very small
capitalization issues, especially those tied to PIC's corporate finance
clients, which experienced a more favorable market in 1999. Corporate finance
revenues rose 23.2 percent, or $398,928, in 1999 compared to 1998. Four
transactions were completed in 1998, raising a total of $37 million for the
issuers; 4 transactions were also completed in 1999, raising an aggregate of
$43 million for corporate finance clients. Investment income


                                       4
<PAGE>

increased $23,589,542, from a loss of $1,949,262 in 1998 to income of
$21,640,280 in 1999, due to unrealized appreciation of underwriter warrants
held by the Company, based upon the Company's estimate of their fair value,
gains in the value of the underwriter warrants sold and greater profits on
positions held in response to significant increases in OTC prices,
particularly the technology sector. No underwriter warrants were exercised in
1998 while four warrants were exercised in 1999 resulting in profits of
$11,356,582, and the profits from investments sold in the investment account
in 1999 were greater than in 1998. Trading income fell $272,663, or 46.2
percent, from $589,822 in 1998 to $317,159 in 1999. This decline was
primarily due to losses on one large holding late in 1999 offsetting the more
favorable markets in smaller capitalization OTC issues in 1999 compared to
1998.

         Total expenses rose $5,395,897 in 1999 from 1998, an increase of
37.3 percent from $14,479,189 to $19,875,086. Commissions and salaries rose
$5,321,954, or 51.3 percent, from $10,370,979 in 1998 to $15,692,933 in 1999.
This increase was primarily due to increased commission revenues resulting in
a higher level of commissions paid and higher accruals for PIC's profit
sharing plan. Higher commission rates are generally paid to employee
registered representatives at higher production levels as an incentive.
Underwriting expenses increased by $352,144, or 35.3 percent. While the same
number of transactions were completed in 1999 as in 1998, the 1999
transactions incurred somewhat higher legal and other expenses. In addition,
expenses were incurred on transactions that were not completed. Rent,
telephone and quote expenses increased from $842,437 in 1998 to $890,708 in
1999, an increase of 5.7 percent. Other expenses decreased 14.4 percent, from
$2,267,545 in 1998 to $1,941,073 in 1999, with decreased settlements and
advertising/promotion expenses more than offsetting increases in conference,
travel and entertainment, depreciation and other expenses.

         The Company had a pretax loss of $2,729,657 in 1998 compared to a
pretax profit of $19,311,496 in 1999. The primary reason for this increase
was the significant increase in investment income. Independent of investment
income, the Company would have had a pretax loss of $2,328,784 in 1999
compared to a pretax loss of $780,395 in 1998. Investment income in 1999 was
significantly higher than in any other year in the Company's history, due to
unrealized appreciation of underwriter warrants held by the Company, based
upon the Company's estimate of their fair value, gains in the value of the
underwriter warrants sold and greater profits on positions held in response
to significant increases in OTC prices, particularly the technology sector.
This source of income cannot be expected to regularly recur. Significant
fluctuations can occur in PIC's revenues and operating results from one
period to another. The Company also incurred a benefit of $961,017 from
income taxes in 1998, compared to an expense of $7,600,260 in 1999.

         On September 30, 1999, the Company's board of directors approved the
Company's 1999 Stock Option Plan. The plan reserves 500,000 shares of the
Company's common stock for issuance upon exercise of the options. Also
effective September 30, 1999, the board of directors approved the grant of
128,000 options to directors and employees of the Company. The approved grant
price of the options was $4.44 per share, the September 30, 1999 market
value. However, the plan is subject to shareholder approval at the Company's
June 2000 shareholder meeting. Because approval is not virtually certain, the
options have not been included in the diluted earnings per share calculation
for the year ended December 31, 1999. If the market value of the stock, on
the date of approval, is greater than the grant price, the Company will incur
compensation expense equal to the price per share differential times the
number of shares granted.


