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SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D. C. 20549

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FORM 10-K/A
(Amendment No. 1)

(Mark One)

|/x/ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended May 31, 2001

|/ / | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from  to

Commission file number 0-23588

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

NEVADA

88-0310433(State or other jurisdiction of
incorporation or organization)

(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)

Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes /x/    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. / /

The
aggregate market value of voting stock held by non-affiliates of the registrant as of August 23, 2001, based on the closing price as reported on the Nasdaq
National Market of $2.30 per share, was approximately $3,970,773.

Indicate
the number of shares outstanding of each of the registrant's classes of common stock, as of August 23, 2001.

Common
Stock, $.01 par value, 3,449,757 outstanding shares.

Documents Incorporated by Reference

Not applicable.

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Explanatory Note

Paul-Son Gaming Corporation (the "Company" or "Paul-Son") issued a press release on January 15, 2002, relating to its intention to
restate its consolidated financial statements for the fiscal year ended May 31, 2001 and the first quarter ended August 31, 2001. Subsequent to the issuance of the Company's consolidated
financial statements for the fiscal year ended May 31, 2001, the Company determined after consultation with its auditors that certain transactional costs incurred during the past year related
to its negotiations of a potential business combination with Etablissements Bourgogne et Grasset should have been expensed as incurred. The Company had previously capitalized these costs. As a result,
the accompanying consolidated financial statements have been restated from amounts previously reported. In addition, the Company has restated its segment reporting. The effects of these restatements
are summarized in Note 12 to the consolidated financial statements.

PART I

Item 1.Business

Paul-Son Gaming Corporation, a Nevada Corporation (the "Company" or "Paul-Son"), 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
primary 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 37 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 10 to the consolidated financial statements.

Recent Developments

On January 31, 2001, the Company announced that it had entered into a letter of intent with Etablissments Bourgogne et Grasset and its subsidiary, The Bud
Jones Company (collectively "B&G"), under which B&G would have entered into a combination with the Company.

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After
a definitive agreement had not been executed by April 30, 2001, Paul-Son sent a demand letter to B&G seeking a $1.0 million termination fee pursuant to
the letter of intent. B&G responded denying Paul-Son's claim for the $1.0 million termination fee and making certain unspecified claims against Paul-Son.
Paul-Son thereafter commenced arbitration proceedings in Las Vegas, Nevada under the rules of the American Arbitration Association on May 11, 2001.

Subsequently,
the parties agreed to stay the arbitration proceeding, with each side reserving all rights. The parties thereafter renewed confidential negotiations which continue to this
date. Although no assurance can be given that the parties will enter into a definitive agreement and both sides have reserved all rights should no definitive agreement be reached, the parties continue
to work on the negotiation of a potential transaction. Paul-Son has no current intention to comment further on the
status of negotiations with B&G unless or until a definitive agreement is reached or unless negotiations are terminated or until other circumstances arise that, in Paul-Son's sole
discretion, merit further public comment.

John
Garner resigned as Paul-Son's Chief Financial Officer and Treasurer effective July 6, 2001. Mr. Garner will continue to provide support to
Paul-Son for an indefinite period of time. The Board of Directors has appointed Eric Endy as Treasurer and is relying on the Company's controller, and to a limited extent,
Mr. Garner, until a new chief financial officer is selected.

Business Strategy

During its more than 37 years of operations, management believes the Company has established an excellent reputation for product quality, reliability,
customer service and value. In addition, the Company has developed an extensive distribution network and is licensed or authorized to supply gaming equipment in every state in the United States in
which such licenses are required. The Company is also licensed or authorized to supply gaming equipment on a number of Native American lands, in Victoria, Australia and Ontario, Quebec and British
Columbia, Canada, and in certain jurisdictions in South Africa. The Company's current strategy for growth is to: (i) capitalize upon its competitive advantages to maintain its market position
for those products in which it has a dominant share and thereby benefit from the expected continued growth in the United States casino market, (ii) improve its manufacturing processes and
aggressively pursue market share for products, such as playing cards, in which the Company does not have a leading market share, (iii) expand internationally into growing casino markets,
including those in Canada, Australia, Europe, South America, Central America, Asia, Africa and the Caribbean, (iv) develop or acquire new products which the Company can sell through its
existing distribution network, (v) market and sell variations of its gaming products to non-gaming markets through its wholly-owned subsidiary, Authentic Products and
(vi) evaluate strategic alternatives.

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

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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.

To
protect its market position and satisfy the demands of its customers, the Company continuously seeks to improve the quality and features of its chips. During the past several years,
the Company has introduced improved formulations and additional security features which are incorporated in the manufacture of its casino chips.

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 50 million
chips (based on a single shift and increased labor availability). Management believes that given its current production level of approximately 10 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.



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 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.

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 2001, the Company produced approximately 36,000 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.

The
Company believes that it is one of the largest casino card manufacturers in the United States. Given the Company's relatively low market share, 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.

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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 2001, the Company produced approximately 7.5 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 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. 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 fr 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 2001, the Company
produced approximately 700,000 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.

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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.

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. Revenues as a result of
new casino openings for the years ended May 31, 1999, 2000 and 2001 were approximately $2.3 million, $2.1 million and $1.1 million, respectively.

Materials and Supplies

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 Company's policy is to maintain two or more suppliers of such raw materials and finished goods whenever possible.

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 The Bud Jones Company, Inc. ("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, T.K. Specialty Company and Midwest. Management
believes the primary competitive factors for dice sales are quality

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

Employees

At August 23, 2001, the Company employed approximately 450 persons. Nearly 400 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

Nevada.The manufacture and distribution of gaming equipment in Nevada are subject to extensive state and local regulation.
The Company's operations are subject to the licensing and regulatory control of the Nevada Gaming Commission (the "Nevada Commission"), the Nevada State Gaming Control Board (the "Nevada Board") and
various local regulatory agencies (collectively with the Nevada Commission and the Nevada Board, the "Nevada Gaming Authorities").

The
laws, regulations and supervisory procedures of the Nevada Gaming Authorities seek to (i) prevent unsavory or unsuitable persons from having a direct or indirect involvement
with gaming at any time or in any capacity, (ii) establish and maintain responsible accounting practices and procedures, (iii) maintain effective control over the financial practices of
licensees, including establishing minimum procedures for internal fiscal affairs and the safeguarding of assets and revenues, providing reliable record keeping and requiring the filing of periodic
reports with the Nevada Gaming Authorities, (iv) prevent cheating and fraudulent practices, and (v) provide sources of state and local revenues through taxation and licensing fees.
Changes in such laws, regulations and procedures could have an adverse effect on the Company's operations.

Paul-Son
Gaming Supplies, Inc. ("Paul-Son Supplies"), the Company's wholly-owned subsidiary which manufactures and distributes casino table game equipment
used in Nevada, is required to be licensed by the Nevada Gaming Authorities. The gaming license is not transferable and must be renewed periodically. The Company is registered as a publicly traded
corporation by the Nevada Commission, and is required periodically to submit detailed financial and operating reports to the Nevada Commission and furnish any other information which the Nevada
Commission may require. No person may become a stockholder of, or receive any percentage of profits from, Paul-Son Supplies without first obtaining licenses and approvals from the Nevada
Gaming Authorities. The Company and Paul-Son
Supplies have obtained from the Nevada Gaming Authorities the various approvals, permits and licenses required in order to engage in its manufacturing, distribution and sales activities in Nevada.

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The Nevada Gaming Authorities may investigate any individual who has a material relationship to, or material involvement with, the Company or Paul-Son Supplies, in order to
determine whether such individual is suitable or should be licensed as a business associate of a gaming licensee. Officers, directors and certain key employees of Paul-Son Supplies must
file applications with the Nevada Gaming Authorities and may be required to be licensed or found suitable by the Nevada Gaming Authorities. Officers, directors and key employees of the Company who are
actively and directly involved in manufacturing, distribution and sales activities of Paul-Son Supplies may be required to be licensed or found suitable by the Nevada Gaming Authorities.
The Nevada Gaming Authorities may deny an application for licensing for any cause which they deem reasonable. A finding of suitability is comparable to licensing, and both require submission of
detailed personal and financial information followed by a thorough investigation. The applicant for licensing or a finding of suitability must pay all the costs of the investigation. Changes in
licensed positions must be reported to the Nevada Gaming Authorities and in addition to their authority to deny an application for a finding of suitability or licensure, the Nevada Gaming Authorities
have jurisdiction to disapprove a change in a corporate position.

If
the Nevada Gaming Authorities were to find an officer, director or key employee unsuitable for licensing or unsuitable to continue having a relationship with the Company or
Paul-Son Supplies, the companies involved would have to sever all relationships with such person. In addition, the Nevada Commission may require the Company or Paul-Son
Supplies to terminate the employment of any person who refuses to file appropriate applications. Determinations of suitability or of questions pertaining to licensing are not subject to judicial
review in Nevada.

The
Nevada Commission may also require the holder of any equity of a corporation registered under the Nevada Gaming Control Act (the "Nevada Act"), regardless of the amount held, to file
applications, be investigated and be found suitable to own the equity security of a registered corporation. If the Nevada Commission determines that a person is unsuitable to own such equity security,
then pursuant to the regulations of the Nevada Commission, the registered corporation can be sanctioned, including the loss of its approvals, if without the prior approval of the Nevada Commission and
following a determination of unsuitability, it (i) pays to the unsuitable person any dividend, interest or any distribution whatsoever, (ii) recognizes any voting right by such
unsuitable person in connection with such securities, (iii) pays the unsuitable person remuneration in any form, or (iv) makes any payment to the unsuitable person by way of principal,
redemption, conversion, exchange, liquidation, or similar transaction. The applicant must pay all costs of investigation incurred by the Nevada Gaming Authorities in conducting any such investigation.
If a security holder is found unsuitable, the Company may itself be found unsuitable if it fails to pursue all lawful efforts to require such unsuitable person to relinquish such holder's voting
securities for cash at fair market value. The Company's Articles of Incorporation require a person found unsuitable to relinquish such person's voting securities upon demand of the Company.

The
Nevada Gaming Authorities have the power to investigate at any time any record or beneficial stockholder of a publicly traded corporation registered under the Nevada Act. Nevada law
requires any person who acquires more than 5% of the Company's voting securities to report the acquisition to the Nevada Commission and such person may be required to be found suitable. Also, any
person who becomes a beneficial owner of more than 10% of the voting securities of a publicly traded corporation registered under the Nevada Act must apply for a finding of suitability by the Nevada
Commission upon notice to do so and must pay the costs and fees incurred by the Nevada Board in connection with the investigation. Under certain circumstances an institutional investor, as such term
is defined in the regulations of the Nevada Commission and the Nevada Board ("Nevada Gaming Regulations"), which acquires more than 10%, but not more than 15%, of the Company's voting securities, may
apply to the Nevada Commission for a waiver of such finding of suitability requirement if such institutional investor holds the voting securities for investment purposes only. An institutional
investor shall not be deemed to hold voting securities for investment purposes unless the voting securities were acquired and are

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held in the ordinary course of business as an institutional investor and not for the purpose of causing, directly or indirectly, the election of a majority of the members of the board of directors of
the Company, any change in the Company's corporate charter, bylaws, management, policies or operations of the Company, or any of its gaming affiliates, or any other action which the Nevada Commission
finds to be inconsistent with holding the Company's voting securities for investment purposes only. Activities which are not deemed to be inconsistent with holding voting securities for investment
purposes only include: (i) voting on all matters voted on by stockholders; (ii) making financial and other inquiries of management of the type normally made by securities analysts for
informational purposes and not to cause a change in its management, policies or operations; and (iii) such other activities as the Nevada Commission may determine to be consistent with such
investment intent. If the beneficial stockholder who must be found suitable is a corporation, partnership or trust, it must submit detailed business and financial information including a list of
beneficial owners. The applicant is required to pay all costs of investigation incurred by the Nevada Authorities in conducting any such investigation.

Any
person who fails or refuses to apply for a finding of suitability or a license within 30 days after being ordered to do so by the Nevada Commission or the Chairman of the
Nevada Board may be found unsuitable. The same restrictions apply to a record owner if the record owner, after request, fails to identify the beneficial owner. Any stockholder found unsuitable and who
holds, directly or indirectly, any beneficial ownership of the common stock of the Company beyond such period of time as may be prescribed by the Nevada Commission may be guilty of a gross
misdemeanor.

The
Company and Paul-Son Supplies are required to submit detailed financial and operating reports to the Nevada Commission. Substantially all material loans, leases, sales of
securities and similar financing transactions by Paul-Son Supplies must be reported to, or approved by, the Nevada Commission.

