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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

Commission file number: 0-23588

PAUL-SON GAMING CORPORATION
(Exact name of registrant as specified in its charter)

        Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

        Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

        7,594,900 shares of Common Stock, $0.01 par value, as of November 6, 2002

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PAUL-SON GAMING CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
SEPTEMBER 30, 2002 and DECEMBER 31, 2001
(dollars in thousands)

See notes to unaudited condensed consolidated financial statements.

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PAUL-SON GAMING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(dollars in thousands, except per share amounts)

See notes to unaudited condensed consolidated financial statements.

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PAUL-SON GAMING CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (unaudited)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002
(dollars in thousands)

See notes to unaudited condensed consolidated financial statements.

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PAUL-SON GAMING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (unaudited)
(dollars in thousands)

5

PAUL-SON GAMING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (unaudited) (Continued)
(dollars in thousands)

See notes to unaudited condensed consolidated financial statements.

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PAUL-SON GAMING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

Organization and Nature of Business

        Paul-Son Gaming Corporation, a Nevada corporation ("Paul-Son") and each of its subsidiaries are collectively referred to herein as the "Company." On September 12, 2002, the stockholders of Paul-Son approved the Agreement and Plan of Exchange dated as of April 11, 2002 and amended as of May 13, 2002 (the "Combination Agreement"), between Paul-Son and Etablissements Bourgogne et Grasset S.A. ("B&G"), a societe anonyme organized under the laws of France. Paul-Son and B&G completed the transactions contemplated under the Combination Agreement on the same day. At the closing, the businesses of Paul-Son, B&G and B&G's wholly-owned subsidiary, The Bud Jones Company, Inc. ("Bud Jones"), were combined, with B&G and Bud Jones becoming wholly-owned subsidiaries of Paul-Son (the "Combination"). The Combination was accounted for as a purchase transaction for financial accounting purposes. Because the former B&G stockholders own a majority of the outstanding Paul-Son common stock as a result of the Combination, the Combination was accounted for as a reverse acquisition in which B&G is the purchaser of Paul-Son. (See Note 2)

        The Company is a leading manufacturer and supplier of casino table game equipment in the world. Business activities of the Company include the manufacture and supply of casino chips, table layouts, playing cards, dice, gaming furniture, table accessories and other products that are used with casino table games such as blackjack, poker, baccarat, craps and roulette. The Company's revenue is derived primarily from the sale of gaming products to casinos throughout the world. Most of the Company's products are sold directly to end-users. In some regions of the world, however, the Company sells through distributors.

        On September 12, 2002, Paul-Son's board of directors resolved to change Paul-Son's fiscal year from a fiscal year ending May 31 to a fiscal year ending December 31. Paul-Son expects to file an annual report on Form 10-K for the fiscal year ending December 31, 2002 for the combined company.

Basis of Consolidation and Presentation

        The condensed consolidated financial statements include the accounts of Paul-Son and its wholly-owned subsidiaries, including B&G, Bud Jones, Paul-Son Gaming Supplies, Inc. ("Paul-Son Supplies"), Paul-Son Mexicana, S.A. de C.V., Industrias Paul-Son de Mexico, S.A. de C.V. and Authentic Products, Inc. (See Note 2) All material intercompany balances and transactions have been eliminated in consolidation. The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and do not include all of the information and notes required by accounting principles generally accepted in the United States of America for complete financial statements. These statements should be read in conjunction with Paul-Son's annual audited consolidated financial statements and related notes included in Paul-Son's Form 10-K for the year ended May 31, 2002, Paul-Son's Definitive Proxy Statement filed on August 9, 2002, and Paul-Son's Form 8-K dated September 12, 2002.

        These condensed consolidated financial statements are unaudited, but in the opinion of management, reflect all normal and recurring adjustments necessary for a fair presentation of results for such periods. The results of operations for an interim period are not necessarily indicative of the results for the full year.

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        A summary of the Company's significant accounting policies follows:

Cash and Cash Equivalents

        The Company considers all highly liquid investments and repurchase agreements with maturities of three months or less to be cash and cash equivalents.

