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SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D. C. 20549

FORM 10-K

(Mark One)

|ý | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------

For the fiscal year ended May 31, 2002

|o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

For the transition period from  to

Commission file number 0-23588

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

|NEVADA(State or other jurisdiction of
incorporation or organization) |  | 88-0310433(I.R.S. Employer
Identification No.)
|-------------------------------------------------------------------- |  | ----------------------------------------------
|1700 South Industrial Road, Las Vegas, Nevada                        |  | 89102                                         
|(Address of principal executive offices)                             |  | (Zip Code)                                    

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

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

Title of each class

Name of each exchange on which registeredNot Applicable

Not Applicable


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

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

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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. ý Yes    o No

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

The
aggregate market value of voting stock held by non-affiliates of the registrant as of July 8, 2002, based on the closing price as reported on the Nasdaq National
Market of $3.25 per share, was approximately $5,610,875.

Indicate
the number of shares outstanding of each of the registrant's classes of common stock, as of July 8, 2002.

Common
Stock, $.01 par value, 3,456,654 outstanding shares at July 8, 2002.

Documents Incorporated by Reference

Portions of the definitive proxy statement to be filed with the Securities and Exchange Commission relative to the Company's meeting of stockholders to be held in
the fourth calendar quarter of 2002 are incorporated by reference in Part III hereof (as indicated therein).

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PART I

Item 1.Business

Paul-Son Gaming Corporation, a Nevada Corporation (the "Company" or "Paul-Son"), believes it is a leading manufacturer and supplier of
casino table game equipment in the United States. The Company's products include casino chips, table game 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 San Luis, Mexico and primary sales offices in Las Vegas, Nevada and Atlantic City, New Jersey. The Company sells its products in every state in
which casinos operate in the United States.

The
Company also makes retail sales of casino-quality products for personal use, including poker chips, "Fantasy Casino" chips, dice, playing cards and gift items made with
Paul-Son components. Scaled-down gaming furniture and accessories are also offered for personal use. The Company through its Authentic Products, Inc. ("Authentic
Products") subsidiary, offers many of its products to the non-gaming and specialty markets, although this has not yet become a significant business for the Company.

The
Company was founded in 1963 by its former Chairman, Paul S. Endy, Jr. and initially manufactured and sold dice to casinos in Las Vegas. In the more than 39 years since its
founding, the Company has expanded its product offerings and, as the industry has expanded and gaming has been legalized in other jurisdictions, its customer and geographic base. As a result of this
growth, the Company now offers a full line of table game products.

As
a full-service supplier, Paul-Son manufactures products to meet particular customer and industry specifications, which may include a 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, frequently on a sole-supplier basis. 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. See the Business Segment disclosure in Note 9 to the consolidated financial statements.

Recent Developments

Debt Financing

In March 2002, the Company entered into a $995,000 loan transaction with a financial institution. The Company is using the cash proceeds for working
capital and general corporate purposes. The loan is secured by a first deed of trust on the Company's Las Vegas, Nevada headquarters. The Company is required to make monthly principal and interest
payments of approximately $7,300 with a balloon payment of approximately $874,000 due in March 2012. Interest accrues at a variable rate (approximately 8% at May 31, 2002).

Proposed Combination

On April 11, 2002, the Company entered into an exchange agreement (the "combination agreement") for the combination of the Company, Bourgogne et Grasset SA
("B&G") and B&G's

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wholly-owned subsidiary, The Bud Jones Company, Inc. ("Bud Jones"). Pursuant to the combination agreement, Paul-Son will acquire 100% of the stock of B&G in exchange for
(a) shares of Paul-Son common stock which immediately after the closing will equal 53.45% of the shares of Paul-Son common stock outstanding and (b) the warrants
to provide antidilution protection to the extent that any stock options or other stock conversion rights to acquire Paul-Son common stock that are outstanding at the completion of the
combination are subsequently exercised. Based on 3,456,654 shares of Paul-Son common stock outstanding, Paul-Son will issue an additional 3,969,026 shares of its common stock
to the stockholders of B&G which will result in a total of 7,425,680 shares outstanding immediately after the completion of the combination. Assuming the closing was as of July 8, 2002, the B&G
stockholders would be entitled to warrants to purchase an aggregate of approximately 477,000 shares pursuant to the terms of the combination agreement. The actual number of shares underlying the
warrants, however, may change. Paul-Son will also purchase 100% of the shares in B&G's wholly-owned subsidiary, Bud Jones. In payment of the Bud Jones shares, Paul-Son will
issue a promissory note to B&G in the principal amount of $5,437,016. The promissory note will be payable in full on the fifth anniversary of
the closing of the combination. Interest on the promissory note will be payable annually at a rate equal to the average prime rate for the year. B&G will not distribute the note to its stockholders,
but the note will remain an asset of B&G. As a result, B&G and Bud Jones will become wholly-owned subsidiaries of Paul-Son.

Upon
completion of the combination, Paul-Son will expand our board of directors from four to seven persons. The Paul-Son board of directors will consist of four
persons to be designated by Holding Wilson, the principal stockholder of B&G, and three persons from Paul-Son's current board of directors. The four individuals that will be designated by
Holding Wilson are Francois Carretté, Gérard Charlier, Benoit Aucouturier and Alain Thieffry. Each of these individuals currently serves on the B&G board of directors,
other than Alain Thieffry who serves on the board of directors of Holding Wilson. In addition, three individuals designated by Paul-Son who are currently serving on the
Paul-Son board of directors will remain on the board after the combination. These individuals are Eric P. Endy, Jerry West and Paul Dennis. As the regular term of Eric P. Endy expires in
2002, the Paul-Son stockholders will be asked at the annual meeting to re-elect Mr. Endy to serve as a director of the Paul-Son board of directors. As a
condition to the combination agreement, Paul-Son will receive the resignation of Richard Scott as a director. In connection with the combination and the proposed amendments to
Paul-Son's bylaws, the Paul-Son board of directors will no longer be divided into classes, so that, effective upon the completion of the combination after each director's
current term expires, all directors of Paul-Son will stand for election at each annual stockholders' meeting, subject to their earlier resignation or removal.

After
the combination, the management of Paul-Son is expected to be as set forth below:

|Name              |  | Position with Paul-Son After the
Combination |  | Current Position with Paul-Son                                                    
|----------------- |  | -------------------------------------------- |  | ----------------------------------------------------------------------------------
|Francois Carretté |  | Chairman of the Board                        |  |                                                                                  
|Gérard Charlier   |  | President and Chief Executive Officer        |  |                                                                                  
|Eric P. Endy      |  | Executive Vice President and Director        |  | Chairman of the Board, President, Chief Executive Officer, Secretary and Treasurer

Pursuant
to a stock purchase agreement among Paul-Son controlling stockholder, the Paul S. Endy, Jr. Living Trust (the "Endy Trust"), Eric P. Endy and the stockholders of
B&G, the stockholders of B&G agreed to purchase an aggregate of 670,000 shares of Paul-Son's common stock from the Endy Trust for an aggregate purchase price of $1.0 million. the
Endy Trust sold the first 40,000 shares to the B&G stockholders at the execution of the combination agreement. The Endy Trust will sell the remaining 630,000 shares to the B&G stockholders upon the
completion of the combination. Upon

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completion of both the combination and the purchase of shares from the Endy Trust, the stockholders of B&G will own approximately 63.0% of Paul-Son's outstanding shares. The Endy Trust
has agreed to sell for no additional consideration 34,556 additional shares to the B&G stockholders if the Nasdaq SmallCap Market delists Paul-Son's common stock as a result of the
combination.

The
combination agreement will be presented to Paul-Son's stockholders for approval at an annual meeting of stockholders to be held in the fourth calendar quarter of 2002.
The description of the proposed combination is qualified in its entirety by the detailed description contained in the Company's definitive proxy materials to be filed in connection with the upcoming
annual meeting of stockholders. The Company has filed preliminary proxy materials with the United States Securities and Exchange Commission and hopes to complete the review process in the near future.
Upon completion, definitive proxy materials will be completed, filed and mailed to stockholders as of a record date to be set by the Board of Directors. The preliminary proxy materials are available
through the Securities and Exchange Commission website at http://www.sec.gov/edgar/searchedgar/webusers.htm.

Products



Paul-Son designs and manufactures 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 are manufactured from a proprietary formulation of approximately ten raw
materials using a compression molding system that management believes is unique to the industry. The Company has developed the ability to mold detailed graphics bearing casino logos or other designs
onto both sides of a chip. In addition, customized security and identifying features are incorporated into a chip.

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 approximately five distinct chip colors and styles, ranging in denominations from $1 to $1,000. The Company's
selling price is generally between $.60 and
$.80 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.

The
Company manufactures all of its chips 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 7 million chips per year, the Company will have
sufficient manufacturing capacity to meet potential increases in future demand.

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.

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Every gaming table is covered with a layout containing silk-screened 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 are requesting layouts
made from synthetic material for various reasons. 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. Although synthetic layouts sales constitutes a relatively small percentage of the Company's revenues, the patent rights enable the Company, in part, 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 layouts are then regularly replaced by the casinos to maintain their appearance,
generally within 60 to 150 days. Layouts typically sell in a range of approximately $65 to $325, depending on the type of table, the complexity of the patterns and the variety and difficulty of
color combinations.

The
Company manufactures its 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 32,000 layouts. Management believes the capacity of its layout
production facilities in Mexico will allow the Company to increase layout production as needed.



The Company manufactures and sells its own line of paper casino playing cards. A deck of cards typically sells to casinos for between approximately $.70 and $1.20
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 significant 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
approximately 25 million decks per year (based on two production shifts). Expanded playing card production capacity will permit management to aggressively seek new playing card business from
its existing casino customer base, from other casinos and from customers outside of the casino industry. In fiscal 2002, the Company produced approximately 7 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.



The Company sells a variety of casino gaming furniture, including tables, seating and roulette and Big Six wheels. Tables range in price from approximately $1,000
for a blackjack table to approximately $15,000 for a double roulette table and wheel. The Company offers a "Premier" line of gaming

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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 that 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 consumable products such as layouts, dice, chips, cards, and other accessories to the table purchasers. Prior to fiscal year 2000,
the Company bought its tables in unassembled form from quality wood shops. During the fiscal year ended May 31, 2000, the Company began manufacturing its own table game furniture components in
its San Luis, Mexico facility. 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. The Company also manufactures its own roulette and Big Six wheels. Due to the pending B&G combination, the Company may temporarily or permanently suspend
the manufacture and sale of roulette and Big Six wheels or relocate such activities out of the state of Nevada due to the currently anticipated surrender of its Nevada gaming device manufacturer and
distributor license. See "Regulation and Licensing" below. By manufacturing the wheels, management believes the Company has better control over the quality of the wheels it offers to its customers.



Paul-Son manufactures dice at its Mexico 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.