If
it were determined that gaming laws were violated by Paul-Son Supplies, the gaming licenses it holds could be limited, conditioned, suspended or revoked. In addition,
Paul-Son Supplies, the Company and the persons involved, could be subject to substantial fines for each separate violation of the gaming laws. A supervisor could be appointed by the Nevada
Commission to oversee the Company's operations and, under certain circumstances, earnings generated during the supervisor's appointment could be forfeited to the State of Nevada. Limitation,
conditioning or suspension of any gaming license or the
appointment of a supervisor could, and revocation of any gaming license would, materially and adversely affect the Company's operations.

In
July 1996, the Nevada Board approved a detailed gaming compliance plan (the "Compliance Plan") prepared by the Company, the objective of which was to formulate a comprehensive
set of internal review and control policies and procedures to monitor and strengthen the Company's commitment to compliance with all gaming laws and regulations in all gaming jurisdictions including
Nevada. Major provisions of the Compliance Plan include the formation by the Board of Directors of a Compliance Committee, the creation of a position in the Company of Compliance Officer, and the
review of sales transactions by the Compliance Officer.

The
Company is required to maintain a current stock ledger in Nevada which may be examined by the Nevada Gaming Authorities at any time. If any securities are held in trust by an agent
or by a nominee, the record holder may be required to disclose the identity of the beneficial owner to the Nevada Gaming Authorities. A failure to make such disclosure may be grounds for finding the
record holder unsuitable. The Company is also required to render maximum assistance in determining the identity of the beneficial owner. The Nevada Commission has the power at any time to require the
Company's stock certificates to bear a legend indicating that the securities are subject to the Nevada Act and the Nevada Gaming Regulations. However, the Nevada Commission has not imposed such a
requirement to date.

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The
Company may not make a public offering of its securities without the approval of the Nevada Commission. Such approval, if given, does not constitute a recommendation or approval of
the investment merits of the securities.

Changes
in control of the Company through merger, consolidation, acquisition of assets, management or consulting agreements or any form of takeover cannot occur without the prior
investigation of the Nevada Board and approval of the Nevada Commission. The Nevada Commission may require controlling stockholders, officers, directors and other persons having a material
relationship or involvement to be licensed.

The
Nevada legislature has declared that some corporate acquisitions opposed by management, repurchases of voting securities and other corporate defense tactics that affect corporate
gaming licensees in Nevada, and corporations whose stock is publicly-traded that are affiliated with those operations, may be injurious to stable and productive corporate gaming. The Nevada Commission
has established a regulatory scheme to ameliorate the potentially adverse effects of these business practices upon Nevada's gaming industry and to further Nevada's policy to (i) assure the
financial stability of corporate gaming operators and their affiliates; (ii) preserve the beneficial aspects of conducting business in the corporate form; and (iii) promote a neutral
environmental for the orderly governance of corporate affairs. Approvals are, in certain circumstances, required from the Nevada Commission
before the Company can make exceptional repurchases of voting securities above the current market price thereof (commonly referred to as "greenmail") and before a corporate acquisition opposed by
management can be consummated. Nevada's Gaming Regulations also require prior approval by the Nevada Commission if the Company were to adopt a plan of recapitalization proposed by the Company's Board
of Directors in opposition to a tender offer made directly to its stockholders for the purpose of acquiring control of the Company.

New Jersey.The Company, its officers and directors, certain of its employees and stockholders, Paul-Son
Supplies, and Mexicana, S.A. de C.V. (99% owned by Paul-Son Supplies and 1% by the Company) ("Paul-Son Mexicana") are currently required to be licensed under the New Jersey
Casino Control Act (the "New Jersey Act") as a casino service industry qualified to sell it products to casinos in New Jersey. The terms of agreements which the Company enters into with Atlantic City
casinos may require the prior approval of the New Jersey Casino Control Commission (the "New Jersey Commission").

The
sale of gaming-related devices and systems 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 the 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 Company and its directors, officers, management and supervisory personnel, principal employees and stockholders as well as the adequacy of the financial
resources of the Company.

New
Jersey licenses are granted for a period of one or two 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 Company 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

10

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stock, not receive dividends, not exercise any rights conferred by the shares, nor receive any remuneration from the Company for services rendered or otherwise. Failure of such stockholder to dispose
of such stockholder's stock could result in the loss of the Company's license. Licenses are also subject to suspension, revocation or refusal for sufficient cause, including the violation of any law.
In addition, licensees are also subject to monetary penalties for violations of the New Jersey Act or the regulations of the New Jersey Commission.

Other Jurisdictions.The Company currently sells products at various levels in Arizona, California, Colorado, Connecticut,
Florida, Illinois, Indiana, Iowa, Louisiana, Michigan, Minnesota, Mississippi, Missouri, New York, Oregon, South Dakota, Washington, Wisconsin, the provinces of Ontario, Quebec, British Columbia and
Saskatchewan, Canada, the state of Victoria, Australia, and Mpumalanga and Gauteng, South Africa. Although the regulatory schemes in these jurisdictions are not identical, their material attributes
are substantially similar, as described below.

The
manufacture, sale and distribution of gaming devices and the ownership and operation of gaming facilities in each jurisdiction are subject to various provincial, state, county and/or
municipal laws, regulations and ordinances, which are administered by the relevant regulatory agency or agencies in that jurisdiction (the "Gaming Regulators"). These laws, regulations and ordinances
primarily concern the responsibility, financial stability and character of gaming equipment manufacturers, distributors and operators, as well as persons financially interested or involved in gaming
or liquor operations.

In
many jurisdictions, manufacturing or distributing of 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 suppliers of gaming supplies, most jurisdictions have the authority to conduct background
investigations of the 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. The Company and its key personnel have
obtained all licenses necessary for the conduct of the Company's business in the jurisdictions in which it manufactures and sells its casino table game products. Suspension or revocation of such
licenses could have a material adverse effect upon the Company's operations.

Native American Gaming Regulation.Gaming on Native American lands is extensively regulated under federal law, tribal-state
compacts and tribal law. The Indian Gaming Regulatory Act of 1988 ("IGRA") provides the framework for federal and state control over all gaming on Native American land. IGRA regulates the conduct of
gaming on Native American lands and the terms and conditions of contracts with third parties for management of gaming operations. IGRA is administered by the Bureau of Indian Affairs and the National
Indian Gaming Commission ("NIGC").

IGRA
classifies games that may be conducted on Native American lands into three categories. "Class I Gaming" includes social games solely for prizes of minimal value, or
traditional forms of Native American gaming engaged in by individuals as part of, or in connection with, tribal ceremonies or celebrations. "Class II Gaming" includes bingo, pulltabs, lotto,
punch boards, tip jars, instant bingo, and other games similar to bingo, if those games are played at the same location as bingo is played. "Class III Gaming" includes all other commercial
forms of gaming, such as table games, slots, video casino games, and other commercial gaming (e.g. sports betting and pari-mutuel wagering).

Class I
Gaming on Native American lands is within the exclusive jurisdiction of the Native American tribes and is not subject to the provisions of IGRA.

Class II
Gaming is permitted on Native American lands if (i) the state in which the Native American lands are located permits such gaming for any purpose by any person,
organization or entity; (ii) the gaming is not otherwise specifically prohibited on Native American lands by federal law;

11

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(iii) the gaming is conducted in accordance with a tribal ordinance or resolution which has been approved by the NIGC; (iv) a Native American tribe has sole proprietary interest and
responsibility for the conduct of gaming; (v) the primary management officials and key employees are tribally licensed; and (vi) miscellaneous other requirements are met.

Class III
Gaming is permitted on Native American lands if the conditions applicable to Class II Gaming are met and, in addition, the gaming is conducted in conformance with
the terms of a written agreement between a tribal government and the government of the state within whose boundaries the tribe's lands are located (a "tribal-state compact").

IGRA
requires states to negotiate in good faith with Native American tribes that seek to enter into a tribal-state compact for the conduct of Class III gaming. Such tribal-state
compact may include provisions for the allocation of criminal and civil jurisdiction between the state and the Native American tribe necessary for the enforcement of such laws and regulations,
taxation by the Native American tribe of such activity in amounts comparable to those amounts assessed by the state for comparable activities, remedies for breach, standards for the operation of such
activity and maintenance of the gaming facility, including licensing, and any other subjects that are directly related to the operation of gaming activities. The terms of tribal-state compacts vary
from state to state. Tribal-state compacts within one state tend to be substantially similar to each other. Tribal-state compacts usually specify the types of permitted games, entitle the state to
inspect casinos, require background investigations and licensing of casino employees, and may require the tribe to pay a portion of the state's expenses for establishing and maintaining regulatory
agencies.

Pursuant
to tribal-state compacts, agreements with tribes or as otherwise allowed by state law, the Company is currently qualified to distribute its gaming supplies to certain tribes in
the states of Arizona, California, Louisiana, Minnesota, Mississippi, New York, North Dakota, Oregon, Iowa, Connecticut, Michigan, South Dakota, Washington, Wisconsin and the provinces of Ontario and
Saskatchewan, Canada.

United StatesFederal.The Federal Gambling Devices Act of 1962 makes it unlawful for a person to manufacture,
deliver or receive gaming machines, gaming machine type devices and components thereof across interstate lines unless that person has first registered with the Department of Justice of the United
States.

Licensing of Officers and Directors.In each jurisdiction where the Company is presently licensed, the officers and directors
who are required to be licensed have either been approved or licensed or have
applications for such licenses or approvals pending. As regulatory authorities require additional persons to be licensed or approved or when the Company seeks to enter into new jurisdictions, the
Company promptly causes necessary applications to be filed.

Application of Future or Additional Regulatory Requirements.In the future, the Company intends to seek the necessary
licenses, approvals and findings of suitability for the Company, its products and its personnel in other jurisdictions throughout the world where significant sales are anticipated to be made. However,
there can be no assurance that such licenses, approvals or findings of suitability will be obtained and if obtained will not be revoked, suspended or conditioned or that the Company will be able to
obtain the necessary approvals for its future products as they are developed in a timely manner, or at all. If a license, approval or finding of suitability is required by a regulatory authority and
the Company fails to seek or does not receive the necessary license, approval or finding of suitability, the Company may be prohibited from selling it products for use in the respective jurisdiction
or may be required to sell its products through other licensed entities at a reduced profit to the Company.

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.

12

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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. Due to the relocation of virtually all of the Company's
manufacturing facilities to San Luis, Mexico, the Company has listed for sale the Las Vegas Headquarters. The Las Vegas Headquarters secures a deed of trust issued under the Company's outstanding term
loans. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and Capital Resources."

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

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 Living Trust: Eric P. Endy, individually and in his official capacity as an officer and director of Paul-Son Gaming Corporation: and Laurence A. Speiser, an individual.
Defendants, Case No. A 416734 in the District Court for Clark County, Nevada (the "Winick Litigation").

The
Winick Litigation was filed on March 24, 2000. All defendants, including the Company, have filed answers and/or counterclaims, and discovery is being conducted. Plaintiff has
demanded a trial by jury for all claims which may be so tried to a jury under Nevada law. Plaintiff's claims against the Company include fraud or negligent inducement, economic duress or business
compulsion, breach of contract, breach and tortious breach of the implied covenant of good faith and fair dealing, intentional infliction of emotional distress, and conspiracy. Plaintiffs prayer for
relief includes declarations concerning the effect of certain agreements, compensatory and exemplary damages, and attorneys' fees.

The
litigation is in the discovery stage. The Company and the other defendants have contested this case vigorously. Because of the on-going discovery in this case, the
Company is unable to evaluate the likelihood of an unfavorable outcome or the range of potential loss, if any of the above-referenced claims were successful against the Company.

The
Company 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 the
Company's financial position, liquidity, or results of operations.

13

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

Not
applicable.

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

Low2000 First Quarter

$91/2

$53/42000 Second Quarter

83/8

51/22000 Third Quarter

61/2

33/42000 Fourth Quarter

43/8

21/42001 First Quarter

45/8

17/82001 Second Quarter

23/8

15/82001 Third Quarter

21/4

5/82001 Fourth Quarter

23/4

11/22002 First Quarter (through August 23, 2001)

261/64

2


The
last reported closing price of the Common Stock on the Nasdaq SmallCap Market on August 23, 2001 was $2.30 per share. There were approximately 116 holders of record of the
Common Stock as of August 23, 2001.



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.

