**UNITED STATES**

**SECURITIES AND EXCHANGECOMMISSION**

**Washington,D. C. 20549**

**FORM 10-K**

(MarkOne)
| **x**                              | **ANNUAL REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                                                                                                                                                                                |
|------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **                         | **For the fiscal year ended December 31, 2004**                                                                                                                                                                                                                                                                               |
| **o**                              | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period  from                  to                 ** |
| **Commission file number 0-23588** |

 

**GAMINGPARTNERS INTERNATIONAL CORPORATION**

(Exact name of registrantas specified in its charter)

| **NEVADA**                | **88-0310433**                        |
|---------------------------|---------------------------------------|
| (State of  incorporation) | (I.R.S. Employer  Identification No.) |

 

**1700 South Industrial Road,Las Vegas, Nevada 89102**

(Address of principalexecutive offices)

Registrant’s telephonenumber, including area code:  **(702) 384-2425**

Registrant’swebsite:  **www.gpigaming.com**

Securities registeredpursuant to Section 12(b) of the Act:  **None**

Securities registeredpursuant to Section 12(g) of the Act:  **Common Stock**

Indicate by check markwhether the registrant (1) has filed all reports required to be filed bySections 13 or 15(d) of the Securities Exchange Act of 1934 duringthe preceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.  Yes  x  No  o

Indicate by check mark ifdisclosure of delinquent filers pursuant to Item 405 of Regulation S-K is notcontained herein, and will not be contained, to the best of the registrant’sknowledge, in definitive proxy or information statements incorporated byreference in Part III of this Form 10-K or any amendment tothis Form 10-K.  o

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

The aggregate market valueof voting and non-voting stock held by non-affiliates of the registrant as of June 30,2004, based on the closing price as reported on the Nasdaq National Market of$4.10 per share:  **$9,334,154.**

The number of sharesoutstanding of each of the registrant’s classes of common stock, as of March 28,2005:  **7,809,400**sharesof Common Stock.

**DocumentsIncorporated by Reference:**

Portions of the Registrant’sdefinitive proxy statement to be filed pursuant to Regulation 14A within120 days after Registrant’s fiscal year end of December 31, 2004, areincorporated by reference into Part III of this Report.

 

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**PART I**

**Item 1.**   *Business*.

*The following Business section containsforward-looking statements, which involve risks and uncertainties. Our actualresults could differ materially from those anticipated in these forward-lookingstatements as a result of certain factors. See “Management’s Discussion andAnalysis of Financial Condition and Results of Operations—Forward-LookingInformation Statements and Risk Factors.”*

**Company Overview**

Effective September 1, 2004, Paul-Son GamingCorporation, a Nevada corporation, completed its name change to Gaming PartnersInternational Corporation, or GPIC. GPIC and each of its subsidiaries aresometimes collectively referred to herein as the “Company,” “us,” “we” or “our.”  The name change was approved by a vote ofstockholders at the Company’s annual meeting held on May 26, 2004. TheCompany’s established brand names such as Paul-SonTM, Bourgogne et Grasset®,or B&G, Bud Jones®, and T-KTM, remain unchanged. The Company’ssubsidiary, Paul-Son Gaming Supplies, Inc., changed its name toGaming Partners International USA, Inc., or GPI-USA. The Company’ssubsidiary, Etablissements Bourgogne et Grasset S.A., also changed its name toGaming Partners International SAS, or GPI-SAS. The Company’s subsidiary,Paul-Son Mexicana, S.A. de C.V., changed its name, effective as of January 22,2005, to GPI Mexicana S.A. de C.V., or GPI-Mexico.

On September 12, 2002, the businesses of GPIC,GPI-SAS and GPI-SAS’ then wholly-owned subsidiary, The Bud JonesCompany, Inc., or Bud Jones, were combined, with GPI-SAS and BudJones becoming wholly-owned subsidiaries of GPIC, or the Combination. TheCombination was accounted for as a purchase transaction for financialaccounting purposes. Because the former GPI-SAS stockholders owned amajority of the outstanding GPIC common stock as a result of the Combination,the Combination was accounted for as a reverse acquisition in which GPI-SASwas the purchaser of GPIC. On December 31, 2002, Bud Jones merged into GPI-USA,which was a wholly-owned subsidiary of GPIC and GPI-USA was the survivingentity. Bud Jones was a gaming supply manufacturing company, which was alsoheadquartered in Las Vegas. Both former operations (GPI-USA and BudJones) were consolidated into one facility at the Company’s headquarters in LasVegas, Nevada with the new name of GPI-USA. (See Part II—Item 8.Financial Statements and Supplementary Data—Notesto Consolidated Financial Statements—Notes1 and 2).

We believe we are one of the leading manufacturers andsuppliers of casino table game equipment in the world. Our business activitiesinclude the manufacture and/or supply of gaming chips, table layouts, wheels,playing cards, dice, gaming furniture, and miscellaneous table accessories suchas chip trays, drop boxes and dealing shoes, which are used in conjunction withcasino table games such as blackjack, poker, baccarat, craps and roulette.

We are headquartered in Las Vegas, Nevada, withmanufacturing facilities located in Las Vegas, Nevada, San Luis Rio Colorado,Mexico, and Beaune, France. Our primary sales offices are in Las Vegas, Nevadaand Atlantic City, New Jersey for the United States, and Beaune, France for theremainder of the world. Through our GPI-USA subsidiary, we primarily sellour casino products manufactured in North America to licensed casinosthroughout the United States and Canada. Through our GPI-SAS subsidiary,we primarily sell our European-manufactured casino products and some NorthAmerican products to licensed casinos internationally in countries other thanthe United States. Our revenues are derived primarily from the sale of casinotable game products to casinos throughout the world. Most of our products aresold directly to end-users. In some regions of the world, however, we sellthrough distributors. We also sell our non-casino poker chips to a wholesalerin the United States.

 

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We manufacture products to meet particular customerand industry specifications, which may include a wide range of shapes andsizes, varied color schemes and other graphics, and numerous security andanti-counterfeit features. The useful lives of our products typically rangefrom several hours in the case of playing cards and dice, to several months inthe case of layouts, and several years in the case of casino chips and gamingfurniture. As such, our primary business is the ongoing replacement sale ofthese products and providing initial products to new casinos. When a new casinoopens, we strive to supply most of the products required to operate the casino’stable games. When successful, revenues are generated both from the initial saleto the new casino and on a continuing basis as the new casino becomes part ofour primary customer base.

GPI-USA was foundedin 1963 by our former Chairman, Paul S. Endy, Jr., and initiallymanufactured and sold dice to casinos in Las Vegas. The former Bud JonesCompany was founded in 1963 by Bud Jones and this entity eventually merged intoGPI-USA, formerly Paul-Son Gaming Supplies, Inc. GPI-SAS was formed by Mr. Bourgogneand Mr. Grasset in 1923 and became operational in 1925 in Beaune, France.

**Product Segments**

We operate in oneoperating segment—casino game equipment products in multi-geographic areas. (SeePart II—Item 8.Financial Statements and Supplementary Data—Notesto Consolidated Financial Statements—Note 15).

**Recent Developments**

During the fourth quarterof 2004, we entered into an agreement to purchase real property next to our LasVegas Headquarters for $800,000, which agreement was approved by the probatecourt on March 11, 2005. The property is currently in escrow and isexpected to close in April 2005. We intend to use the property foradditional employee parking.

**Products**

***Gaming Chips***

We design and manufacture gaming chips, includingcasino chips, plaques and jetons (the European equivalent of casino chips) tomeet 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. Because casino chips,jetons and plaques, like real currency, are subject to counterfeiting, we canincorporate a variety of custom security and anti-counterfeit features intoeach chip. Our most sophisticated anti-counterfeiting feature is a radiofrequency identification device, or “RFID,” which is a microchip that can beembedded in our gaming chips making them extremely counterfeit resistant.

A casino will generally order all of its gaming chips,including replacement chips after wear and usage, from a single supplier. Accordingly,we strive to become the original chip supplier to a casino upon its opening. Anew casino order will typically include at least five distinct chip colors (forthe U.S. market and a wider range of colors for the international market) andstyles, ranging in denominations from $1 to in excess of $1 million. Ourselling price is extremely variable, based on the customization, and generallybetween $0.75 and $1.99 per chip in the USA, depending upon the specification,quantities, design and security features. A typical PaulsonTM brand clay chipwith a microchip will sell for less than approximately $2.00 per chip. Giventhis relatively low cost and a gaming chip’s expected lifespan of five or moreyears, we believe that competition is generally based upon factors other thanprice. In 2004, we sold and manufactured approximately 18 million gaming chips,including casino chips, plaques and jetons.

Gaming chips can bedivided into three basic families:  (a) European-stylejetons and plaques; (b) American-style casino chips; and (c) commemorativechips. Jetons, plaques and all casino chips can 

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also bemanufactured with an embedded RFID microchip. Casino chips accounted forapproximately 60% of total sales in 2004.

*European-styleJetons and Plaques*

Jetons and plaques areEuropean-style casino chips. Our jetons and plaques are manufactured by GPI-SASat our facility in France. Jetons are circular with standard diameters in 13different sizes, ranging from 32 mm to 60 mm. Plaques are rectangular, squareor oval with standard sizes ranging from 30 mm x 30 mm to 151 mmx 105 mm. Jetons and plaques are used mainly for traditional Europeangames and also extensively in Asian countries. Jetons and plaques are made oflaminated cellulose acetate with a very large range of colors, shapes andsecurity and anti-counterfeit components, such as, UV print, numberserialization, laser print or “LaserLock”, hologram and RFID technology. GPI-SAScreated its original product line in 1925 and has held a leading position inthis market since that time.

*American-styleCasino Chips*

Casino chips areused worldwide for games originating in the United States of America. Originally,gaming chips in the United States were made of clay and called “clay chips.”  Clay was replaced many years ago by plasticmaterials. There are currently three main technologies used to produce thesetypes of chips: injection molding, sublimation and compression molding. Weproduce casino chips using all three of these methods. GPI-USAmanufactures our American-style casino chips under our brand names, PaulsonTMand Bud Jones®, at our facilities in San Luis Rio Colorado, Mexico and in LasVegas, Nevada. GPI-SAS also manufactures American—style casino chips in Beaune,France.

·       *Injection Molded Chips*.   Plasticinjection molded chips were created in the late 1960’s under the Bud Jonesbrand, manufactured in the USA. Such chips are made with several injectionmolded colors, typically with a central metal piece for the weight and printeddecals. There are several standard diameters and a wide range of design andcolor combinations. Various security features are used to make the chipscounterfeit resistant, including UV pigments, UV prints, LaserLock, hologramsand RFID technology. The Bud Jones brand offers a very wide range of suchchips, made of acrylic with very vivid colors and with ground and smoothsurface. Since 1990, the B&G brand, which is manufactured in France, hasdeveloped a full line of injection molded chips with designs different from theBud Jones brand and using a different type of plastic material with less vividcolors but requiring no grinding and allowing a rougher surface. A particularline of injection molded gaming chips specifically designed and sold foroptical reading identification are also manufactured by GPI-SAS. The GPI-USA’sand GPI-SAS’ lines of injection-molded chips allow a very good coverageof most casinos’ requirements, which vary greatly around the world. Productioncapacity for injection molded chips in the US is approximately 5-6million and 10-15 million in France, considering the use of 2-3shifts.