Paul-Son
dice are manufactured in conformity with the strictest standards of gaming regulators, which require that each die be within 3/10,000th of an inch of a perfect cube.
The typical sales price of casino dice currently ranges between approximately $2.50 and $3.00 per pair. Generally, a set of dice (two and one-half pair) does not remain in play for more
than eight hours in a busy casino. The Company currently has the capacity to produce approximately 900,000 pairs of dice per year (based upon one production shift). In fiscal 2002, the Company
produced approximately 600,000 pairs of dice. Management believes the Company's capacity for dice production is sufficient to accommodate an increase in production requirements.



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 through its approximate 7 person sales force, which operates out of regional offices in Las Vegas, Nevada and
Atlantic City, New Jersey. 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. From time to time, the Company enters into agreements for the
distribution of its products on an exclusive and non-exclusive basis.

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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 quality, service and
competitive pricing are maintained. As a result, the Company's sales efforts are primarily focused on selling a full 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.

The
Company places advertising in trade publications, produces a complete sales catalogue for the retail market, 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, Company
representatives make personal contact with appropriate officers and/or purchasing agents in order to solicit the sale of the Company's products to such potential new customers.

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 Bud Jones. The Company believes key competitive factors for casino chip sales are durability, graphics,
ease of handling and security.

Table Layouts.The Company's two primary competitors for casino table layouts are Bud Jones and 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, ease of handling, durability, brand name identification and reputation.

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

Dice.The Company's principal competitors for casino dice sales are Bud Jones and Midwest. Management believes the primary
competitive factors for dice sales are quality and pricing. In 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 competitors 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, are Bud Jones and Midwest. The

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Company believes that key competitive factors for these products are the ability to be a single source supplier, price and product quality.

Employees

At July 8, 2002, the Company employed approximately 425 persons. Nearly 375 of the employees are located at the Company's Mexico facilities and the
remainder are located in Las Vegas and Atlantic City. None of the Company's employees is covered by collective bargaining agreements.

Regulation and Licensing

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

Gaming JurisdictionsArizona

New YorkCalifornia

North CarolinaConnecticut

North DakotaFlorida

OregonIllinois

South DakotaIndiana

WashingtonIowa

WisconsinKansas

AustraliaLouisiana

Puerto RicoMichigan

South AfricaMinnesota

Ontario, CanadaMississippi

Quebec, CanadaMissouri

Saskatchewan, CanadaNevada

British Columbia, CanadaNew Jersey

Alberta, CanadaNew Mexico

Manitoba, Canada


In
each such jurisdiction, certain regulatory requirements must be complied with and/or approvals must be obtained in connection with the proposed combination with B&G.
Paul-Son and B&G have filed a notice of the proposed combination with the gaming authorities in each such jurisdiction. The majority of these gaming authorities do not require approval of
the combination. Pursuant to the combination agreement, Paul-Son's and B&G's obligations to consummate the combination are subject to the satisfaction of the condition that all necessary
gaming regulatory approvals and authorizations have been obtained. Paul-Son has filed applications for approval from, and initiated discussions with,

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each of the gaming authorities in which approval of the gaming regulators is required. The status of our approval requests to the gaming authorities is as follows:

|Gaming
Authority |  | Status                                                                                                                                                                                                                                                                                                                                                              
|---------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Illinois:        |  | The Illinois Gaming Board has determined that no pre-approval of the combination is required.                                                                                                                                                                                                                                                                       
|Indiana:         |  | The Indiana Gaming Commission is reviewing the details of the proposed combination to determine whether it will require any additional information and/or filings prior to closing.                                                                                                                                                                                 
|Louisiana:       |  | On April 26, 2002, Paul-Son, B&G and Bud Jones filed a Joint Petition for Transfer of Ownership Interest Between Suppliers with the Louisiana Gaming Control Board. Consideration of this petition is currently pending
the outcome of Paul-Son's responses to a request for information from the Louisiana State Police Gaming Suitability Unit dated May 13, 2002.
|Michigan:        |  | A Transfer of Ownership Interest Application to permit Paul-Son Gaming Corporation to acquire The Bud Jones Company, Inc. was filed with the Michigan Gaming Control Board on April 25, 2002. The Board's Order Approval
Transfer of Interest was granted on June 11, 2002.                                                                                         
|Mississippi:     |  | The Mississippi Gaming Commission is reviewing the terms of the combination and is conducting its investigation of the combination and its related transactions. It is anticipated that all necessary pre-approvals for the
combination will be obtained from the Mississippi Gaming Commission by early-September 2002.                                            
|Missouri:        |  | The Missouri Gaming Commission issued a resolution approving the change in ownership of Paul-Son Gaming Corporation and The Bud Jones Company, Inc. at its meeting of June 24, 2002.                                                                                                                                                                                
|Nevada:          |  | The Nevada Gaming Commission is expected to act on our application to deregister as a Nevada gaming publicly traded corporation and the conditional tender of our Nevada gaming device manufacturer and distributor licenses
by late-August 2002. Accordingly, no approval of the combination will be required in Nevada.                                           

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, Paul-Son Supplies and Paul-Son Mexicana, to
manufacture and/or distribute their products. Paul-Son and its key personnel 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 Paul-Son does business. Paul-Son has never been
denied a gaming related license, nor have any licenses been suspended or revoked.

The
complex regulatory scheme governing the licensing of roulette wheel and big six wheel manufacturers and distributors in Nevada imposes administrative burdens which far exceed those
of

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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 management, far outweigh any benefit to be gained by manufacturing 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 has concluded that the costs of maintaining licensure in
Nevada upon the completion of the combination significantly exceed the potential profits. Paul-Son thus intends to administratively surrender the Nevada gaming licenses of
Paul-Son Supplies upon the completion of the combination, a procedure which allows Paul-Son Supplies 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 will not impact the manufacture or sale of
Paul-Son's other products in Nevada.

New Jersey Gaming Regulation.Paul-Son Supplies and Paul-Son Mexicana 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 companies and certain officers and directors of the companies are required to be found qualified 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 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
regulation of the New Jersey Commission.

The
proposed combination with B&G will result in the substantial change in ownership for Paul-Son Supplies and Paul-Son Mexicana. Thus, each of their casino
service industry licenses will become void upon its completion. However, in order to maintain the ability of these companies to do business with New Jersey casinos without interruption upon the
completion of the combination, prior to 30 days before such consummation, each company must 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.

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Other Gaming Jurisdictions.In addition to Nevada and New Jersey, Paul-Son Supplies and Paul-Son
Mexicana are currently licensed in several other jurisdictions. Although the regulations in these jurisdictions are not identical to the states of Nevada and 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 Supplies and Paul-Son Mexicana and their respective key personnel have
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 the Paul-Son's operations.

Prior
to the consummation of the combination, certain pre-approvals will be required from the gaming regulators in certain states, including Illinois, Indiana, Louisiana,
Michigan and Mississippi.

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 Supplies and Paul-Son Mexicana, which are involved in the manufacture and transportation of gaming devices, are required to
register annually. Each company has complied with the registration requirements of the Federal Act.

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 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. As of
July 8, 2002, Paul-Son Supplies is authorized to sell products to Native American casinos in seventeen 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 Supplies manufactures and
distributes gaming supplies to various international markets including Australia, the Caribbean, and South Africa. Paul-Son Supplies has obtained the required licenses to manufacture and
distribute its

11

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products in the various foreign jurisdictions where it does business. Prior approval of the combination will be required from gaming authorities in South Africa.

Item 2.Properties

The Company is based in, and operates domestically from, a Company-owned facility in Las Vegas, Nevada and currently assembles and manufactures its primary
products at facilities in San Luis, Mexico.

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, and houses the Las Vegas sales and corporate offices, a centralized warehouse for certain
of its finished goods inventory, a roulette and "Big Six" wheel manufacturing department 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. During fiscal 1998, the Company completed the transition of its primary manufacturing processes to San Luis, Mexico. The Las Vegas Headquarters secures a deed of trust issued
under the Company's outstanding term loan. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources." The Company intends to
sublease approximately 13,500 square feet of the Las Vegas facility effective August 1, 2002 to the Bud Jones Company to be used as a wood shop.

San Luis.The Company manufactures casino chips, playing cards, furniture, 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 card, furniture 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
presently leases the facility on a month to month basis. The Company owns the 66,000 square foot facility. The Company also owns an approximately 45,000 square foot facility which was previously used
for layout, furniture and machine shop production purposes. The facility is presently vacant. The Company is currently evaluating various alternatives for this facility, including its sale.

Facility Capacity.With its current approximate 145,000 square feet of manufacturing facilities, management believes that the
Company has sufficient production capacity to meet anticipated future demand for all of its products.

Item 3.Legal Proceedings

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 plaintiffs 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 and administered by AIG Technical Services. At the time 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

12

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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.

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, an individual,
Defendants, Case No. A416734.

On
February 5, 2002, without admitting liability, the Company and its affiliates entered into a settlement agreement with Winick. As a part of the settlement agreement, the
Company agreed to pay Winick the sum of $210,000, payable in four equal principal installments of $52,500, which began February 2002 and are payable in June and October 2002 and in
February 2003. In addition, the Endy Trust agreed to transfer to Winick and his designees a total of 250,000 shares of the Company's common stock. The Company agreed to register the 250,000
shares transferred to Winick and his designees. The Endy Trust agreed to pay any legal fees incident to the registration of the shares. The Company will pay "blue sky" expenses, accounting fees and
filing fees.

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

The Company held its 2001 annual meeting of stockholders on May 20, 2002. At the meeting, the stockholders elected Jerry G. West as a director for a term
expiring in 2004. The names of the other persons whose term of office as a director of the Company continued after the meeting are: Eric P. Endy, whose term expires in 2002, and Richard W. Scott and
Paul S. Dennis, whose terms each expire in 2003. The number of votes cast for or withheld with respect to Mr. West is as follows:

Nominee

Votes For

Votes WithheldJerry G. West

2,915,259

126,102


13

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PART II

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



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.

|Fiscal Year                               |  | High |      | Low
|----------------------------------------- |  | ---- | ---- | ---
|2001 First Quarter                        |  | $    | 4.63 |    
|2001 Second Quarter                       |  |      | 2.38 |    
|2001 Third Quarter                        |  |      | 2.25 |    
|2001 Fourth Quarter                       |  |      | 2.75 |    
|2002 First Quarter                        |  |      | 2.95 |    
|2002 Second Quarter                       |  |      | 2.82 |    
|2002 Third Quarter                        |  |      | 1.50 |    
|2002 Fourth Quarter                       |  |      | 2.75 |    
|2003 First Quarter (through July 8, 2002) |  |      | 3.25 |    

The
last reported closing price of the Common Stock on the Nasdaq SmallCap Market on July 8, 2002 was $3.25 per share. There were approximately 128 holders of record of the Common
Stock as of July 8, 2002.



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.