14

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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,
2001, 2000, and 1999 and as of May 31, 2001 and 2000 have been derived from the audited consolidated financial statements of the Company included elsewhere herein. The selected consolidated
financial data for the years ended May 31, 1998 and 1997 and as of May 31, 1999, 1998 and 1997 have been derived from the Company's audited consolidated financial statements not included
herein.

|                                                  |  | Fiscal Years Ended May 31, |          
|------------------------------------------------- |  | -------------------------- | ---------
|
|
|
|Operations statement data:                        |  |                            |          
|Revenues                                          |  | $                          | 20,494   
|Cost of revenues                                  |  |                            | 15,816   
|                                                  |  |                            |          
|Gross profit                                      |  |                            | 4,678    
|Selling, general and administrative expenses      |  |                            | 5,763    
|                                                  |  |                            |          
|Operating income (loss)                           |  |                            | (1,085   
|Other income (expense)                            |  |                            | (87      
|                                                  |  |                            |          
|Income (loss) before income tax (expense) benefit |  |                            | (1,172   
|Income tax (expense) benefit                      |  |                            |         
|                                                  |  |                            |          
|Net income (loss)                                 |  | $                          | (1,172   
|                                                  |  |                            |          
|Earnings (loss) per share:                        |  |                            |          
|Basic                                             |  | $                          | (0.34    
|Average shares outstanding                        |  |                            | 3,450,485
|Diluted                                           |  | $                          | (0.34    
|Diluted shares                                    |  |                            | 3,450,485
|                                                  |  |                            |          
|
|
|
|
|Balance sheet data:                               |  |                            |          
|Cash and cash equivalents                         |  | $                          | 888      
|Working capital                                   |  |                            | 3,624    
|Property and equipment, net                       |  |                            | 8,463    
|Total assets                                      |  |                            | 15,688   
|Current liabilities                               |  |                            | 3,001    
|Long-term debt, less current maturities           |  |                            | 497      
|Stockholders' equity                              |  |                            | 12,191   

15

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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 the Company's revenues are generated by sales to customers with which the Company has an established relationship. Complementing these revenues is
the significant additional revenue the Company realizes when providing a full range of products to new casinos. The Company 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, the Company has vigorously pursued table gaming opportunities in emerging gaming jurisdictions. Because of the Company's production capacity and its experience in the gaming supply industry,
management believes the Company 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.

The
Company operates in one operating segmentcasino game equipment products. See the Business Segment disclosure in Note 10 to the consolidated financial statements.

Restatement

Subsequent to the issuance of the Company's consolidated financial statements for the fiscal year ended May 31, 2001, the Company determined after
consultation with its auditors that certain transactional costs incurred during the past year related to its negotiations of a potential business combination with Etablissements Bourgogne et Grasset
should have been expensed as incurred. The Company had
previously capitalized these costs. As a result, the accompanying May 31, 2001 consolidated financial statements have been restated from amounts previously reported. In addition, the Company
has restated its segment reporting. The significant effects of these restatements are summarized in Note 12 to the consolidated financial statements. The following discussion gives effect to
the restated amounts.

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 31,2001

2000

1999Revenues

100.0
%
100.0
%
100.0
%Cost of revenues

77.2
%
74.6
%
76.0
%Gross profit

22.8
%
25.4
%
24.0
%Selling, general and administrative expenses

28.1
%
27.8
%
28.9
%Operating loss

(5.3
)%
(2.4
)%
(4.8
)%Interest expense

.8
%
1.1
%
0.9
%Net loss

(5.7
)%
(5.2
)%
(2.8
)%


16

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

Fiscal Years Ended May 31,2001

2000

1999(in thousands)Revenues:Casino chips

$
5,219

$
6,642

$
5,709Table layouts


3,744


3,562


3,502Playing cards


5,393


6,008


6,330Gaming furniture


1,561


1,606


4,575Dice


1,788


1,834


1,698Table accessories and other products


2,789


3,010


2,100Total

$
20,494

$
22,662

$
23,914


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.

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.

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

17

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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 decreased to approximately $75,000 compared to other income in fiscal 2000 of
approximately $191,000. This decline of approximately $116,000 was primarily attributable to the gain on the one-time sale of certain Company-owned real estate of approximately $127,000 in
fiscal 2000.

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.

Comparison of Operations for the Fiscal Years Ended May 31, 2000 and May 31, 1999

Revenues.For the fiscal year ended May 31, 2000, Paul-Son's revenues totaled approximately
$22.7 million. The fiscal 2000 revenues represent a $1.2 million, or 5%, decrease from the $23.9 million in revenues which the Company generated during the previous fiscal year.
The decrease in revenues for the 2000 period resulted principally from a decrease in gaming furniture and playing card sales of approximately $2.4 million offset, in part, by an increase in
casino chip and dice sales of approximately $1.1 million. Gaming furniture sales, which are comprised principally of gaming tables and related seating products, experienced a decline in fiscal
2000 due to decreased casino expansions, new openings and non-recurring one-time orders for such products. Additionally, playing card sales declined due to competitive
pressures which caused a 5% decrease in the average selling price of cards compared to the prior fiscal year. Offsetting these revenue decreases were increases in casino chips sales from increased
demand for commemorative casino chips during the "Year 2000" casino celebrations as well as certain significant chip replacement orders. Sales of Company manufactured products were approximately 84%
of total revenues in fiscal 2000 compared to approximately 73% in fiscal 1999.

Cost of Revenues.Cost of revenues, as a percentage of sales, decreased to 74.6% for the fiscal year ended May 31,
2000, as compared to 76.0% in the prior fiscal year. This improvement in the gross margin percentage during fiscal 2000 was principally caused by the aforementioned increase in sales of
products manufactured by the Company, which generally produce higher margins than products distributed by the Company.

Selling, General and Administrative Expenses.Selling, general and administrative ("SG&A") expenses for the fiscal year ended
May 31, 2000 decreased approximately $600,000, or 9%, to approximately $6.3 million, or 27.8% of revenues, compared to approximately $6.9 million, or 28.9% 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, of certain of the
Company's retail and outlying sales offices.

18

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Interest Expense.For the year ended May 31, 2000, interest expense increased approximately 9% to approximately
$241,000 as compared to approximately $222,000 in the prior fiscal year. This increase was caused by the full year impact, in fiscal 2000, of an approximately $800,000 capital lease entered into in
March 1999 offset, in part, by the absence of outstanding borrowings under the Company's line of credit in fiscal 2000 versus fiscal 1999.

Other Income.In fiscal 2000, other income decreased to approximately $191,000 compared to other income in fiscal 1999 of
approximately $395,000. This decline of approximately $204,000 was primarily attributable to the gain on the one-time sale of certain Company-owned real estate of approximately $340,000 in
fiscal 1999 offset, in part, by the gain on the one-time sale of certain non-operating assets of approximately $127,000 in fiscal 2000.

Income Taxes.In fiscal 2000, the Company recorded a tax provision of $568,000 compared to recording a tax benefit in fiscal
1999 of $305,000. The Company recorded the fiscal 2000 tax provision due to present 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, 2000, the Company incurred a net loss of approximately $1,171,000 compared to a
net loss of approximately $681,000 in the prior fiscal year. This decline of approximately $490,000 was primarily due to the aforementioned decreases in revenues, other income and the increased tax
provision offset, in part, by the aforementioned improvements in gross profit and SG&A expenses as compared to fiscal 1999. Basic and diluted net loss per share was $.34 for the year ended
May 31, 2000 as compared with basic and diluted net loss of $.20 for the year ended May 31, 1999.

Liquidity and Capital Resources

Overview.Based on current operating levels, management believes that the combination of its existing cash balances,
projected cash flows from operations and other sources discussed below will provide sufficient liquidity, both on a short-term and long-term basis, to fund the Company's
current routine operating requirements. However, to fund any non-ordinary course of business expenditures, such as the transactional costs relating to the potential combination transaction
currently under discussion (see "Part I, Item 1. "BusinessRecent Developments"), the Company will be required to obtain additional sources of cash other than the Company's
projected cash flows. As disclosed in this report, the Company has its Las Vegas Headquarters for sale. In addition, the Company is currently evaluating various alternatives for its vacant facility in
San Luis, Mexico, including the sale of the facility. See "Part I, Item 2. Properties." In the event the Company is unable to sell either of these buildings and the need for
non-ordinary course of business expenditures arises, the Company believes that it will be able to use the Las Vegas Headquarters as collateral to obtain credit facilities that will provide
the necessary cash sources. However, there is no assurance that the Company will be able to sell either of the buildings currently for sale on terms and conditions acceptable to the Company or at all,
and there is no assurance that should the Company require loans utilizing the Las Vegas Headquarters as collateral that such loans will be obtainable on terms and conditions acceptable to the Company
or at all.

Working Capital.Working capital totaled approximately $3.6 million at May 31, 2001, compared to approximately
$5.1 million at May 31, 2000. Working capital decreased approximately $1.5 million during the year primarily due to a decrease in inventories, cash and other current assets
($2.3 million) as well as an increase in accounts payable and accrued expenses (approximately $900,000) offset, in part, by a decrease in current maturities of long-term debt
($1.5 million) and customer deposits (approximately $100,000).

19

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Cash flow.Cash provided by operating activities totaled approximately $1.5 million during fiscal 2001 compared to
cash provided by operations of approximately $1.9 million in fiscal 2000. The primary contributing factors to cash provided by operating activities in fiscal 2001 were net income before
depreciation, amortization and provisions for inventory obsolescence of approximately $150,000, reductions of inventories of approximately $779,000 and an increase in accounts payable and accrued
liabilities of approximately $883,000 offset, in part, by increases in accounts receivable and other assets of approximately $277,000. Other significant cash activities during fiscal 2001 included
reductions in debt obligations from certain credit facilities of approximately $1.7 million and purchases of certain property, plant and equipment of approximately $1.0 million. Overall,
cash decreased approximately $1.2 million from May 31, 2000 to May 31, 2001.

Secured Debt.In November 1997, the Company obtained a $1.8 million loan (the "$1.8 Million Note") from Norwest
Bank. The proceeds were used in acquiring certain real estate in San Luis, Mexico and
certain equipment to be used principally in the Company's manufacturing processes. The $1.8 Million Note bears interest at 8.87% per annum, with monthly payments of principal and interest totaling
$18,118. The $1.8 Million Note will be paid in full in September 2001. Additionally, in October 1998, the Company obtained an additional $500,000 Note (the "500,000 Note") to acquire
additional playing card equipment. The $500,000 Note accrues interest at 9.75% per annum, with monthly principal installments of $13,889 and was paid in full on August 14, 2001. Both of these
notes are secured by a first deed of trust on the Las Vegas Headquarters and by a first security interest in all accounts, inventory, and general intangibles of Paul-Son Supplies.

Under
the existing secured debt credit facilities, the Company agreed to comply with certain financial covenants and ratios. Specifically, the Company agreed to maintain a net tangible
net worth of not less than $14.0 million, a total liabilities to tangible net worth ratio of no greater than 0.5 to 1.0, certain minimum cash flow amounts and an annualized profitability of not
less than $250,000 in net income, all as defined in the agreement. During the year ended May 31, 2000, it was determined the Company was in violation of certain of its covenants. As a result of
the violations, the Company and the bank, in June 2000, entered into a forbearance agreement whereby the Company agreed, among other things, to make additional principal payments each month
beginning June 15, 2000. The amount of the additional principal payments was $100,000 for the first four months, $125,000 for the succeeding four months and $150,000 for subsequent months until
all outstanding principal and interest amounts would have been paid in full. In April 2001, the Company and the bank entered into a subsequent forbearance agreement (which superseded the
June 2000 forbearance agreement) whereby the Company agreed to pay additional monthly principal payments equal to $50,000 until outstanding debt obligations owed to the bank under the $1.8
Million Note are satisfied. The additional principal payments required by the April 2001 forbearance agreement replace the additional principal payments under the June 2000 forbearance
agreement. As part of the April 2001 forbearance agreement, the bank agreed not to enforce its rights under the terms of the original loan documents relating to all restrictive financial
covenants as long as the Company abides by the terms of the April 2001 forbearance agreement and performs all of the remaining terms of the loan documents. As of August 23, 2001, the
Company has made requisite payments under the April 2001 forbearance agreement, and, as described above, the $1.8 Million Note has a single remaining payment of approximately $20,000 that is
expected to be made in September 2001. The $500,000 Note was paid in full on August 14, 2001.

Seasonality.The Company does not typically experience seasonality relative to its revenues.

Las Vegas Facilities.In May 1997, the Company purchased its current corporate headquarters, an approximately 62,000
square foot building located in Las Vegas. Due to the relocation of virtually all of the Company's manufacturing facilities to San Luis, Mexico, the Company has listed the Las Vegas Headquarters for
sale. If a sale of the headquarters is consummated, the Company intends to relocate

20

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into a smaller facility in the Las Vegas area. The Las Vegas Headquarters secures a deed of trust issued under certain credit facilities scheduled to be paid in full in September 2001. See
"Secured Debt" above.