                                       5
<PAGE>

1998 COMPARED TO 1997

         Total revenues for 1998 fell 57.6 percent from 1997, to $11,749,532
from $27,684,061. As shown in the table above, sales commissions fell
$1,404,382, or 11.0 percent, to $11,324,412 in 1998 from $12,728,794 in 1997.
This decrease resulted primarily from the less favorable price movements and
trading levels in smaller capitalization OTC issues in 1998 compared to 1997.
The Nasdaq Industrial Average rose more in 1997 (11.17 percent) than in 1998
(6.55 percent), and PIC's focus is on very small capitalization issues,
especially those tied to PIC's corporate finance clients, which experienced a
less favorable market in 1998. Corporate finance revenues fell 56.3 percent,
or $2,208,823, in 1998 compared to 1997. Four transactions were completed in
1998, raising a total of $37 million for the issuers; 6 transactions were
completed in 1997, raising an aggregate of $93 million for corporate finance
clients. Investment income decreased $11,741,273, to a loss of $1,949,262 in
1998 from income of $9,792,011 in 1997, primarily as a result of unrealized
depreciation of the value of underwriter warrants held by the Company, based
upon the Company's estimate of their fair value. No underwriter warrants were
exercised in 1998 while one warrant was exercised in 1997, and the profits
from investments sold in the investment account in 1997 were significantly
greater than in 1998. Trading income fell $605,763, or 50.7 percent, to
$589,822 in 1998 from $1,195,585 in 1997. This decline was due to lower
trading levels in 1998 and the generally more favorable markets in smaller
capitalization OTC issues in 1997 compared to 1998.

         Total expenses fell $2,075,884 in 1998 from 1997, a decrease of 12.5
percent to $14,479,189 from $16,555,073. Commissions and salaries fell
$2,180,827, or 17.4 percent, to $10,370,979 in 1998 from $12,551,806 in 1997.
This decrease was primarily due to decreased commission revenues resulting in
a lower level of commissions paid. Higher commission rates are generally paid
to employee registered representatives at higher production levels as an
incentive. Underwriting expenses increased by $235,911, or 31.0 percent.
While fewer transactions were completed in 1998, PIC was the sole manager for
all transactions and bore all the expenses. In addition, expenses were
incurred on transactions that were not completed. Rent, telephone and quote
expenses increased to $842,437 in 1998 from $835,472 in 1997, an increase of
0.8 percent. Other expenses decreased 5.7 percent, to $2,267,545 in 1998 from
$2,405,478 in 1997, with increased settlements and travel and entertainment
expenses more than offset by declines in professional fees and other expenses.

         The Company had a pretax loss of $2,729,657 in 1998 compared to a
pretax profit of $11,128,988 in 1997. The primary reasons for this decrease
were the significant decreases in investment income, corporate finance
revenues and trading income. Independent of investment income, the Company
would have had pretax income of $1,336,977 in 1997 compared to a pretax loss
of $780,395 in 1998. Investment income in 1995 through 1997 was significantly
higher than in any previous year in the Company's history, primarily as a
result of increases in unrealized appreciation of underwriter warrants held
by the Company, based upon the Company's estimate of their fair value, gains
in the value of the underwriter warrants sold and greater profits on
positions held in response to significant increases in OTC prices,
particularly the technology sector. This source of income cannot be expected
to regularly recur. Significant fluctuations can occur in


                                       6
<PAGE>

PIC's revenues and operating results from one period to another. The Company
also incurred a benefit of $961,017 from income taxes in 1998, compared to an
expense of $4,178,593 in 1997.

LIQUIDITY AND CAPITAL RESOURCES

         Conducting business as a dealer in securities requires that a
substantial inventory of securities be maintained and that a large amount of
liquid assets be readily available. PIC is also required to maintain net
capital as described in "Item 1 - Description of Business -- Net Capital
Requirements" above. The Company's working capital at December 31, 1999 was
$23,618,990. Of PIC's total assets (net of intercompany accounts) at December
31, 1999 of $35,639,226, approximately 76 percent consisted of securities in
PIC's investment account, trading inventory and underwriter warrant
securities, at fair value, and approximately 21 percent consisted of cash,
certificates of deposit and receivables from its correspondent broker.

         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 and prices 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
tends to increase the liquidity of the market for these securities. The
overall decline in prices for the very small capitalization OTC securities
traded by PIC in 1994 and 1998 were combined with a general reduction in the
liquidity of the markets for these securities. This situation was the reverse
of 1999, 1997, 1996 and 1995, when increases in prices of OTC securities
increased 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. They include shares of restricted stock
recorded by PIC, with an original cost of $1,014,210, currently valued at
$1,014,210, which the Company believes, based upon available evidence,
approximates market value.

         PIC borrows money from CSC in the ordinary course of its business,
pursuant to an arrangement under which CSC agrees to finance PIC's trading
accounts in an amount determined by the size of those accounts and the type
of securities held, with interest charged at prevailing margin rates. As of
December 31, 1999, no net loans were owed by PIC to CSC pursuant to this
arrangement. PIC and the Company are generally able to meet their
compensation and other obligations out of current liquid assets.