Fair Value of Financial Instruments

        The fair value of cash, marketable securities, accounts receivable, and accounts payable approximates the carrying amount of these financial instruments due to their short-term nature. The fair value of long-term debt, which approximates its carrying value, is based on current rates at which the Company could borrow funds with similar remaining maturities.

Accounts Receivables and Customer Deposits

        The Company performs ongoing credit evaluations of its customers and generally requires a fifty percent deposit for manufactured or purchased products at the discretion of management. These customer deposits are classified as a current liability on the balance sheet. The Company maintains an allowance for doubtful accounts, and charges against the allowance have been within management's expectations.

Marketable Securities

        The Company accounts for its investments in marketable securities in accordance with Statement of Financial Accounting Standards No. 115, "Accounting For Certain Investments in Debt and Equity Securities" ("SFAS No. 115"). Under SFAS No. 115, the Company's securities are classified as available-for-sale and, as such, are carried at fair value with unrealized gains and losses included as a separate component of equity, net of any related tax effect. The first-in, first-out method is used to determine the cost of securities disposed of. Marketable securities consist of mutual funds. These investments are held with one major financial institution in the Company's name. In accordance with SFAS No. 115, unrealized holding gains and losses for available-for-sale securities are excluded from earnings and reported within accumulated other comprehensive income (loss).

Inventories

        Inventories are stated at the lower of cost or market, net of reserves for slow-moving, excess and obsolete items. Cost is determined using the weighted average and first-in, first-out methods. Provision for potentially obsolete or slow-moving inventory is made based on management's analysis of inventory levels and future sales forecasts. Inventory consists of dice, chips, other gaming equipment and supplies.

Property and Equipment

        Property and equipment are stated at cost, net of depreciation. Depreciation is computed primarily on the straight-line method for financial reporting purposes over the following estimated useful lives:

        The cost of maintenance and repairs is charged to expense as incurred. Major additions and betterments are capitalized.

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Goodwill and Other Intangible Assets

        Goodwill and certain trademarks with indefinite lives are not amortized. Other intangible assets such as patents, non-compete agreements and other with definite lives are amortized over their useful lives ranging from three to fourteen years.

Debt

        The Company includes obligations from capitalized leases in its long- and short-term debt captions for financial reporting purposes.

Revenue Recognition

        Substantially all revenue is recognized when products are shipped to customers. The Company typically sells its products with payment terms of net 30 days or less.

        The Company offers a limited warranty on its products. Sales returns and warranty reserves are provided for as incurred under the accrual basis and are based on estimates of future costs associated with fulfilling the warranty obligation. The estimates are derived from historical cost experience.

Income Taxes

        The Company uses Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes," for financial accounting and reporting for income taxes. A current tax liability or asset is recognized for the estimated taxes payable or refundable on tax returns for the current year.

        A deferred tax liability or asset is recognized for the estimated future tax effects, based on provisions of the enacted law, attributable to temporary differences and carryforwards.

        Paul-Son and its subsidiaries file separate income tax returns in their respective jurisdictions. Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes related primarily to differences between the bases of assets and liabilities acquired for financial and income tax reporting. The deferred tax assets and liabilities represent the future tax consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Deferred taxes also are recognized for operating losses that are available to offset future income taxes.

        No provision has been made for French or United States federal and state taxes that may result from future remittances of undistributed earnings of the U.S. subsidiaries ($3,013,000 at December 31, 2001 and $834,000 at September 30, 2002) because it is expected that such earnings will be permanently reinvested in the U.S. operations. It is not practicable to estimate the amount of taxes that might be payable on the eventual repatriation of these earnings. Due to the uncertainty of the timing and amount of future profits, the Company did not record a benefit against the pre-tax losses of the Company.

Foreign Currency Transactions

        The financial statements of B&G are measured using the Euro as the local functional currency. Assets and liabilities of B&G are translated into the U.S. Dollar at exchange rates as of the balance sheet date. Revenues and expenses are translated into the U.S. Dollar at average rates of exchange in effect during the year. The resulting cumulative translation adjustments have been recorded in accordance with the provisions of Statement of Financial Accounting Standards No. 52 and are shown within accumulated other comprehensive income.

