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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549

FORM 10-K

(Mark One)

For the fiscal year ended December 31, 2002

For the transition period from                                      to                                     

Commission file number 0-23588

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

(702) 384-2425
(Registrant's telephone number, including area code)

        Securities registered pursuant to Section 12(b) of the Act:

        Securities registered pursuant to Section 12(g) of the Act:

COMMON STOCK, $ .01 PAR VALUE
(Title of class)

        Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

        Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes o No ý

        The aggregate market value of voting stock held by non-affiliates of the registrant as of March 26, 2003, based on the closing price as reported on the Nasdaq National Market of $4.05 per share, was approximately $8,972,196.

        Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of March 26, 2003.

        Common Stock, $.01 par value, 7,594,900 outstanding shares at March 26, 2003.

Documents Incorporated by Reference

        None

PART I

Item 1. Business

        Paul-Son Gaming Corporation, a Nevada corporation, and each of its subsidiaries are collectively referred to herein as the "Company" or "Paul-Son." 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 September 12, 2002. 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 Part II-Item 8. Financial Statements and Supplementary Data-Notes to Consolidated Financial Statements-Notes 1. and 2.).

        The Company is one of the 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, and miscellaneous table accessories such as chip trays, drop boxes and dealing shoes, which are used in conjunction with casino table games such as blackjack, poker, baccarat, craps and roulette.

        The Company is headquartered in Las Vegas, Nevada, with its manufacturing facilities located in Las Vegas, Nevada, San Luis, Mexico, Kansas City, Kansas and Beaune, France. The Company's primary sales offices are in Las Vegas, Nevada and Atlantic City, New Jersey for the United States, and Beaune, France for Europe and Asia in the international marketplaces. Through its Paul-Son Gaming Supplies, Inc. subsidiary, the Company sells its casino products in every state in which casinos operate in the United States and Canada from the products manufactured in the United States. Through its B&G subsidiary, the Company sells its casino products and some of Paul-Son's products to casinos throughout the world, primarily in Europe and Asia. 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 an exception basis.

        Paul-Son manufactures products to meet particular customer and industry specifications, which may include a wide range of shapes and sizes, varied color schemes and other graphics, and security and anti-counterfeit features. The useful lives of the Company's products typically range from several hours in the case of playing cards and dice, to several months in the case of layouts, and several years in the case of casino chips and gaming furniture. As such, the Company's primary business is the ongoing replacement sale of these products. When a new casino opens, the Company strives to supply most of the products required to operate the casino's table games. When successful, revenues are generated both from the initial sale to the new casino and on a continuing basis as the new casino becomes part of the Company's primary customer base.

        The Company operates in one operating segment—casino game equipment products in multi-geographic areas. (See Part II-Item 8. Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements—Note 15.).

        Paul-Son was founded in 1963 by its former Chairman, Paul S. Endy, Jr. and initially manufactured and sold dice to casinos in Las Vegas. B&G was formed in 1925 in Beaune, France.

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Available Information

        Paul-Son is a reporting company under the Securities Exchange Act of 1934 ("Exchange Act"), as amended, and files annual reports, quarterly reports, proxy statements and other documents with the Securities and Exchange Commission ("SEC"). The public may read and copy any of our filings at the SEC's Public Reference Room at 450 Fifth Street N.W., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Because we make filings to the SEC electronically, access to this information is available at the SEC's Internet website (www.sec.gov <http://www.sec.gov>). This site contains reports and other information regarding issuers that file electronically with the SEC. We also make available, free of charge, upon request, our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and, if applicable, amendments to those reports filed or furnished pursuant to the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.

Recent Developments

        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. On December 31, 2002, Bud Jones merged into Paul-Son Gaming Supplies Inc. The Paul-Son Gaming Supplies, Inc. and Bud Jones operations were consolidated into one facility at Paul-Son Corporation's headquarters in Las Vegas, Nevada. In February 2003, B&G changed its legal form from S.A. to S.A.S. (societe par actions simplifee).

        The Company engaged in retail sales of casino-quality products, including poker chips, "Fantasy Casino" chips, dice, playing cards and gift items made with Paul-Son components through its former Authentic Products, Inc. ("Authentic Products") subsidiary. These activities were discontinued in the first quarter of 2003. The Las Vegas retail sales activities were also ceased and Paul-Son plans to only sell its casino products to licensed casino operations.

        During the fourth quarter of 2002, Nasdaq determined that Paul-Son's securities could continue to be listed on the Nasdaq SmallCap Market. Prior thereto, Paul-Son had received notice from Nasdaq that its shares were subject to delisting on the basis of Paul-Son's Combination with B&G. The Nasdaq staff initially determined that the Combination was a "reverse merger" under Nasdaq Marketplace Rule 4330(f). This would have required Paul-Son to satisfy Nasdaq's initial listing requirements in order to maintain its listing. One of these requirements is a minimum $4.00 per share bid price, which Paul-Son did not meet.

        Upon Paul-Son's appeal, a Nasdaq Listing Qualification Panel determined to continue the listing of the Company's shares on the Nasdaq SmallCap Market. Like other listed companies, Paul-Son must continue to comply with the requirements for continued listing in order to maintain its Nasdaq listing. Paul-Son currently complies with Nasdaq's listing requirements.

Products

Casino Chips

        Paul-Son designs and manufactures casino chips, "plaques" and "jetons," (the European equivalent of casino chips) to meet a variety of customer preferences and specifications, including size, weight, ability to stack, ease of handling, texture, color, graphics, durability, security and anti-counterfeit features. Casino chips, jetons and plaques, like real currency, are subject to counterfeiting.

        A casino will generally order all of its chips, including replacement chips after wear and usage, from a single supplier. Accordingly, Paul-Son strives to become the original chip supplier to a casino upon its opening. A new casino order will typically include at least five distinct chip colors (for the U.S.

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market and a wider range of colors for the international market) and styles, ranging in denominations from $1 to $1,000. The Company's selling price is generally between $0.75 and $1.15 per chip, depending upon the specification, quantities, design and security features. Given this relatively low cost and a chip's expected lifespan of five or more years, management believes that competition is generally based upon factors other than price.