San Luis Facilities.The Company 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. The Company did not exercise its option to extend the lease, but leases the main facility on a
month to month basis. In December 1994, the Company purchased the adjacent 45,000 square foot facility for approximately $1.5 million. In November 1997, the Company completed the
purchase of the 66,000 square foot New San Luis Facility for approximately $1.1 million.

Capital Expenditures.The Company does not presently have plans to purchase any significant capital equipment for the fiscal
year ended May 31, 2002.

Recently Issued and Adopted Accounting Guidance

The Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133 "Accounting for Derivative
Instruments and Hedging Activities" in June 1998. This statement establishes accounting and reporting standards for derivative instruments and hedging activities. This statement is effective
for all fiscal quarters of fiscal years which begin after June 15, 2000. The statement requires entities to recognize all derivatives as either assets or liabilities in the statement of
financial position and to measure instruments at fair value. The Company adopted SFAS No. 133 effective September 1, 2000. The adoption of SFAS No. 133 does not have a material
impact on the Company's consolidated financial position or results of operations.

In
December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101
clarifies existing accounting principles related to revenue recognition in financial statements. The Company was required to comply with the provisions of SAB 101 by the fourth quarter of its fiscal
year ending May 31, 2001. Due to the nature of the Company's operations, the implementation of SAB 101 did not have a significant impact on the Company's consolidated financial statements.

In
June 2001, 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 provisions of SFAS 141 and SFAS 142 and has not adopted such
provisions in its May 31, 2001 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 provisions of SFAS No. 143.

21

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Statement on Forward-Looking Information

Certain information included herein contains statements that may be considered forward-looking, such as statements relating to anticipated performance or cash
flow from operations, financing sources, strategic alternatives, and the relocation of certain operations. 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. Some of the contingencies and uncertainties to which any forward-looking statement contained herein is subject include, but are not limited to, the following:

Reliance on Expansion of Casino Industry.Nearly all of the Company's revenue is generated by sales relating to existing
casinos, casino openings and expansions. Although the Company is pursuing opportunities to sell and market its products to industries outside of the casino industry, the Company's future growth may be
dependent on the continued emergence and growth of new markets for the Company's products, including new casino openings or expansions throughout the United States and other areas of the world. A
reduction in the pace of new casino openings and casino expansions in existing and emerging legalized gaming jurisdictions would have a negative effect on the Company's business. Similarly, the
restriction or abolishment of legalized casino gaming in jurisdictions in which the Company currently does business would have a negative impact on the Company.

Gaming Regulations.The manufacture and distribution of gaming equipment and supplies are subject to extensive federal, state
and local regulation. Although these regulations vary among jurisdictions, virtually all jurisdictions require licenses, permits and approvals to be held by the Company and its key personnel in
connection with the manufacture and distribution of some or all of the Company's products. The failure of the Company or its key personnel to obtain or retain required licenses, permits or approvals
in one or more jurisdictions could have an adverse effect on the Company and could adversely affect the ability of the Company and its key personnel to obtain or retain licenses in other
jurisdictions. No assurance can be given that such licenses, permits or approvals will be obtained, retained or renewed in the future in existing or emerging jurisdictions.

The
regulatory environment in which the Company operates requires, among other things, that the Company develop and follow certain internal "due diligence" procedures to ensure its
gaming regulatory licenses are not jeopardized relative to its business operations and customer base. As such, the Company may require information from, and perform inquiries into, potential customers
above what certain competitors may require depending on the extent of the competitors' internal procedural requirements or the absence of such. To the extent potential customers are adverse to these
procedures, the Company may be at a competitive disadvantage relative to its competitors.

Any
beneficial holder of the Company's Common Stock may be subject to investigation by the gaming authorities in any or all of the jurisdictions in which the Company operates if such
authorities have reason to believe that such ownership may be inconsistent with such state's gaming policies. Persons who acquire beneficial ownership of more than certain designated percentages of
Common Stock will be subject to certain reporting and qualification procedures established by the Nevada and other gaming authorities, as well as certain local licensing authorities.

Need for Tribal-State Compacts.The Company's ability to generate greater revenues and earnings is dependent in part on the
growth of Native American tribal casinos. Under IGRA, the operation of a casino on Native American tribal land is not permitted until the Native American tribe and the state in

22

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which it is located have entered into a tribal-state compact authorizing gaming on the tribe's land and such tribal-state compact is approved by the Secretary of the Department of Interior. Many
states have resisted entering into tribal-state compacts, which has resulted in litigation challenging the constitutionality of IGRA. If IGRA were found to be unconstitutional, the procedures that
would apply to the initiation and operation of Native American tribal casinos would be uncertain. Such a finding could severely limit or delay the expansion of gaming in additional jurisdictions. In
addition, a recent court ruling has placed limits on the ability of Native American tribes to force states to enter into tribal-state compacts and several states, through legislation or constitutional
amendment, have sought to limit the scope of Native American gaming under IGRA.

Variability of Quarterly Operating Results.The Company's financial results are dependent in part upon sales to new or
expanding casinos, which may, in turn, be dependent upon the authorization of gaming in additional jurisdictions. The timing of these events does not follow consistent patterns throughout any given
year. Given this uncertain timing and the large dollar value of sales to new casinos, the Company's future operating results may be subject to significant quarterly fluctuations.

Table Games Growth Rate.The Company's primary products are sold to casinos with table games. In recent years, there has been
an increasing allocation of total casino gaming space to slot machines, and in certain cases, a resulting reduction in the allocation of total casino gaming space to table games. As a result, the
growth rate of table games has not matched that of the casino industry as a whole. Although the Company's recurring product sales have grown marginally over the past several years, the Company
believes that the Company's rate of growth would have been greater if not for this trend. An acceleration of the aforementioned trend of allocating more gaming space to slot machines rather than table
games could have a negative impact on the Company's rate of growth.

Dependence on Key Personnel.The Company's success depends to a significant degree on the performance of Eric P. Endy,
Chairman of the Board and Chief Executive Officer. The Company carries key man life insurance on Eric P. Endy, and the loss of the services of him could have a material adverse effect on the Company.

The
Company is also dependent upon the abilities and efforts of certain other management personnel.

Management
anticipates that as the Company continues to expand into new gaming jurisdictions throughout the United States and internationally, its future success will depend in part upon
its ability to attract and retain qualified personnel to fill key sales, administrative and management positions. There can be no assurance that the Company will be able to locate and retain such
individuals.

Expansion of International Sales.Although currently only a small percentage of the Company's sales are to casinos located in
foreign countries, a component of the Company's business strategy is the expansion of its international sales. To the extent the Company is successful in this endeavor, it will be increasingly subject
to the customary risks of doing business in foreign countries. These risks include fluctuations in foreign currency exchange rates and controls, competitive issues relative to established businesses
with significant current market share and business/customer relationships, nationalization and other economic, tax and regulatory policies of local governments and the possibility of trade embargoes,
political instability or war or other hostility, as well as the laws and policies of the United States affecting foreign trade and investment.

Competition.There are significant competitors in each of the Company's major product lines. With the continuing expansion of
gaming, it is possible that new competitors may be attracted to the table game supply business, some of which may be in the business of selling gaming products, have licenses to sell gaming supplies
and have greater financial resources than the Company. The entry by such companies into the Company's markets could adversely impact the Company's business.

23

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Control by Existing Stockholder; Antitakeover Effects.Eric P. Endy is the beneficial owner of approximately 51% of the
outstanding Common Stock of the Company. As a result, Mr. Endy effectively controls the election of all of the members of the Board of Directors of the Company and effectively controls
virtually all matters requiring approval by the stockholders of the Company. Such ownership may discourage acquisition of large blocks of the Company's securities and could have an
anti-takeover effect, possibly depressing the price of the Common Stock. In addition, Nevada corporation law and the Company's Articles of Incorporation and Bylaws contain provisions that
may have the effect of delaying, deferring or preventing a change in control of the Company.

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.

Item 7A.Quantitative and Qualitative Disclosures About Market Risk.

The Company has certain fixed-rate debt and a variable rate capital lease which it believes to have fair values that approximate reported amounts. The
Company believes that any market risk arising from these financial instruments is not material.

24

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Item 8.Financial Statements and Supplementary Data



25

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PAUL-SON GAMING CORPORATION

AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

MAY 31, 2001

26

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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, 2001 and 2000, and the
related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended May 31, 2001. 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, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended May 31, 2001, in conformity with accounting principles
generally accepted in the United States of America.

As
discussed in Note 12, the accompanying 2001 consolidated financial statements have been restated.

DELOITTE &
TOUCHE LLP

Las
Vegas, Nevada
July 20, 2001 (except for the effects of the restatements
discussed in Note 12, as to which the date is January 15, 2002)

27

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PAUL-SON GAMING CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
May 31, 2001 and 2000

|                                        |                                                                                                       | (As restated,
see Note 12)
2001            |           | 2000       |           
|--------------------------------------- | ----------------------------------------------------------------------------------------------------- | ------------------------------------------ | --------- | ---------- | ----------
|ASSETS                                  |                                                                                                       |                                            |           |            |           
|Current Assets:                         |                                                                                                       |                                            |           |            |           
|                                        | Cash and cash equivalents                                                                             |                                            | $         | 887,895    |           
|                                        | Trade receivables, net                                                                                |                                            |           | 2,437,988  |           
|                                        | Inventories, net                                                                                      |                                            |           | 3,066,534  |           
|                                        | Prepaid expenses                                                                                      |                                            |           | 177,867    |           
|                                        | Other current assets                                                                                  |                                            |           | 54,614     |           
|                                        |                                                                                                       |                                            |           |            |           
|                                        |                                                                                                       | Total current assets                       |           |            | 6,624,898 
|Property and Equipment, net             |                                                                                                       |                                            | 8,463,329 |            |           
|Other assets, net                       |                                                                                                       |                                            | 600,219   |            |           
|                                        |                                                                                                       |                                            |           |            |           
|                                        |                                                                                                       | Total Assets                               |           | $          | 15,688,446
|                                        |                                                                                                       |                                            |           |            |           
|LIABILITIES AND STOCKHOLDERS' EQUITY    |                                                                                                       |                                            |           |            |           
|Current Liabilities:                    |                                                                                                       |                                            |           |            |           
|                                        | Current maturities of long-term debt                                                                  |                                            | $         | 403,404    |           
|                                        | Accounts payable                                                                                      |                                            |           | 1,550,143  |           
|                                        | Accrued expenses                                                                                      |                                            |           | 930,655    |           
|                                        | Customer deposits                                                                                     |                                            |           | 100,941    |           
|                                        | Income taxes payable                                                                                  |                                            |           | 15,546     |           
|                                        |                                                                                                       |                                            |           |            |           
|                                        |                                                                                                       | Total current liabilities                  |           |            | 3,000,689 
|                                        |                                                                                                       |                                            |           |            |           
|Long-Term Debt, less current maturities |                                                                                                       |                                            | 496,842   |            |           
|                                        |                                                                                                       |                                            |           |            |           
|Commitments and Contingencies (Note 6)  |                                                                                                       |                                            |           |            |           
|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; 3,477,050 shares in 2001 and 2000 |                                            |           | 34,771     |           
|                                        | Additional paid-in capital                                                                            |                                            |           | 13,652,936 |           
|                                        | Treasury stock, at cost; 27,293 and 24,293 shares in 2001 and 2000                                    |                                            |           | (195,780   | )         
|                                        | Accumulated deficit                                                                                   |                                            |           | (1,301,012 | )         
|                                        |                                                                                                       |                                            |           |            |           
|                                        |                                                                                                       | Total stockholders' equity                 |           |            | 12,190,915
|                                        |                                                                                                       |                                            |           |            |           
|                                        |                                                                                                       | Total Liabilities and Stockholders' Equity |           | $          | 15,688,446
|                                        |                                                                                                       |                                            |           |            |           

See
Notes to Consolidated Financial Statements.