Item 6.Selected Consolidated 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 fiscal years
ended May 31, 2002, 2001, and 2000 and as of May 31, 2002 and 2001 have been derived from the audited consolidated financial statements of the Company included elsewhere herein. The
selected consolidated financial

14

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data for the years ended May 31, 1999 and 1998 and as of May 31, 2000, 1999 and 1998 have been derived from the Company's audited consolidated financial statements not included herein.

|                                             |  | Fiscal Years Ended May 31, |          
|-------------------------------------------- |  | -------------------------- | ---------
|
|
|Operations statement data:                   |  |                            |          
|Revenues                                     |  | $                          | 16,562   
|Cost of revenues                             |  |                            | 12,448   
|                                             |  |                            |          
|Gross profit                                 |  |                            | 4,114    
|Selling, general and administrative expenses |  |                            | (5,942   
|Gain (loss) on sale/disposal of assets       |  |                            | 31       
|                                             |  |                            |          
|Operating loss                               |  |                            | (1,797   
|Other income (expense)                       |  |                            | (47      
|                                             |  |                            |          
|Loss before income tax (expense) benefit     |  |                            | (1,844   
|Income tax (expense) benefit                 |  |                            |         
|                                             |  |                            |          
|Net loss                                     |  | $                          | (1,844   
|                                             |  |                            |          
|Loss per share:                              |  |                            |          
|Basic and diluted                            |  | $                          | (0.53    
|Average shares outstandingbasic and diluted |  |                            | 3,453,385

|                                        |  | May 31,
|--------------------------------------- |  | -------
|
|
|Balance sheet data:                     |  |        
|Cash and cash equivalents               |  | $      
|Working capital                         |  |        
|Property and equipment, net             |  |        
|Total assets                            |  |        
|Current liabilities                     |  |        
|Long-term debt, less current maturities |  |        
|Stockholders' equity                    |  |        

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

Paul-Son provides gaming equipment and supplies to casinos for new openings and consumable products for existing casino operations. The principal
consumable products have limited useful lives, ranging from several hours in the case of playing cards and dice to several months in the case of table game layouts and several years in the case of
casino chips and gaming furniture. The majority of Paul-Son's revenues are generated by sales to customers with which Paul-Son has an established relationship. Complementing
these revenues is the significant additional revenue Paul-Son realizes when providing a full range of products to new casinos. Paul-Son strives to become the casino's sole
supplier of table game equipment and supplies.

During
the past decade, casino entities have expanded from land-based resort properties to riverboats, both cruising and dockside, and to Native American lands. As a licensed
supplier, Paul-Son has vigorously pursued table gaming opportunities in emerging gaming jurisdictions. Because of Paul-Son's production capacity and its experience in the
gaming supply industry, management believes Paul-Son is well positioned to capitalize on the combined growth of the gaming industry both domestically and internationally.

While
the gaming industry has grown in recent years, the growth rate of table games has not matched that of the gaming industry as a whole. This trend is attributed to an increasing
allocation of total casino gaming space to slot machines which, in certain cases, may reduce the allocation of total casino gaming space to table games. The number of new table games in new
jurisdictions typically follows this trend after a period of operation.

Paul-Son
operates in one operating segmentcasino game equipment products. See the Business Segment disclosed in Note 10 to the consolidated financial
statements.

Significant Accounting Policies and Estimates

Our consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States. Certain of our accounting
policies, including the depreciable lives of our assets, the recoverability of deferred tax assets, the allowance for doubtful accounts receivable, the
allowance for obsolete or slowing moving inventories and the estimated cash flows in assessing the recoverability of long-lived assets require that we apply significant judgment in
defining the appropriate assumptions for calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty. Our judgments are based on our historical
experience, terms of existing contracts, our observance of industry trends, information provided by or gathered from our customers and information available from other outside sources, as appropriate.
There can be no assurance that actual results will not differ from our estimates. To provide an understanding of the methodology we apply, our significant accounting policies are discussed where
appropriate in this discussion and analysis and in the notes to our consolidated financial statements.

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Results of Operations

The following table summarizes selected items from the Company's Consolidated Statements of Operations as a percentage of revenues for the periods indicated:

|                                             |  | Fiscal Years Ended May 31, |   
|-------------------------------------------- |  | -------------------------- | --
|
|Revenues                                     |  | 100.0                      | % 
|Cost of revenues                             |  | 75.2                       | % 
|Gross profit                                 |  | 24.8                       | % 
|Selling, general and administrative expenses |  | 35.9                       | % 
|Operating loss                               |  | (10.9                      | )%
|Interest expense                             |  | .4                         | % 
|Net loss                                     |  | (11.1                      | )%

The
following table details the Company's historical revenues by product line:

|          |                                      | Fiscal Years Ended May 31,
|--------- | ------------------------------------ | --------------------------
|
|
|Revenues: |                                      |                           
|          | Casino chips                         |                           
|          | Table layouts                        |                           
|          | Playing cards                        |                           
|          | Gaming furniture                     |                           
|          | Dice                                 |                           
|          | Table accessories and other products |                           
|          |                                      |                           
|          |                                      | Total                     
|          |                                      |                           

Comparison of Operations for the Fiscal Years Ended May 31, 2002 and May 31, 2001

Revenues.For the fiscal year ended May 31, 2002, Paul-Son's revenues totaled approximately
$16.6 million. The fiscal 2002 revenue figure represents a $3.9 million, or 19%, decrease from the $20.5 million in revenues which the Company generated during the previous fiscal
year. The decrease in revenues for the 2002 period resulted principally from a decrease in casino chip, table layout, gaming furniture and table accessory product sales of approximately
$3.6 million. During the year ended May 31, 2002, casino chip and table accessory sales experienced a decline of approximately $2.3 million as compared to the previous year. A
decrease in the number of new casino openings or expansions, a general economic decline, and the effects of the September 11, 2001 terrorist attacks, contributed to the decreased casino chip
sales. Other product sales were negatively affected by decreased spending from the Company's casino customers subsequent to the terrorist acts and the resulting economic decline. Sales of Company
manufactured products were approximately 91% of total revenues in fiscal 2002 compared to approximately 86% in fiscal 2001.

Cost of Revenues.Cost of revenues, as a percentage of sales, decreased to 75.2% for the fiscal year ended May 31,
2002, as compared to 77.2% in the prior fiscal year. This improvement in the gross margin percentage during fiscal 2002 was principally caused by an increase in the average selling price of casino
chips, a reduction in manufacturing overhead costs at the Company's Mexican plants from certain average head count reductions and a decrease in inventory obsolescence provisions. These improvements
were partially offset by the aforementioned decrease in sales which did not allow for a full absorption of fixed manufacturing overhead expenses.

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Selling, General and Administrative Expenses.Selling, general and administrative ("SG&A") expenses for the fiscal year ended
May 31, 2002 increased approximately $179,000, or 3.1%, to approximately $5.9 million, or 35.9% of revenues, compared to approximately $5.8 million, or 28.1% of revenues, in the
previous fiscal year. This increase was primarily attributable to an increase in costs from a proposed business combination whereby costs are expensed as incurred and a charge incurred in fiscal 2002
for a legal settlement of approximately $200,000. During the fiscal year ended May 31, 2002, the Company incurred approximately $868,000 of merger costs as compared to approximately $244,000
during the fiscal year ended May 31, 2001. These increases were partially offset by reductions in administrative and sales department personnel related costs.

Gain on Sale of Assets.In fiscal 2002, the Company recorded a gain on the sale of certain assets of approximately $31,000 as
compared to approximately $6,000 in fiscal 2001. This increase in the gain on the sale of assets occurred principally from the sale of certain nonoperating real estate owned by the Company in fiscal
2002.

Interest Expense.For the fiscal year ended May 31, 2002, interest expense decreased approximately 58% to
approximately $67,000 as compared to approximately $161,000 in the prior fiscal year. This decrease was caused by a significant decrease in the average outstanding debt balance in the 2002 period as
compared to fiscal 2001.

Other Income.In fiscal 2002, other income decreased to approximately $20,000 compared to other income in fiscal 2001 of
approximately $69,000. This decline of approximately $49,000 was primarily attributable to an approximate $38,000 decrease in interest income caused by a decline in the average outstanding cash
balances and interest rates during fiscal 2002 as compared to fiscal 2001.

Income Taxes.In fiscal 2002 and 2001, the Company did not record a tax benefit for pretax losses incurred by the Company.
The Company has net operating loss carryforwards and believes it will recognize the benefits from the loss carryforwards as it earns income on a going-forward basis.

Net Loss.For the year ended May 31, 2002, the Company incurred a net loss of approximately $1,844,000 compared to a
net loss of approximately $1,172,000 in the prior fiscal year. This increase in the Company's net loss of approximately $672,000 was primarily due to the aforementioned decrease in revenues and other
income as well as an increase in selling, general and administrative costs. Partially offsetting these negative factors was the aforementioned improvement in gross profit margins. Basic and diluted
net loss per share was $.53 and $.34 for the years ended May 31, 2002 and 2001, respectively.

Comparison of Operations for the Fiscal Years Ended May 31, 2001 and May 31, 2000

Revenues.For the fiscal year ended May 31, 2001, Paul-Son's revenues totaled approximately
$20.5 million. The fiscal 2001 revenue figure represents a $2.2 million, or 10%, decrease from the $22.7 million in revenues which the Company generated during the previous fiscal
year. The decrease in revenues for the 2001 period resulted principally from a decrease in casino chip, playing card and table accessory product sales of approximately $2.2 million. During the
year ended May 31, 2001, casino chip sales experienced a decline of approximately $1.4 million as compared to the previous year. A decrease in the number of new casino openings or
expansions, as well as the decline in certain commemorative casino chip sales surrounding the "Year 2000" celebrations which occurred during the previous fiscal year, caused the decline in casino chip
sales. Playing card sales declined in the fiscal year ended May 31, 2001
by approximately $600,000 due to the loss of two significant corporate contracts due to acquisitions of those customers which occurred in calendar 1999 and 2000. Sales of Company manufactured products
were approximately 86% of total revenues in fiscal 2001 compared to approximately 84% in fiscal 2000.

18

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Cost of Revenues.Cost of revenues, as a percentage of sales, increased to 77.1% for the fiscal year ended May 31,
2001, as compared to 74.6% in the prior fiscal year. This decline in the gross margin percentage during fiscal 2001 was principally caused by the aforementioned decrease in sales which did not allow
for a full absorption of fixed manufacturing overhead expenses. Additionally, the Mexican peso strengthened relative to the U.S. dollar by approximately 4% during the fiscal year ended May 31,
2001, while costs to operate the Mexican manufacturing operations increased due to inflation.

Selling, General and Administrative Expenses.Selling, general and administrative ("SG&A") expenses for the fiscal year ended
May 31, 2001 decreased approximately $539,000, or 9%, to approximately $5.8 million, or 28.1% of revenues, compared to approximately $6.3 million, or 27.8% of revenues, in the
previous fiscal year. This decrease was primarily attributable to a reduction in administrative and sales department personnel related costs and the closure, in fiscal 2000 and 2001, of certain of the
Company's retail and outlying sales offices. Additionally, bad debt expenses decreased approximately $228,000 in 2001 as a result of improved collection results from accounts receivable compared to
the prior year. These improvements were offset, in part, by an increase in transactional costs related to the Company's negotiation of a proposed business combination during the year ended
May 31, 2001 of approximately $244,000.