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        Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.

Estimates

        The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates and assumptions have been made in determining the depreciable life of assets, the recoverability of deferred tax assets, and the allowance for doubtful accounts receivable and slow-moving, excess and obsolete inventories. Actual results could differ from those estimates.

Reliance on Suppliers

        For certain of its products, the Company is dependent upon a limited number of suppliers to provide the Company with raw materials for manufacturing and finished goods for distribution. The failure of one or more of these suppliers to meet the Company's performance specifications, quality standards or delivery schedules could have a material adverse effect on the Company.

Reclassifications

        Certain prior period amounts in the consolidated financial statements have been reclassified to conform to the September 30, 2002 presentation. These reclassifications had no effect on the Company's net income (loss).

Recently Issued Accounting Guidance

        In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations. "SFAS 141 eliminates the use of the pooling-of interest method for business combinations initiated after June 30, 2001 and also applies to all business combinations accounted for by the purchase method that are completed after June 30, 2001. There are also transition provisions that apply to business combinations completed before July 1, 2001, that were accounted for by the purchase method. The Company adopted this statement on January 1, 2002. The adoption of SFAS No. 141 had no material impact on the Company's consolidated financial statements.

        In June 2001, the FASB issued SFAS No. 142 "Goodwill and Other Intangible Assets." SFAS 142 is effective for fiscal years beginning after December 15, 2001 to all goodwill and other intangible assets recognized in an entity's statement of financial position at that date, regardless of when those assets were initially recognized. According to this statement, goodwill and intangible assets with indefinite lives are no longer subject to amortization, but rather an annual assessment of impairment by applying a fair-value based test. The Company adopted SFAS No. 142 as of January 1, 2002. The Company expects to receive future benefits from goodwill and trademarks over an indefinite period of time and, as of January 1, 2002, ceased amortizing them. The Company completed the transitional goodwill impairment test, and as a result of this test, no impairment of goodwill and trademarks was deemed necessary.

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        The Company applied these new rules of accounting for goodwill and other intangible assets as of January 1, 2002. A reconciliation of previously reported net income to pro forma amounts adjusted for the exclusion of the amortization of goodwill and trademarks follows (in thousands):

        In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." This statement addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. This statement applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and (or) the normal operation of a long-lived asset, except for certain obligations of lessees. SFAS No. 143 is effective for financial statements issued for fiscal years beginning after June 15, 2002. The Company is currently evaluating the provisions of SFAS No. 143.

        In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 requires one accounting model be used for long-lived assets to be disposed of by sale and broadens the presentation of discontinued operations to include more disposal transactions. The requirements of SFAS No. 144 are effective for fiscal years beginning after December 15, 2001. The Company adopted this statement on January 1, 2002, and the adoption did not have a material effect on its consolidated financial statements.

        In April 2002, the FASB issued SFAS No. 145, "Rescission of SFAS Nos. 4, 44, and 64, Amendment of SFAS No. 13, and Technical Corrections." Among other things, SFAS No. 145 rescinds various pronouncements regarding early extinguishment of debt and allows extraordinary accounting treatment for early extinguishment only when the provisions of Accounting Principles Board Opinion No. 30, "Reporting the Results of Operations—Reporting the Effects of Disposal of a Segment of a Business and Extraordinary, Unusual and Infrequently Occurring Events and Transactions" are met. SFAS No. 145 provisions regarding early extinguishment of debt are generally effective for fiscal years beginning after May 15, 2002. The Company will adopt this statement during 2003. Management believes that the adoption of SFAS No. 145 will not have a material impact on our consolidated financial statements.

        In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities". This statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies EITF No. 94-3 "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)". The statement requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. A fundamental conclusion reached by the FASB in SFAS No. 146 is that an entity's commitment to a plan, by itself, does not create a present obligation to others that meets the definition of a liability. This statement also establishes that fair value is the objective for initial measurement of the liability. The provisions of this statement are effective for exit or disposal activities that are initiated after December 31, 2002 with early application encouraged.