28

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PAUL-SON GAMING CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
Fiscal years ended May 31, 2001, 2000 and 1999

|                                             |                  | (As restated,
see Note 12)
2001 |            | 2000     |            | 1999       |         
|-------------------------------------------- | ---------------- | ------------------------------- | ---------- | -------- | ---------- | ---------- | --------
|Revenues                                     |                  | $                               | 20,494,150 |          | $          | 22,662,062 |         
|Cost of revenues                             |                  |                                 | 15,815,846 |          |            | 16,913,009 |         
|                                             |                  |                                 |            |          |            |            |         
|                                             |                  | Gross profit                    |            |          | 4,678,304  |            |         
|Selling, general and administrative expenses |                  |                                 | 5,762,987  |          |            | 6,302,086  |         
|                                             |                  |                                 |            |          |            |            |         
|                                             |                  | Operating loss                  |            |          | (1,084,683 | )          |         
|Other income (expense)                       |                  |                                 |            |          |            |            |         
|                                             | Interest income  |                                 |            | 44,918   |            |            | 11,135  
|                                             | Interest expense |                                 |            | (161,482 | )          |            | (241,020
|                                             | Other            |                                 |            | 29,586   |            |            | 179,976 
|                                             |                  |                                 |            |          |            |            |         
|                                             |                  | Loss before income taxes        |            |          | (1,171,661 | )          |         
|Income tax (expense) benefit                 |                  |                                 |           |          |            | (568,000   | )       
|                                             |                  |                                 |            |          |            |            |         
|                                             |                  | Net loss                        |            | $        | (1,171,661 | )          | $       
|                                             |                  |                                 |            |          |            |            |         
|Loss per share:                              |                  |                                 |            |          |            |            |         
|                                             | Basic            |                                 | $          | (0.34    | )          | $          | (0.34   
|                                             |                  |                                 |            |          |            |            |         
|                                             | Diluted          |                                 | $          | (0.34    | )          | $          | (0.34   
|                                             |                  |                                 |            |          |            |            |         

See
Notes to Consolidated Financial Statements

29

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PAUL-SON GAMING CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Fiscal years ended May 31, 2001, 2000 and 1999

|                                    |                                                                   | Common Stock |         |   |        |     |   |            |        |   |         
|----------------------------------- | ----------------------------------------------------------------- | ------------ | ------- | - | ------ | --- | - | ---------- | ------ | - | --------
|
|
|Balance, June 1, 1998               |                                                                   | 3,465,750    |         | $ | 34,658 |     | $ | 13,566,800 |        |   |        
|                                    | Shares issued from the exercise of options                        |              | 11,300  |   |        | 113 |   |            | 86,136 |   |         
|                                    | Treasury shares purchased and received in lieu of note receivable |              | (21,293 | ) |        |    |   |            |       |   | $       
|                                    | Net loss                                                          |              |        |   |        |    |   |            |       |   |         
|                                    |                                                                   |              |         |   |        |     |   |            |        |   |         
|Balance, May 31, 1999               |                                                                   | 3,455,757    |         |   | 34,771 |     |   | 13,652,936 |        |   | (173,505
|                                    | Treasury shares purchased                                         |              | (3,000  | ) |        |    |   |            |       |   |         
|                                    | Net loss                                                          |              |        |   |        |    |   |            |       |   |         
|                                    |                                                                   |              |         |   |        |     |   |            |        |   |         
|Balance, May 31, 2000               |                                                                   | 3,452,757    |         |   | 34,771 |     |   | 13,652,936 |        |   | (188,730
|                                    | Treasury shares purchased                                         |              | (3,000  | ) |        |    |   |            |       |   |         
|                                    | Net loss (as restated)                                            |              |        |   |        |    |   |            |       |   |         
|                                    |                                                                   |              |         |   |        |     |   |            |        |   |         
|Balance, May 31, 2001 (as restated) |                                                                   | 3,449,757    |         | $ | 34,771 |     | $ | 13,652,936 |        | $ | (195,780
|                                    |                                                                   |              |         |   |        |     |   |            |        |   |         

See Notes to Consolidated Financial Statements.

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PAUL-SON GAMING CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal years ended May 31, 2001, 2000 and 1999

|                                             |                                                                                      | (As restated,
see Note 12)
2001                                                             |           | 2000       |            | 1999      |           
|-------------------------------------------- | ------------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------------- | --------- | ---------- | ---------- | --------- | ----------
|Cash Flows from Operating Activities         |                                                                                      |                                                                                             |           |            |            |           |           
|                                             | Net loss                                                                             |                                                                                             | $         | (1,171,661 | )          | $         | (1,170,942
|                                             | Adjustments to reconcile net loss to net cash provided by operating activities:      |                                                                                             |           |            |            |           |           
|                                             |                                                                                      | Depreciation and amortization                                                               |           |            | 1,003,689  |           |           
|                                             |                                                                                      | Provision for doubtful accounts                                                             |           |            | 16,219     |           |           
|                                             |                                                                                      | Provision for inventory obsolescence                                                        |           |            | 300,000    |           |           
|                                             |                                                                                      | Gain on sale/disposal of assets                                                             |           |            | (6,000     | )         |           
|                                             | Change in operating assets and liabilities:                                          |                                                                                             |           |            |            |           |           
|                                             |                                                                                      | Accounts receivable                                                                         |           |            | (155,871   | )         |           
|                                             |                                                                                      | Income taxes receivable                                                                     |           |            |           |           |           
|                                             |                                                                                      | Inventories                                                                                 |           |            | 779,531    |           |           
|                                             |                                                                                      | Prepaid expenses                                                                            |           |            | 32,809     |           |           
|                                             |                                                                                      | Other assets                                                                                |           |            | (121,556   | )         |           
|                                             |                                                                                      | Deferred tax asset                                                                          |           |            |           |           |           
|                                             |                                                                                      | Accounts payable and accrued expenses                                                       |           |            | 883,397    |           |           
|                                             |                                                                                      | Bank overdraft                                                                              |           |            |           |           |           
|                                             |                                                                                      | Customer deposits                                                                           |           |            | (98,137    | )         |           
|                                             |                                                                                      | Income taxes payable                                                                        |           |            | (7,381     | )         |           
|                                             |                                                                                      |                                                                                             |           |            |            |           |           
|                                             |                                                                                      | Net cash provided by operating activities                                                   |           |            | 1,455,039  |           |           
|                                             |                                                                                      |                                                                                             |           |            |            |           |           
|Cash Flows from Investing Activities         |                                                                                      |                                                                                             |           |            |            |           |           
|                                             | Proceeds received on sale of property and equipment                                  |                                                                                             |           | 62,072     |            |           | 249,069   
|                                             | Purchase of patent                                                                   |                                                                                             |           |           |            |           | (245,920  
|                                             | Purchase of property and equipment, net                                              |                                                                                             |           | (1,027,520 | )          |           | (163,413  
|                                             |                                                                                      |                                                                                             |           |            |            |           |           
|                                             |                                                                                      | Net cash used in investing activities                                                       |           |            | (965,448   | )         |           
|                                             |                                                                                      |                                                                                             |           |            |            |           |           
|Cash Flows from Financing Activities         |                                                                                      |                                                                                             |           |            |            |           |           
|                                             | Proceeds from long-term borrowings                                                   |                                                                                             |           | 39,452     |            |           |          
|                                             | Principal payments on short-term borrowings                                          |                                                                                             |           |           |            |           |          
|                                             | Principal payments on long-term borrowings                                           |                                                                                             |           | (1,706,050 | )          |           | (326,601  
|                                             | Payments for acquisition of treasury stock                                           |                                                                                             |           | (7,050     | )          |           | (15,225   
|                                             | Proceeds from the exercise of stock options                                          |                                                                                             |           |           |            |           |          
|                                             |                                                                                      |                                                                                             |           |            |            |           |           
|                                             |                                                                                      | Net cash used in financing activities                                                       |           |            | (1,673,648 | )         |           
|                                             |                                                                                      |                                                                                             |           |            |            |           |           
|                                             |                                                                                      | Net increase (decrease) in cash and cash equivalents                                        |           |            | (1,184,057 | )         |           
|Cash and cash equivalents, beginning of year |                                                                                      |                                                                                             | 2,071,952 |            |            | 656,299   |           
|                                             |                                                                                      |                                                                                             |           |            |            |           |           
|Cash and cash equivalents, end of year       |                                                                                      | $                                                                                           | 887,895   |            | $          | 2,071,952 |           
|                                             |                                                                                      |                                                                                             |           |            |            |           |           
|Supplemental cash flows information:         |                                                                                      |                                                                                             |           |            |            |           |           
|                                             | Operating activities include cash payments for interest and income taxes as follows: |                                                                                             |           |            |            |           |           
|                                             |                                                                                      | Interest paid                                                                               |           | $          | 161,482    |           | $         
|                                             |                                                                                      | Income taxes paid                                                                           |           | $          | 37,538     |           | $         
|                                             | Investing and financing activities exclude the following non-cash activity:          |                                                                                             |           |            |            |           |           
|                                             |                                                                                      | Reduction of note and interest receivable in exchange for common stock placed into treasury |           |            |           |           |           
|                                             |                                                                                      | Acquisition of capitalized lease equipment through lease arrangement                        |           |            |           |           |           

31

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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"), 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 9).

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

32

---

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


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, and the

33

---

allowance for obsolete or slow moving inventories. 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.

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, 2001.

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 has certain fixed rate debt and a variable rate capital lease, which it believes to have fair values that approximate reported amounts. The Company believes that any market risk arising from
these financial instruments is not material.

Recently issued and adopted accounted guidance

The Financial Accounting Standards Board ("FASB") issued SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities" in June 1998.
This statement establishes accounting and reporting standards for derivative instruments and hedging activities. This statement is effective for all fiscal quarters of fiscal years which begin after
June 15, 2000. The statement requires entities to recognize all derivatives as either assets or liabilities in the statement of financial position and to measure instruments at fair value. The
Company adopted SFAS No. 133 effective September 1, 2000. The adoption of SFAS No. 133 does not have a material impact on the Company's consolidated financial position or results
of operations.

In
December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101
clarifies existing accounting principles related to revenue recognition in financial statements. The Company was required to comply with the provisions of SAB 101 by the fourth quarter of its fiscal
year ending May 31, 2001.

34

---

Due to the nature of the Company's operations, the implementation of SAB 101 did not have a significant impact on the Company's consolidated financial statements.

In
June 2001, the 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 provisions of SFAS 141 and SFAS 142 and
has not adopted such provisions in its May 31, 2001 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 provisions of SFAS No. 143.

Note 2. Inventories

Inventories consist of the following at May 31:

2001

2000Raw materials

$
1,403,777

$
2,321,531Work in process


229,199


225,507Finished goods


2,433,558


2,299,0274,066,534


4,846,065Less inventory reserves


1,000,000


700,000$
3,066,534

$
4,146,065


35

---

Note 3. Property and Equipment

Property and equipment consist of the following at May 31:

2001

2000Land

$
663,970

$
663,970Buildings and improvements


6,168,693


6,060,645Furniture and equipment


5,840,170


5,041,687Vehicles


445,746


440,06813,118,579


12,206,370Less accumulated depreciation


4,655,250


3,810,005Property and Equipment, net

$
8,463,329

$
8,396,365


Included
in furniture and equipment is capitalized lease equipment with an original cost of $790,000 and a current net book value of approximately $636,000 and $647,000 at May 31,
2001 and 2000, respectively.

Note 4. Long-Term Debt and Pledged Assets

Paul-Son Supplies has a $1.8 million note and a $500,000 note to a bank (collectively the "Facilities"). The Facilities are secured by a first
deed of trust on certain real estate owned by Paul-Son Supplies and by a secured interest in all accounts, equipment, inventory and general intangibles of Paul-Son Supplies.
The Company is also the guarantor of the facilities. The Facilities contain restrictive covenants, generally requiring the Company to maintain certain financial ratios, as defined, and to maintain net
income annually of at least $250,000. At May 31, 2000 the Company was in violation of certain covenants. As a result of the violations, the Company and the bank, in June 2000, entered
into a forbearance agreement. This agreement required the Company to pay additional monthly principal payments of $100,000 which began June 15, 2000. The additional monthly principal payments
increased to $125,000 beginning October 15, 2000 and increased to $150,000 beginning February 15, 2001. The Company made the required payments under the forbearance agreement through
March 15, 2001. In April 2001, the Company and the bank entered into a subsequent forbearance agreement (which supersedes the June 2000 forbearance agreement) whereby the Company
has agreed to pay additional monthly principal payments equal to $50,000 until outstanding debt obligations owed to the bank under the $1.8 million note are satisfied. The additional principal
payments required by the April 2001 forbearance agreement replace the additional principal payments under the June 2000 forbearance agreement. As part of the April 2001
forbearance agreement, the bank has agreed not to enforce its rights under the terms of the original loan documents relating to all restrictive financial covenants as long as the Company abides by the
terms of the April 2001 forbearance agreement and performs all of the remaining terms of the loan documents. As of August 23, 2001, the Company has made all required payments under the
terms of the April 2001 forbearance agreement. A single remaining payment of approximately $20,000 under the $1.8 million note is expected to be made in September 2001. The
$500,000 note was paid in full on August 14, 2001.