Gain on Sale of Assets.In fiscal 2001, the Company recorded a gain on the sale of certain assets of approximately $6,000 as
compared to approximately $127,000 in fiscal 2000. This decrease in the gain on the sale of assets occurred principally from the sale of certain nonoperating real estate owned by the Company in fiscal
2000.

Interest Expense.For the fiscal year ended May 31, 2001, interest expense decreased approximately 33% to
approximately $161,000 as compared to approximately $241,000 in the prior fiscal year. This decrease was caused by a significant decrease in the average outstanding debt balance in the 2001 period as
the Company reduced approximately $1.7 million of debt principal during fiscal 2001.

Other Income.In fiscal 2001, other income increased slightly to approximately $69,000 compared to other income in fiscal
2000 of approximately $64,000.

Income Taxes.In fiscal 2001, the Company did not record a tax benefit for pretax losses incurred by the Company. The Company
recorded a tax provision of $568,000 in fiscal 2000 due to uncertainties related to the realizability of future tax benefits that were recorded as deferred tax assets in fiscal 1998 and
1999. Although the Company recorded this allowance to the deferred tax assets, the Company may still utilize the future tax benefits from net operating losses for 15 years from the year of the
loss to the extent of future taxable income.

Net Loss.For the year ended May 31, 2001, the Company incurred a net loss of approximately $1,172,000 compared to a
net loss of approximately $1,171,000 in the prior fiscal year. This slight increase in the Company's net loss was primarily due to the aforementioned decreases in revenues, gross profit margins and
other income as compared to fiscal 2000 offset by a reduction in selling, general and administrative costs and interest expense in the 2001 period compared to the prior year results and the absence of
a tax provision of $568,000 recorded in fiscal 2000. Basic and diluted net loss per share was $.34 for the year ended May 31, 2001 and 2000.

Liquidity and Capital Resources

Overview.Management believes that the combination of cash flow from operations and cash on hand should fund ordinary
operational expenses of Paul-Son on both a short and long-term basis. As described elsewhere herein, we have entered into the B&G combination agreement. We anticipate incurring
continuing substantial expenses for legal, accounting and regulatory requirements to finalize

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the combination. In addition, we will be obligated to our investment banker to pay certain fees, $183,000 of which is payable prior to the consummation of the transaction, and $475,000 of which is
payable if the transaction is consummated. Of the amount due to the financial advisor at consummation, one half may be payable in Paul-Son common stock. As of May 31, 2002, we had
approximately $1.2 million in cash and cash equivalents, but we will need to supplement such cash with other cash sources, such as from the sale of one of our Mexico buildings (which is
currently for sale) to fund such additional transactional costs and may seek to sell certain other assets or seek other lending or financing sources. The combination agreement restricts us from
incurring other than non-recourse debt up to an additional $500,000 without B&G's consent. If we are unable to sell the Mexico building, other assets, or obtain other financing sources, we
may need to explore other options for funding portions of the additional transactional costs.

Working Capital.Working capital totaled approximately $3.7 million at May 31, 2002, compared to approximately
$3.6 million in working capital at May 31, 2001. Working capital increased approximately $100,000 during the year primarily due to a decrease in accounts payable and accrued liabilities
of approximately $500,000 offset, in part, by a net decrease in current assets of approximately $400,000, principally from decreases in accounts receivable and inventory balances.

Cash Flow.Cash used in operating activities totaled approximately $500,000 during fiscal 2002 compared to cash provided by
operations of approximately $1.5 million in fiscal 2001. The primary contributing
causes of cash used in operating activities in fiscal 2002 were a net loss before depreciation, amortization and provisions for inventory obsolescence of approximately $700,000, an increase in prepaid
expenses and other assets of approximately 100,000 and a decrease in accounts payable and accrued liabilities of approximately $400,000 offset, in part, by decreases in accounts receivable and
inventories of approximately $800,000. Other significant cash activities during fiscal 2002 included increases in debt from certain financing transactions of approximately $800,000. Overall, cash
increased approximately $300,000 from May 31, 2001 to May 31, 2002.

Secured Debt.We entered into a $995,000 loan transaction, or the Loan, with Jackson Federal Bank, a federal savings bank, or
Jackson, on March 5, 2002. The other principal terms of the Loan are as follows:



20

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Other Debt.In February 2002, we settled certain litigation. The settlement requires that Paul-Son pay an
aggregate of $210,000 in four equal principal installments of $52,500 which began February 2002 and are payable in June and October 2002 and in February 2003. Interest is charged
at prime, which at February 28, 2002 was approximately 4.75%. This charge of $210,000 was recorded to SG & A expenses during fiscal 2002.

Seasonality.We do not typically experience seasonality relative to our revenues.

Las Vegas Facilities.In May 1997, we purchased our current corporate headquarters, an approximately 62,000 square
foot building located in Las Vegas. The Las Vegas headquarters secures the Deed of Trust issued under the Loan. See "Secured Debt" above.

San Luis Facilities.We leased the 34,000 square foot main facility pursuant to an eight-year lease which expired
in April 2001, with an option to extend the term an additional 12 years. We did not exercise our option to extend the lease, but leases the main facility on a
month-to-month basis. In December 1994, we purchased the adjacent 45,000 square foot facility for approximately $1.5 million. This facility is presently vacant
and we are evaluating strategic options with this building including the possible sale thereof. In November 1997, we completed the purchase of the 66,000 square foot New San Luis Facility for
approximately $1.1 million.

Capital Expenditures.We do not presently have plans to purchase any significant capital equipment for the fiscal year ended
May 31, 2003.

Inventory.During the last several years, we have experienced increased inventory obsolescence provisions which contributed
to the increase in cost of sales as a percentage of revenues. Several factors contributed to these increases, including (i) changes in materials used to make casino table layouts, from a more
traditional woolen cloth to a longer lasting synthetic cloth, thereby causing certain obsolescence and slow movement of certain colors and quantities of woolen cloth held by us, (ii) a general
decline in sales brought on by a trend in the casino industry to decrease the number of table games on a casino floor in favor of slot machines, and (iii) increased security features added to
casino playing cards and casino chips which obsoleted certain materials or finished goods on hand at the time.

Contractual Obligations and Commercial Commitments

The following table presents contractual obligations and commercial commitments as of May 31, 2002. Paul-Son has no other significant
contractual obligations or commercial commitments either on or off balance sheet as of May 31, 2002. Operating leases on a month to month basis are not included in

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the table below. Paul-Son presently leases a building in Mexico used for production for approximately $12,000 per month on a month to month basis.

|                                   |  |   |           | Payments Due by Period
|---------------------------------- |  | - | --------- | ----------------------
|
|Long-term debt                     |  | $ | 1,165,326 |                       
|Capital lease obligations          |  |   | 559,416   |                       
|Operating leases                   |  |   | 272,663   |                       
|                                   |  |   |           |                       
|Total Contractual Cash Obligations |  | $ | 1,997,405 |                       
|                                   |  |   |           |                       

Recently Issued and Adopted Accounting Guidance

In June 2001, the Financial Accounting Standards Board ("FASB") issued two new pronouncements: SFAS No. 141, "Business Combinations", and SFAS
No. 142, "Goodwill and Other Intangible Assets." 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. 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. The Company is currently
evaluating the impact that these standards will have on its consolidated financial statements.

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 impact that this standard will have on
its consolidated financial statements.

In
August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment and Disposal of Long-Lived Assets". This statement 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. Paul-Son will adopt this statement during the fiscal year ending May 31, 2003. Management believes the
adoption of this statement will not have a material impact 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.
Paul-Son will adopt this statement during 2003. Management believes the adoption of SFAS No. 145 will not have a material impact on its consolidated financial statements.

22

---

Statement on Forward-Looking Information

Certain information included herein contains statements that may be considered forward-looking, such as statements relating to completion of the proposed business
combination with B&G, anticipated performance or cash flow from operations, liquidity, financing sources, amount, nature and time of capital expenditures, and operating costs and other expenses. Any
forward-looking statement made by the Company necessarily is based upon a number of estimates and assumptions that, while considered reasonable by the Company, is inherently subject to significant
business, economic and competitive uncertainties and contingencies, many of which are beyond the control of the Company, and are subject to change. Actual results of the Company's operations may vary
materially from any forward-looking statement made by or on behalf of the Company. Forward-looking statements should not be regarded as a representation by the Company or any other person that the
forward-looking statements will be achieved. Undue reliance should not be placed on any forward-looking statements.

Item 7A.Quantitative and Qualitative Disclosures About Market Risk



Paul-Son believes it does not have significant foreign currency risk for financial reporting purposes. Although Paul-Son's manufacturing
is principally performed in Mexico, the functional currency of its Mexican subsidiary is considered to be the U.S. dollar. The Mexican operation is funded by Paul-Son's U.S. subsidiary in
U.S. dollars and the Mexican subsidiary does not have significant financial transactions other than the receipt of U.S. dollar funds to pay employees and the payment of certain costs to operate the
manufacturing plants. Balance sheet accounts of the Mexican subsidiary are maintained and reported principally in U.S. dollar historical amounts. Therefore, the balance sheet of the Mexican subsidiary
is not subject to translation adjustment risk.

Paul-Son
does not enter into significant contracts to receive obligations of customers or to pay obligations to vendors in currencies other than U.S. dollars. Therefore,
Paul-Son is not subject to significant foreign currency gains and losses.



As of May 31, 2002, Paul-Son had total interest bearing debt and capital lease obligations of approximately $1.7 million. Of this
amount, approximately $500,000 has a fixed rate of interest and Paul-Son believes this lease agreement has a fair value which approximates reported amounts.

The
remaining $1.2 million of interest bearing obligations have variable interest rates which are tied to a (i) U.S. based prime borrowing rate of interest, and
(ii) LIBOR, or a London Interbank Offered Rate, for six month dollar deposits, plus 362.5 basis points. To the extent there are significant changes to the U.S. based prime lending rate
(presently approximately 4.75%), Paul-Son will have interest risk on approximately $150,000 over the next twelve months. To the extent there are significant increases to LIBOR, or the
London Interbank Offered Rates, and the LIBOR rate plus 362.5 basis points would exceed a floor of 8%, Paul-Son would have increased interest expense on approximately $1.0 million
of debt over the succeeding ten years.

23

---



Item 8.Financial Statements and Supplementary Data

|Independent Auditors' Report                                                                           |  | 
|------------------------------------------------------------------------------------------------------ |  | 
|Consolidated Balance Sheets at May 31, 2002 and 2001                                                   |  | 
|Consolidated Statements of Operations for the Fiscal Years Ended May 31, 2002, 2001 and 2000           |  | 
|Consolidated Statements of Stockholders' Equity for the Fiscal Years Ended May 31, 2002, 2001 and 2000 |  | 
|Consolidated Statements of Cash Flows for the Fiscal Years Ended May 31, 2002, 2001 and 2000           |  | 
|Notes to Consolidated Financial Statements                                                             |  | 
|Financial Statement Schedule included in Part IV of this report                                        |  | 

24

---



PAUL-SON GAMING CORPORATION        AND SUBSIDIARIES        CONSOLIDATED FINANCIAL STATEMENTS        MAY 31, 2002

25

---



INDEPENDENT AUDITORS' REPORT

To
the Board of Directors and Stockholders of
Paul-Son Gaming Corporation and Subsidiaries
Las Vegas, Nevada

We
have audited the accompanying consolidated balance sheets of Paul-Son Gaming Corporation and Subsidiaries (the "Company") as of May 31, 2002 and 2001, and the
related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended May 31, 2002. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We
conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Paul-Son Gaming Corporation and Subsidiaries as of
May 31, 2002 and 2001, and the results of their operations and their cash flows for each of the three years in the period ended May 31, 2002, in conformity with accounting principles
generally accepted in the United States of America.