·       *Sublimation Chips*.   Sublimation chipsare made of one disc of white plastic material (usually injection molded). Thedecor of these chips is traditionally transferred from printed paper to theplastic material by pressing and heating the printed paper onto the plasticdisc. The printed colors sublimate and go from the paper into the plasticmaterial. In 1996, GPI-SAS created a new way of manufacturing this typeof casino chip by using a printing technology called “pad printing.”  This technology permits simultaneouslyprinting on the face and the edge of the chip. GPI-SAS holds severalpatents and patent applications for this technology, and refers to this casinochip as “Full Face.”  Security featuresfor sublimation chips include UV pigments and LaserLock. Production capacity atGPI-SAS is approximately 10 million chips, considering the use of 2-3shifts.

·       *Compression Molded Chips*.   Compressionmolded casino chips are manufactured from a proprietary formulation of morethan 13 raw materials using a compression molding system. Printed 

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decals or “inlays”are incorporated in the chips during the molding steps. Customized designs,security and identifying features are incorporated into the chips. GPI-USAholds a leading market share in compression molded chips, which are similar tothe original clay chips of the past. They have a unique feel and easy handlingand are often referred to as “clay chips.” Compression molded chips are manufactured under the Paul-SonTM brand atits GPI-Mexico facilities in San Luis Rio Colorado, Mexico. Varioussecurity features are used to make the chips more counterfeit resistant,including UV pigments, LaserLock, alphabet, customized rim and RFID technology.Our annual production capacity at our Mexico facilities is approximately 16million compression molded chips (based on a single shift and increased laboravailability). We believe that given our current anticipated production level ofcompression molded chips per year, there will be sufficient manufacturingcapacity to meet potential increases in future demand.

*Commemorative Chips*

Since 1994, GPIC hasmarketed chips that commemorate certain types of special events such as titleboxing matches, significant anniversaries and premier entertainment events. Casinopatrons often retain commemorative chips as souvenirs. Casinos benefit to theextent that casino chips purchased are not redeemed, thereby resulting in addedcash flow to the casino.

*Gaming Chips withRFID Microchips and Reading Equipment*

*Need for RFID*

Gaming chips are the principal currency of eachcasino, and each casino has its own unique gaming chips or currency. A gamingchip that appears or feels or even sounds slightly different than the otherscan warrant review by the casino personnel. There are several possible securityand anti-counterfeit features that can be incorporated into the chip materialitself and/or in the chip appearance.

The most sophisticated anti-counterfeiting devices arethe microchips or RFID, which can be embedded in gaming chips without modifyingthe other appearance or handling characteristics of the chips. These chips arenot only high quality casino gaming chips, but they are also reliable carriersof the data needed by the casinos to efficiently and securely manage theirtable game operations.

A sophisticated RFID microchip transponder is embeddedin each gaming chip. Read/write devices manufactured by us communicate quicklyand accurately with a large number of these RFID embedded gaming chips withouthuman contact. The authenticity and denomination of each chip is established,and then the data is transferred to the casino information systems.

The RFID embedded gaming chips can be read with 100%accuracy, either one at a time or in large quantities, with the same efficiencywhether in stacks, boxes, trays, cabinets or on the tables. This increases thesecurity of the chip production, transportation, and utilization.

Traditional jetons,plaques and casino chips could not easily and precisely be accounted for by thecasinos and the games that call for them, thus they could not be managed bycasinos as efficiently as slot systems. Casinos have a need for morestreamlined and automated accounting transactions between the pit and cageoperations, thus the RFID solution.

*History of RFID*

In the early 1990’s, Bourgogne & Grasset, nowGPI-SAS, started making simple RFID microchips, to be read one at a time.Then in 1995, B&G started working with Philips, Mikohn (now ProgressiveGaming International Corporation, or Progressive Gaming) and another companynamed SafeGames (owner of a patent on an automatic card shoe reader) to use amore sophisticated Philips RFID microchip and readers allowing reading ofseveral chips at a time or “anti-collision.” Progressive Gaming concentrated on the 

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development of playerstracking software systems. GPI-SAS concentrated on the development ofRFID chips and readers that meet the criteria required by casino managers andprofessional dealers.

GPI-SAS accumulated many years of developmentand manufacturing experience based on significant amounts of RFID embeddedgaming chips sold to European casinos for the introduction of the Euro and to agrowing number of casinos in the USA, Australia and Canada. All RFID embeddedgaming chips made by GPI-SAS or GPI-USA carry a unique serialnumber and other information, such as the monetary denomination and casinoname, programmed by GPIC and made irreversibly “read only.”  These gaming chips can be automaticallytracked and accounted for by various readers located throughout the casino. Readersmade and sold by GPIC, include cashiers desk readers, chip bank readers, tabletop authenticators, chip tray readers, and vault cabinet readers otherwise knownas “pigeon hole cabinets” which are able to read several thousands of chips instandard trays. The vault cabinet readers were presented for the first time atthe 2004 ICE show in London.

No other RFID technology has been able to matchPhilips’ and GPIC’s technology in all the multidimensional requirements ofvarious casino applications. This represents an unparalleled protection for thecasinos against counterfeit or stolen chips. Thanks to GPIC’s RFID chips andreaders connected to their computer system, casinos now have the ability to do “Casino-Currency-Control”in an even more efficient way than central banks control their countries’ moneysupplies.

GPIC makes gaming chips with embedded Philips RFIDmicrochips under its three brand names:  “SafeChipTM”under B&G, “SmartChipTM” under Bud Jones and “ChipSoftTM”under Paulson. Each brand corresponds to different types of gaming chipsadapted to different casino needs and practices. GPIC is able to offer, forinstance, the Paulson brand RFID embedded gaming chips to casinos in the UnitedStates, for less than $2.00 each, that can be read fast enough for allpractical casino applications. Prices of readers depend on the size and shapeof the antennas.

GPIC owns several patents for the embedding of RFIDmicrochips in gaming chips and an exclusive license on patents now owned byShuffle Master, Inc. for the utilization of RFID chips and readers in theUnited States for tracking and accounting for RFID embedded gaming chips. GPICsells RFID chips and readers directly to the casinos forCasino-Currency-Control and components, such as reader boards and antennas, tolicensed Original Equipment Manufacturers (OEM) companies making their ownpieces of equipment, particularly for players tracking.

We have been informed thatone of our competitors is currently marketing a gaming chip product that claimsto have an embedded microchip and by doing sohas allegedly challenged the validity of the patents now ownedby Shuffle Master, Inc., as they relate to this competitor. Shuffle MasterInc. is currently investigating the possible infringement. Although we do notcontrol Shuffle Master, Inc., and further, there can be no assurancethat Shuffle Master Inc. will be successful in any effort, webelieve that they will take all reasonable actions necessary topreserve all rights and remedies with regard to these patents.

*RFID Equipment*

Some of the datacollection devices that we have developed based on the Hitag Vegas microchiptechnology include:  pigeon hole cabinet (seeabove); table top authenticator; cage readers; blackjack and roulette floattray readers; chip bank readers; tip box readers; and evaluation kits. Thetable top authenticator is an electronic device that gives the dealers an easyway to authenticate the gaming chips at the table. The cage reader givescashiers an easy and efficient tool to minimize human error for the gaming chipflow data. The blackjack and roulette float tray readers allow automatic andaccurate accounting of the gaming chips and the value of the float online. Thechip bank reader automatically authenticates trays of gaming chips from 100 to400 chip tray holders. The automatic tip box reader automatically accounts forthe number and value of the tip chips dropped in the tip box. The evaluationkit presents all of the major 

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aspectsof the GPI RFID system, such as allowing casino management information systemspecialists to rapidly understand and assess the functionalities of the GPIRFID system, and giving them the software specifications to be able to developapplications and integrate them into their existing systems.

*Other Security Items*

In order to meet theparticular needs of our casino customers, we also offer chips, which arespecially designed for optical identification, based on colors and edge patterncombinations, or BG-S2 chips. The central decal on the BG-S2 chipis available in a four-color process option that can be serialized. These BG-S2chips are able to meet the requirements coming from the table manager’sperspective (ease of handling and use); from the casino surveillance area’sperspective (distinct color combination); and the marketing department’s needs(stylish and sophisticated appeal). These chips can also be embedded with RFIDchips.

***Dice***

We manufacture our dice at our GPI-Mexicofacilities, from cellulose acetate specifically formulated to provide therequired clarity, hardness and dimensional stability. All dice are solddirectly by GPI-USA to North America and the Caribbean Islands. GPI-SASdistributes dice to the other parts of the world. We offer a variety of spotdesigns, which are inserted in the body of the dice and machined flat to thesurface. We offer two different finishes and up to two monograms on the dice. Acasino may request the imprinting of its name and logo (in a variety andcombination of colors), the insertion of a hidden security “key,” a specialreverse spot, the addition of a security “glow” spot, the use of LaserLock, theserialization of the dice, or all, or a combination of, the above.

All of our brands of dice are manufactured with a highdegree of accuracy in conformity with the strictest standards of gamingregulations. Generally, a stick of dice (two and one-half pair) does not remainin play for more than eight hours on a given table, in a busy casino.

The typical sales price ofcasino dice currently ranges between approximately $3.00 and $4.00 per pair. Wecurrently have the capacity to produce approximately 1.5-2.0 million pairs ofdice per year (based upon one production shift) in Mexico. In 2004, we producedapproximately 1 million pair of dice. We believe our capacity for diceproduction is sufficient to accommodate an increase in production requirements.

***Table Layouts***

Every gaming table is covered with a layout printedwith patterns particular to each specific game, as well as multi-colored logosand other markings according to individual casino preferences. GPI-USAhas developed a comprehensive range of different quality layouts and variousprinting processes. GPI-USA manufactures Paulson® felt and Paulson FX®synthetic layouts, as well as full graphic layouts. We have a creative artdepartment that can design any specific layout to meet the casino needs.

We believe we are a leading manufacturer of layouts inthe United States, utilizing high quality cloths, enhanced graphics, andproprietary dye formulations which we believe result in the widest variety ofcustomized colors. Since 2000, when we acquired certain patent rights coveringmethodology and processes relating to the screening of inks on synthetic clothfor casino tabletop layouts, we have also offered synthetic layouts in a widevariety of colors and customer preferences. The patent rights have a remainingduration of 11 years and enable us to provide a full line of table gamesupplies and equipment.

We typically install layouts on new gaming tablesprior to delivery to a casino. The table layouts are replaced by casinos on aregular basis, in order to maintain their appearance, which is generally within60 to 150 days. Layouts typically sell in a price range of approximately $100to $300 in the United States, 

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depending on the type oftable, the complexity of the patterns and the variety and difficulty of colorcombinations.

We primarily sell ourlayouts manufactured from our Mexico facilities and occasionally, in Las Vegas;we also may sell a small quantity of full graphic sublimation layouts using anoutside vendor. Our layout production capacity is approximately 25,000 feltlayouts and approximately 15,000 synthetic layouts per year. In fiscal 2004, weproduced approximately 28,000 layouts, of which approximately 15,500 were feltand 12,500 were synthetic. We believe the capacity of our layout productionfacilities in Mexico will allow us to increase layout production as needed.