36

---

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

|                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                      | 2001 |         | 2000   
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------- | ---- | ------- | -------
|Note payable to bank in monthly installments of $18,118, including interest of 8.87%, plus additional monthly graduating principal payments of $100,000 to $150,000 from June 2000 through March 2001, and additional monthly
principal payments of $50,000 beginning April 15, 2001 until paid in full, secured by a first deed of trust on the Company's main facility in Las Vegas, Nevada and a first security interest on all Company assets. |                      | $    | 216,815 |        
|Note payable to bank in monthly principal installments of $13,889 plus interest of 9.75% through July 2001 with a balloon payment of approximately $42,000 due August 2001, secured by a first deed of trust on the Company's main facility in Las Vegas,
Nevada and a first security interest on all Company assets. This was paid on August 14, 2001.                                                                                            |                      |      | 69,444  |        
|Various notes payable to finance company with principal and interest payments of approximately $1,125 due monthly through July 2003.                                                                                                                                                                                                                                                                                                               |                      |      | 29,047  |        
|Notes payable to mortgage company, collateralized by real estate, paid in full in year 2000.                                                                                                                                                                                                                                                                                                                                                       |                      |      |        |        
|Capital lease obligation payable for equipment, variable interest (approximately 9% at May 31, 2001), payable in monthly installments of approximately $12,250 through March 2006, collateralized by a second security interest on principally all Company
assets.                                                                                                                                                                                 |                      |      | 584,940 |        
|                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                      |      |         |        
|                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                      |      | 900,246 |        
|                                                                                                                                                                                                                                                                                                                                                                                                                                                   | Less current portion |      |         | 403,404
|                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                      |      |         |        
|                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                      | $    | 496,842 |        
|                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                      |      |         |        

Estimated
annual principal maturities of long-term debt and future minimum payments under capital lease obligations at May 31, 2001 are as follows:

Capital Leases

Long-Term Debt2002

$
147,048

$
299,3922003


147,048


13,2022004


147,048


2,7122005


147,048


2006


111,048


Thereafter





Total


699,240


315,306Less amount representing interest


114,300


$
584,940

$
315,306


37

---

Note 5. Related Parties

Included in accounts receivable are amounts owed from an officer of the Company of approximately $0 and $10,000 at May 31, 2001 and 2000, respectively.

Note 6. Commitments and Contingencies

The Company leases land, manufacturing and office space under operating leases with terms of between 3 to 8 years. Approximate minimum annual rental
commitments, with remaining lease terms of greater than 1 year at May 31, 2001, are as follows:

2002

$
72,9362003


72,1442004


72,1442005


38,9162006


Thereafter


$
256,140


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 $201,256, $255,810 and $306,517 for the fiscal years ended May 31, 2001, 2000 and 1999, respectively.

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 Living Trust;
Eric P. Endy, individually and in his official capacity as an officer and director of Paul-Son Gaming Corporation; and Laurence A. Speiser, an individual, Defendants. Case No. A416734 in
the District Court for Clark County, Nevada (the "Winick Litigation").

The
Winick Litigation was filed on March 24, 2000. All defendants, including the Company, have filed answers and/or counterclaims, and discovery is being conducted. Plaintiff has
demanded a trial by jury for all claims which may be so tried to a jury under Nevada law. Plaintiff's claims against the Company include fraud or negligent inducement, economic duress or business
compulsion, breach of contract, breach and tortuous breach of the implied covenant of good faith and fair dealing, intentional infliction of emotional distress, and conspiracy. Plaintiffs requests for
relief includes declarations concerning the effect of certain agreements, compensatory and exemplary damages, and attorneys' fees.

The
litigation is in the discovery stage. The Company and the other defendants have contested this case vigorously. Because of the on-going discovery in this case, the
Company is unable to evaluate the likelihood of an unfavorable outcome or the range of potential loss, if any of the above-referenced claims were successful against the Company.

The
Company 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 the
Company's financial position, liquidity, or results of operations.

38

---

Note 7. Income Tax Matters

The (expense) benefit for income taxes reflected in the Consolidated Statements of Operations for the fiscal years ended May 31, 2001, 2000 and 1999
consisted of:

2001

2000

1999Current

$


$


$
Deferred





(568,000
)

305,000$


$
(568,000
)
$
305,000


A
reconciliation of the Company's income tax (expense) benefit as compared to the tax (expense) benefit calculated by applying the statutory federal tax rate (34%) to the loss before
income taxes for the fiscal years ended May 31, 2001, 2000 and 1999 is as follows:

2001

2000

1999Computed expected income tax benefit at 34%

$
439,005

$
205,000

$
335,344Adjustments:State taxes


13,600


10,000


11,250Meals and entertainment


(11,900
)

(9,844
)

(17,125
)Net operating loss carryforward


(435,605
)

(194,578
)

Allowance for deferred tax asset





(568,000
)

Prior year items and other


(5,100
)

(10,578
)

(24,469
)Income tax (expense) benefit

$


$
(568,000
)
$
305,000


During
the second fiscal quarter of the fiscal year ended May 31, 2000, the Company 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 the Company. 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 the Company recorded this allowance to the deferred tax asset, 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.

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

2001

2000Operating loss carryforwards

$
779,000

$
339,000Inventory and bad debt reserves


375,000


367,000Intangible assets


45,000


45,000Other





12,0001,199,000


763,000Less allowance for realization of deferred tax asset


1,199,000


763,000Deferred tax asset, net

$


$



39

---

Note 8. Earnings Per Share and Stock Option Programs

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

|                                       |                  | Basic |   | Dilutive Stock Options |   | Diluted | 
|-------------------------------------- | ---------------- | ----- | - | ---------------------- | - | ------- | 
|For the fiscal year ended May 31, 2001 |                  |       |   |                        |   |         | 
|                                       | Net loss         |       | $ | (1,171,661             | ) |        | 
|                                       | Shares           |       |   | 3,450,485              |   |        | 
|                                       | Per Share Amount |       | $ | (.34                   | ) |         | 
|For the fiscal year ended May 31, 2000 |                  |       |   |                        |   |         | 
|                                       | Net loss         |       | $ | (1,170,942             | ) |        | 
|                                       | Shares           |       |   | 3,454,040              |   |        | 
|                                       | Per Share Amount |       | $ | (.34                   | ) |         | 
|For the fiscal year ended May 31, 1999 |                  |       |   |                        |   |         | 
|                                       | Net loss         |       | $ | (681,306               | ) |        | 
|                                       | Shares           |       |   | 3,468,427              |   |        | 
|                                       | Per Share Amount |       | $ | (.20                   | ) |         | 

Dilutive
stock options for the years ended May 31, 2001 (6,000), 2000 (106,500) and 1999 (111,000) 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, 2001, 2000 and 1999, were 505,500, 422,000 and
541,750, 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 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 17,500, 9,500 and 7,000 shares were granted to non-employee directors
during the fiscal years ended

40

---

May 31, 2001, 2000 and 1999 at a weighted-average exercise price of $2.15, $5.09 and $8.52, respectively.

The
following is a summary of option activity for the 3 fiscal years ended May 31, 2001:

|                                                   |           | Options Available for Grant |         | Options Outstanding |   | Weighted Average Exercise Price
|-------------------------------------------------- | --------- | --------------------------- | ------- | ------------------- | - | -------------------------------
|Outstanding at June 1, 1998                        |           |                             | 209,750 |                     |   | 865,250                        
|                                                   | Granted   |                             |         | (112,000            | ) |                                
|                                                   | Canceled  |                             |         | 313,200             |   |                                
|                                                   | Exercised |                             |         | 11,300              |   |                                
|                                                   |           |                             |         |                     |   |                                
|Outstanding at May 31, 1999                        |           |                             | 422,250 |                     |   | 652,750                        
|                                                   | Granted   |                             |         | (9,500              | ) |                                
|                                                   | Canceled  |                             |         | 133,750             |   |                                
|                                                   | Exercised |                             |         |                    |   |                                
|                                                   |           |                             |         |                     |   |                                
|Outstanding at May 31, 2000                        |           |                             | 546,500 |                     |   | 528,500                        
|                                                   | Granted   |                             |         | (17,500             | ) |                                
|                                                   | Canceled  |                             |         | 34,500              |   |                                
|                                                   | Exercised |                             |         |                    |   |                                
|                                                   |           |                             |         |                     |   |                                
|Outstanding at May 31, 2001                        |           |                             | 563,500 |                     |   | 511,500                        
|                                                   |           |                             |         |                     |   |                                
|                                                   |           |                             |         |                     |   |                                
|
|The weighted average fair value of options granted |           | $                           | 1.07    |                     | $ | 2.41                           

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

|               |  | Options Outstanding |  | Options Exercisable
|-------------- |  | ------------------- |  | -------------------
|
|$1.38 to 8.06  |  | 235,000             |  | 6.86               
|$8.07 to 13.88 |  | 276,500             |  | 5.05               
|               |  |                     |  |                    
|               |  | 511,500             |  |                    
|               |  |                     |  |                    

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

41

---

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:

|                |  |              |  | 2001 |            | 2000 |   | 1999       |  
|--------------- |  | ------------ |  | ---- | ---------- | ---- | - | ---------- | -
|Net loss:       |  | As reported: |  | $    | (1,171,661 | )    | $ | (1,170,942 | )
|                |  | Pro forma:   |  | $    | (1,393,754 | )    | $ | (1,668,194 | )
|Loss per share: |  | As reported: |  |      |            |      |   |            |  
|                |  | Basic        |  | $    | (.34       | )    | $ | (.34       | )
|                |  | Diluted      |  | $    | (.34       | )    | $ | (.34       | )
|                |  | Pro forma:   |  |      |            |      |   |            |  
|                |  | Basic        |  | $    | (.40       | )    | $ | (.48       | )
|                |  | Diluted      |  | $    | (.40       | )    | $ | (.48       | )

Pro
forma loss reflects only options granted from fiscal 1997 to fiscal 2001. 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 2001, 2000, and 1999 grants;
risk-free interest rate
at the date of grant which ranged from 5.6% to 6.7%; expected dividend yield of 0.0%; expected life of 5 years; and expected volatility of 43.79%.

As
of May 31, 2001 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 9. 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 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
|-------------------------- |  | ------------------------- | ------- | ---------- | - | ------------------------------ |  | -------------------
|2001                       |  | $                         | 380,000 |            | $ | 16,219                         |  | $                  
|                           |  |                           |         |            |   |                                |  |                    
|2000                       |  | $                         | 400,000 |            | $ | 244,326                        |  | $                  
|                           |  |                           |         |            |   |                                |  |                    
|1999                       |  | $                         | 374,994 |            | $ | 130,000                        |  | $                  
|                           |  |                           |         |            |   |                                |  |                    

42

---

Inventories:

|Fiscal Years Ended May 31, |  | Beginning of Year Balance |         | Provisions |   | Charge-offs, Net of Recoveries |  | End of Year Balance
|-------------------------- |  | ------------------------- | ------- | ---------- | - | ------------------------------ |  | -------------------
|2001                       |  | $                         | 700,000 |            | $ | 300,000                        |  | $                  
|                           |  |                           |         |            |   |                                |  |                    
|2000                       |  | $                         | 325,000 |            | $ | 375,000                        |  | $                  
|                           |  |                           |         |            |   |                                |  |                    
|1999                       |  | $                         | 200,000 |            | $ | 40,000                         |  | $                  
|                           |  |                           |         |            |   |                                |  |                    

Note 10. 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:

|               |                               | 2001 |           | 2000      |   | 1999     
|-------------- | ----------------------------- | ---- | --------- | --------- | - | ---------
|MEXICO:        |                               |      |           |           |   |          
|               | Property and Equipment, cost  |      | $         | 8,607,288 |   | $        
|               | Less accumulated depreciation |      |           | 3,424,816 |   |          
|               |                               |      |           |           |   |          
|               | Net property and equipment    |      | $         | 5,182,472 |   | $        
|               |                               |      |           |           |   |          
|UNITED STATES: |                               |      |           |           |   |          
|               | Property and Equipment, cost  |      | $         | 4,511,291 |   | $        
|               | Less accumulated depreciation |      |           | 1,230,434 |   |          
|               |                               |      |           |           |   |          
|               | Net property and equipment    |      | $         | 3,280,857 |   | $        
|               |                               |      |           |           |   |          
|               |                               | $    | 8,463,329 |           | $ | 8,396,365
|               |                               |      |           |           |   |          

Note 11. Business Combination

In January 2001, the Company entered into a letter of intent with Etablissements Bourgogne et Grasset SA ("B&G"), The Bud Jones Company, Inc. and
the stockholders of B&G relating to a proposed combination of the entities (the "Combination").