DELOITTE &
TOUCHE LLP

Las
Vegas, Nevada
July 8, 2002

26

---



PAUL-SON GAMING CORPORATION AND SUBSIDIARIES        CONSOLIDATED BALANCE SHEETS  May 31, 2002 and 2001

|                                        |                                                                                                                     | 2002                                       |           | 2001       |           
|--------------------------------------- | ------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | --------- | ---------- | ----------
|ASSETS                                  |                                                                                                                     |                                            |           |            |           
|Current Assets:                         |                                                                                                                     |                                            |           |            |           
|                                        | Cash and cash equivalents                                                                                           |                                            | $         | 1,225,364  |           
|                                        | Trade receivables, net                                                                                              |                                            |           | 2,047,892  |           
|                                        | Inventories, net                                                                                                    |                                            |           | 2,598,320  |           
|                                        | Prepaid expenses                                                                                                    |                                            |           | 234,727    |           
|                                        | Other current assets                                                                                                |                                            |           | 74,706     |           
|                                        |                                                                                                                     |                                            |           |            |           
|                                        |                                                                                                                     | Total current assets                       |           |            | 6,181,009 
|Property and Equipment, net             |                                                                                                                     |                                            | 7,450,139 |            |           
|Other assets, net                       |                                                                                                                     |                                            | 557,136   |            |           
|                                        |                                                                                                                     |                                            |           |            |           
|                                        |                                                                                                                     | Total Assets                               |           | $          | 14,188,284
|                                        |                                                                                                                     |                                            |           |            |           
|LIABILITIES AND STOCKHOLDERS' EQUITY    |                                                                                                                     |                                            |           |            |           
|Current Liabilities:                    |                                                                                                                     |                                            |           |            |           
|                                        | Current maturities of long-term debt                                                                                |                                            | $         | 291,727    |           
|                                        | Accounts payable                                                                                                    |                                            |           | 1,213,559  |           
|                                        | Accrued expenses                                                                                                    |                                            |           | 890,825    |           
|                                        | Customer deposits                                                                                                   |                                            |           | 66,498     |           
|                                        | Income taxes payable                                                                                                |                                            |           | 14,521     |           
|                                        |                                                                                                                     |                                            |           |            |           
|                                        |                                                                                                                     | Total current liabilities                  |           |            | 2,477,130 
|                                        |                                                                                                                     |                                            |           |            |           
|Long-Term Debt, less current maturities |                                                                                                                     |                                            | 1,354,527 |            |           
|                                        |                                                                                                                     |                                            |           |            |           
|Commitments and Contingencies (Note 5)  |                                                                                                                     |                                            |           |            |           
|Stockholders' Equity:                   |                                                                                                                     |                                            |           |            |           
|                                        | Preferred stock, authorized 10,000,000 shares, $.01 par value, none issued and outstanding                          |                                            |           |           |           
|                                        | Common stock, authorized 30,000,000 shares, $.01 par value, issued; 3,483,947 and 3,477,050 shares in 2002 and 2001 |                                            |           | 34,840     |           
|                                        | Additional paid-in capital                                                                                          |                                            |           | 13,662,868 |           
|                                        | Treasury stock, at cost; 27,293 shares in 2002 and 2001                                                             |                                            |           | (195,780   | )         
|                                        | Accumulated deficit                                                                                                 |                                            |           | (3,145,301 | )         
|                                        |                                                                                                                     |                                            |           |            |           
|                                        |                                                                                                                     | Total stockholders' equity                 |           |            | 10,356,627
|                                        |                                                                                                                     |                                            |           |            |           
|                                        |                                                                                                                     | Total Liabilities and Stockholders' Equity |           | $          | 14,188,284
|                                        |                                                                                                                     |                                            |           |            |           

See
Notes to Consolidated Financial Statements.

27

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PAUL-SON GAMING CORPORATION AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF OPERATIONS  Fiscal years ended May 31, 2002, 2001 and 2000

|                                             |                  | 2002                     |            | 2001    |            | 2000       |         
|-------------------------------------------- | ---------------- | ------------------------ | ---------- | ------- | ---------- | ---------- | --------
|Revenues                                     |                  | $                        | 16,561,870 |         | $          | 20,494,150 |         
|Cost of revenues                             |                  |                          | 12,448,040 |         |            | 15,815,846 |         
|                                             |                  |                          |            |         |            |            |         
|                                             |                  | Gross profit             |            |         | 4,113,830  |            |         
|Selling, general and administrative expenses |                  |                          | (5,942,229 | )       |            | (5,762,987 | )       
|Gain on sale/disposal of assets              |                  |                          | 30,909     |         |            | 6,000      |         
|                                             |                  |                          |            |         |            |            |         
|                                             |                  | Operating loss           |            |         | (1,797,490 | )          |         
|Other income (expense)                       |                  |                          |            |         |            |            |         
|                                             | Interest income  |                          |            | 7,306   |            |            | 44,918  
|                                             | Interest expense |                          |            | (66,635 | )          |            | (161,482
|                                             | Other            |                          |            | 12,530  |            |            | 23,586  
|                                             |                  |                          |            |         |            |            |         
|                                             |                  | Loss before income taxes |            |         | (1,844,289 | )          |         
|Income tax expense                           |                  |                          |           |         |            |           |         
|                                             |                  |                          |            |         |            |            |         
|                                             |                  | Net loss                 |            | $       | (1,844,289 | )          | $       
|                                             |                  |                          |            |         |            |            |         
|Loss per share:                              |                  |                          |            |         |            |            |         
|                                             | Basic            |                          | $          | (0.53   | )          | $          | (0.34   
|                                             |                  |                          |            |         |            |            |         
|                                             | Diluted          |                          | $          | (0.53   | )          | $          | (0.34   
|                                             |                  |                          |            |         |            |            |         

See
Notes to Consolidated Financial Statements.

28

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PAUL-SON GAMING CORPORATION AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY  Fiscal years ended May 31, 2002, 2001 and 2000

|                                |  | Common Stock |   |   |        |  |   |            |  |   |         
|------------------------------- |  | ------------ | - | - | ------ |  | - | ---------- |  | - | --------
|
|
|Balance, June 1, 1999           |  | 3,455,757    |   |   | 34,771 |  |   | 13,652,936 |  |   | (173,505
|Treasury shares purchased       |  | (3,000       | ) |   |       |  |   |           |  |   | (15,225 
|Net loss                        |  |             |   |   |       |  |   |           |  |   |        
|                                |  |              |   |   |        |  |   |            |  |   |         
|Balance, May 31, 2000           |  | 3,452,757    |   |   | 34,771 |  |   | 13,652,936 |  |   | (188,730
|Treasury shares purchased       |  | (3,000       | ) |   |       |  |   |           |  |   | (7,050  
|Net loss                        |  |             |   |   |       |  |   |           |  |   |        
|                                |  |              |   |   |        |  |   |            |  |   |         
|Balance, May 31, 2001           |  | 3,449,757    |   |   | 34,771 |  |   | 13,652,936 |  |   | (195,780
|Common Stock issued to Director |  | 6,897        |   |   | 69     |  |   | 9,932      |  |   |        
|Net loss                        |  |             |   |   |       |  |   |           |  |   |        
|                                |  |              |   |   |        |  |   |            |  |   |         
|Balance, May 31, 2002           |  | 3,456,654    |   | $ | 34,840 |  | $ | 13,662,868 |  | $ | (195,780
|                                |  |              |   |   |        |  |   |            |  |   |         

See
Notes to Consolidated Financial Statements.

29

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PAUL-SON GAMING CORPORATION AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF CASH FLOWS  Fiscal years ended May 31, 2002, 2001 and 2000

|                                             |                                                                                           | 2002                                                 |           | 2001       |           | 2000      |           
|-------------------------------------------- | ----------------------------------------------------------------------------------------- | ---------------------------------------------------- | --------- | ---------- | --------- | --------- | ----------
|Cash Flows from Operating Activities         |                                                                                           |                                                      |           |            |           |           |           
|                                             | Net loss                                                                                  |                                                      | $         | (1,844,289 | )         | $         | (1,171,661
|                                             | Adjustments to reconcile net loss to net cash (used in) provided by operating activities: |                                                      |           |            |           |           |           
|                                             |                                                                                           | Depreciation and amortization                        |           |            | 1,046,012 |           |           
|                                             |                                                                                           | Provision for doubtful accounts                      |           |            | (3,333    | )         |           
|                                             |                                                                                           | Provision for inventory obsolescence                 |           |            | 60,000    |           |           
|                                             |                                                                                           | Gain on sale/disposal of assets                      |           |            | (30,909   | )         |           
|                                             | Change in operating assets and liabilities:                                               |                                                      |           |            |           |           |           
|                                             |                                                                                           | Accounts receivable                                  |           |            | 393,429   |           |           
|                                             |                                                                                           | Inventories                                          |           |            | 408,214   |           |           
|                                             |                                                                                           | Prepaid expenses                                     |           |            | (76,952   | )         |           
|                                             |                                                                                           | Other assets                                         |           |            | (56,122   | )         |           
|                                             |                                                                                           | Deferred tax asset                                   |           |            |          |           |           
|                                             |                                                                                           | Accounts payable and accrued expenses                |           |            | (376,414  | )         |           
|                                             |                                                                                           | Customer deposits                                    |           |            | (34,443   | )         |           
|                                             |                                                                                           | Income taxes payable                                 |           |            | (1,025    | )         |           
|                                             |                                                                                           |                                                      |           |            |           |           |           
|                                             |                                                                                           | Net cash (used in) provided by operating activities  |           |            | (515,832  | )         |           
|                                             |                                                                                           |                                                      |           |            |           |           |           
|Cash Flows from Investing Activities         |                                                                                           |                                                      |           |            |           |           |           
|                                             | Proceeds received on sale of property and equipment                                       |                                                      |           | 149,071    |           |           | 62,072    
|                                             | Purchase of patent                                                                        |                                                      |           |           |           |           |          
|                                             | Purchase of property and equipment, net                                                   |                                                      |           | (51,779    | )         |           | (1,027,520
|                                             |                                                                                           |                                                      |           |            |           |           |           
|                                             |                                                                                           | Net cash provided by (used in) investing activities  |           |            | 97,292    |           |           
|                                             |                                                                                           |                                                      |           |            |           |           |           
|Cash Flows from Financing Activities         |                                                                                           |                                                      |           |            |           |           |           
|                                             | Proceeds from long-term borrowings                                                        |                                                      |           | 1,205,000  |           |           | 39,452    
|                                             | Principal payments on short-term/long-term borrowings                                     |                                                      |           | (458,992   | )         |           |          
|                                             | Principal payments on long-term borrowings                                                |                                                      |           |           |           |           | (1,706,050
|                                             | Common Stock issued to director                                                           |                                                      |           | 10,001     |           |           |          
|                                             | Payments for acquisition of treasury stock                                                |                                                      |           |           |           |           | (7,050    
|                                             |                                                                                           |                                                      |           |            |           |           |           
|                                             |                                                                                           | Net cash provided by (used in) financing activities  |           |            | 756,009   |           |           
|                                             |                                                                                           |                                                      |           |            |           |           |           
|                                             |                                                                                           | Net increase (decrease) in cash and cash equivalents |           |            | 337,469   |           |           
|Cash and cash equivalents, beginning of year |                                                                                           |                                                      | 887,895   |            |           | 2,071,952 |           
|                                             |                                                                                           |                                                      |           |            |           |           |           
|Cash and cash equivalents, end of year       |                                                                                           | $                                                    | 1,225,364 |            | $         | 887,895   |           
|                                             |                                                                                           |                                                      |           |            |           |           |           
|Supplemental cash flows information:         |                                                                                           |                                                      |           |            |           |           |           
|                                             | Operating activities include cash payments for interest and income taxes as follows:      |                                                      |           |            |           |           |           
|                                             |                                                                                           | Interest paid                                        |           | $          | 66,635    |           | $         
|                                             |                                                                                           | Income taxes paid                                    |           | $          | 15,895    |           | $         