***Playing Cards***

We manufacture and sell our own line of paper casinoplaying cards under the PaulsonÒbrand. A deck of cards typically sells to casinos within a price range ofapproximately $0.90 and $1.50 and, based on casino industry practices, is generallyreplaced every eight hours or less. A casino typically enters into a one or twoyear purchase commitment with a supplier to supply its cards at regularintervals, generally monthly. Casinos occasionally purchase cards from morethan one supplier, as casino floor managers often have preferences for aparticular type of card. Our cards are compatible with all card shufflers.

Given our relatively low market share of the playingcards market, our established distribution system for table game supplies andour low cost manufacturing facilities, we believe that playing cards representa reasonable growth opportunity for us.

We produce all of our playing cards in our GPI-Mexicofacilities. We purchased and leased additional equipment in fiscal 1999 to increaseour production capacity to satisfy the marketplace. The appropriate marketingapproach will permit management to offer better customer service to selectedclients, providing a better return to us. In 2004, the Company producedapproximately five million decks of playing cards. Our capacity, assuming asingle shift is approximately 7.2 million decks per year.

We also distribute plasticplaying cards, which are used predominately in California card clubs. Traditionally,the California card room market prefers the plastic playing cards while thetraditional hotel-casino markets generally prefer the paper cards.

***Wheels***

GPI-SAS manufactures American and Frenchroulette wheels in Beaune, France and sells them primarily in Europe and incertain United States and Canadian-based jurisdictions where GPI-SAS islicensed (such as New Jersey, Washington State and Mississippi).

Until the Combination, theformer two U.S. companies, Paul-Son and Bud Jones, manufactured roulette wheelsand “Big Six” wheels in their plants in Las Vegas. In October 2000 and September 2002,respectively, the former Bud Jones and the former Paul-Son administratively andvoluntarily surrendered their Nevada gaming manufacturer and distributorlicenses due to excessive license costs, and were no longer permitted toassemble or manufacture wheels in Nevada or sell wheels from Nevada. On November 18,2004, the Nevada Gaming Commission granted GPI-SAS and GPI-USAapproval, by way of transactional waivers, to manufacture and distributeroulette wheels to Nevada casinos. Also as a result of this ruling, bothcompanies may service roulette wheels for refurbishment.

***Gaming Furniture***

We sell a variety ofcasino gaming furniture, including tables and seating. Tables range in pricefrom approximately $1,500 for a blackjack table to approximately $5,000 for acraps game table (excluding the roulette wheel). We offer a “Premier” line ofgaming furniture and a “Select” line in response to the industry’s demand for alower priced, quality line of blackjack tables. We believe the “Select” lineenables 

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us tocompete with the price structure of our competitors while maintaining ourquality standards. We vigorously pursue gaming table sales because the sale ofa gaming table will generally bolster our ability to sell gaming chips andconsumable products such as layouts, dice, cards, and other accessories to thetable purchasers. Prior to 2000, we purchased our gaming tables from a thirdparty and subsequently we began manufacturing our own table game furniturecomponents in our Mexico facility. Part of the process was moved from theMexico facility to the Las Vegas plant to improve economies of scale. Tablesare assembled by us and completed by adding the felt layout, drop boxes, traysand other table accessories. Table game seating is produced by nonaffiliatedmanufacturers and distributed by us. GPI-SAS also manufactures a varietyof casino gaming furniture, including tables (blackjack, roulette, craps, etc.),in Beaune, France.

***Table Accessoriesand Other Products***

In order to offer ourcustomers a full product line, we sell a number of ancillary casino table gameproducts, which we typically do not manufacture. However, we manufacturelimited quantities of certain plastic products, including dealing shoes. Ancillaryproducts include plastic money paddles, discard holders, drop boxes, dealingshoes, trays and covers, dice sticks and on/off pucks. These products aregenerally sold in conjunction with the sale of gaming tables and tend to havelong useful lives. We generally maintain two suppliers for each of theseproducts.

We also sell an airventilation device specifically for gaming tables called the Air-RailÒSystem. This ventilation system creates a positive flow of air at the gamingtable, which pushes smoke away from the dealer and assists nonsmokers incontending with secondhand smoke. Small air vent devices secured underneath thetable draw smoke from the surface and recycle it, dispensing the air outwardwhere the casino’s primary ventilation systems can distribute it. By filteringand dispersing the smoke-filled air, the Air-Rail System makes the casino’sprimary air circulation systems perform more efficiently and improves thecomfort of the nonsmoking casino dealers and patrons. In March 2005, wepurchased four patents, including one for the Air-Rail System.

**Sales, Advertisingand Promotion**

We generally distributeour products in the United States through our six-person****salesforce, which primarily operates out of regional offices in Las Vegas, Nevadaand Atlantic City, New Jersey. We generally distribute our products in theinternational market through our three-person sales force, which operates outof our Beaune, France office.

We believe that thelong-standing customer relationships, which have been developed over the yearsby our individual sales representatives, as well as our reputation for quality,reliability and security features, are key factors upon which we successfullycompete in the market place. When direct selling is not feasible because oflocal conditions, we may enter into agreements with carefully selected localdistributors. But, even in this case, we always maintain direct contact withthe end clients.

We place advertising intrade publications and participate in major casino industry trade shows. Wekeep abreast of new casino openings through personal contact with casinomanagement, legislative and trade publications and wire service press releases.When new casinos are identified, our representatives make personal contact withappropriate officers and/or purchasing agents in order to solicit the sale ofour products to such potential new customers.

Our experience has beenthat once a casino buys from a table game supplier, it tends to purchasereplacement products from the same supplier, provided that the quality, serviceand competitive pricing on the products are maintained. As a result, our salesefforts are primarily focused on selling a wide range of table gaming productsto casinos while they are in the development and licensing stage. By thereaftermaintaining a frequent contact program, we seek to realize a steadilyincreasing base of recurring sales while capturing incremental sales to newcasinos.

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**Materialsand Supplies and Backlog**

We maintain goodrelationships with our suppliers and have, where possible, diversified oursupplier base so as to avoid a disruption of supply. In most cases, our rawmaterials are staple goods, such as paper, plastic, wood, and felt andsynthetic fabric, which are readily available from several suppliers. Webelieve that our practice of purchasing from diversified sources minimizes therisk of interrupting the supply of raw materials.

Our backlog of production orders amounted toapproximately $4.5 million for the US and $10.0 million for France asof December 31, 2004. At December 31, 2003, our backlog wasapproximately $7.2 million for the US and $3.0 million for France. Webelieve that all of our backlog will be filled in 2005.

**Competition**

There are a number ofcompanies that compete with us in the sale of each of our product lines:

*Gaming Chips*.   Thegaming chip product line has in recent years become an increasingly competitivearea of the gaming supply business. Currently, our major competitors and theirrespective locations, are Chipco International Ltd. and RT Plastics in theUnited States, Abbiati in Italy, Dolphin in Australia, Matsui Gaming Machinesin Japan and other local manufacturers in each jurisdiction. We believe keycompetitive factors for casino chip sales are: well established product andprocess security, respect of players’ and dealers’ habits, attractiveness,durability, quality of service and price.

*Table Layouts*.   Ourprimary competitors for casino table layouts are Midwest Game Supply Co. andGemaco Playing Card Co. in the United States, and TCS/John Huxley in the UnitedKingdom. We believe the key competitive factors for table layout sales arecloth quality, enhanced graphics, printing processes and prices.

*PlayingCards*.   Our major competitors in the domestic playingcard market are The U.S. Playing Card Co. and Gemaco Playing Card Co. Our majorcompetitors internationally are Angel Cards in Japan, primarily servicing theAsian market, and Carta Mundi in Belgium, primarily servicing the Europeanmarket. We believe the primary competitive factors for playing cards are price,intrinsic characteristics (snap memory, ease of handling, etc.), security,durability, brand name identification, process security and reputation.

*GamingFurniture*.   Ourprincipal competitors for casino gaming furniture are TCS/John Huxley in theUnited Kingdom and Abbiati in Italy and smaller regional wood shops in certaingeographic areas. Competition is based on product ranges, quality and price.

*Dice*.   Our principal competitor for domesticcasino dice sales is Midwest Game Supply Co. There is no significant marketinternationally for casino dice. We believe the primary competitive factors fordice sales are quality of the product and services and pricing. In addition,casino shift managers typically prefer that casinos purchase dice from morethan one supplier due to industry superstition that dice from one of itssuppliers may run “cold” for the house from time to time.

*TableAccessories and Other Products*.   Ourprincipal competitors for distributing table accessories and other products,which include plastic money paddles, discard holders, drop boxes, dealingshoes, trays and covers, dice sticks and on/off pucks are several local vendors.We believe that key competitive factors for these products are the ability tobe a single source supplier, service and product quality.

**IntellectualProperty**

We have an extensiveportfolio of registered service marks, trademarks and logos, exclusive patentrights, and patents that provide us with a competitive advantage, fosteringfuture profitability and growth. The logos and trademarks include, but are notlimited to:  “Gaming PartnersInternationalÒ,” “GPI,” “PaulsonTM,”“Bud JonesÒ,” “SmartchipsTM,” “ChipsoftTM,” “SafeChipTM,” “Bourgogneet GrassetÒ,” 

9

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“BGÒ,”“Paulson FXÒ,” “Paul-Son GamingTM,” “Air-RailÒ,”and “TKTM.”  We also retain an exclusivelicense to manufacture and sell gaming chips with microchips in the UnitedStates until 2015. We believe that our trademarks, logos and patent rights arevaluable to the operation of our Company and are important to our marketingstrategy. Our policy is to actively pursue and maintain registration of ourtrademarks and logos where our business strategy requires us to do so and tooppose vigorously any infringement or dilution of our trademarks, logos orpatent rights. However, we cannot predict whether steps taken by us to protectour proprietary rights will be adequate to prevent misappropriation of theserights or the use by others. It may be difficult for us to prevent others fromcopying elements of our concepts, and any litigation to enforce our rights willlikely involve significant costs.

**Environmental Matters**

We believe we are incompliance with international, federal, state and local laws and regulationsthat have been enacted or adopted relating to the protection of the environment.The liability for environmental remediation or costs will be accrued by us whenor if it is considered probable and the costs can be reasonably estimated. Theparcel of land that we currently have in escrow contains a building that willneed to be demolished as we plan to use the land primarily for parking. We havebeen informed that the building may have some asbestos and we will need anasbestos removal permit to demolish the building. There is currently noviolation of law and we plan on removing it in accordance with all local lawsand regulations. We do not expect that compliance with these laws andregulations will have any material effect upon capital expenditures andearnings.

**Employees**

At February 29, 2005,we employed approximately 650 persons. Approximately 350 of the employees arelocated at our Mexico facilities, approximately 200 employees are located inour Beaune, France facility and the remainder are located primarily in LasVegas, Nevada and Atlantic City, New Jersey. None of our employees are coveredby collective bargaining agreements and we believe that our relations with ouremployees are good.