        Casino chips can be divided into three basic families: (a) Jetons and Plaques; (b) American Chip; and (c) Commemorative Chips. Jetons, plaques and American chips can also be manufactured with an embedded microchip.

Jetons and Plaques (manufactured in France by B&G)

        Jetons and plaques are European gaming chips. Jetons are circular with standard diameters ranging from 32 mm to 60 mm. Plaques are rectangular, square or oval with standard sizes ranging from 30 mm × 30 mm to 151 mm × 105 mm. Jetons and plaques are used mainly for traditional European games and also extensively in Asian countries. Jetons and plaques are made of laminated cellulose acetate with a very large range of size, colors, shapes and additional security components (UV print, laser print ("laser-lock"), hologram). B&G created this product line in 1923 and has held a leading position in this market since that time. The largest denomination of a casino plaque ever made by B&G had a face value in French Francs equivalent to $1.4 million.

American Chips

        American chips are used world-wide for games originating in the U.S. Originally, chips in the U.S. were made of clay and called "clay chips." Clay was replaced many years ago by plastic materials. There are currently three main technologies to produce these types of chips: injection molding, sublimation and compression molding. Paul-Son produces chips using all three of these methods.

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Injection Molded Chips. Bud Jones created injection molded chips back in the late 1960's. Such chips are made with several injection molded colors, typically with a central metal piece for the weight and printed decals. There are several standard diameters and a very wide range of design and color combinations. Various security features are used to make the chips counterfeit resistant, including UV pigments, UV prints, laser prints ("laser-lock") and holograms. The Bud Jones brand offers a very wide range of such chips, made of acrylic with very vivid colors and with ground and smooth surface. Since 1990, the B&G brand has developed a full line of injection molded chips with designs different from the Bud Jones brand and using a different type of plastic material with less vivid colors but requiring no grinding and allowing a rougher surface. The Bud Jones' and B&G's lines of injection molded chips allow a very good coverage of most casinos' requirements, which vary greatly around the world.



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Sublimation Chips. Sublimation chips are made of one disc of white plastic material (usually injection molded). The decor of these chips is traditionally transferred from printed paper to the plastic material by pressing and heating the printed paper on to the plastic disc. The printed colors sublimate and go from the paper into the plastic material. Starting in 1996, B&G created a new way of manufacturing this type of chip by using a printing technology called "pad printing." This technology permits simultaneously printing on the face and the edge of the chip. B&G calls this chip "Full Face." B&G holds several patents and patent applications for this technology.



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Compression Molded Chips. Compression molded chips are manufactured from a proprietary formulation of more than ten raw materials using a compression molding system. Printed decals or "inlays" are incorporated in the chips during the molding steps. Customized designs, security and identifying features are incorporated into the chips. Paul-Son holds a leading market share in compression molded chips, which are similar to the original clay chips of the past.

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Compression molded chips are manufactured under the Paul-Son Gaming™ brand at its facilities in San Luis, Mexico. The Company's annual production capacity at its Mexico facilities is approximately 16 million chips (based on a single shift and increased labor availability). Management believes that given its current production level of approximately seven million chips per year, the Company will have sufficient manufacturing capacity to meet potential increases in future demand.

Commemorative Chips

        Since 1994, Paul-Son has marketed commemorative chips. Management of Paul-Son and its casino customers determined that casino patrons often retained casino chips which commemorated certain types of events such as title boxing matches, significant anniversaries, and premier entertainment events. Casinos benefit to the extent that casino chips purchased are not redeemed, thereby resulting in added cash flow to the casino. The Company is also pursuing opportunities to sell commemorative chips outside of the gaming industry.

Casino Chips with Microchip and Reading Equipment

        Traditional jetons, plaques and chips cannot easily and precisely be accounted for by the casinos and therefore, games which call for them cannot be managed by casinos as efficiently as slot systems.

        Safechips by Bourgogne et Grasset® and Smartchips by Bud Jones™ are not only high quality gaming chips, they are also reliable carriers of the data needed by casinos to manage their table games efficiently. A sophisticated transponder is embedded in each chip and read/write devices are able to communicate with a large number of the chips without contact (i.e. anti-collision), establish the authenticity of each chip and transfer the data to information systems. The chips manufactured under the Paul-Son Gaming™ brand will also have the microchip technology available for sale in 2003.

        After more than five years of research, development and day-to-day practice, B&G has successfully mass produced gaming chips with Philips' exclusive "Vegas" Hitag transponder and has developed several data collection devices based on Philips' exclusive Vegas Hitag readers to be used by casinos to authenticate their chips and collect and process data for efficient table operation management. Other applications are available or are being developed. They include: table top authenticator, cashier's desk, chip bank authenticator, automatic tip box and automatic programming machines.

Dice

        The Company manufactures the Paul-Son Gaming™ dice at its Mexico facilities from cellulose acetate specifically formulated to provide the required clarity, hardness and dimensional stability. The Bud Jones brand (Bud Jones™) and the T-K Dice brand (T-K™) of dice are manufactured at the Company's Las Vegas facilities from cellulose acetate specifically formulated to provide the required clarity, hardness and dimensional stability. The Company offers a variety of spot designs, which are inserted in the body of the dice and machined flat to the surface. A casino may request the imprinting of its name and logo (in a variety and combination of colors), the insertion of a security "key" onto the reverse side of a particular spot, the addition of a security "glow" spot, the serialization of the dice, or all or a combination of the above.

        The typical sales price of casino dice currently ranges between approximately $2.90 and $3.50 per pair. The Company currently has the capacity to produce approximately 900,000 pairs of dice per year (based upon one production shift) in Mexico and approximately 500,000 pairs of dice per year in the U.S. In 2002, the Company produced over one million pairs of dice. Management believes the Company's capacity for dice production is sufficient to accommodate an increase in production requirements.

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        All Company brands of dice are manufactured in conformity with the strictest standards of gaming regulators, which require that each die be within 0.003 of an inch of a perfect cube. Generally, a set of dice (two and one-half pair) does not remain in play for more than eight hours in a busy casino.