30

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PAUL-SON GAMING CORPORATION AND SUBSIDIARIES        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1.    Nature of Business and Significant Accounting Policies

Nature of business

Paul-Son Gaming Corporation, including its subsidiaries (collectively "Paul-Son" or the "Company"), believes it is a leading manufacturer
and supplier of casino table game equipment in the United States. The Company's products include casino chips, table layouts, playing cards, dice, furniture, table accessories and other products which
are used with casino table games such as blackjack, poker, baccarat, craps and roulette. The Company sells its products in every state in which casinos operate in the United States and, to a limited
extent, in various countries throughout the world.

Basis of consolidation and presentation

The consolidated financial statements include the accounts of Paul-Son and its wholly-owned subsidiaries, Paul-Son Gaming
Supplies, Inc. ("Paul-Son Supplies"), Paul-Son Mexicana, S.A. de C.V. ("Mexicana") and Authentic Products, Inc. All material intercompany balances and
transactions have been eliminated in consolidation.

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 original maturities of three months or less to be cash and cash equivalents.

Trade 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 (see Note 8).

Inventory

Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out method. Provision for potentially
obsolete or slow-moving inventory is made based on management's analysis of inventory levels and future sales forecasts.

Property and equipment

Property and equipment are stated at cost, net of depreciation. The Company includes capitalized lease equipment in its property and equipment for financial
statement purposes. Depreciation is computed primarily on the straight-line method for financial reporting purposes over the following estimated useful lives:

YearsBuildings and improvements

18-27Furniture and equipment

5-10Vehicles

5-7


31

---

Normal
repairs and maintenance are charged to expense as incurred. Expenditures which extend useful lives of assets are typically capitalized.

Other assets

Included in other assets are goodwill and costs associated with the acquisition of a patent. Goodwill is amortized on a straight-line basis over
20 years and patent costs are amortized on a straight-line basis over 5 years.

Debt

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

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.

Foreign transactions

Sales outside of the United States are not significant and substantially all sales transactions occur in United States dollars.

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 lives of assets, the recoverability of deferred tax assets, the
allowance for doubtful accounts receivable, the allowance for obsolete or slow moving inventories, and the estimated cash flow in assessing the recoverability of long-lived assets. Actual
results could differ from those estimates and assumptions.

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.

32

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Long-Lived Assets

In accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,"
the Company reviews for impairment of long-lived assets and certain identifiable intangibles whenever events or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. In general, the Company will recognize an impairment loss when the sum of undiscounted expected future cash flows is less than the carrying amount of such assets. The measurement
for such an impairment loss is then based on the fair value of the assets. The Company had no impairment losses for each of the three years in the period ended May 31, 2002.

Assets
are grouped and evaluated for impairment at the lowest level for which there are identifiable cash flows which are largely independent of the cash flows of other groups of assets.
The Company operates in only one primary marketplace (legalized casinos), it has only one identifiable business segment with a centralized business operation, and all cash flows are generated by this
one segment and are not disaggregated. The Company uses estimates for its entire organization as its basis for impairment valuation. Long-lived assets are principally real estate and, to a
lesser extent, production assets in and through which business operations and products are manufactured and distributed.

Fair value of financial instruments

In accordance with reporting and disclosure requirements of SFAS No. 107, "Disclosures about Fair Values of Financial Instruments," the Company calculates
the fair value of financial instruments and includes this information in the Company's Notes to Consolidated Financial Statements when the fair value is different than the book value of those
financial instruments. When fair value is equal to book value, no disclosure is made. Fair value is determined using quoted market prices whenever available. When quoted market prices are not
available, the Company uses alternative valuation techniques such as calculating the present value of estimated future cash flows utilizing discount rates commensurate with the risks involved. The
Company principally has variable rate debt and a fixed rate capital lease, which it believes to have fair values that approximate reported amounts. To the extent there are significant increases to
LIBOR or the London Interbank Offered Rates and the LIBOR rate plus 362.5 basis points would exceed a floor of 8%, Paul-Son would have increased interest expense on approximately
$1.0 million of debt over the succeeding ten years.

Recently issued and adopted accounting guidance

In June 2001, the Financial Accounting Standards Board ("FASB") issued two new pronouncements: SFAS No. 141, "Business Combinations", and SFAS
No. 142, "Goodwill and Other Intangible Assets." 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. 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. The Company is currently evaluating the impact that these standards
will have on its consolidated financial statements.

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

33

---

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 impact that this standard will have on its consolidated financial statements.

In
August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment and Disposal of Long-Lived Assets". This statement 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. Paul-Son will adopt this statement during the fiscal year ending May 31, 2003. Management believes the
adoption of this statement will not have a material impact 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.
Paul-Son will adopt this statement during 2003. Management believes the adoption of SFAS No. 145 will not have a material impact on its consolidated financial statements.

Note 2.    Inventories

Inventories consist of the following at May 31:

2002

2001Raw materials

$
1,330,132

$
1,403,777Work in process


224,742


229,199Finished goods


2,068,504


2,433,5583,623,378


4,066,534Less inventory reserves


1,025,058


1,000,000$
2,598,320

$
3,066,534


34

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Note 3.    Property and Equipment

Property and equipment consist of the following at May 31:

2002

2001Land

$
663,970

$
663,970Buildings and improvements


6,008,256


6,168,693Furniture and equipment


5,841,611


5,840,170Vehicles


432,545


445,74612,946,382


13,118,579Less accumulated depreciation


5,496,243


4,655,250Property and Equipment, net

$
7,450,139

$
8,463,329


Included
in furniture and equipment is capitalized lease equipment with an original cost of $790,000 and a current net book value of approximately $554,000 and $636,000 at May 31,
2002 and 2001, respectively.

Note 4.    Long-Term Debt and Pledged Assets

In February 2002, the Company settled certain litigation. The settlement requires that the Company pay an aggregate of $210,000, which amount was expensed
to selling, general and administrative expenses during the year ended May 31, 2002, in four equal principal installments of $52,500 which began February 2002 and are payable in June and
October 2002 and in February 2003. Interest is charged at prime, which at February 28, 2002 was approximately 4.75%. During the third fiscal quarter the Company paid $52,500
leaving a balance of $157,500.

Paul-Son
Supplies entered into a $995,000 loan transaction ("Loan") with Jackson Federal Bank, a federal savings bank ("Jackson"), on March 5, 2002. The interest rate
equals the greater of 8% per annum ("Floor Rate") or 362.5 basis points over the average of the London Interbank Offered Rates for six month dollar deposit in the London market based on quotations of
major banks ("LIBOR"). The interest rate shall not be less than the Floor Rate nor more than 12% per annum, nor shall the interest rate increase or decrease by more than two percentage points per
annum during any twelve month period or one-half percentage point per annum during any three month period. The maturity date is March 1, 2012. The Loan is payable in arrears in
equal monthly installments of principal and interest of approximately $7,300 (based upon a thirty year amortization schedule) beginning April 1, 2002 and continuing on the first day of each
month through and including March 1, 2012, at which time the entire remaining principal balance of $874,000 will be due and payable. The Loan is secured by a Deed of Trust, Security Agreement,
Assignment of Rents and Fixture Filing ("Deed of Trust") encumbering Paul-Son's Las Vegas, Nevada headquarters. Paul-Son executed a Guaranty in favor of Jackson by which
Paul-Son guaranteed the obligations of Paul-Son Supplies under the Loan and Deed of Trust and the related loan documents executed in connection with the Loan. The Loan contains
a prepayment provision requiring the payment of a prepayment premium equal to 3% of the amount prepaid during the first twelvemonth period of the loan. Thereafter, the Loan may be prepaid in part or
in whole at any time without a prepayment premium. The Deed of Trust restricts Paul-Son Supplies from encumbering or transferring (1) Paul-Son's Las Vegas, Nevada
headquarters; and (2) ownership interests in Paul-Son Supplies. Further, the Deed of Trust also grants to Jackson a security interest in
Paul-Son Supplies' personal property, including, but not limited to, machinery, furniture, fixtures, licenses and income.