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Management believes that the adoption of SFAS No. 146 will not have a material impact on our consolidated financial statements.

NOTE 2. BUSINESS COMBINATIONS

        Pursuant to the Combination Agreement, Paul-Son acquired 100% of the stock of B&G in exchange for (a) shares of Paul-Son common stock which immediately after the closing equaled 53.45% of the outstanding shares of Paul-Son common stock and (b) warrants to provide antidilution protection to the extent that the stock options and other rights to acquire Paul-Son common stock outstanding at the closing are subsequently exercised. Accordingly, Paul-Son issued 3,969,026 shares of its authorized common stock to the stockholders of B&G. The B&G stockholders were issued warrants to purchase an aggregate of 459,610 shares, of which 84,610 warrants were immediately exercised reflecting the issuance of 84,610 shares to Paul-Son's investment banker in connection with the Combination. Therefore, the B&G stockholders were issued a total of 4,053,638 shares in connection with the combination. These transactions resulted in a total of 7,594,900 shares of Paul-Son common stock outstanding immediately after the closing.

        Paul-Son also purchased 100% of the shares in B&G's wholly-owned subsidiary, Bud Jones. In payment of the Bud Jones shares, Paul-Son issued a promissory note to B&G in the principal amount of $5,437,016. The promissory note is payable in full on the fifth anniversary of the closing. Interest on the promissory note is payable annually at a rate equal to the average prime rate for the year. The promissory note will continue to be an asset of B&G. Paul-Son and B&G determined the Combination consideration pursuant to arm's length negotiations between the parties. Prior to the Combination, Paul-Son received the written opinion dated May 20, 2002 from its investment banker that, from a financial point of view, as of the date of such opinion, the consideration to be paid to the B&G stockholders in the Combination was fair from a financial point of view to the holders of Paul-Son common stock. This promissory note is eliminated in connection with the consolidation of the Company.

        The Combination was accounted for as a reverse acquisition under generally accepted accounting principles, with B&G considered the acquiring entity even though Paul-Son survives and is the legal parent of B&G. As a result of this reverse acquisition treatment; (a) the historical financial statements of Paul-Son for periods prior to the Combination are no longer the financial statements of Paul-Son, and therefore no longer presented; (b) the historical financial statements of Paul-Son for the periods prior to the date of the Combination are those of B&G (adjusted to reflect the number of shares Paul-Son issued to B&G as if they had been outstanding as of the earliest date presented); (c) based on the closing date of September 12, 2002, the consolidated financial statements for the three and nine months ended September 30, 2002 include 19 days (September 12 to September 30, 2002) of operating activity for Paul-Son and its subsidiaries (other than B&G and Bud Jones). The financial statements for the three and nine months ended September 30, 2002 and 2001 include the consolidated operating results of B&G for the entire periods presented.

        The purchase consideration of the Combination is assumed to be approximately $6.5 million, based on the sum of the fair market value of the outstanding shares of Paul-Son common stock, the fair market value of the Paul-Son stock options and the direct costs associated with the transaction. The fair market value of the shares of Paul-Son common stock used in determining the purchase price was $1.57 per share, which reflects the average of the closing prices, as reported on the Nasdaq SmallCap Market, of Paul-Son common stock on April 11, 2002, the date the Combination was announced, and on the three business days before and after this announcement.

        The fair value of the Paul-Son stock options was estimated using the Black-Scholes option pricing model with the following assumptions: risk free rate of return of approximately 3.0%, expected lives of approximately 2 to 9 years, expected dividend rate of 0%, and volatility of approximately 100%.

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        These pro forma adjustments reflect the allocation to the assets and liabilities of Paul-Son of the difference between the purchase consideration and the book value of Paul-Son (negative goodwill). Paul-Son's book value is assumed to be its stockholders' equity (dollars in thousands, except share data):

        Pursuant to the Combination Agreement, the B&G stockholders received warrants to provide antidilution protection to the extent that any stock options and other rights to acquire Paul-Son common stock outstandin