Table Layouts

        Every gaming table is covered with a layout printed with patterns particular to each specific game, as well as multi-colored logos and other markings according to individual casino preferences. Historically, the casino industry used a layout made from woolen material. However, in recent years, many customers have requested layouts made from synthetic material. Paul-Son believes it is a leading manufacturer of layouts in the United States, utilizing high quality cloths, enhanced graphics, and proprietary dye formulations which management believes result in the widest variety of customized colors. Since 2000, when the Company acquired certain patent rights covering methodology and processes relating to the screening of inks on synthetic cloth for casino tabletop layouts, the Company has also offered synthetic layouts in a wide variety of colors and customer preferences. The patent rights have a remaining duration of 13 years and enable the Company to provide a full line of table game supplies and equipment.

        Paul-Son typically installs layouts on new gaming tables prior to delivery to a casino. The table layouts are replaced by casinos on a regular basis, in order to maintain their appearance, which is generally within 60 to 150 days. Layouts typically sell in a price range of approximately $80 to $300, in the U.S., depending on the type of table, the complexity of the patterns and the variety and difficulty of color combinations.

        The Company manufactures its Paul-Son Gaming™ layouts in its Mexico facilities. The Company's layout production capacity is approximately 50,000 "steam" woolen layouts, approximately 25,000 "hand-painted" woolen layouts and 10,000 synthetic layouts per year. In fiscal 2002, the Company produced approximately 24,000 layouts. Management believes the capacity of its layout production facilities in Mexico will allow the Company to increase layout production as needed.

        The Bud Jones™ customized layouts, are designed in Las Vegas and then manufactured by a local third-party and subsequently sold to casinos all over the United States.

Playing Cards

        The Company manufactures and sells its own line of paper casino playing cards. A deck of cards typically sells to casinos within a price range of approximately $0.80 and $1.40 and, based on casino industry practices, is generally replaced every eight hours or less. A casino typically enters into a one or two year purchase commitment with a supplier to supply its cards at regular intervals, generally monthly. Casinos occasionally purchase cards from more than one supplier, as casino floor managers often have preferences for a particular type of card.

        Given the Company's relatively low market share of the playing cards market, its established distribution system for table game supplies and its low cost manufacturing facilities, management believes that playing cards represent a reasonable growth opportunity for the Company.

        The Company produces all of its playing cards in its Mexico facilities. The Company purchased and leased additional equipment in fiscal 1999 to increase its production capacity to satisfy the marketplace. The appropriate marketing approach will permit management to offer better customer service to selected clients, providing a better return to the Company. In 2002, the Company produced approximately six million decks of playing cards.

        The Company also distributes plastic playing cards, which are used predominately in California card clubs. Traditionally, the plastic playing cards are preferred by the California card room market while the paper cards are generally preferred by the traditional hotel-casino markets.

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Wheels

        B&G manufactures American Roulette and French Roulette wheels in Beaune, France and sells them primarily in Europe and in certain U.S. jurisdictions where B&G is licensed (such as New Jersey, Washington State and Mississippi).

        Until the Combination, Paul-Son and Bud Jones made roulette wheels and "Big Six" wheels in their plants in Las Vegas. In October 2000, and September 2002, respectively, Bud Jones and Paul-Son surrendered their Nevada gaming manufacturer and distributor licenses and thus can no longer manufacture wheels in Nevada or sell wheels from Nevada.

Gaming Furniture

        The Company sells a variety of casino gaming furniture, including tables and seating. Tables range in price from approximately $1,500 for a blackjack table to approximately $4,000 for a roulette game table (excluding the roulette wheel). The Company offers a "Premier" line of gaming furniture which has been the staple of the Company and a "Select" line in response to the industry's demand for a lower priced, quality line of blackjack tables. Management believes the "Select" line enables the Company to compete with the price structure of its competitors while maintaining Company quality standards. Paul-Son vigorously pursues gaming table sales because the sale of a gaming table will generally bolster its ability to sell chips and consumable products such as layouts, dice, cards, and other accessories to the table purchasers. The Company had purchased its gaming tables from a third party prior to 2000 and then began manufacturing its own table game furniture components in its San Luis, Mexico facility. As of December 31, 2002, the table manufacturing process was moved from the Mexico facility to the Las Vegas plant to improve economies of scale with the merger of Bud Jones. Tables are assembled by the Company and completed by adding the felt layout, drop boxes, trays and other accessories. Table game seating is produced by nonaffiliated manufacturers and distributed by the Company.

        B&G also manufactures a variety of casino gaming furniture, including tables (black jack, roulette, craps etc.) and seating, in Beaune, France. The Company will pursue sales of gaming table and related equipment and accessories to enhance their ability to sell chips and dice.

Table Accessories and Other Products

        In order to offer its customers a full product line, the Company sells a number of ancillary casino table game products, which it typically does not manufacture. However, the Company manufactures limited quantities of certain plastic products, including dealing shoes. Ancillary products include plastic money paddles, discard holders, drop boxes, dealing shoes, trays and covers, dice sticks and on/off pucks. These products are generally sold in conjunction with the sale of gaming tables and tend to have long useful lives. The Company generally maintains two suppliers for each of these products.

Sales, Advertising and Promotion

        The Company generally distributes its products in the U.S. through its six person sales force, which primarily operates out of regional offices in Las Vegas, Nevada and Atlantic City, New Jersey. B&G generally distributes its products for the international market through its three person sales force, which operates out of its Beaune, France office.

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        Management believes that the long-standing customer relationships, which have been developed over the years by its individual sales representatives, as well as the Company's reputation for quality and reliability, are key factors upon which the Company successfully competes in the market place. Exceptionally, when direct selling is not feasible because of local conditions, the Company may enter into agreements with carefully selected local distributors. But, even in this case, the Company always maintains direct contact with the end clients.

        Paul-Son places advertising in trade publications and participates in major casino industry trade shows. The Company keeps abreast of new casino openings through personal contact with casino management, legislative and trade publications and wire service press releases. When new casinos are identified, the Company's representatives make personal contact with appropriate officers and/or purchasing agents in order to solicit the sale of their products to such potential new customers.