**Regulation andLicensing**

*General Gaming Regulation*

Thegaming operations of each of our subsidiaries are subject to extensiveregulation, and each of our subsidiaries hold registrations, approvals, gaminglicenses or permits in each jurisdiction in which it operates gaming activities.A list of the geographical locations of the jurisdictions in which we, throughour subsidiaries, are subject to licensing and/or regulatory control of thegaming authorities is set forth below. 
| **Gaming  Jurisdictions** |
|---------------------------|
| Arizona                   |   | New York |
| California                |   | North Carolina |
| Connecticut               |   | North Dakota |
| Florida                   |   | Oregon |
| Illinois                  |   | South Dakota |
| Indiana                   |   | Washington |
| Iowa                      |   | Wisconsin |
| Kansas                    |   | Australia |
| Louisiana                 |   | Puerto Rico |
| Michigan                  |   | Nova Scotia,  Canada |
| Minnesota                 |   | Ontario, Canada |
| Mississippi               |   | Manitoba, Canada |

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| Missouri   |   | Saskatchewan,  Canada     |
|------------|--------|---------------------------|
| Montana    |   | Quebec, Canada            |
| Nevada     |   | British Columbia,  Canada |
| New Jersey |   | Alberta, Canada           |
| New Mexico |   | Republic of  Panama       |

 

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

Various gaming regulatoryagencies have issued licenses allowing our wholly owned subsidiaries tomanufacture and/or distribute our products. Our subsidiaries and their keypersonnel, as applicable, have obtained or applied for all government licenses,permits, registrations, findings of suitability and approvals necessaryallowing for the manufacture and distribution of gaming supplies and equipmentin the jurisdictions where it is required. These companies have never beendenied a gaming related license, nor have any licenses been suspended orrevoked.

*Nevada GamingRegulation*

The manufacture and distribution of gaming equipmentin Nevada are subject to extensive state and local regulation. Our operationswere subject to the licensing and regulatory control of the Nevada GamingCommission, the Nevada State Gaming Control Board and various local regulatoryagencies, or the Nevada Gaming Authorities, due to our prior manufacture ofroulette wheels and Big Six wheels, which are considered gaming devices.

The complex regulatory scheme governing the licensingof gaming device manufacturers and distributors in Nevada imposedadministrative burdens which far exceed those of most other gamingjurisdictions when applied to our new combined corporate structure and ourforeign stockholders. From the time of the Combination and up to mid-2004,in the opinion of our management, the anticipated time and expense of a foreigninvestigation that would be conducted by the Nevada Gaming Authorities wouldfar outweigh any benefit to be gained by maintaining licensure in Nevada. Specifically,based upon an analysis of three factors: the potential market for our rouletteand Big Six wheels in Nevada; the benefits gained through our choice ofcorporate structure; and the administrative costs associated with compliancewith certain requirements of the Nevada Gaming Authorities, we concluded thatthe costs of maintaining licensure in Nevada upon the completion of theCombination significantly exceeded our potential profits. We thusadministratively and voluntarily surrendered the Nevada gaming licenses of theformer Paul-Son Gaming Supplies, Inc. upon the completion of theCombination, a procedure that allowed us to forego licensure in Nevada withoutimpacting its licensure in other gaming jurisdictions or its ability tocontinue to manufacture roulette wheels and Big Six wheels in and for otherjurisdictions. The above license surrender did not impact the manufacture orsale of our other products in Nevada.

In mid-2004, however, with the construction ofnew casino properties in Nevada on the horizon, the Company applied to theNevada Gaming Authorities for certain exemptions from provisions of the Nevadagaming laws and for the limited licensure of GPI-USA and GPI-SAS tomanufacture and distribute roulette wheels in Nevada. Company research showedthat no current licensed manufacturers or distributors in Nevada were activelyin the business of manufacturing or selling roulette wheels and it wasanticipated that Nevada casino operators were in need of a source for suchproducts.

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By Nevada State GamingCommission Order entered November 18, 2004, GPIC was exempted fromregistration as a publicly traded corporation and GPI-USA and GPIS-SASwere each licensed as manufacturers and distributors strictly limited to themanufacture, distribution and service of roulette wheels in Nevada, and subjectto administrative approval prior to the distribution of any roulette wheel andfurther subject to specified conditions set forth in the Order, including butnot limited to the filing of periodic reports with and notifications to NevadaGaming Authorities. The result of this Order is to grant GPI-USA and GPI-SAStransactional waivers so that they may manufacture roulette wheels for sale toNevada casino licensees. The waivers granted were specifically found by theNevada State Gaming Commission to be consistent with the policies set forth forin the Nevada gaming laws. These waivers may, however, be withdrawn by theNevada State Gaming Control Board for any cause deemed reasonable. Upon suchwithdrawal, the Company would be subject to full registration and licensing.

*New Jersey GamingRegulation*

Our subsidiaries are currently required to be licensedunder the New Jersey Casino Control Act, or the New Jersey Act, as casinoservice industries qualified to manufacture and sell gaming-related products tocasinos in New Jersey. As part of such licensure, parent companies, holding companiesand certain officers and directors of the companies are required to be foundsuitable by the New Jersey Casino Control Commission, or the New JerseyCommission. The sale and distribution of gaming equipment to casinos in NewJersey is also subject to the New Jersey Act and the regulations promulgatedthereunder by the New Jersey Commission. The New Jersey Commission has broaddiscretion in promulgating and interpreting regulations under the New JerseyAct. Amendments and supplements to the New Jersey Act, if any, may be of amaterial nature, and accordingly may adversely affect the ability of a companyor its employees to obtain any required licenses, permits and approvals fromthe New Jersey Commission, or any renewals thereof. The current regulationsgovern licensing requirements, standards for qualification, persons required tobe qualified, disqualification criteria, competition, investigation ofsupplementary information, duration of licenses, record keeping, causes forsuspension, standards for renewals or revocation of licenses, equal employmentopportunity requirements, fees and exemptions. In deciding to grant a license,the New Jersey Commission may consider, among other things, the financialstability, integrity, responsibility, good character, and reputation forhonesty, business ability and experience of the applicant and its directors,officers, management and supervisory personnel, principal employees andstockholders as well as the adequacy of the financial resources of theapplicant. New Jersey licenses are granted for a period of three or four years,depending on the length of time a company has been licensed, and if they arerenewable. The New Jersey Commission may impose such conditions upon licensing,as it deems appropriate. These include the ability of the New Jersey Commissionto require the applicant or licensee to report the names of all of itsstockholders as well as the ability to require any stockholders whom the NewJersey Commission finds not qualified to dispose of the stock, not receivedividends, not exercise any rights conferred by the shares, nor receive anyremuneration from the licensee for services rendered or otherwise. Failure ofsuch stockholder to dispose of such stockholder’s stock could result in theloss of the license. Licenses are also subject to suspension, revocation orrefusal for sufficient cause, including the violation of any law. In addition,licensees are also subject to monetary penalties for violations of the NewJersey Act or the regulations of the New Jersey Commission.

Our new combined structurerequired that each subsidiary company submit a new application for licensure. Upona satisfactory initial background investigation, each company as necessary hasobtained transactional waiver approval from the New Jersey Commission to engagein specific transactions with New Jersey casinos pending the outcome of thecomplete investigation of each subsidiary’s respective license application.

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*Other GamingJurisdictions*

In addition to New Jersey, our subsidiaries arecurrently licensed in a number of other jurisdictions. Although the regulationsin these jurisdictions are not identical to the states of Nevada or New Jersey,their material attributes are substantially similar, and are summarized below.

The manufacture, sale anddistribution of gaming supplies in each jurisdiction are subject to variousstate, county and/or municipal laws, regulations and ordinances, which areadministered by the relevant regulatory agency or agencies in that jurisdiction.These laws, regulations and ordinances primarily concern the responsibility,financial stability and character of gaming supply and equipment owners,distributors, sellers and operators, as well as persons financially interestedor involved in gaming or liquor operations. In many jurisdictions, selling ordistributing gaming supplies may not be conducted unless proper licenses areobtained. An application for a license may be denied for any cause which thegaming regulators deem reasonable. In order to ensure the integrity ofmanufacturers and distributors of gaming supplies, most jurisdictions have theauthority to conduct background investigations of a company, its key personneland significant stockholders. The gaming regulators may at any time revoke,suspend, condition, limit or restrict a license for any cause deemed reasonableby the gaming regulators. Fines for violation of gaming laws or regulations maybe levied against the holder of a license and persons involved. Oursubsidiaries and their respective key personnel have obtained all licensesnecessary for the conduct of their respective business in the jurisdictions inwhich they sell and distribute gaming equipment and supplies. Suspension orrevocation of such licenses could have a material adverse effect on ouroperations.

*Federal GamingRegistration*

The Federal GamblingDevices Act of 1962, or the Federal Act, makes it unlawful for a person tomanufacture, transport, or receive gaming machines, gaming devices (includingroulette wheels) or components across interstate lines unless that person hasfirst registered with the Attorney General of the U.S. Department of Justice. Inaddition, the Federal Act imposes gambling device identification and recordkeeping requirements. Violation of the Federal Act may result in seizure andforfeiture of the equipment, as well as other penalties. Our subsidiaries,which are involved in the manufacture and transportation of gaming devices, arerequired to register annually. We have permission to sell our existing inventoryof roulette wheels and Big Six wheels that we had manufactured in the UnitedStates prior to the Combination.

*Native AmericanGaming Regulation*

Gaming on Native Americanlands is governed by federal law, tribal-state compacts, and tribal gamingregulations. The Indian Gaming Regulatory Act of 1988, or the IGRA, providesthe framework for federal and state control over all gaming on Native Americanlands and is administered by the National Indian Gaming Commission and theSecretary of the U.S. Department of the Interior. The IGRA requires that atribe and the state in which the tribe is located enter into a writtenagreement, a tribal-state compact, which governs the terms of the gamingactivities. Tribal-state compacts vary from state-to-state and in many casesrequire equipment manufacturers and/or distributors to meet ongoingregistration and licensing requirements. In addition, tribal gaming commissionshave been established by many Native American tribes to regulate gaming relatedactivity on Indian lands. Our subsidiaries manufacture and distribute gamingsupplies to Native American tribes who have negotiated compacts with theirrespective states and have received federal approval. Currently, GPI-USAis authorized to sell products to Native American casinos in seventeen statesand GPI-SAS is authorized to sell products to Native American casinos infive states.

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*InternationalGaming Regulation*

Certain foreign countries permit the importation, saleand operation of gaming supplies in casino and non-casino environments. Certainjurisdictions require the licensing of manufacturers and distributors of gamingsupplies. We and our subsidiaries manufacture and/or distribute gaming suppliesto various international markets including Australia, the Caribbean, Canada,and other foreign countries. We have obtained the required licenses tomanufacture and distribute our products in the various foreign jurisdictionswhere we do business.

While the regulatoryrequirements vary from jurisdiction to jurisdiction, most require licenses,permits, findings of suitability, documentation of qualification includingevidence of financial stability and/or other required approvals for companieswho manufacture and distribute gaming equipment, as well as the individualsuitability of officers, directors, major stockholders and key employees. Underthe various gaming regulations, key personnel generally include the currentand/or proposed corporate officers and directors of a corporation and itssubsidiaries. Laws of the various gaming regulatory agencies are generallyintended to protect the public and ensure that gaming related activity isconducted honestly, competitively, and free of corruption.