Among
other things, the letter of intent provided for the Combination to occur through the contribution of 100% of the outstanding shares of B&G to the Company in exchange for the
issuance

43

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of 51% of the Company's post combination voting common shares. B&G (and its subsidiaries) would become a wholly-owned subsidiary of the Company. The Combination was subject to the execution by the
parties of a definitive agreement by April 30, 2001, the approval of stockholders and the receipt of all necessary gaming and regulatory approvals.

After
a definitive agreement had not been executed by April 30, 2001, the Company sent a demand letter to B&G seeking a $1.0 million termination fee pursuant to the letter
of intent. B&G responded denying the Company's claim for the $1.0 million termination fee and making certain unspecified claims against the Company. The Company thereafter commenced arbitration
proceedings in Las Vegas, Nevada under the rules of the American Arbitration Association on May 11, 2001.

Subsequently,
the parties agreed to stay the arbitration proceedings, with each side reserving all rights. The parties thereafter renewed confidential negotiations which continue to this
date. Although no assurance can be given that the parties will enter into a definitive agreement and both sides have reserved all rights should no definitive agreement be reached, the parties continue
to work on the negotiation of a potential transaction.

Note 12. Restatement

Subsequent to the issuance of the Company's consolidated financial statements for the fiscal year ended May 31, 2001, the Company determined after
consultation with its auditors that certain transactional costs incurred during the past year related to its negotiation of a potential business combination with Etablissements Bourgogne et Grasset
should have been expensed as incurred. The Company had previously capitalized these costs. As a result, the May 31, 2001 consolidated financial statements have been restated from amounts
previously reported. The following is a summary of the significant effects of the restatement:

|                              |                                            | YEAR ENDED
MAY 31, 2001 |  
|----------------------------- | ------------------------------------------ | ----------------------- | -
|
|Statement of Operations Data: |                                            |                         |  
|                              | SG&A expenses                              |                         | $
|                              | Operating loss                             |                         |  
|                              | Loss before income taxes                   |                         |  
|                              | Net loss                                   |                         |  
|                              | Net loss per share (basic and diluted)     |                         | $
|                              |                                            |                         |  
|
|
|Balance Sheet Data:           |                                            |                         |  
|                              | Other assets                               |                         | $
|                              | Total assets                               |                         |  
|                              | Accumulated deficit                        |                         |  
|                              | Stockholders' equity                       |                         |  
|                              | Total liabilities and stockholders' equity |                         |  

44

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In
addition, subsequent to the issuance of the Company's consolidated financial statements for the fiscal year ended May 31, 2001, the Company determined after consultation with
its auditors that it operates in one operating segmentcasino game equipment products. Previously, the Company presented
information in two reporting segments. Accordingly, the Company's segment information contained in Note 10 has been restated to disclose that it operates in only one segment.

Selected Quarterly Financial Information (Unaudited)

|                                                      |  | Fiscal Year Ended May 31, 2001
(in thousands, except per share data) |      
|----------------------------------------------------- |  | -------------------------------------------------------------------- | -----
|
|
|Net revenues                                          |  | $                                                                    | 5,309
|Gross profit                                          |  |                                                                      | 1,260
|Operating loss                                        |  |                                                                      | (228 
|Net loss                                              |  | $                                                                    | (267 
|                                                      |  |                                                                      |      
|Basic and diluted net loss per common share:          |  | $                                                                    | (0.08
|                                                      |  |                                                                      |      
|                                                      |  |                                                                      |      
|
|
|
|Net revenues                                          |  | $                                                                    | 5,309
|Gross profit                                          |  |                                                                      | 1,260
|Operating loss                                        |  |                                                                      | (228 
|Net loss                                              |  | $                                                                    | (267 
|                                                      |  |                                                                      |      
|Basic and diluted net loss per common share:          |  | $                                                                    | (0.08
|                                                      |  |                                                                      |      
|                                                      |  |                                                                      |      
|
|
|Net revenues                                          |  | $                                                                    | 6,356
|Gross profit                                          |  |                                                                      | 1,610
|Operating income (loss)                               |  |                                                                      | (10  
|Net income (loss)                                     |  | $                                                                    | 20   
|                                                      |  |                                                                      |      
|Basic and diluted net income (loss) per common share: |  | $                                                                    | 0.01 
|                                                      |  |                                                                      |      

45

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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

The following information is furnished with respect to each member or nominee to the Board of Directors, each of whom, unless otherwise indicated, has served as a
director continuously since the year shown opposite his name. Similar information is provided for the Company's executive officers. There are no family relationships between or among any directors,
nominees to the Board of Directors or executive officers of the Company.

Directors and Executive Officers

The directors and executive officers of the Company are as follows:

|Name             |  | Age |  | Director Since |  | Term Expires |  | Position with the Company                                                         
|---------------- |  | --- |  | -------------- |  | ------------ |  | ----------------------------------------------------------------------------------
|Eric P. Endy     |  | 46  |  | 1993           |  | 2002         |  | Chairman of the Board, Chief Executive Officer, President, Secretary and Treasurer
|Jerry G. West    |  | 58  |  | 1994           |  | 2001         |  | Director                                                                          
|Richard W. Scott |  | 63  |  | 1995           |  | 2003         |  | Director                                                                          
|Paul S. Dennis   |  | 63  |  | 2000           |  | 2003         |  | Director                                                                          

Eric P. Endyhas been Chairman of the Board and Chief Executive Officers of the Company since November 1998, a Director of the
Company since the Company's inception in 1993, President since January 1994, Secretary since May 1998 and Treasurer since July 2001. From May 1998 to July 1998,
Mr. Endy was Treasurer of the Company, and from January 1994 to July 1995, Mr. Endy was Chief Operating Officer of the Company. Mr. Endy has been Chairman of the
Board, President and Chief Executive Officer of Paul-Son Gaming Supplies, Inc. ("Paul-Son Supplies") since November 1998, and Executive Vice President and General
Manager of Paul-Son Supplies since July 1990. From 1988 to March 1994, Mr. Endy served as a Director of Paul-Son Playing Cards.

Jerry G. Westhas been a Director of the Company since April 1994. Mr. West is currently self employed as a private
investigator licensed in the state of Nevada. From 1969 until his retirement in 1993, Mr. West was a special agent with the United States Federal Bureau of Investigation.

Richard W. Scotthas been a Director since July 1995. From 1986 to 1994, Mr. Scott was Vice President and, since 1994,
Mr. Scott has been President of Sports Media Network, Las Vegas, Nevada, a licensed
disseminator of live horse and dog race information to Nevada sports books. From 1962 to 1986, Mr. Scott was a Nevada licensed veterinarian.

Paul S. Dennishas been a Director since October 2000. Since 1977, Mr. Dennis has been President and Chief Executive Officer
of Associated Health Care Management Company, Inc., Cleveland, Ohio, which manages ten nursing homes and congregate living facilities. Mr. Dennis also serves as a director and officer
with various companies and business ventures in the hardware and lumber distribution, pharmaceuticals distribution and steel fabrication industries. Mr. Dennis has a nursing home
administrator's license from the states of Ohio and Nevada and is a member of the American College of Health Care Administrators.

Committees of the Board of Directors

The Board of Directors has five standing committees: the Audit Committee; the Compensation Committee; the 1994 Long-Term Incentive Plan Committee (the
"Incentive Plan Committee"); the 1994 Directors' Stock Option Plan Committee (the "Directors' Plan Committee"); and the Compliance Committee.

46

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The
Audit Committee is comprised of Paul Dennis (Chairman), Jerry G. West and Richard W. Scott. The Audit Committee's function is to review reports of independent public accountants to
the Company; to review Company financial practices, internal controls and policies with officers and key employees; to review such matters with the Company's auditors to determine the scope of
compliance and any deficiencies; to consider selection of independent public accountants; to review certain related party transactions; and to make periodic reports on such matters to the Board of
Directors. The Audit Committee met four times during the twelve months ended May 31, 2001. Under rules of NASD, all three members of the Audit Committee are independent. The Board of Directors
has adopted a written Charter of the Audit Committee, a copy of which is attached as Exhibit 99.01 hereto. Fees of Deloitte & Touché LLP for the fiscal year 2001 audit and
review of Forms 10-Q are $59,000. Aggregate fees billed for all other services rendered by Deloitte & Touché LLP for the fiscal year are $96,240.

The
Compensation Committee consists of Richard W. Scott (Chairman), Jerry G. West and Paul Dennis. The Compensation Committee's function is to review and make recommendations to the
Board of Directors with respect to the salaries and bonuses for the Company's executive officers and the fees for the Company's directors. The Compensation Committee took certain action by written
consent but did not meet during the twelve months ended May 31, 2001.

The
Incentive Plan Committee consists of Jerry G. West (Chairman) and Richard W. Scott. The Incentive Plan Committee's function is to administer the Incentive Plan, including:
determining such
matters as the persons to whom awards will be granted, the number of shares to be awarded, when the awards will be granted, when the awards will vest, and the terms and provisions of the instruments
evidencing the awards; interpreting the Incentive Plan; and notifying the Company's Board of Directors of all decisions concerning awards granted to Incentive Plan participants. The Incentive Plan
Committee took certain action by consent but did not meet during the twelve months ended May 31, 2001.

The
Directors' Plan Committee currently consists of Eric P. Endy. Mr. Endy is not eligible to participate in the Directors' Plan. The Directors' Plan Committee administers the
Directors' Plan; however, it has no discretion to determine or vary any matters which are fixed under the terms of the Directors' Plan. Fixed matters include, but are not limited to, which
non-employee directors will receive awards, the number of shares of Common Stock subject to each option award, the exercise of any option, and the means of acceptable payment for the
exercise of the option. The Directors' Plan Committee has the authority to otherwise interpret the Directors' Plan and make all determinations necessary or advisable for its administration. All
decisions of the Directors' Plan Committee are subject to approval by the Board of Directors. The Director's Plan Committee took certain action by written consent but did not meet during the twelve
months ended May 31, 2001.

The
Compliance Committee consists of Jerry G. West, Eric P. Endy and certain other Company employees. The Compliance Committee's function is to oversee implementation of and compliance
with internal operating systems which will ensure compliance with all gaming laws applicable to the Company's operations. Membership on the Compliance Committee is subject to the administrative
approval of the Chairman of the Nevada State Gaming Control Board. The Compliance Committee met 12 times during the twelve months ended May 31, 2001.

Board of Directors' Meetings

The Board of Directors of the Company meets at least quarterly and in the fiscal year ended May 31, 2001, the Board of Directors held seven meetings. All
of the incumbent directors attended at least 75% of (i) the meetings of the Board of Directors held during the period for which they have been a director and (ii) the meetings held by
all committees of the Board of Directors on which they served.

47

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REPORT OF THE AUDIT COMMITTEE

To
the Board of Paul-Son Gaming Corporation:

We
have reviewed and discussed with management the audited financial statements of the Company as of and for the fiscal year ended May 31, 2001.

We
have discussed with the independent auditors the matters required to be discussed by Statement on Auditing Standards No. 61, Communication with Audit Committees, as amended, by
the Auditing Standards Board of the American Institute of Certified Public Accountants.

We
have received and reviewed the written disclosures and the letter from the independent auditors required by Independence Standard No. 1, Independence Discussions with Audit
Committees, as amended, by the Independence Standards Board, and have discussed with the auditors their independence and considered the compatibility of non-audit services with the
auditors' independence. Based on the reviews and discussions referred to above, we recommend to the board of directors that the financial statements referred to above be included in the Annual Report
on Form 10-K of Paul-Son Gaming Corporation for the fiscal year ended May 31, 2001.



48

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Item 11.Executive Compensation

The following tables set forth compensation for the fiscal year ended May 31, 2001 received by Eric P. Endy, the Company's Chairman of the Board, Chief
Executive Officer, President and Secretary, and John M. Garner, the Company's former Chief Financial Officer and Treasurer.