        The Company's experience has been that once a casino buys from a table game supplier, it tends to purchase replacement products from the same supplier, provided that the quality, service and competitive pricing on the products are maintained. As a result, the Company's sales efforts are primarily focused on selling a wide range of table gaming products to casinos while they are in the development and licensing stage. By thereafter maintaining a frequent contact program, the Company seeks to realize a steadily increasing base of recurring sales while capturing incremental sales to new casinos.

Materials and Supplies

        The Company maintains good relationships with its suppliers and has, where possible, diversified its supplier base so as to avoid a disruption of supply. In most cases, the Company's raw materials are staple goods, such as paper, plastic and wool, which are readily available from several suppliers. The Company believes that its practice of purchasing from diversified sources minimizes the risk of interrupting the supply of raw materials.

Competition

        There are a number of companies that compete with the Company in the sale of each of its product lines:

        Casino Chips.    The casino chip product line has in recent years become an increasingly competitive area of the gaming supply business. Currently, the Company's major competitors are Chipco International Ltd. and RT Plastics in the U.S., Abbiati in Italy, Dolphin in Australia, Matsui Gaming Machines in Japan and several other local manufacturers. The Company believes key competitive factors for casino chip sales are: well established product and process security, respect of players' and dealer habits', attractiveness, durability, quality of service and price.

        Table Layouts.    The Company's primary competitor for casino table layouts is Midwest Game Supply Co. ("Midwest"). Management believes the key competitive factors for felt table layout sales are cloth quality, enhanced graphics, designs, clarity and range of colors.

        Playing Cards.    The Company's major competitors in the domestic playing card market are The U.S. Playing Card Co. and Gemaco Playing Card Co. Management believes the primary competitive factors for playing cards are price, intrinsic characteristics (snap memory, ease of handling, etc.), security, durability, brand name identification and reputation.

        Gaming Furniture.    The Company's principal competitors for casino gaming furniture are Huxley Gaming Supplies and smaller regional wood shops in certain geographic areas. Competition is based on quality, price and durability.

        Dice.    The Company's principal competitor for casino dice sales is Midwest. Management believes the primary competitive factors for dice sales are quality of the product and services and pricing. In

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addition, casino shift managers typically prefer that casinos purchase dice from more than one supplier due to industry superstition that dice from one of its suppliers may run "cold" for the house from time to time.

        Table Accessories and Other Products.    The Company's principal competitor for distributing table accessories and other products, which include plastic money paddles, discard holders, drop boxes, dealing shoes, trays and covers, dice sticks and on/off pucks is Midwest. The Company believes that key competitive factors for these products are the ability to be a single source supplier, price and product quality.

Environmental Matters

        The Company believes it is in substantial compliance with federal, state and local provisions that have been enacted or adopted relating to the protection of the environment. The Company does not expect that continued compliance with these provisions will have any material effect upon capital expenditures and earnings.

Employees

        At February 28, 2003, the Company employed approximately 480 persons. Approximately 270 of the employees are located at the Company's Mexico facilities, 100 employees are located in the B&G Beaune facility and the remainder are located primarily in Las Vegas, Nevada, Kansas City, Kansas and Atlantic City, New Jersey. None of the Company's employees are covered by collective bargaining agreements and the Company believes that its relations with its employees are good.

Regulation and Licensing

General Gaming Regulation

        The gaming operations of each of Paul-Son's subsidiaries are subject to extensive regulation, and each of Paul-Son's subsidiaries hold registrations, approvals, gaming licenses or permits in each jurisdiction in which it operates gaming activities. A list of the geographical locations of the jurisdictions in which Paul-Son and its subsidiaries are subject to licensing and/or regulatory control of the gaming authorities is set forth below.

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        In each such jurisdiction, certain regulatory requirements were required to be complied with and/or approvals were to be obtained in connection with the combination of Paul-Son Gaming Corporation with B&G. All necessary approvals were obtained and regulatory requirements were met with regard to the combination.

        While the regulatory requirements vary from jurisdiction to jurisdiction, most require licenses, permits, findings of suitability, documentation of qualification including evidence of financial stability and/or other required approvals for companies who manufacture and distribute gaming equipment, as well as the individual suitability of officers, directors, major stockholders and key employees. Under the various gaming regulations, key personnel generally include the current and/or proposed corporate officers and directors of a corporation and its subsidiaries. Laws of the various gaming regulatory agencies are generally intended to protect the public and ensure that gaming related activity is conducted honestly, competitively, and free of corruption.

        Various gaming regulatory agencies have issued licenses allowing Paul-Son's wholly owned subsidiaries to manufacture and/or distribute their products. These companies and their key personnel, as applicable, have obtained or applied for all government licenses, permits, registrations, findings of suitability and approvals necessary allowing for the manufacture and distribution of gaming supplies and equipment in the jurisdictions where it is required. These companies have never been denied a gaming related license, nor have any licenses been suspended or revoked. Unrelated to the Combination, Paul-Son's subsidiary, Paul-Son Gaming Supplies, Inc., has received a notice of violation, in the State of Louisiana, due to their alleged failure to receive proper authorization in advance of a stock transfer. Paul-Son is responding to the notice of violation as required.

Nevada Gaming Regulation

        The manufacture and distribution of gaming equipment in Nevada are subject to extensive state and local regulation. Paul-Son's operations were subject to the licensing and regulatory control of the Nevada Gaming Commission, or the Nevada Commission, the Nevada State Gaming Control Board, or the Nevada Board, and various local regulatory agencies, or the Nevada Gaming Authorities due to their manufacture of roulette wheels and Big Six wheels, which are considered gaming devices.