**FinancialInformation About Geographic Areas**

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

**Available Information**

Our current website is *www.gpigaming.com*. Therewe make available, free of charge, our Annual Report on Form 10-K,Quarterly Reports on Form 10-Q, Current Reports on Form 8-K,and, if applicable, any amendments to those reports filed or furnished pursuantto the Exchange Act as soon as reasonably practicable after we electronicallyfile such material with, or furnish it to, the SEC. The information found onour website is not part of this or any other report we file or furnish to theSEC. You may also submit written information requests by mail to:  Gaming Partners International Corporation,1700 Industrial Road, Las Vegas, Nevada 89102, Attn:  Investor Relations.

**Item 2.**   **Properties****.**

We are based in, and operate domestically from,company-owned facilities in Las Vegas, Nevada, and internationally from Beaune,France. We currently assemble and manufacture our primary products atfacilities in Las Vegas, Nevada, San Luis Rio Colorado, Mexico and Beaune,France. We also lease a sales office in Atlantic City, New Jersey.

*Las Vegas, Nevada.  *Our Las Vegasheadquarters are located in an approximately 60,000 square foot building. OurLas Vegas headquarters was purchased in September 1995 for approximately$2,000,000. This facility houses the Las Vegas sales and corporate offices, includinga centralized warehouse for certain of our finished goods inventory, several manufacturingdepartments, some layouts, and a graphics art department. In our Las Vegasheadquarters, we also maintain a certain inventory of templates, graphicdesigns, logos, and tools and dies for casino customers’ gaming equipment. Maintainingsuch an inventory, results in time and cost savings for product manufacturingand delivery to our customers. Our Las Vegas headquarters secures a deed oftrust issued under our outstanding term loan. In the fourth quarter of 2004, weentered into an agreement to purchase an approximately one acre parcel of realproperty next to our Las Vegas headquarters for $800,000. The property iscurrently in escrow and is expected to close in April 2005. (See Part II-Item7. Management’s Discussion and Analysis of Financial Condition and Results ofOperations-Liquidity and Capital Resources.)

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*San Luis Rio Colorado, Mexico*.   Wemanufacture some casino chips, all playing cards, dice, all plastic products,some layouts and some processes for tables at two facilities in San Luis RioColorado, Mexico. These facilities include a 34,000 square foot leased facilityin which casino chips and dice are manufactured and an approximately 66,000square foot facility used for playing cards, some woodshop processes, andlayout products production. We lease our main 34,000 square foot facilitypursuant to a one-year lease, which expired on March 31, 2004. In April 2004,we extended the lease for an additional five years at the same monthly rentamount of approximately $0.35 per square foot, or $12,000, except that theamount may be prorated, commensurate with the space we elect to use. We own the66,000 square foot facility. (See Part II-Item 8. FinancialStatements and Supplementary Data-Notes to Consolidated Financial StatementsNote 14.)

*Beaune,France*.   We own an approximately 33,000 square foot manufacturingand administrative facility, in Beaune, France. On January 9, 2004, GPI-SASentered into a 350,000 Euro (or approximately $447,000 US as of January 9,2004) loan transaction, with Banque Nationale de Paris (B.N.P), a French bank,for a building expansion, which included approximately 3,600 square feet ofadditional office and production space and 1,350 sq. feet of storage space. Thisexpansion was completed in the third quarter of 2004.

On December 22, 2004, we entered into aconstruction contract for a 1,600 square foot additional expansion to becompleted in the second quarter of 2005, to extend the jeton and plaqueproduction area. We anticipate the cost to be approximately $174,000, whichwill be paid for out of our operating funds. Additional expansion is plannedfor other production operations in 2005 but has not yet been finalized.

*FacilityCapacity*.   With its current approximate 193,000 square feet as of December 31,2004, of manufacturing facilities, plus the additional space of approximately1,600 sq. feet, and other anticipated expansion in 2005, resulting from the GPI-SASbuilding expansion, we believe that we will have sufficient production capacityto meet anticipated future demand for all of our products in the United Statesand abroad.

**Item 3**   LegalProceedings.

SeeNote 10—Commitments and Contingencies to the Notes to the ConsolidatedFinancial Statements (Item 8) for information regarding legal proceedings.

**Item 4.**   Submissionof Matters to a Vote of Security Holders.

No matters were submittedto a vote of our security holders during the fourth quarter of the fiscal yearended December 31, 2004.

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**PART II**

**Item 5.**   *Market for Registrant’s Common Equity and RelatedStockholder Matters.*

**Market Information**

As of March 10,2005, the Company moved its stock trading from the NASDAQ SmallCap Market tothe NASDAQ National Market, and continued trading under the symbol “GPIC.”  Prior to the name change on September 1,2004, the Company’s stock traded under the symbol “PSON.”  The following table sets forth the quarterlyhigh and low closing prices of our common stock as reported by NASDAQ duringthe periods indicated. All stock prices reflect a fiscal year ending December 31.On March 25, 2005, the closing price was $17.48 per share.
| **Fiscal Year** | ** ** | ** ** | ** ** | **High** | ** ** | **Low** | ** ** |
|----------------------|------------|------------|------------|----------|------------|---------|------------|
| 2003 First  Quarter  |       | $          | 4.40       |     | $          | 3.34    |       |
| 2003 Second  Quarter |       | 5.35       |       | 3.80     |       |
| 2003 Third  Quarter  |       | 6.20       |       | 5.00     |       |
| 2003 Fourth  Quarter |       | 6.05       |       | 4.26     |       |
| 2004 First Quarter   |       | 5.66       |       | 3.90     |       |
| 2004 Second  Quarter |       | 4.40       |       | 3.31     |       |
| 2004 Third  Quarter  |       | 8.85       |       | 3.85     |       |
| 2004 Fourth Quarter  |       | 25.44      |       | 9.55     |       |
|                      |            |            |            |          |            |         |            |  |  |

 

**Holders**

There were 104 holders of record of our commonstock as of March 17, 2005. We estimate that there are approximately 1,346 beneficial holders of our commonstock based on the proxies distributed in connection with the May 2004meeting of stockholders.

**Dividend Policy**

We have never paid cashdividends. Payments of dividends are within the discretion of our board ofdirectors and depend upon our earnings, capital requirements, and operating andfinancial conditions, among other factors. We currently expect to retain ourearnings to finance the growth and development of our business and do notexpect to pay cash dividends in the foreseeable future.

**Transfer Agent**

Our stock transfer agentand registrar is American Stock Transfer & Trust Co., located at 620115th Avenue, Brooklyn, New York 11219, and with a phone number of (718)921-8247.

**Purchasesof Equity Securities by the Issuer**

The Company made nopurchase of GPIC equity securities during the fourth quarter of 2004.

**Unregistered Sales**

The Company has had noother unregistered sales of equity securities other than those reported in Form 8-K,Item 3.01, filed with the Securities and Exchange Commission on March 3,2005.

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**EquityCompensation Plan Information**

Thefollowing table sets forth certain information as of December 31, 2004about our equity compensation plans under which our equity securities areauthorized for issuance.
| ** **                                                  | ** ** | **(a)**    | ** ** | **(b)**                                                                                                                                              | ** ** | **(c)**                                                                                                    | ** ** |
|-------------------------------------------------------------|------------|------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------|------------|
| **Plan Category**                                      | ** ** | ** ** | ** ** | **Number of securities to  be issued upon exercise  of outstanding options,  warrants and rights** | ** ** | **Weighed-average  exercise price of  outstanding options,  warrants and rights** | ** ** | **Number of securities  remaining available for  future issuance under  equity compensation  plans (excluding  securities reflected  in column (a))** | ** ** |
| Equity  compensation plans approved by security holders     |       |       | 978,000    | (1)                                                                                                                                                  |       |                                                                                                       | $          | 2.47 |   |   |   | 430,450 | (2) |   |
| Equity compensation  plans not approved by security holders |       |       | None       |                                                                                                                                                 |       |                                                                                                       | None       |   |   |   | None |   |   |
| **Total**                                                   |       |       | 978,000    |                                                                                                                                                 |       |                                                                                                       | $          | 2.47 |   |   |   | 430,450 |   |   |
|                                                             |            |            |            |                                                                                                                                                      |            |                                                                                                            |            |  |  |  |  |  |  |  |  |  |

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(1)          Reflects the weightedaverage outstanding stock options to purchase 413,500 shares of common stock underour 1994 Long-Term Incentive Plan, and stock options to purchase 75,500 sharesof common stock under our 1994 Directors’ Stock Option Plan, and for anaggregate of 489,000 shares. The anti-dilution warrants, issued in connectionwith the Combination, are not included in this table, as they do not representcompensation.

(2)          Of these shares, 369,450were available for future issuance under our 1994 Long-Term Incentive Plan and61,000 were available under our 1994 Directors’ Stock Option Plan.

See Note 12 of theNotes to the Consolidated Financial Statements for additional information aboutour equity-based compensation plans.

**Item 6.**   *Selected Financial Data.*

The selected consolidated financial data included inthe following tables should be read in conjunction with our ConsolidatedFinancial Statements and related notes, and “Management’s Discussion andAnalysis of Financial Condition and Results of Operations” appearing elsewhereherein. The selected consolidated financial data for the years ended December 31,2004, 2003, and 2002 and as of December 31, 2004 and 2003, have beenderived from our audited consolidated financial statements included elsewhereherein. The selected consolidated financial data for the fiscal years ended December 31,2001 and 2000, and as of December 31, 2002 have been derived from ouraudited consolidated financial statements not included herein.

A Combination Agreement was executed on September 12,2002, combining GPIC (formerly known as Paul-Son Gaming Corporation) withGPI-SAS (formerly known as Etablissements Bourgogne et Grasset S.A.). Atthe closing, the businesses of GPIC, GPIC-SAS and GPI-SAS’ thenwholly-owned subsidiary, the Bud Jones Company, Inc., or Bud Jones, werecombined, with GPI-SAS and Bud Jones becoming wholly-owned subsidiariesof GPIC, or the Combination. The Combination was accounted for as a purchasetransaction for financial accounting purposes. Because the former GPI-SASstockholders owned a majority of the outstanding GPIC common stock as a resultof the Combination, the Combination was accounted for as a reverse acquisitionin which GPI-SAS was the purchaser of GPIC.   On December 31, 2002, Bud Jones mergedinto GPI-USA, which was a wholly-owned subsidiary of GPIC and GPI-USAwas the surviving entity. Bud Jones was a gaming supply manufacturing company,which was also headquartered in Las Vegas. Both former operations (GPI-USAand Bud Jones) were consolidated into one facility at the Company’sheadquarters in Las Vegas, Nevada with the new name of GPI-USA. (See 

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Part II—Item 8.Financial Statements and Supplementary Data-Notes to Consolidated FinancialStatements—Notes 1and 2).