35

---

Long-term
debt consists of the following at May 31:

|                                                                                                                                                                                                                                                                                                                                                  |                                | 2002 |         | 2001     
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------ | ---- | ------- | ---------
|Note payable to bank in monthly installments of approximately $7,301 including variable interest (approximately 8% at May 31, 2002) commencing April 1, 2002 with a maturity date of March 1, 2012
and an approximate $874,000 balloon payment. The note is secured by a first deed of trust on the Company's main facility in Las Vegas, Nevada. |                                | $    | 993,010 |          
|Capital lease obligation payable for equipment, fixed interest rate of 8% payable in monthly installments of approximately $12,250 through March 2006, collateralized by a second security interest on principally
all Company assets.                                                                                                            |                                |      | 480,928 |          
|Various notes payable to finance company with principal and interest payments of approximately $1,125 due monthly through July 2003.                                                                                                                                                                                                              |                                |      | 14,816  |          
|Litigation settlement agreement, payable with principal and interest payments, approximately quarterly and in the principal amount of $52,500, with interest at prime (approximately 4.75% at May 31, 2002)
due February 2003.                                                                                                                    |                                |      | 157,500 |          
|Note payable to bank paid during 2002                                                                                                                                                                                                                                                                                                             |                                |      |        |          
|Note payable to bank paid during 2002                                                                                                                                                                                                                                                                                                             |                                |      |        |          
|                                                                                                                                                                                                                                                                                                                                                  |                                |      |         |          
|                                                                                                                                                                                                                                                                                                                                                  | Principal balance as of May 31 |      |         | 1,646,254
|                                                                                                                                                                                                                                                                                                                                                  | Less current portion           |      |         | 291,727  
|                                                                                                                                                                                                                                                                                                                                                  |                                |      |         |          
|                                                                                                                                                                                                                                                                                                                                                  | Long-term debt as of May 31    |      | $       | 1,354,527
|                                                                                                                                                                                                                                                                                                                                                  |                                |      |         |          

Estimated
annual principal maturities of long-term debt and future minimum payments under capital lease obligations at May 31, 2002 are as follows:

Capital Leases

Long-Term Debt2003

$
147,048

$
179,0832004


147,048


10,6782005


147,048


9,8252006


118,272


10,6402007





11,526Thereafter





943,574Total


559,416


1,165,326Less amount representing interest


78,488


$
480,928

$
1,165,326


36

---

Note 5.    Commitments and Contingencies

Paul-Son leases land, manufacturing and office space under operating leases with terms of between 3 to 4 years. Approximate minimum annual
rental commitments, with remaining lease terms of greater than 1 year at May 31, 2002, are as follows:

2003

$
78,0202004


77,2282005


77,2282006


40,1872007


Thereafter


$
272,663


The
Company had a twelve-year option to extend the lease at one of its production facilities. The annual rent during the first 8-year term, which ended in
April 2001, was approximately $140,000. The rent payments during the option period will increase 5% annually. The Company presently leases this production facility on a month to month basis, as
the renewal option is being negotiated.

Rent
expense totaled $187,487, $201,256 and $255,810 for the fiscal years ended May 31, 2002, 2001 and 2000, respectively.

Paul-Son
is party to various claims arising in the normal course of business. Management believes that these matters are expected to be resolved with no material impact on
Paul-Son's financial position, liquidity, or results of operations.

Note 6. Income Tax Matters

The expense for income taxes reflected in the Consolidated Statements of Operations for the fiscal years ended May 31, 2002, 2001 and 2000 consisted of:

2002

2001

2000Current

$


$


$
Deferred








(568,000
)$


$


$
(568,000
)


A
reconciliation of Paul-Son's income tax expense as compared to the tax expense calculated by applying the statutory federal tax rate (34%) to the loss before income taxes
for the fiscal years ended May 31, 2002, 2001 and 2000 is as follows:

2002

2001

2000Computed expected income tax benefit at 34%

$
627,058

$
439,005

$
205,000Adjustments:State taxes


12,442


13,600


10,000Meals and entertainment


(9,000
)

(11,900
)

(9,844
)Net operating loss carryforward


(630,500
)

(435,605
)

(194,578
)Allowance for deferred tax asset








(568,000
)Prior year items and other





(5,100
)

(10,578
)Income tax expense

$


$


$
(568,000
)


37

---

During
the second fiscal quarter of the fiscal year ended May 31, 2000, Paul-Son recorded an allowance of $568,000 in the form of a tax provision against certain
future tax benefits, the realization of which are currently uncertain. Subsequent to the second quarter, no deferred tax benefits were recorded as assets for taxable losses of Paul-Son.
The deferred tax benefits were primarily composed of net operating losses and timing differences related to certain accounts receivable and inventory allowances not currently deductible as expenses
under IRS provisions. Although Paul-Son recorded this allowance to the deferred tax asset, Paul-Son may still utilize the future tax benefits from net operating losses for
15 years from the year of the loss to the extent of future taxable income.

The
primary components of the deferred tax asset at May 31 were approximately as follows:

2002

2001Operating loss carryforwards

$
1,410,000

$
779,000Inventory and bad debt reserves


390,000


375,000Intangible assets


35,000


45,0001,835,000


1,199,000Less allowance for realization of deferred tax asset


1,835,000


1,199,000Deferred tax asset, net

$


$



Note 7. Earnings Per Share and Stock Option Programs

The following table provides a reconciliation of basic and diluted loss per share as required by SFAS No. 128, "Earnings Per Share":

|                                       |                         | Basic |   | Dilutive Stock
Options |   | Diluted | 
|-------------------------------------- | ----------------------- | ----- | - | ---------------------- | - | ------- | 
|For the fiscal year ended May 31, 2002 |                         |       |   |                        |   |         | 
|                                       | Net loss                |       | $ | (1,844,829             | ) |        | 
|                                       | Weighted Average Shares |       |   | 3,453,385              |   |        | 
|                                       | Per Share Amount        |       | $ | (.53                   | ) |         | 
|For the fiscal year ended May 31, 2001 |                         |       |   |                        |   |         | 
|                                       | Net loss                |       | $ | (1,171,661             | ) |        | 
|                                       | Weighted Average Shares |       |   | 3,450,485              |   |        | 
|                                       | Per Share Amount        |       | $ | (.34                   | ) |         | 
|For the fiscal year ended May 31, 2000 |                         |       |   |                        |   |         | 
|                                       | Net loss                |       | $ | (1,170,942             | ) |        | 
|                                       | Weighted Average Shares |       |   | 3,454,040              |   |        | 
|                                       | Per Share Amount        |       | $ | (.34                   | ) |         | 

Dilutive
stock options for the years ended May 31, 2002 (15,500), 2001 (6,000) and 2000 (106,500) have not been included in the computation of the diluted net loss per share as
their effect would be antidilutive.

The
Company has granted certain stock options to purchase common stock which had an exercise price greater than the average market price. These options have been excluded from the
computation of diluted loss per share for the respective fiscal years. These outstanding antidilutive options for the fiscal years ended May 31, 2002, 2001 and 2000, were 354,500, 505,500 and
422,000, respectively.

The
Company has stock option programs which consist of the 1994 Long-Term Incentive Plan (the "Incentive Plan") and the 1994 Directors' Stock Option Plan (the "Directors'
Plan"). The Incentive Plan provides for the grant of stock options to executive officers, key employees, outside consultants

38

---

and employee-directors. On July 29, 1996, the Board of Directors amended and stockholders subsequently approved to increase the aggregate shares issuable under the Incentive Plan to 1,000,000
from 500,000 shares. The initial option grant under the Incentive Plan vests over a 4 year period, with one-fourth of the option grant vesting at the end of each year. The options
granted under the Incentive Plan expire 10 years after the date of grant. The Directors' Plan, as amended in September 1999, provides that each non-employee director, upon
joining the Board of Directors, will receive an option to purchase 6,000 shares of common stock. The initial option grant vests over a 3 year period, with one-third of the option
grant vesting at the end of each year. At the beginning of the fourth year of service on the Board of Directors, and each year thereafter, each nonemployee director receives an
annual grant to purchase 2,000 shares of common stock. In addition, each year each non-employee director receives options to purchase 1,500 shares of common stock for serving on the
following committees of the Board of Directors for at least six months prior to the date of grant: the Audit Committee; the Compensation Committee; and the Compliance Committee. No option is
exercisable sooner than 6 months and one day after the date of the grant. The options expire on the tenth anniversary of the date of grant, 9 months after retirement or 2 years
after death. Options covering 14,500, 17,500 and 9,500 shares were granted to non-employee directors during the fiscal years ended May 31, 2002, 2001 and 2000 at a weighted-average
exercise price of $2.00, $2.15 and $5.09, respectively.

The
following is a summary of option activity for the years ended May 31, 2002, 2001 and 2000:

|                            |           | Options
Available
for Grant |         | Options
Outstanding |          | Weighted
Average
Exercise
Price
|--------------------------- | --------- | --------------------------- | ------- | ------------------- | -------- | -------------------------------
|Outstanding at June 1, 1999 |           | 422,250                     |         | 652,750             |          | $                              
|                            | Granted   |                             | (9,500  | )                   | 9,500    |                                
|                            | Canceled  |                             | 133,750 |                     | (133,750 | )                              
|                            | Exercised |                             |        |                     |         |                                
|                            |           |                             |         |                     |          |                                
|Outstanding at May 31, 2000 |           | 546,500                     |         | 528,500             |          |                                
|                            | Granted   |                             | (17,500 | )                   | 17,500   |                                
|                            | Canceled  |                             | 34,500  |                     | (34,500  | )                              
|                            | Exercised |                             |        |                     |         |                                
|                            |           |                             |         |                     |          |                                
|Outstanding at May 31, 2001 |           | 563,500                     |         | 511,500             |          |                                
|                            | Granted   |                             | (14,500 | )                   | 14,500   |                                
|                            | Canceled  |                             | 156,000 |                     | (156,000 | )                              
|                            | Exercised |                             |        |                     |         |                                
|                            |           |                             |         |                     |          |                                
|Outstanding at May 31, 2002 |           | 705,000                     |         | 370,000             |          | $                              
|                            |           |                             |         |                     |          |                                

|                                                   |  | 2002 |      | 2001 |   | 2000
|-------------------------------------------------- |  | ---- | ---- | ---- | - | ----
|The weighted average fair value of options granted |  | $    | 1.02 |      | $ | 1.07

39

---

The
following table summarizes information concerning currently outstanding and exercisable options:

|  |                | Options Outstanding |         | Options Exercisable
|- | -------------- | ------------------- | ------- | -------------------
|
|$ | 1.38 to   8.06 |                     | 141,500 |                    
|$ | 8.07 to 13.88  |                     | 228,500 |                    
|  |                |                     |         |                    
|  |                |                     | 370,000 |                    
|  |                |                     |         |                    

The
Company accounts for these plans under APB Opinion No. 25, under which no compensation cost has been recognized. Had compensation cost for these plans been determined
consistent with SFAS No. 123, "Accounting for Stock Based Compensation", the Company's net loss and loss per share would have been reduced to the following pro forma amounts for the fiscal
years ended May 31:

|                |  |              |  | 2002 |            | 2001 |   | 2000       |  
|--------------- |  | ------------ |  | ---- | ---------- | ---- | - | ---------- | -
|Net loss:       |  | As reported: |  | $    | (1,844,829 | )    | $ | (1,171,661 | )
|                |  | Pro forma:   |  | $    | (1,869,004 | )    | $ | (1,393,754 | )
|Loss per share: |  | As reported: |  |      |            |      |   |            |  
|                |  | Basic        |  | $    | (.53       | )    | $ | (.34       | )
|                |  | Diluted      |  | $    | (.53       | )    | $ | (.34       | )
|                |  | Pro forma:   |  |      |            |      |   |            |  
|                |  | Basic        |  | $    | (.54       | )    | $ | (.40       | )
|                |  | Diluted      |  | $    | (.54       | )    | $ | (.40       | )

Pro
forma loss reflects only options granted from fiscal 1997 to fiscal 2002. Therefore, the full impact of calculating compensation cost for stock options under SFAS No. 123 is
not reflected in pro forma net loss because compensation costs are reflected over the option-vesting period and compensation costs for options granted prior to fiscal 1997 are not considered.