        The complex regulatory scheme governing the licensing of roulette wheel and Big Six wheel manufacturers and distributors in Nevada imposed administrative burdens which far exceed those of most other gaming jurisdictions when applied to Paul-Son's proposed corporate structure and its proposed foreign stockholders. The anticipated time and expense of a foreign investigation that would be conducted by the Nevada Gaming Authorities would, in the opinion of Paul-Son's and B&G's management, far outweigh any benefit to be gained by maintaining licensure in Nevada. Specifically, based upon an analysis of three factors: the potential market for Paul-Son products in Nevada; the benefits gained through Paul-Son's choice of corporate structure; and the administrative costs associated with compliance with certain requirements of Nevada Gaming Authorities, Paul-Son and B&G concluded that the costs of maintaining licensure in Nevada upon the completion of the Combination significantly exceeded the potential profits. Paul-Son thus administratively surrendered the Nevada gaming licenses of Paul-Son Gaming Supplies, Inc. upon the completion of the Combination, a procedure that allowed Paul-Son Gaming Supplies, Inc. to forego licensure in Nevada without impacting its licensure in other gaming jurisdictions or its ability to continue to manufacture roulette wheels and Big Six wheels in and for other jurisdictions. The above license surrender will not impact the manufacture or sale of Paul-Son's other products in Nevada.

New Jersey Gaming Regulation

        Paul-Son's subsidiaries are currently required to be licensed under the New Jersey Casino Control Act, or the New Jersey Act, as casino service industries qualified to manufacture and sell gaming-related products to casinos in New Jersey. As part of such licensure, parent companies, holding

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companies and certain officers and directors of the companies are required to be found suitable by the New Jersey Casino Control Commission, or the New Jersey Commission. The sale and distribution of gaming equipment to casinos in New Jersey is also subject to the New Jersey Casino Control Act, or New Jersey Act and the regulations promulgated thereunder by the New Jersey Commission. The New Jersey Commission has broad discretion in promulgating and interpreting regulations under the New Jersey Act. Amendments and supplements to the New Jersey Act, if any, may be of a material nature, and accordingly may adversely affect the ability of a company or its employees to obtain any required licenses, permits and approvals from the New Jersey Commission, or any renewals thereof. The current regulations govern licensing requirements, standards for qualification, persons required to be qualified, disqualification criteria, competition, investigation of supplementary information, duration of licenses, record keeping, causes for suspension, standards for renewals or revocation of licenses, equal employment opportunity requirements, fees and exemptions. In deciding to grant a license, the New Jersey Commission may consider, among other things, the financial stability, integrity, responsibility, good character, reputation for honesty, business ability and experience of the applicant and its directors, officers, management and supervisory personnel, principal employees and stockholders as well as the adequacy of the financial resources of the applicant. New Jersey licenses are granted for a period of three or four years, depending on the length of time a company has been licensed, and are renewable. The New Jersey Commission may impose such conditions upon licensing, as it deems appropriate. These include the ability of the New Jersey Commission to require the applicant or licensee to report the names of all of its stockholders as well as the ability to require any stockholders whom the New Jersey Commission finds not qualified to dispose of the stock, not receive dividends, not exercise any rights conferred by the shares, nor receive any remuneration from the licensee for services rendered or otherwise. Failure of such stockholder to dispose of such stockholder's stock could result in the loss of the license. Licenses are also subject to suspension, revocation or refusal for sufficient cause, including the violation of any law. In addition, licensees are also subject to monetary penalties for violations of the New Jersey Act or the regulations of the New Jersey Commission.

        Paul-Son's new combined structure required that each subsidiary company submit a new application for licensure. Upon a satisfactory initial background investigation, each company may obtain transactional waiver approval from the New Jersey Commission to engage in specific transactions with New Jersey casinos pending the outcome of the complete investigation of its respective license application. This transactional approval process permits each company then to continue its business with New Jersey casinos uninterrupted upon the completion of the combination.

Other Gaming Jurisdictions

        In addition to New Jersey, Paul-Son's subsidiaries are currently licensed in a number of other jurisdictions. Although the regulations in these jurisdictions are not identical to the states of Nevada or New Jersey, their material attributes are substantially similar, as summarized below.

        The manufacture, sale and distribution of gaming supplies in each jurisdiction are subject to various state, county and/or municipal laws, regulations and ordinances, which are administered by the relevant regulatory agency or agencies in that jurisdiction. These laws, regulations and ordinances primarily concern the responsibility, financial stability and character of gaming supply and equipment owners, distributors, sellers and operators, as well as persons financially interested or involved in gaming or liquor operations. In many jurisdictions, selling or distributing gaming supplies may not be conducted unless proper licenses are obtained. An application for a license may be denied for any cause which the gaming regulators deem reasonable. In order to ensure the integrity of manufacturers and distributors of gaming supplies, most jurisdictions have the authority to conduct background investigations of a company, its key personnel and significant stockholders. The gaming regulators may at any time revoke, suspend, condition, limit or restrict a license for any cause deemed reasonable by the gaming regulators. Fines for violation of gaming laws or regulations may be levied against the holder of a license and persons involved. Paul-Son subsidiaries and their respective key personnel have

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obtained all licenses necessary for the conduct of their respective business in the jurisdictions in which they sell and distribute gaming equipment and supplies. Suspension or revocation of such licenses could have a material adverse effect on Paul-Son's operations.

Federal Gaming Registration

        The Federal Gambling Devices Act of 1962 makes it unlawful for a person to manufacture, transport, or receive gaming machines, gaming devices (including roulette wheels) or components across interstate lines unless that person has first registered with the Attorney General of the U.S. Department of Justice. In addition, gambling device identification and record keeping requirements are imposed by the Federal Act. Violation of the Federal Act may result in seizure and forfeiture of the equipment, as well as other penalties. Paul-Son's subsidiaries, which were involved in the manufacture and transportation of gaming devices, were required to register annually. Paul-Son has permission to sell its existing inventory of roulette wheels and Big Six wheels it has manufactured already in the United States.