Thetable below reflects historical information for the year ended December 31,2000, which includes historical information for GPI-SAS for the entireyear and the former Bud Jones since October 2000. The year ended December 31,2001 includes historical information for GPI-SAS and for the former BudJones Company for the entire year, the chip manufacturing business of TrendPlastics, Inc. from August 2001 and T-K Specialty Company, Inc.from September 2001. The year ended December 31, 2002 includeshistorical information for GPI-SAS, the former Bud Jones Company, TrendPlastics, T-K Specialty Company, Inc. for the entire year and theformer Paul-Son Gaming Corporation and its subsidiaries from September 12,2002. The years ended December 31, 2003 and 2004 include historicalinformation for all entities described above, for the full years. 
| ** **                                                 | ** ** | **Years Ended December 31,**                           | ** ** |
|------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|
| ** **                                                 | ** ** | **2004**                                                              | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** | **2000** | ** ** |
| ** **                                                 | ** ** | **(in thousands, except per share amounts)** | ** ** |
| **Operations statement data:(1)**                          |       |                                                                  |       |   |   |   |   |   |   |   |   |
| Revenues                                                   |       | $                                                                     | 44,585     |   | $ | 36,171 |   | $ | 21,861 |   | $ | 23,089 |   | $ | 11,353 |   |
| Cost of revenues                                           |       | 27,249                                                                |       | 22,387 |   | 14,770 |   | 15,849 |   | 7,055 |   |
| Gross profit                                               |       | 17,336                                                                |       | 13,784 |   | 7,091 |   | 7,240 |   | 4,298 |   |
| Selling, general  and administrative expenses              |       | 13,260                                                                |       | 12,042 |   | 7,607 |   | 5,698 |   | 2,911 |   |
| Restructuring and  costs associated with Combination  |       | —                                                                |       | — |   | 622 |   | — |   | — |   |
| Operating income  (loss)                                   |       | 4,076                                                                 |       | 1,742 |   | (1,138 | ) | 1,542 |   | 1,387 |   |
| Gain (loss) on  foreign currency transactions              |       | (155                                                                  | )          | (292 | ) | (529 | ) | 225 |   | 85 |   |
| Interest expense                                           |       | (253                                                                  | )          | (264 | ) | (232 | ) | (170 | ) | (107 | ) |
| Other income  (expense)                                    |       | 98                                                                    |       | 148 |   | 128 |   | 124 |   | 92 |   |
| Total other  income (expense)                              |       | (310                                                                  | )          | (408 | ) | (633 | ) | 179 |   | 70 |   |
| Income (loss)  before income tax expense                   |       | 3,766                                                                 |       | 1,334 |   | (1,771 | ) | 1,721 |   | 1,457 |   |
| Income tax  expense                                        |       | 1,152                                                                 |       | 101 |   | 383 |   | 737 |   | 501 |   |
| Net income (loss)                                          |       | $                                                                     | 2,614      |   | $ | 1,233 |   | $ | (2,154 | ) | $ | 984 |   | $ | 956 |   |
| Earnings (loss) per  share:                                |       |                                                                  |       |   |   |   |   |   |   |   |   |
| Basic                                                      |       | $                                                                     | 0.34       |   | $ | 0.16 |   | $ | (0.42 | ) | $ | 0.24 |   | $ | 3.54 |   |
| Diluted                                                    |       | $                                                                     | 0.34       |   | $ | 0.16 |   | $ | (0.42 | ) | $ | 0.24 |   | $ | 3.54 |   |
| Basic                                                      |       | 7,608                                                                 |       | 7,595 |   | 5,131 |   | 4,054 |   | 270 |   |
| Diluted                                                    |       | 7,754                                                                 |       | 7,672 |   | 5,131 |   | 4,054 |   | 270 |   |

 
| ** **                               | ** ** | **December 31,**   | ** ** |
|------------------------------------------|------------|-------------------------|------------|
| ** **                               | ** ** | **2004**                | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** | **2000** | ** ** |
| ** **                               | ** ** | **(in thousands)** | ** ** |
| **Balance sheet data:(1)**               |       |                    |       |   |   |   |   |   |   |   |   |
| Cash and cash  equivalents               |       | $                       | 8,012      |   | $ | 4,186 |   | $ | 2,333 |   | $ | 4,254 |   | $ | 2,236 |   |
| Working capital                          |       | 12,230                  |       | 7,327 |   | 6,240 |   | 3,919 |   | 4,877 |   |
| Property and  equipment, net             |       | 9,469                   |       | 8,658 |   | 9,500 |   | 4,485 |   | 4,143 |   |
| Total assets                             |       | 39,225                  |       | 28,596 |   | 28,157 |   | 21,425 |   | 16,305 |   |
| Current  liabilities                     |       | 13,960                  |       | 9,219 |   | 8,672 |   | 8,772 |   | 5,581 |   |
| Long-term debt,  less current maturities |       | 2,856                   |       | 1,563 |   | 3,576 |   | 2,333 |   | 857 |   |
| Stockholders’ equity                |       | 21,620                  |       | 17,814 |   | 15,478 |   | 10,204 |   | 9,429 |   |
|                                          |            |                         |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

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(1)          Cash dividends paid were$0 for all periods.

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**Item 7**.                        *Management’s Discussion and Analysis of Financial Condition and Resultsof Operations.*

**Recent Developments**

At our annual stockholders’ meeting on May 26,2004, the stockholders voted to change our company name. As a consequence, Paul-SonGaming Corporation became **Gaming PartnersInternational Corporation**as of September 1, 2004; the NASDAQstock ticker symbol became **GPIC.**Thischange reflects the fundamental positioning of the Company within the industry,partnering with legal casinos worldwide, and continuing to provide gamingsupplies for gaming table operations. Paul-Son Gaming Supplies, Inc.became Gaming Partners International USA, Inc., Etablissements Bourgogneet Grasset SAS became Gaming Partners International SAS, and, effective January 22,2005, Paul-Son Mexicana, S.A. de C.V. became GPI Mexicana S.A. de C.V. Ourcurrent product brand names will remain the same.

Management determined that it would be more efficientto combine our Kansas City, Kansas chip manufacturing operations with our LasVegas, Nevada chip manufacturing operations. During the second quarter of 2004,we successfully relocated substantially all of our Kansas manufacturingequipment and a few employees to Las Vegas, Nevada. The relocation wascompleted during the third quarter of 2004. The Kansas operation formerlyconsisted of approximately seven employees with equipment used in themanufacturing process of certain gaming chips. We also relocated our dicemanufacturing that was in Las Vegas to Mexico in the first quarter of 2005 inorder to realize greater overall dice production efficiencies.

During the fourth quarter of 2004, we entered into anagreement to purchase real property next to our Las Vegas Headquarters for$800,000, which agreement was approved by the probate court on March 11,2005. The property is currently in escrow and is expected to close in April 2005.We intend to use the property for additional employee parking.

On March 3, 2005, wereceived approval from NASDAQ to transfer the listing of our common stock fromthe NASDAQ SmallCap Market to the NASDAQ National Market. We elected totransfer our listing because we believe that listing on the NASDAQ NationalMarket will provide increased visibility for the Company and liquidity for ourcommon stock. Our common stock began trading on the NASDAQ National Marketeffective March 10, 2005, under the same ticker symbol, GPIC.

**Overview**

Gaming Partners International Corporation, a Nevadacorporation (“GPIC”) and each of its subsidiaries are sometimes collectivelyreferred to herein as the “Company,” “us,” “we,” or “our.” The followingdiscussion is intended to assist in the understanding of our results ofoperations and our present financial condition. The consolidated financialstatements and the accompanying notes contain additional detailed informationthat should be referred to when reviewing this material. Statements in thisdiscussion may be forward-looking. Such forward-looking statements involverisks and uncertainties that could cause actual results to differ significantlyfrom those expressed. See “Forward-Looking Information Statements and RiskFactors” below.

A Combination Agreement was executed on September 12,2002, combining GPIC (formerly known as Paul-Son Gaming Corporation) withGPI-SAS (formerly known as Etablissements Bourgogne et Grasset S.A.). Atthe closing, the businesses of GPIC, GPIC-SAS and GPI-SAS’ thenwholly-owned subsidiary, the Bud Jones Company, Inc., or Bud Jones, werecombined, with GPI-SAS and Bud Jones becoming wholly-owned subsidiariesof GPIC, or the Combination. The Combination was accounted for as a purchasetransaction for financial accounting purposes. Because the former GPI-SASstockholders owned a majority of the outstanding GPIC common stock as a resultof the Combination, the Combination was accounted for as a reverse acquisitionin which GPI-SAS is the purchaser of GPIC. On December 31, 2002, BudJones merged into GPI-USA, which was a wholly-owned subsidiary of GPICand GPI-USA was the surviving entity. Bud Jones was a gaming supplymanufacturing company, which was also 

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headquartered in Las Vegas.Both former operations (GPI-USA and Bud Jones) have been consolidatedinto one facility at the Company’s headquarters in Las Vegas, Nevada with thenew name of GPI-USA. (See Part II—Item 8. Financial Statementsand Supplementary Data—Notes to Consolidated Financial Statements—Notes 1and 2).

Our business activities include the manufacture and/orsupply of gaming equipment and supplies such as gaming chips, table layouts,playing cards, dice, gaming furniture, table accessories and other productsthat are used with casino table games such as blackjack, poker, baccarat, crapsand roulette. We generally sell our casino products to licensed casinos for newopenings and to existing casino operations, worldwide. We are headquartered inLas Vegas, Nevada, with offices in Beaune, France, San Luis Rio Colorado,Mexico, and Atlantic City, New Jersey.

The Combination resulted in substantial changes to theCompany. The size of the combined company, both measured in first revenues andsecond, assets and liabilities, is substantially larger than the company priorto the Combination. Substantial costs were incurred in effecting theCombination, and management has implemented various changes to integrate theconstituent companies, to reduce redundancies and to incorporate the newstrategies for the combined company. As a result, the historical results ofoperations and discussions of financial condition, liquidity and capitalresources contained herein, to the extent that they are based on the formerB&G and/or the former Bud Jones prior to the Combination, may not bemeaningful with respect to the results of operations, financial conditionliquidity and capital resources of the combined Company going forward on apost-Combination basis.

Our products on display at the 2004 Global Gaming Expoin Las Vegas, Nevada and the 2004 and 2005 ICE show in London, England includedour gaming chips with embedded RFID technology and corresponding chip readers. Wehave been working for several years to apply the RFID technologies to gamingchips. RFID microchips are available for each brand and type of our gamingchips. We hold several patents concerning the embedding process of RFIDmicrochips and an exclusive license for the use of these RFID chips in gamingchips in the United States. We also sell several types of related gaming chipreaders that can be used by the casinos at the cages, vaults, tables, or by thepit bosses. Our gaming chips with embedded RFID microchips and readers help toprotect the casinos from redeeming at face value, counterfeit or stolen chipsand to improve the efficiency of table game management.

We have been informed that one of our competitors iscurrently marketing a gaming chip product that claims to have an embeddedmicrochip and by doing so has allegedly challenged the validity of the patentsnow owned by Shuffle Master, Inc., as they relate to this competitor. ShuffleMaster Inc. is currently investigating the possible infringement. Although wedo not control Shuffle Master, Inc., and further, there can be no assurancethat Shuffle Master Inc. will be successful in any effort, we believe that theywill take all reasonable actions necessary to preserve all rights and remedieswith regard to these patents.

The following arethe most important factors and trends that contribute to our operatingperformance:

·       Anumber of states in the United States and foreign countries are currentlyconsidering legislation to legalize or expand gaming. Such legislation presentspotential opportunities to sell our gaming supplies to new properties and thusincrease revenue. The timing and occurrence of these events remain uncertain. Therefore,we may experience quarters that are more profitable than others due to thetiming and nature of new casino openings and expansions throughout the world.Of particular importance has been the opening of new and existing casinos in Macaoin 2004 and the anticipated openings in 2005. Macao is controlled by thePeoples Republic of China. Any material adverse change in the gaming regulatorystructure or any reduction in the growth rate of new and existing casinos inMacao may have a material adverse effect on our business and results ofoperations.