         Another source of capital to PIC and the Company has been the
underwriter warrants issued to PIC in connection with its corporate finance
activities and the sale of the underlying securities. These warrants are
reflected on the balance sheet of PIC and the Company at their estimated fair
market value, with estimated discounts for lack of marketability. 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 less discounts, if any, for trading volume, the
remaining warrant exercise period and other factors. 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

                                       7
<PAGE>

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 December 31, 1999, PIC owned 28 underwriter
warrants (from 26 issuers), of which 23 were currently exercisable and 8 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. As of December 31, 1999, the Company
estimated that the value of PIC's underwriter warrants that had an exercise
price below the current market price of the securities receivable upon
exercise was $10,490,000. This estimate includes estimates by the Company of
discounts for lack of marketability, risk of failure of the issuer to
register the securities for resale and other possible difficulties that may
prevent the Company from realizing the value of the underwriter warrants. The
prices of the securities underlying the underwriter warrants are very
volatile, and substantial fluctuations in the Company's estimate of their
value can be expected in the future.

         In 1999, $6,879,286 of net cash was used in operating activities. The
major adjustments to reconcile this result to the Company's net income included
unrealized appreciation on investment securities and underwriter warrants of
$13,556,395, a realized gain of $8,083,884 on investment securities, an increase
in receivables of $6,082,055 and an increase in trading securities of $119,061,
partially offset by an increase in accounts payable and accrued liabilities of
$3,279,288, a change in deferred income taxes of $4,895,873, income taxes
payable of $1,284,859 and depreciation and amortization of $136,274. In 1999,
$7,943,963 of net cash was provided by investing activities, primarily sales of
investment securities exceeding purchases investment securities and the issuance
of a note receivable of $1,100,000. Net cash used in financing activities in
1999 totaled $1,116,812, resulting from payments to repurchase common stock. 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. In the unlikely event that PIC was unable to meet these regulatory
standards, it would be unable to pay dividends to the Company. Since PIC is the
Company's only operating business, such a failure could have a material adverse
affect on the Company.

         At December 31, 1999, the Company had no material commitments for
capital expenditures.

         In general, the primary 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 CSC 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.


                                      8
<PAGE>

YEAR 2000 EFFORTS

         In 1998 and 1999, the Company took various steps 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 was: (1) its PC hardware and software
purchased from third parties; and (2) external suppliers and service providers.
While there is no assurance that associated problems may not arise in the
future, to date the Company has not experienced any material problems relating
to the Y2K issue.

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.



                                      9

<PAGE>


                                    PART III

         All information required by Items 9, 10, 11 and 12 of Part III of this
Report will be included in the Company's definitive proxy statement for its 2000
annual meeting of shareholders filed or to be filed not later than 120 days
after the end of the fiscal year covered by this Report and is incorporated
herein by reference, other than the information with respect to executive
officers of the Company included below.



<PAGE>

DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

         Directors of the Company are elected for a term of one year and until
their successors are elected and qualify. Executive officers are appointed by
the board of directors and do not have fixed terms of office. The board of
directors and executive officers as of December 31, 1999 are set forth below.
The year each person became a director follows his or her name.


<TABLE>
<CAPTION>
                                                                      PRINCIPAL OCCUPATION(S) DURING PAST FIVE
             NAME                AGE    POSITION(S) WITH COMPANY                      YEARS
<S>                              <C>    <C>                           <C>
Chester L.F. Paulson (1970)       63    President and Director        Director of Corporate Finance of PIC

Jacqueline M. Paulson (1976)      60    Secretary-Treasurer and       Secretary-Treasurer of PIC
                                        Director

Glen Davis                        43    Director                      President of PIC since February 1998 (Senior
(1999)                                                                Vice President of PIC until February 1998

Kenneth T. LaMear (1985)          65    Director                      Senior Vice President of PIC since February
                                                                      1998, Chief Executive Officer of PIC  until
                                                                      February 1998

Shannon P. Pratt                  66    Director                      Managing Director, Founder - Willamette
(1998)                                                                Management Associates, a business valuation
                                                                      firm

Paul Shoen                        43    Director                      Chairman of the Board of Directors and Chief
(1998)                                                                Executive Officer of Panetechnicon Aviation,
                                                                      an operator and lessor of aircraft; private
                                                                      investor; Director -- AMERCO, the parent
                                                                      company of U-Haul Trucking Rental, from January
                                                                      1997 to August 1998

John Westergaard                  68    Director                      Publisher/Editor of Westergaard Online
(1998)                                                                Systems, Inc., an Internet publisher of
                                                                      financial "webzines"


         Chester L.F. Paulson and Jacqueline M. Paulson are husband and wife.
</TABLE>




<PAGE>

                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15 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:  May 22, 2000                        By:  /s/ CHESTER L.F. PAULSON
     -----------------------                    ------------------------
                                                Chester L.F. Paulson
                                                President


                                        23