Native American Gaming Regulation

        Gaming on Native American lands is governed by federal law, tribal-state compacts, and tribal gaming regulations. The Indian Gaming Regulatory Act of 1988, or the IGRA, provides the framework for federal and state control over all gaming on Native American lands and is administered by the National Indian Gaming Commission and the Secretary of the U.S. Department of the Interior. The IGRA requires that the tribe and the state enter into a written agreement, a tribal-state compact, which governs the terms of the gaming activities. Tribal-state compacts vary from state-to-state and in many cases require equipment manufacturers and/or distributors to meet ongoing registration and licensing requirements. In addition, tribal gaming commissions have been established by many Native American tribes to regulate gaming related activity on Indian lands. Paul-Son subsidiaries manufacture and distribute gaming supplies to Native American tribes who have negotiated compacts with their state and have received federal approval. Currently, Paul-Son Gaming Supplies, Inc. is authorized to sell products to Native American casinos in seventeen states and B&G is authorized to sell products to Native American casinos in five states.

International Gaming Regulation

        Certain foreign countries permit the importation, sale and operation of gaming supplies in casino and non-casino environments. Certain jurisdictions require the licensing of manufacturers and distributors of gaming supplies. Paul-Son and its subsidiaries, manufactures and/or distributes gaming supplies to various international markets including Australia, the Caribbean, Canada, and other foreign countries. Paul-Son has obtained the required licenses to manufacture and distribute its products in the various foreign jurisdictions where it does business.

        While the regulatory requirements vary from jurisdiction to jurisdiction, most require licenses, permits, findings of suitability, documentation of qualification including evidence of financial stability and/or other required approvals for companies who manufacture and distribute gaming equipment, as well as the individual suitability of officers, directors, major stockholders and key employees. Under the various gaming regulations, key personnel generally include the current and/or proposed corporate officers and directors of a corporation and its subsidiaries. Laws of the various gaming regulatory agencies are generally intended to protect the public and ensure that gaming related activity is conducted honestly, competitively, and free of corruption.

        Financial Information About Geographic Areas. See Part II-Item 8. Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements—Note 15. for certain financial information by geographic area.

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Item 2. Properties

        The Company is based in, and operates domestically from, a Company-owned facility in Las Vegas, Nevada and internationally, from Beaune, France. Paul-Son currently assembles and manufactures its primary products at facilities in Las Vegas, Nevada, San Luis, Mexico and Beaune, France. The Company also leases a sales office in Atlantic City, New Jersey.

        Las Vegas.    The Company's Las Vegas headquarters (the "Las Vegas Headquarters") are located in an approximately 60,000 square foot building. The Las Vegas Headquarters was purchased in September 1995 for approximately $2,000,000. This facility houses the Las Vegas sales and corporate offices, a centralized warehouse for certain of its finished goods inventory, manufacturing departments, including casino chips, tables (wood shop), layouts, and dice and a graphics art department. In the Las Vegas Headquarters, the Company also maintains certain inventory of templates, graphic designs, logos, and tools and dies for casino customers' gaming equipment. Maintaining such an inventory results in time and cost savings for product manufacture and delivery to the Company's customers. In December 2002, the Company relocated the wood shop unit that was located in Mexico along with the Bud Jones Dice and wood shop manufacturing units to the Las Vegas Headquarters in order to improve efficiencies and take advantage of economies of scale. The Las Vegas Headquarters secures a deed of trust issued under the Company's outstanding term loan. (See Part II-Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.) Upon completion of the merger of Bud Jones into Paul-Son Gaming Supplies, Inc., the former Bud Jones' leases of two buildings in Las Vegas were cancelled, and the operations were moved to the one central location at the Las Vegas Headquarters.

        San Luis, Mexico.    The Company manufactures casino chips, playing cards, dice, plastic products and layouts at three facilities in San Luis, Mexico. These facilities include a 34,000 square foot leased facility in which casino chips and dice are manufactured and an approximately 66,000 square foot facility used for playing cards, and layout products production. The Company leased the 34,000 square foot facility pursuant to an eight-year lease, which expired in April 2001, with an option to extend the term an additional 12 years. The Company did not exercise its option to extend the lease, but leased the facility on a month-to-month basis for approximately $12,000 per month. During the first quarter of 2003, this lease was extended for a one-year term, with an option to extend for up to 12 months at the same lease amount, but at a rate commensurate with only the space that will be utilized by the Company. The Company owns the 66,000 square foot facility. The Company also owned an approximately 30,000 square foot facility, which was previously used for layout, furniture and machine shop production purposes. The facility was vacant and subsequently sold in the first quarter of 2003 for $450,000 to the General Manager of Paul-Son Mexicana and his family. (See Part II-Item 8. Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements—Note 17.).

        Beaune, France.    The Company owns an approximately 8,000 square foot manufacturing and administrative facility, in Beaune, France. The Beaune facility is subject to a mortgage, which secures part of B&G's long-term debt.

        Facility Capacity.    With its current approximate 153,000 square feet of manufacturing facilities; management believes that the Company has sufficient production capacity to meet anticipated future demand for all of its products in the United States and abroad.

Item 3. Legal Proceedings

        Geraldine Brown, Plaintiff, vs. Tropicana Casino and Resort vs. Gasser Chair Co., Inc.; Paul-Son Dice & Card, Inc. (a/k/a Paul-Son Gaming Supply, Inc.); and Baumgardner Construction Company, Inc.), Court of Common Pleas, Philadelphia County, Pennsylvania, Case No. 005151 for September Term, 2002. On October 4, 2002, Geraldine Brown filed a Civil Action Complaint in the above-mentioned Court against Tropicana Casino and Resort ("Tropicana") for negligence and compensatory damages in an

13

amount exceeding $50,000, plus attorney's fees, costs and expenditures. Plaintiff Brown alleges having sustained severe personal injury on or about August 25, 2001, when the seat upon which she was gambling at a slot machine tipped back causing her to fall backwards and onto the casino floor.

        On December 9, 2002, Tropicana filed a Joinder Complaint naming Gasser, Paul-Son, and Baumgardner as joined entities in the liability. Tropicana had ordered casino equipment from Paul-Son Dice & Card, Inc. (a/k/a Paul-Son Gaming Supply, Inc.), Gasser Chair Co., Inc. manufactured the chair and the installer was Baumgardner Construction Company, Inc. In Count I, Tropicana alleges that they relied on the expertise of Paul-Son and Baumgardner for the kind of chair selected and the installation of the chair properly and that Paul-Son and Baumgardner should have known that the chair in issue was too easily removed from its slot machine cabinet and that it did not contain an adequate locking mechanism to further safeguard the casino's patrons from sustaining allegedly foreseeable falls. They allege the chair should have had greater weight built into the front of its base making backward tipping more difficult if not impossible. Paul-Son was named for being in the chain of distribution as the sellers.