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·       Thereceipt of higher volume orders enhances our profit margins through productionefficiencies. The timing and occurrence of these orders remain uncertain. Therefore,we may experience quarters that are more profitable than others due to thetiming and volume of product demand.

·       Theacceptance or lack of acceptance of our product innovations regarding securityfeatures and the efficiency of table management information systems by thecasino industry.

**Results of Operations**

Thefollowing table summarizes selected items from the Company’s ConsolidatedStatements of Operations as a percentage of revenues for the periods indicated:
| ** **                                           | ** ** | **Years Ended December 31,** | ** ** |
|------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                           | ** ** | **2004**                                    | ** ** | **2003** | ** ** | **2002** | ** ** |
| Revenues                                             |       | 100.0                                       | %          | 100.0 | % | 100.0 | % |
| Cost of revenues                                     |       | 61.1                                        | %          | 61.9 | % | 67.6 | % |
| Gross profit                                         |       | 38.9                                        | %          | 38.1 | % | 32.4 | % |
| Selling, general  and administrative expenses        |       | 29.8                                        | %          | 33.3 | % | 34.8 | % |
| Restructuring and  costs associated with Combination |       | —                                      |       | — |   | 2.8 | % |
| Operating income  (loss)                             |       | 9.1                                         | %          | 4.8 | % | (5.2 | )% |
| Loss on foreign  currency transactions               |       | (0.3                                        | )%         | (0.8 | )% | (2.4 | )% |
| Interest expense                                     |       | (0.5                                        | )%         | (0.7 | )% | (1.1 | )% |
| Other income, net                                    |       | 0.2                                         | %          | 0.4 | % | 0.6 | % |
| Income tax  expense                                  |       | (2.6                                        | )%         | (0.3 | )% | (1.8 | )% |
| Net income (loss)                                    |       | 5.9                                         | %          | 3.4 | % | (9.9 | )% |

 

Thefollowing table details the Company’s historical revenues by product line:
| ** **                            | ** ** | **Years Ended December 31,** | ** ** |
|---------------------------------------|------------|---------------------------------------------|------------|
| ** **                            | ** ** | **2004**                                    | ** ** | **2003** | ** ** | **2002** | ** ** |
| ** **                            | ** ** | **(in thousands)**                     | ** ** |
| Revenues:                             |       |                                        |       |   |   |   |   |
| Casino chips                          |       | $                                           | 26,566     |   | $ | 18,200 |   | $ | 14,200 |   |
| Table layouts                         |       | 4,516                                       |       | 4,270 |   | 1,875 |   |
| Playing cards                         |       | 4,440                                       |       | 4,472 |   | 1,477 |   |
| Gaming furniture                      |       | 1,843                                       |       | 1,785 |   | 849 |   |
| Dice                                  |       | 2,669                                       |       | 2,701 |   | 1,856 |   |
| Table accessories  and other products |       | 4,551                                       |       | 4,743 |   | 1,604 |   |
| Total                                 |       | $                                           | 44,585     |   | $ | 36,171 |   | $ | 21,861 |   |

 

**Comparisonof Operations for the Years Ended December 31, 2004 and 2003**

*Revenues*.   For the yearended December 31, 2004, revenues were approximately $44.6 million, anincrease of approximately $8.4 million, versus revenues of approximately $36.2million for the year ended December 31, 2003. The increase in revenues for2004 was principally the result of GPI-SAS’ sales to new casinos in Asiain the second and the fourth quarters of 2004. In the fourth quarter of 2004,GPI-SAS had an increase in sales of approximately $4.0 million comparedto the same period in 2003. This increase was due mainly to sales to new andexisting casinos opening in Macao. In the second quarter of 2004, GPI-SAShad an increase in sales of $4.7 million compared to the same period in 2003.This increase was due to sales in Myanmar, the Philippines and Canada for $2.3million, $1.7 million and $700,000, respectively. In the second quarter of2004, the U.S. operations had a sale to a casino in Canada for approximately$1.0 million. These second and fourth quarter increases in revenue, werepartially offset by decreased revenues in the first quarter of 2004 due to thetiming and demand variability for casino openings and expansion. 

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For the year ended December 31,2003, revenues included approximately $1.2 million in sales for a large U.S.casino opening in the second quarter of 2003, and sales to an Asian casino forapproximately $1.9 million during the second quarter of 2003 and $1.8 millionduring the fourth quarter of 2003.

*Cost of Revenues*.   Cost ofrevenues, as a percentage of sales decreased to 61.1% for 2004, compared to61.9% for 2003. The decrease in cost of revenues as a percentage of salesoccurred principally due to the better absorption of fixed costs due to thehigher sales volume, and the product mix at GPI-SAS, which had a higherpercentage of the European gaming chip production in the 2004 year, compared to2003.

*GrossProfit*.   Gross profit for the year ended December 31,2004 increased in absolute dollars by approximately $3.6 million from 2003. Thisoccurred as a result of the aforementioned increase in revenues ofapproximately $8.4 million and the decrease in cost of revenues as a percentageof sales.
| ** **                     | ** ** | **Years Ended December 31,** | ** ** |
|--------------------------------|------------|---------------------------------------------|------------|
| ** **                     | ** ** | **2004**                                    | ** ** | **Revenue %** | ** ** | **2003** | ** ** | **Revenue %** | ** ** |
| ** **                     | ** ** | **(dollars in thousands)**        | ** ** |
| ** **                     | ** ** | **(unaudited)**                             | ** ** |
| Product  development           |       | $                                           | 259        |   |   | 0.6 | % |   | $ | 154 |   |   | 0.4 | % |   |
| Marketing and  sales           |       | 3,768                                       |       |   | 8.5 | % |   | 3,168 |   |   | 8.8 | % |   |
| Depreciation and  amortization |       | 1,997                                       |       |   | 4.5 | % |   | 2,122 |   |   | 5.9 | % |   |
| General and  administrative    |       | 7,236                                       |       |   | 16.2 | % |   | 6,598 |   |   | 18.2 | % |   |
| Total operating  expenses      |       | $                                           | 13,260     |   |   | 29.8 | % |   | $ | 12,042 |   |   | 33.3 | % |   |

 

*OperatingExpenses*.   Operating expenses, which include productdevelopment; marketing and sales; depreciation and amortization; and generaland administrative costs, increased to approximately $13.3 million during theyear ended December 31, 2004 from approximately $12.0 million during thetwelve months ended December 31, 2003. This increase was primarilyattributable to an increase in product development and marketing and salesexpense of approximately $705,000 due to costs associated with the name changeand new catalogs and advertising, Enpat and Shuffle Master royalties, CIASfees, sales commissions and bonuses. As a result of the relocation of theKansas chip manufacturing operations to Las Vegas, $341,000 in expenses wereincurred in the second and third quarters of 2004. Our legal and regulatorylicense fees for the years ended December 31, 2004 and 2003 amounted to$456,000 and $264,000, respectively; primarily due to increases in legalexpenses due to the name change and issues associated with public reporting.
| ** **                                     | ** ** | **Years Ended December 31,** | ** ** |
|------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                     | ** ** | **2004**                                    | ** ** | **Revenue %** | ** ** | **2003** | ** ** | **Revenue %** | ** ** |
| ** **                                     | ** ** | **(dollars in thousands)**        | ** ** |
| ** **                                     | ** ** | **(unaudited)**                             | ** ** |
| Loss on foreign  currency transactions         |       | $                                           | (155       | ) |   | (0.3 | )% |   | $ | (292 | ) |   | (0.8 | )% |   |
| Gain on sale of  marketable securities         |       | 55                                          |       |   | 0.1 | % |   | 98 |   |   | 0.3 | % |   |
| Other income  (expense)                        |       | 43                                          |       |   | 0.1 | % |   | 50 |   |   | 0.1 | % |   |
| Total other income excluding  interest expense |       | $                                           | (57        | ) |   | (0.1 | )% |   | $ | (144 | ) |   | (0.4 | )% |   |

 

*Other Income (Expense), (excluding InterestExpense)*.   During the year ended December 31, 2004,other income (expense), including losses on foreign currency transactions,interest income, gains on sales of marketable securities, and other income(expense) decreased to approximately $57,000 in expense from approximately$144,000 in expense during the year ended December 31, 2003. This decreaseof approximately $87,000 was principally the result of a decrease in foreigncurrency exchange losses from $292,000 in 2003 compared to $155,000 in 2004.The variation in foreign currency transactions occurred as a result of anincrease in the Euro and the sales activity in foreign currencies between thequarterly periods. This was partially offset by a decrease in both other incomeand gain on sale of marketable 

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securities. Therefore,beginning with the second quarter of 2003, the foreign currency exchange lossrelated to such loans does not impact the statement of operations.

*Interest Expense*.   For theyear ended December 31, 2004, interest expense decreased to approximately$253,000 from approximately $264,000 for the year ended December 31, 2003.This decrease of approximately $11,000 was primarily caused by a slightdecrease in the average outstanding debt amounts in 2004 as compared to 2003,due to normal payments.

*Income Taxes*.   During theyear ended December 31, 2004, we recorded an income tax expense ofapproximately $1,152,000 as compared to a tax expense of approximately $101,000for the year ended December 31, 2003. The increase in income tax expensefor the year ended December 31, 2004 is primarily a result of the Company’shigher foreign revenues. It is likely that in the future the Company willdividend amounts from GPI-SAS, to GPI-USA. If such dividends occur, it islikely that the Company’s net operating losses will be diminished, and that theCompany will generate excess foreign tax credits, which will carry forward 10years. The utilization of the foreign tax credits will depend upon whether theCompany generates foreign source income prospectively.

*Net Income*.   For the year ended December 31, 2004, we recorded net income of approximately$2.6 million compared to income of $1.2 million for 2003. This increase in netincome of approximately $1.4 million occurred principally as a result of theaforementioned factors.

**Comparisonof Operations for the Years Ended December 31, 2003 and 2002**

*Revenues.  *For the yearended December 31, 2003, revenues were approximately $36.2 million, anincrease of approximately $14.3 million, or 65.5%, versus revenues ofapproximately $21.9 million for the year ended December 31, 2002. Thisincrease in revenues for 2003 was principally the result of the inclusion ofthe revenues for our combined operations in the twelve-month period, comparedto GPI-SAS’s revenues reported in the 2002 period, except for the periodbetween September 12, 2002 and December 31, 2002, which includesrevenues of GPIC and its pre-combination subsidiaries. Additionally, after theCombination and the merger between the former Paul-Son Gaming Supplies, Inc.and Bud Jones, some discounting practices were reduced and some sales pricesincreased. Revenues for 2003 also benefited from two substantial orders,including $1.2 million for a new casino opening in the U.S. and $3.7 million toa casino customer in Asia. This increase was partially offset by decreasedsales of approximately $3.2 million in 2003 reflecting a decline in demand for “Euro”denominated chips, as many European casinos converted to these chips during2001 and early 2002.

*Cost of Revenues.  *Cost ofrevenues, as a percentage of sales, decreased to 61.9% for 2003, compared to67.6% during 2002. This decrease in cost of revenues occurred principally dueto (a) the inclusion of GPI-USA’s cost of revenues for the twelve monthsended December 31, 2003, which typically has lower cost of revenues thanGPI-SAS, that were not included in the same period of 2002, except for theperiod between September 12, 2002 and December 31, 2002, and (b) increasedproduction efficiencies as a result of the Combination.