The
fair value of each option is estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions used for fiscal 2002, 2001, and 2000 grants;
risk-free interest rate at the date of grant which ranged from 3.3% to 6.7%; expected dividend yield of 0.0%; expected lives of 5 to 6 years; and expected volatility which ranged
from 43.79% to 69.83%.

As
of May 31, 2002 a maximum of 1,075,000 shares of common stock have been reserved for issuance under these plans. None of the options can be granted at less than the fair market
value of the Company's stock on the date of grant.

Note 8. Allowance for Doubtful Accounts and Inventory Valuation Reserves

The Company records, based on periodic reviews of its trade receivables and inventories, allowances for estimated uncollectible trade accounts receivable and slow
moving or obsolete inventories. A summary of provisions for estimated bad debts and obsolete or slow-moving inventories

40

---

and the related charges to the allowance for doubtful accounts and inventory valuation reserves are as follows:

Trade receivables:

|Fiscal Years Ended May 31, |  | Beginning
of Year
Balance |         | Provisions |   | Charge-offs,
Net of
Recoveries |   | End
of Year
Balance
|-------------------------- |  | ------------------------- | ------- | ---------- | - | ------------------------------ | - | -------------------
|2002                       |  | $                         | 350,000 |            | $ | (3,333                         | ) | $                  
|                           |  |                           |         |            |   |                                |   |                    
|2001                       |  | $                         | 380,000 |            | $ | 16,219                         |   | $                  
|                           |  |                           |         |            |   |                                |   |                    
|2000                       |  | $                         | 400,000 |            | $ | 244,326                        |   | $                  
|                           |  |                           |         |            |   |                                |   |                    

Inventories:

|Fiscal Years Ended May 31, |  | Beginning
of Year
Balance |           | Provisions |   | Charge-offs,
Net of
Recoveries |  | End
of Year
Balance
|-------------------------- |  | ------------------------- | --------- | ---------- | - | ------------------------------ |  | -------------------
|2002                       |  | $                         | 1,000,000 |            | $ | 60,000                         |  | $                  
|                           |  |                           |           |            |   |                                |  |                    
|2001                       |  | $                         | 700,000   |            | $ | 300,000                        |  | $                  
|                           |  |                           |           |            |   |                                |  |                    
|2000                       |  | $                         | 325,000   |            | $ | 375,000                        |  | $                  
|                           |  |                           |           |            |   |                                |  |                    

Note 9. Business Segments

SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information" requires public business enterprises to report selected reporting
information about operating segments in annual financial statements and requires public business enterprises to report selected information about operating segments in interim financial reports. The
Company manufactures and sells casino table game equipment and has determined that it operates in one operating segmentcasino game equipment products. The segment is comprised of the
following product lines: casino chips, table layouts, playing cards, gaming furniture, dice, and table accessories and other products. Although the Company derives its revenues from a number of
different product lines, the Company does not allocate resources based on the operating results from the individual product lines nor does it manage each individual product line as a separate business
unit.

The
Company's long-lived assets are domiciled in the United States and Mexico. The table below presents information regarding the long-lived assets as of
May 31:

|               |                               | 2002 |           | 2001     
|-------------- | ----------------------------- | ---- | --------- | ---------
|MEXICO:        |                               |      |           |          
|               | Property and Equipment, cost  |      | $         | 8,641,282
|               | Less accumulated depreciation |      |           | 4,082,195
|               |                               |      |           |          
|               | Net property and equipment    |      | $         | 4,559,087
|               |                               |      |           |          
|UNITED STATES: |                               |      |           |          
|               | Property and Equipment, cost  |      | $         | 4,305,100
|               | Less accumulated depreciation |      |           | 1,414,048
|               |                               |      |           |          
|               | Net property and equipment    |      | $         | 2,891,052
|               |                               |      |           |          
|               |                               | $    | 7,450,139 |          
|               |                               |      |           |          

41

---

Note 10. Business Combination

On April 11, 2002, the Company entered into an Agreement and Plan of Exchange and Stock Purchase (the "Combination Agreement"), with Bourgogne et Grasset
SA, a societé anonyme organized under the laws of the Republic of France ("B&G"). Under the Combination Agreement, the Company has agreed to undertake a series of transactions the
result of which would be the transfer of control of the Company to the stockholders of B&G, and the acquisition of B&G and its wholly-owned subsidiary, The Bud Jones Company, Inc. ("Bud
Jones"), by the Company (the "Combination").

The
stockholders of B&G will acquire 53.45% of the outstanding shares of the Company's common stock in exchange for all of the outstanding shares of B&G capital stock. As a result, B&G
and Bud Jones will become wholly-owned subsidiaries of the Company. Based on 3,456,654 shares the Company's common stock currently outstanding, the Company will issue an additional 3,969,026 shares of
its common stock to the stockholders of B&G which would result in a total of 7,425,680 shares outstanding immediately after the consummation of the Combination. In addition, the stockholders of B&G
will be issued warrants to provide antidilution protection to the extent that any stock options or other stock conversion rights outstanding at the consummation of the Combination are subsequently
exercised.

In
addition to the proposed Combination, B&G has agreed to purchase an aggregate of 670,000 shares of the Company's common stock from the Paul S. Endy, Jr. Living Trust (the "Endy
Trust"), the Company's current controlling stockholder, for an aggregate purchase price of $1.0 million. Upon completion of both the proposed Combination and the purchase of shares from the
Endy Trust, the stockholders of B&G will own approximately 63.0% of the Company's outstanding shares.

Selected Quarterly Financial Information (Unaudited)

|                                             |  | Fiscal Year Ended May 31, 2002 |      
|-------------------------------------------- |  | ------------------------------ | -----
|
|
|Net revenues                                 |  | $                              | 4,529
|Gross profit                                 |  |                                | 943  
|Operating loss                               |  |                                | (293 
|Net loss                                     |  | $                              | (308 
|                                             |  |                                |      
|Basic and diluted net loss per common share: |  | $                              | (0.08
|                                             |  |                                |      

|                                             |  | Fiscal Year Ended May 31, 2001 |      
|-------------------------------------------- |  | ------------------------------ | -----
|
|
|Net revenues                                 |  | $                              | 5,309
|Gross profit                                 |  |                                | 1,260
|Operating loss                               |  |                                | (228 
|Net loss                                     |  | $                              | (267 
|                                             |  |                                |      
|Basic and diluted net loss per common share: |  | $                              | (0.08
|                                             |  |                                |      

42

---



Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None

PART III

Item 10.Directors and Executive Officers of the Registrant

This information is incorporated by reference from the Company's proxy statement to be filed with the Commission in connection with its annual meeting of
stockholders to be held in the fourth calendar quarter of 2002.

Item 11.Executive Compensation

This information is incorporated by reference from the Company's proxy statement to be filed with the Commission in connection with its annual meeting of
stockholders to be held in the fourth calendar quarter of 2002.

Item 12.Security Ownership of Certain Beneficial Owners and Management

This information is incorporated by reference from the Company's proxy statement to be filed with the Commission in connection with its annual meeting of
stockholders to be held in the fourth calendar quarter of 2002.

Item 13.Certain Relationships and Related Transactions

Indemnification of Directors and Officers

This information is incorporated by reference from the Company's proxy statement to be filed with the Commission in connection with its annual meeting of
stockholders to be held in the fourth calendar quarter of 2002.

PART IV

Item 14.Exhibits, Financial Statement Schedules, and Reports on Form 8-K





43

---



3.01

Articles of Incorporation of Paul-Son Gaming Corporation and Certificate of Amendment of Articles of Incorporation of Paul-Son Gaming Corporation incorporated herein by reference from the Company's registration statement
on Form S-1 (SEC No. 33-74758), Part II, Item 16, Exhibit 3.01.3.02

Amended and Restated Bylaws of Paul-Son Gaming Corporation.4.01

Specimen Common Stock Certificate for the Common Stock of Paul-Son Gaming Corporation incorporated herein by reference from the Company's registration statement on Form S-1 (SEC No. 33-74758), Part II, Item 16,
Exhibit 4.01.10.01

Paul-Son Gaming Corporation 1994 Directors' Stock Option Plan (as amended July 29, 1996) Paul-Son Gaming Corporation 1994 Directors' Stock Option Plan (as amended July 29, 1996) incorporated herein by reference from the Company's annual
report on Form 10-K for the year ended May 31, 1996, Part IV, Item 14(c), Exhibit 10.03.10.02

Paul-Son Gaming Corporation 1994 Long-Term Incentive Plan (as amended July 29, 1996) Paul-Son Gaming Corporation 1994 Long-Term Incentive Plan (as amended July 29, 1996) incorporated herein by reference from the Company's annual report on
Form 10-K for the year ended May 31, 1996, Part IV, Item 14(c), Exhibit 10.0410.03

Lease dated May 17, 1993, by and between Paul-Son Mexicana S.A. de C.V., as lessee, and Coprodiedad Arte Y Diseno, as lessor incorporated herein by reference from the Company's registration statement on Form S-1 (SEC No. 33-74758),
Part II, Item 16, Exhibit 10.05.10.04

Promissory Note secured by Deed of Trust dated February 22, 2002, in favor of Jackson Federal Bank; Deed of Trust, Security Agreement, Assignment of Rents and Fixture Filing dated February 22, 2002; Repayment Guaranty dated February 22,
 2002; Subordination and Attornment Agreement dated February 22, 2002; and Assignment of Leases and Rents dated February 22, 2002, incorporated by reference from the Company's Form 8-K dated March 5, 2002, Item 7,
Exhibit 10.01.21.01

List of subsidiaries of Paul-Son Gaming Corporation incorporated herein by reference on Form 10-K for the year ended May 31, 2001, Part IV, Item 14(c), Exhibit 21.0123.01

Consent of Deloitte & Touche LLP99.01

Audit Committee Charter for Paul-Son Gaming Corporation incorporated herein by reference on Form 10-K for the year ended May 31, 2001, Part IV, Item 14(c), Exhibit 99.01


44

---



SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

|              |  | PAUL-SON GAMING CORPORATION
|------------- |  | ---------------------------
|July 11, 2002 |  | By                         

Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on
the dates indicated.

|July 11, 2002 |  | By |  | /s/ERIC P. ENDYEric P. Endy Chairman of the Board, President,
(Principal executive officer and principal financial officer)
|------------- |  | -- |  | ---------------------------------------------------------------------------------------------------------------------------
|July 11, 2002 |  | By |  | /s/LORI SCHAFFERLori Schaffer Controller                                                                                   
|July 11, 2002 |  | By |  | /s/PAUL S. DENNISPaul S. Dennis,Director                                                                                   
|July 11, 2002 |  | By |  | /s/JERRY G. WESTJerry G. West,Director                                                                                     
|July 11, 2002 |  | By |  | /s/RICHARD W. SCOTTRichard W. Scott,Director                                                                               

45

---



EXHIBIT INDEX

|EXHIBIT NO. |  | DESCRIPTION                                                
|----------- |  | -----------------------------------------------------------
|3.02        |  | Amended and Restated Bylaws of Paul-Son Gaming Corporation.
|23.01       |  | Consent of Deloitte & Touche LLP                           

46

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