        Count II claims that Gasser Chair is subject to the products liability laws and that the design of the chair (and base) was defective when it left the manufacturer.

        Tropicana asked the Court to dismiss the Plaintiff's Civil Action against them and to enter judgment against the Additional Defendants as being solely liable.

        The settlement conference was tentatively scheduled for December 2003 and the pre-trial is scheduled for April 5, 2005. The staff counsel of Hartford Insurance Group, Viletto, Bosnick, & Ross, are handling the case and say it is in the very early stages. They have asked the case to be transferred to the New Jersey jurisdiction, but the decision has not been ruled upon at this time. Management believes there will be no material impact to the Company's financial statements.

        Paul-Son Gaming Corp., The Paul S. Endy, Jr. Living Trust and Eric P. Endy v. AIG Technical Services, Inc. and National Union Fire Insurance Company of Pittsburgh, Pennsylvania, et al., District Court, Clark County, Nevada, Case No. A442822. This suit was filed on behalf of the Company and the other Defendants on or about December 3, 2001 seeking declaratory relief, among other things, for the purpose of determining the parties' respective rights and obligations under a directors, officers and corporate liability insurance policy issued by National Union Fire Insurance Company ("National Union") and administered by AIG Technical Services ("AIG"). At the time the suit was filed, a lawsuit was pending between the Company and Martin Winick, arising out of his employment by the Company. The Company's suit sought a declaration that, pursuant to the terms of the insurance policy, the insurance carrier had a duty to pay for the defense and to indemnify with respect to various claims filed against it by Mr. Winick. Since that time, the underlying litigation has been resolved, so the focus of the Company's suit will be reimbursement from the insurance carrier for the attorney's fees, costs, interest and settlement funds involved in resolving the underlying Winick suit and in securing coverage by the insurance carrier. The Company's suit is seeking, among other things, general, consequential and punitive damages that were allegedly, directly and proximately caused by the insurance carrier's bad faith in delaying, reducing or denying indemnity in defense to the Company and otherwise failing to act fairly and in good faith in analyzing the Company's tender under the insurance policy.

        An answer was filed by National Union. No answer was filed by AIG. A default was entered on March 15, 2002. AIG has requested a stipulation that the default be set aside, which is presently being contemplated by the Company and its counsel.

        A mediation was held on February 7, 2003, with National Union and AIG. No agreement has yet been reached. If no settlement is reached through the mediation process, discovery should resume.

        Martin S. Winick, Plaintiff, vs. Paul-Son Gaming Corporation, a Nevada corporation; the Paul S. Endy, Jr. Living Trust; Eric P. Endy, Trustee of the Paul S. Endy, Jr. Living Trust; Eric P. Endy, individually and in his capacity as an officer and director of Paul-Son Gaming Corporation; and Lawrence A. Spieser,

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an individual, Defendants, Case No. A416734. On February 5, 2002, without admitting liability, the Company and its affiliates entered into a settlement agreement with Mr. Winick. As a part of the settlement agreement, the Company agreed to pay Mr. Winick the sum of $210,000, payable in four equal principal installments of $52,500, which began February 2002 and were payable in June and October 2002 and in February 2003. In addition, the Endy Trust agreed to transfer to Mr. Winick and his designees a total of 250,000 shares of the Company's common stock. The Endy Trust agreed to pay any legal fees incident to the registration of the shares. This case was resolved and all expenses paid in February 2003.

        The Louisiana State Police, Riverboat Gaming Enforcement Division pending litigation. Violation CGD 20037 SAR 02-1-50-093-2043 ("Administrative Violation"). Permit numbers P066500388 and P076500003. The Louisiana State Police, Riverboat Gaming Enforcement Division ("Division") is in the process of negotiation for a settlement of the Administrative Violation, which stems in part from a settlement entered into with a former officer/director of the Company, Martin Winick, whereby he received 4.9% of the outstanding shares of the Company. The Company allegedly failed to seek prior approval for the stock transfer. The management of the Company has cooperated in all respects with the Division in connection with its investigation of the Administrative Violation and settlement thereof. The Division has not made its final determination with respect to the details and particulars for the settlement of the Administrative Violation.

        Paul-Son Gaming Corporation, a Nevada corporation, Plaintiff, v. Skipco, Inc., a Nevada corporation; Toshiba Business Solutions, a California corporation; US Bancorp, a foreign business entity; and ROE corporations 1 through 10, inclusive, Defendants. Skipco, Inc., a Nevada corporation; Toshiba Business Solutions, a California corporation, Third-Party Plaintiffs, v. Gerry Tieri, an individual, Third-Party Defendant, Case No. A453852 filed in the District Court for Clark County, Nevada. Between 1998 and 2000, the Company entered into a series of lease agreements with Skipco, Inc. ("Skipco") pursuant to which the Company leased certain office equipment, including copiers and facsimile machines. Skipco subsequently assigned the lease agreements to US Bancorp. The Company believes that Skipco, by and through a former employee, fraudulently engaged in a business practice whereby, without authorization, it increased the base usage charges per copy and monthly guaranteed minimum copies. On July 26, 2002, the Company filed a Complaint against Skipco, Toshiba Business Solutions ("Toshiba"), the successor to Skipco, and US Bancorp, asserting claims for Fraud, Misrepresentation, Reformation of Agreement, Rescission of Agreement, Declaratory Relief and Breach of the Implied Covenant of Good Faith and Fair Dealing. The Company seeks to recover, among other things, compensatory damages, punitive damages, attorney's fees, cost of suit, and a declaratory judgment rescinding or reforming the lease agreements. Skipco and Toshiba answered the Complaint and filed a Third-Party Complaint against its former employee. Lyon Financial Services, Inc. ("Lyon") has filed a Complaint in Intervention, claiming that US Bancorp is only a fictitious name of Lyon and that Lyon financed the lease agreements that give rise to this action. Although the Company has not been served with a copy of the Complaint in Intervention, it believes that Lyon has asserted claims against the Company for breach of the lease agreements and unjust enrichment. The District Court has scheduled this action for a civil jury trial commencing on November 16, 2004.