SUMMARY COMPENSATION TABLE

|                                                                                          |  |                |  | Annual Compensation     |  | Long Term Compensation |  |            
|----------------------------------------------------------------------------------------- |  | -------------- |  | ----------------------- |  | ---------------------- |  | -----------
|
|
|Eric P. Endy,
Chairman of the Board, Chief Executive Officer, President, and Secretary(1) |  | 2001
2000
1999 |  | 155,070
155,070
155,070 |  | 1,550
1,550
3,101      |  | -0-
-0-
-0-
|John M. Garner,
Chief Financial Officer and Treasurer(2)                                  |  | 2001
2000
1999 |  | 120,000
120,000
92,153  |  | 1,200
1,200
828        |  | -0-
-0-
-0-

---

AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES

|               |  |     |  |     |  | Number of Securities Underlying Unexercised Options/SARs at Fiscal Year-End (#)(1) |  |         |  |    
|-------------- |  | --- |  | --- |  | ---------------------------------------------------------------------------------- |  | ------- |  | ---
|
|
|
|Eric P. Endy   |  | -0- |  | -0- |  | 97,000                                                                             |  | -0-     |  | -0-
|John M. Garner |  | -0- |  | -0- |  | -0-                                                                                |  | 100,000 |  | -0-

---

Compensation Committee and Incentive Plan Committee Interlocks and Insider Participation

The Company's executive compensation is determined by the Compensation Committee and the Incentive Plan Committee, no member of which is or was an officer of the
Company. For the 2001 fiscal year, the Compensation Committee consisted of Messrs. Richard W. Scott (Chairman), Jerry G. West and Paul Dennis, and the Incentive Plan Committee consisted of
Messrs. and Jerry G. West (Chairman) and Richard W. Scott.

49

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Compensation of Non-Employee Directors

Directors who are not employees or consultants of the Company receive annual fees of $10,000, plus $500 for attendance at each meeting of the Board of Directors
and each meeting of the Audit, Compliance or Compensation Committees. Each director may be reimbursed for certain expenses incurred in connection with attendance at Board of Directors and committee
meetings.

Additionally,
certain non-employee directors who are not consultants to the Company are granted options to purchase Common Stock under the Directors' Plan. Under the
Directors' Plan, eligible non-employee directors initially receive a one-time option to purchase 6,000 shares of Common Stock following such director's election to the Board of
Directors. Thereafter, each such director receives a grant to purchase 2,000 shares of Common Stock each year, at the beginning of such director's fourth year of service. In addition, on the
anniversary of each such Director's election or appointment to the Board of Directors such director also receives options to purchase 1,500 shares of Common Stock for serving on the Audit Committee,
the Compliance Committee or the Compensation Committee for at least six months during the twelve months prior to the date of grant.

Under
the terms of the Directors' Plan, the initial option grant is exercisable to the extent of vesting. The initial option vests over a three-year period, with
one-third of the initial option vesting upon each anniversary of such non-employee director's election to the Board of Directors. Annual option grants are fully vested upon
grant, but are only exercisable six months and one day from the date of grant. Unless special circumstances exist, each option expires on the later of the tenth anniversary of the date of its grant or
nine months after the non-employee director retires. The option exercise price is the fair market value, as defined under the Directors' Plan, of the Common Stock on the date such option
is granted.

There
were options to purchase 6,500, 5,000 and 6,000 shares of Common Stock granted to Jerry G. West, Richard W. Scott and Paul S. Dennis, respectively, for the year ended
May 31, 2001. The Company's non-employee directors who are currently eligible to participate in the Directors' Plan are Jerry G. West, Richard W. Scott and Paul S. Dennis.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act") requires the Company's directors and executive officers, and persons who own more
than ten percent of a registered class of
the Company's equity securities, to file with the SEC initial reports of ownership and reports of changes in ownership of Common Stock and other equity securities of the Company. Officers, directors,
and stockholders holding more than ten percent of the class of stock are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms they file.

To
the Company's knowledge, based solely on a review of the copies of such reports furnished to the Company and written representations that no other reports were required, during the
fiscal year ended May 31, 2001, all reports required under Section 16(a) filing requirements were filed as required, with the exception of a report on Form 5, which was
inadvertently filed late by Mr. Jerry West, with respect to the grant on April 12, 2001 of an option to purchase 6,500 shares of Common Stock under the Directors' Plan.

Item 12.Security Ownership of Certain Beneficial Owners and Management

The securities entitled to vote consist of shares of common stock, par value $.01 ("Common Stock"), of the Company, with each share entitling its owner to one
vote. Common Stock is the only outstanding class of voting securities authorized by the Company's Articles of Incorporation. The number of outstanding shares of Common Stock at the close of business
on August 23, 2001 was 3,449,757. Stockholders do not possess the right to cumulate their votes for the election of directors.

50

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The
Company's Articles of Incorporation authorize the Company to issue 10,000,000 shares of preferred stock, par value $.01 ("Preferred Stock"), in one or more series, with such rights,
preferences, restrictions, and privileges as may be fixed by the Company's Board of Directors, without further action by the Company's stockholders. The issuance of the Preferred Stock could adversely
affect the rights, including voting rights, of the holders of the Common Stock and could impede an attempted takeover of the Company. None of the Preferred Stock is issued or outstanding, and the
Company has no present plans to issue shares of Preferred Stock.

The
following is a list of the beneficial stock ownership at the close of business on August 23, 2001 of (1) all persons who beneficially owned more than 5% of the
outstanding Common Stock, (2) all directors and director nominees, and (3) all executive officers, directors and director nominees as a group. These share amounts are based upon
record-ownership listings as of that date, according to the Securities and Exchange Commission Forms 3 and 4 and Schedules 13D of which the Company has received copies, and according to verifications
as of August 23, 2001, which the Company solicited and received from each executive officer and director:

|Title of Class |  | Name and Address of Beneficial Owner                         |  | Amount and Nature of Beneficial Ownership(1) |     | Percent of Class
|-------------- |  | ------------------------------------------------------------ |  | -------------------------------------------- | --- | ----------------
|Common         |  | Eric P. Endy
1700 S. Industrial Road
Las Vegas, Nevada 89102 |  | 1,812,134                                    | (2) | 51.1            
|Common         |  | Jerry G. West                                                |  | 31,000                                       | (3) | *               
|Common         |  | Richard W. Scott                                             |  | 14,000                                       | (4) | *               
|Common         |  | Paul S. Dennis                                               |  | 8,200                                        | (5) | *               
|Common         |  | All executive officers
and directors as a group
(4 persons)  |  | 1,865,334                                    | (6) | 53.4            

---

Paul S. Endy, Jr. Living Trust

1,577,579Direct

113,555Certain trusts established for the benefit of Mr. Endy's family

18,000Mr. Endy's spouse

6,000Total shares

1,715,134


51

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Item 13.Certain Relationships and Related Transactions

Indemnification of Directors and Officers

During the twelve months ended May 31, 2001, the Company incurred legal fees and expenses in the joint defense of litigation filed by a plaintiff against
the Company and certain individuals. The joint defense includes costs approved by the Board of Directors for the indemnification of Eric P. Endy who was named as a defendant in his officer/director
capacity and his individual and trustee capacity, and a former director of the Company who was also named as a defendant in the litigation.

Section 78.751
of Chapter 78 of the Nevada Revised Statutes ("NRS"), Article X of the Company's Articles of Incorporation, and Article VII of the Company's Bylaws
contain provisions for indemnification of officers and directors of the Company. The indemnification provisions in the Articles of Incorporation require the Company to indemnify the Company's officers
and directors to the full extent permitted by Nevada law. Each such person will be indemnified in any proceeding provided that such person's acts or omissions did not involve intentional misconduct,
fraud or knowing violation of law or the payment of dividends in violation of NRS 78.300. Indemnification would cover expenses, including attorneys' fees, judgments, fines and amounts paid in
settlement. NRS 78.751, the Articles and the Bylaws also authorize the Company to make discretionary indemnification of officers, directors and agents, in certain circumstances requiring the
indemnified person to enter into an undertaking to reimburse the Company if a court of competent jurisdiction finds that the that the indemnification was not proper.

The
Company's Articles of Incorporation also provide that the Company's Board of Directors may cause the Company to purchase and maintain insurance on behalf of any present or past
director or officer insuring against any liability asserted against such person incurred in the capacity of director or officer or arising out of such status, whether or not the Company would have the
power to indemnify such person. The Company has obtained and maintains such insurance.

Insofar
as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers or persons controlling the Company pursuant to the foregoing
provisions, the Company has been informed that in the opinion of the Securities and Exchange Commission ("SEC") such indemnification is against public policy as expressed in the Securities Act of 1933
and is therefore unenforceable.

The
Company believes that the transactions described above are on terms at least as favorable as would have been obtainable from non-related parties. The Company requires
that the Audit Committee of the Board of Directors review certain related party transactions.

52

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PART IV

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

|(a) |  | 1.                                                                                                                                                                                               |  | Financial Statements                                                                                                                                                                                                                                                                                                                 
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |  |                                                                                                                                                                                                  |  | Included in Part II of this report:                                                                                                                                                                                                                                                                                                  
|    |  |                                                                                                                                                                                                  |  | Consolidated Balance Sheets at May 31, 2001 (as restated) and 2000.                                                                                                                                                                                                                                                                  
|    |  |                                                                                                                                                                                                  |  | Consolidated Statements of Operations for the Years Ended May 31, 2001 (as restated), 2000 and 1999.                                                                                                                                                                                                                                 
|    |  |                                                                                                                                                                                                  |  | Consolidated Statements of Stockholders' Equity for the Years Ended May 31, 2001 (as restated), 2000 and 1999.                                                                                                                                                                                                                       
|    |  |                                                                                                                                                                                                  |  | Consolidated Statements of Cash Flows for the Years Ended May 31, 2001 (as restated), 2000 and 1999.                                                                                                                                                                                                                                 
|    |  |                                                                                                                                                                                                  |  | Notes to Consolidated Financial Statements                                                                                                                                                                                                                                                                                           
|    |  | 2.                                                                                                                                                                                               |  | Financial Statement Schedules                                                                                                                                                                                                                                                                                                        
|    |  |                                                                                                                                                                                                  |  | All required schedules are omitted because of the absence of conditions under which they are required or because the required information is given in the financial statements or notes thereto.                                                                                                                                     
|(b) |  | Reports on Form 8-K                                                                                                                                                                             
|    |  | Current report on Form 8-K, dated April 30, 2001, filed by the Company on May 3, 2001, in which events under Item 5, Other Events, and Item 7, Financial Statements and Exhibits, were reported.
|(c) |  | Exhibits                                                                                                                                                                                        
|    |  | 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                                                                                                                                                                                             |  | Bylaws 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 3.02.                                                                                                                                                     
|    |  | 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 10.04         

53

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| |  | 10.03 |  | 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 |  | Letter Loan Agreement dated November 14, 1997, among Norwest Bank Nevada, National Association, Paul-Son Gaming Supplies, Inc., as borrower, and Paul-Son Gaming Corporation, as guarantor; Guaranty dated November 14, 1997, by Paul-Son Gaming
Corporation in favor of Norwest Bank Nevada, National Association; Term Note dated November 14, 1997, by Paul-Son Gaming Supplies, Inc., payable to Norwest Bank Nevada, National Association; Promissory Note dated November 14, 1997 by Paul-Son Gaming
Supplies, Inc., payable to Norwest Bank Nevada, National Association; Continuing Credit Agreement dated November 14, 1997, by Paul-Son Gaming Supplies, Inc. in favor of Norwest Bank Nevada, National Association; Continuing Security Agreement dated
November 14, 1997, by Paul-Son Gaming Corporation in favor of Norwest Bank Nevada, National Association; and Deed of Trust dated November 14, 1997, among Paul-Son Gaming Supplies, Inc., as grantor, Norwest Bank Nevada, National Association, as
beneficiary, and Americorp Financial, Inc., as trustee, incorporated by reference from the Company's quarterly report on Form 10-Q for the quarter ended November 30, 1997, Item 6, 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 21.01                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  | 23.01 |  | Consent of Deloitte & Touche LLP                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |  | 99.01 |  | 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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

54

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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
|---------------- |  | ---------------------------
|January 18, 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.

|January 18, 2002 |  | By | /s/ERIC P. ENDYEric P. Endy
Chairman of the Board, President,
Chief Executive Officer, and Treasurer
(Principal Executive Officer and Treasurer)
|---------------- |  | -- | ------------------------------------------------------------------------------------------------------------------------------------------------
|January 18, 2002 |  | By | Paul S. Dennis, Director                                                                                                                        
|January 18, 2002 |  | By | /s/JERRY G. WESTJerry G. West, Director                                                                                                         
|January 18, 2002 |  | By | /s/RICHARD W. SCOTTRichard W. Scott, Director                                                                                                   

55

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EXHIBIT INDEX

|EXHIBIT NO. |  | DESCRIPTION                      |  | PAGE NO.
|----------- |  | -------------------------------- |  | --------
|23.01       |  | Consent of Deloitte & Touche LLP |  | 59      

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