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

        Not Applicable.

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PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters

        (a)    Price Range of Common Stock

        The Company's common stock ("Common Stock") is traded on the Nasdaq SmallCap Market under the symbol "PSON." Prior to December 11, 2000, the Company's Common Stock was traded on the Nasdaq National Market. The following table sets forth the high and low closing prices of the Common Stock, as reported by the Nasdaq, during the periods indicated.

*

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.

        The last reported closing price of the Common Stock on the Nasdaq SmallCap Market on March 26, 2003 was $4.05 per share.

        (b)    Holders

        There were approximately 137 holders of record of the Common Stock as of March 5, 2003. The Company estimates that there were approximately 1,022 beneficial holders of Common Stock based on the proxies distributed in connection with the September 2002 meeting of stockholders.

        (c)    Dividend Policy

        The Company has never paid cash dividends. Payments of dividends are within the discretion of the Company's Board of Directors and depend upon the earnings, capital requirements, and operating and financial condition of the Company, among other factors. The Company currently expects to retain its earnings to finance the growth and development of its business and does not expect to pay cash dividends in the foreseeable future.

        (d)    Equity Compensation Plan Information

        See Part II-Item 8. Financial Statements and Supplementary Data-Notes to Consolidated Financial Statements-Note 1. and Part III-Item 12. regarding securities authorized for issuance under equity compensation plans, including the outstanding options with pricing. Also, see Note 2. regarding the issuance of unregistered securities related to the business combination of Paul-Son and B&G.

        (e)    Recent Sales of Unregistered Securities

        A description of securities issued to the former stockholders of B&G in the Combination is set forth in Part II-Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations-Overview-Acquisitions. In addition to the information stated therein, the Company believes

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that such issuances were issued pursuant to Section 4(2) of the Securities Act of 1933 ("33 Act") and pursuant to Regulation D, Rule 506, under the 33 Act.

Item 6. Selected Financial Data

        The selected consolidated financial data included in the following tables should be read in conjunction with the Company's Consolidated Financial Statements and related notes, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" appearing elsewhere herein. The selected consolidated financial data for the years ended December 31, 2002, 2001, and 2000 and as of December 31, 2002 and 2001 have been derived from the audited consolidated financial statements of the Company included elsewhere herein. The selected consolidated financial data for the nine months ended December 31, 1999 and fiscal year ended March 31, 1999 and as of December 31, 2000, 1999 and March 31, 1999 have been derived from the Company's audited consolidated financial statements not included herein.

        On September 12, 2002, the stockholders of Paul-Son approved the Combination Agreement. The Combination was effected on the same day. The businesses of Paul-Son, B&G and B&G's wholly owned subsidiary, 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 Part II-Item 8. Financial Statements and Supplementary Data-Notes to Consolidated Financial Statements-Notes 1. and 2.). On December 31, 2002, Bud Jones merged into Paul-Son's wholly owned subsidiary, Paul-Son Gaming Supplies, Inc. Formerly, Bud Jones was a wholly owned subsidiary of B&G. Bud Jones was a gaming supply manufacturing company, also headquartered in Las Vegas. Both operations (Paul-Son Gaming Supplies, Inc. and Bud Jones) have been consolidated into one facility at Paul-Son's Las Vegas headquarters. (See Part II-Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations-Overview-Acquisitions).

        The table below reflects historical information for B&G for the nine months ended December 31, 1999 and the fiscal year Ended March 31, 1999. The year ended December 31, 2000 includes historical information for B&G for the entire year and the former Bud Jones Company since October 2000. The year ended December 31, 2001 includes historical information for B&G and for the former Bud Jones Company for the entire year, the chip manufacturing business of Trend Plastics, Inc. from August 2001 and T-K Specialty Company, Inc. from September 2001. The year ended December 31, 2002 includes historical information for B&G, the former Bud Jones Company, Trend Plastics, T-K Specialty

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Company, Inc. for the entire year and Paul-Son Gaming Inc. and its subsidiaries from September 12, 2002.

(1)

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.

(2)

Effective December 31, 1999, B&G changed its fiscal year from a fiscal year ending March 31 to a fiscal year ending December 31.

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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Overview

        Paul-Son Gaming Corporation, a Nevada corporation ("Paul-Son") and each of its subsidiaries are collectively referred to herein as the "Company" or "Paul-Son." The following discussion is intended to assist in the understanding of the Company's results of operations and its present financial condition. The consolidated financial statements and the accompanying notes contain additional detailed information that should be referred to when reviewing this material. Statements in this discussion may be forward-looking. Such forward-looking statements involve risks and uncertainties that could cause actual results to differ significantly from those expressed. See "Statement on Forward-Looking Information" below.

        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 Part II-Item 8. Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements—Notes 1. and 2.). On December 31, 2002, Bud Jones merged into Paul-Son Gaming Supplies, Inc. (a wholly owned subsidiary of Paul-Son Gaming Corporation) and Paul-Son Gaming Supplies, Inc. was the surviving entity. Formerly, Bud Jones was a wholly owned subsidiary of B&G. Bud Jones was a gaming supply manufacturing company, which was also headquartered in Las Vegas. Both operations (Paul-Son Gaming Supplies, Inc, and Bud Jones) have been consolidated into one facility at the Paul-Son Gaming Corporation headquarters in Las Vegas, Nevada.

        The business activities of the Company include the manufacture and supply of gaming equipment and supplies such as 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 sells its casino products to licensed casinos for new openings and to existing casino operations, worldwide. The Company is headquartered in Las Vegas, Nevada, with offices in Beaune, France; San Luis, Mexico; Atlantic City, New Jersey and other locatio