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*GrossProfit.  *Gross profit in absolute dollars for 2003increased by approximately $6.7 million from 2002 and the actual gross profitmargin percentage increased to 38.1% for 2003 from 32.4% in 2002. This occurredas a result of the aforementioned increase in revenues of approximately$14.3 million offset, in part, by the increase in cost of revenues to$22.4 million for 2003 compared to $14.8 million in 2002. A full twelve-monthsof GPI-USA’s revenues and cost of revenues were included in 2003 compared to only111 days in 2002. Since GPI-USA typically has a higher gross profit margin thanGPI-SAS, the overall gross profit increased for 2003 compared to 2002. Also,the absence of certain discounting practices and increased sale prices duringthe 2003 period compared to the prior year, contributed to the increase ingross profit.
| ** **                     | ** ** | **Years Ended December 31,** | ** ** |
|--------------------------------|------------|---------------------------------------------|------------|
| ** **                     | ** ** | **2003**                                    | ** ** | **Revenue %** | ** ** | **2002** | ** ** | **Revenue %** | ** ** |
| ** **                     | ** ** | **(dollars in thousands)**        | ** ** |
| ** **                     | ** ** | **(unaudited)**                             | ** ** |
| Product  development           |       | $                                           | 154        |   |   | 0.4 | % |   | $ | 142 |   |   | 0.6 | % |   |
| Marketing and  sales           |       | 3,168                                       |       |   | 8.8 | % |   | 2,424 |   |   | 11.1 | % |   |
| Depreciation and  amortization |       | 2,122                                       |       |   | 5.9 | % |   | 1,509 |   |   | 6.9 | % |   |
| General and  administrative    |       | 6,598                                       |       |   | 18.2 | % |   | 4,154 |   |   | 19.0 | % |   |
| Total operating  expenses      |       | $                                           | 12,042     |   |   | 33.3 | % |   | $ | 8,229 |   |   | 37.6 | % |   |

 

*Operating Expenses*.   Duringthe year ended December 31, 2003, operating expenses, which includeproduct development, marketing and sales, and general and administrative costs(including depreciation and amortization), increased approximately $3.8 millionfrom approximately $8.2 million in 2002 to approximately $12.0 million. Thisincrease was primarily attributable to the inclusion of operating expenses of GPI-USA in the 2003 period. In2002, we incurred restructuring costs of $622,000 associated with theCombination and no similar costs were incurred in 2003. No operating expensesof GPI-USA were included in thecomparable period of 2002, except for the period between September 12,2002 and December 31, 2002, which includes GPI-USA and its pre-combinationsubsidiaries. As a percentage of revenues, operating expenses for the year of2003 decreased to 33.3% from 34.8% for the comparable period in 2002, as aresult of continued efficiencies realized in the business combination in 2002and a $369,000 receipt of a legal settlement in the fourth quarter of 2003. Ouroperating expenses for the twelve-month period include professional fees ofapproximately $1.0 million, of which $259,000 is associated with publicreporting and regulatory expenses and $127,000 is related to GPI-SAS for the twelve monthsended December 31, 2003, the remainder relates to legal, accounting andregulatory fees.
| ** **                                               | ** ** | **Years Ended December 31,** | ** ** |
|----------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                               | ** ** | **2003**                                    | ** ** | **Revenue %** | ** ** | **2002** | ** ** | **Revenue %** | ** ** |
| ** **                                               | ** ** | **(dollars in thousands)**        | ** ** |
| ** **                                               | ** ** | **(unaudited)**                             | ** ** |
| Loss on foreign  currency transactions                   |       | $                                           | (292       | ) |   | (0.8 | )% |   | $ | (529 | ) |   | (2.4 | )% |   |
| Gain (losses) on  sale of marketable securities          |       | 98                                          |       |   | 0.3 | % |   | 98 |   |   | 0.4 | % |   |
| Other income  (expense)                                  |       | 50                                          |       |   | 0.1 | % |   | 30 |   |   | 0.1 | % |   |
| Total other income  (expense, excluding interest expense |       | $                                           | (144       | ) |   | (0.4 | )% |   | $ | (401 | ) |   | (1.9 | )% |   |

 

*Other Income/Expense*.   During the year ended December 31,2003, other income, including loss on foreign currency transactions, interestexpense, and other income (including gains (losses) on sales of marketableequity securities), decreased to approximately $408,000 in expense fromapproximately $633,000 of expense during the twelve months ended December 31,2002. This decrease of approximately $225,000 was principally the result of anincrease in other income of $20,000 from miscellaneous refunds and by decreasedlosses on foreign currency exchange of $237,000; partially offset by increasedinterest expense of $32,000, primarily due to the inclusion of the full year ofGPI-USA debt. The variation inforeign currency transactions to $292,000 in 2003 from $529,000 in 2002occurred as a result of an increase 

24

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in the Euro in 2003compared to 2002. Additionally, management changed its estimates forintercompany loans, which are now intended not to be repaid in the foreseeable future.Therefore, as of the second quarter of 2003, the foreign currency exchange lossrelated to such loans did not impact the statements of operations.

*Interest Expense*.   For the year ended December 31,2003, interest expense increased to approximately $264,000 from approximately$232,000 in 2002. This increase of approximately $32,000 was caused by anincrease in the average outstanding debt amounts in 2003 as compared to 2002,due generally to the inclusion of GPI-USA’s debt for the year 2003,which was not included in the same periods in 2002, except for the periodbetween September 12, 2002 and December 31, 2002, which includes GPI-USA and its pre-combinationsubsidiaries.

*Income Taxes*.   During 2003, we recorded an income taxprovision of approximately $101,000 as compared to a tax provision ofapproximately $383,000 in 2002. In 2003 and 2002, we have not released ourdomestic deferred tax valuation allowance and we have not recognized thebenefit of our net deferred tax asset due to the uncertainty surrounding thetiming and amount of future profits. The effective income tax rates in 2003 and2002 were 7.3% and (21.6)%, respectively. We recorded tax benefits on our U.S.pretax losses to the extent the benefits offset previously recorded deferredtax liabilities.

*NetIncome/(Loss)*.   Forthe year ended December 31, 2003, we recorded net income of approximately$1.2 million. This occurred due to the aforementioned factors. We recordeda net loss of $2.2 million in 2002 as a result of the aforementioned factors.

**Liquidity and Capital Resources**

*Overview*.   We believe that the combination of cashflow from operations and cash on hand should be sufficient to fund expensesfrom routine operations on a short-term basis. As of December 31, 2004, wehad approximately $8.0 million in cash and cash equivalents and $5.0 million inmarketable securities. For the longer term, in addition to these cash sources,management will evaluate other cash source alternatives, including otherlending facilities in the United States or abroad. There can be no assurancethat the other cash sources will be available to us on terms and conditionsacceptable to us. We also hope to continue to realize some additional benefitsof the Combination-related efficiencies in 2005.

*Working Capital and Cash Flow*.   Workingcapital totaled approximately $12.2 million at December 31, 2004, comparedto approximately $7.3 million in working capital at December 31, 2003. Workingcapital increased by approximately $4.9 million in 2004 primarily due to anincrease in current assets of $9.6 million, offset by an increase in currentliabilities of $4.7 million. Overall, cash increased by approximately $3.8million from December 31, 2003 to December 31, 2004.

The increase in current assets in 2004 was dueprimarily to an increase in cash and cash equivalents of $3.8 million andmarketable securities of $2.4 million due to increased sales and the receipt ofan income tax receivable of $224,000 during the third quarter of 2004 relatingto the filing of the final 2003 income tax return. In the ConsolidatedStatements of Cash Flows for the year ended 2004, this increase in currentassets was partially improved by an increase in inventories of $1.9 million; anincrease in deferred tax asset of $1.0 million primarily due to our foreignoperations; and an increase in accounts receivable of $174,000.

The increase in current liabilities in 2004 was dueprimarily to an increase in taxes payable of approximately $1.5 million, as aresult of our foreign operations and currency translation adjustments; an increase of approximately$2.1 million in accounts payable primarily due to the purchase of microchipsfor our RFID embedded gaming chips, additional purchases of rawmaterial and machinery equipment, the expansion for our plant inFrance; and an increase in customer deposits of $1.9 million, due to the timingof deposits on large orders primarily at GPI-SAS. These increases were offsetprimarily by the 

25

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reclassification of $1.7million of debt from current maturities of long-termdebt to long-termdebt, related to the GPI-SAS loan.

*Net Cash Flow*.   Netcash flow provided by operating activities was approximately $8.2 millionduring 2004, as compared to operating cash provided by operating activities ofapproximately $3.1 million during 2003. In 2004, the primary operationalsources of cash were related to net income, and the increase in customerdeposits of $1.9 million; partially offset by increased inventory purchases. In2003, the primary operational sources of cash were related to an income taxrefund of approximately $846,000 and the primary operational use of cash wasthe decrease in accounts payable, customer deposits, inventory and othercurrent assets, including prepaids of approximately $2.1 million.

Our investing activities resulted in net cash used ofapproximately $5.1 million for 2004, compared toapproximately $2.6 million in net cash used by investing activities for 2003. During2004, we used net cash of $1.9 million to purchase marketable securities andmutual funds as compared to net cash used to purchase of marketable securitiesin 2003 of $815,000. In addition, we used cash of approximately $2.9  millionto purchase property and equipment to facilitate increased production.

Net cash flow provided by financing activities for theyear ended December 31, 2004 related to the net repayment of long termdebt of $195,000 compared to the net repayment of long term debt of $219,000 in2003; offset by proceeds from issuance of common stock for approximately$649,000. In the fourth quarter of 2004, our employees and directors exercised 79,500 options and 55,000 warrants at an averageexercise price of $6.93 per share. Overall, our cashbalance increased from December 31, 2003 to December 31, 2004 byapproximately $3.8 million.

*Secured Debt*.   InFebruary 2001, GPI-SAS borrowed approximately $2.2 million froman unaffiliated party. Principal and interest payments are due quarterly in theoriginal approximate amount of $116,000 until February 2008, varying withthe fluctuation in the Euro. Interest accrues at the fixed rate of 5.1% perannum. The loan is guaranteed by our majority stockholder, Holding Wilson, S.A.Under the terms of the GPI-SAS loan agreement, GPI-SAS must complywith certain financial covenants that are calculated annually based on thefinancial statements of GPI-SAS. Specifically, GPI-SAS’ ratio oftotal loans and similar debt (inclusive of capital lease obligations) tooperating cash flow (defined under French GAAP as operating income beforedepreciation and provisions) must not exceed 1.7, and the ratio of total loansand similar debt (inclusive of capital lease obligations) to stockholders’equity must not exceed 0.5. At December 31, 2003 and March 31, 2004,GPI-SAS’ ratios of total loan and similar debt (inclusive of capitallease obligations) to operating cash flow exceeded the required limits. HoweverGPI-SAS has met the total loan and similar debt (inclusive of capitallease obligations) to operating cash flow ratio as of June 30, 2004 and September 30,2004. GPI-SAS’ actual ratio of total loans and similar debt (inclusive ofcapital lease obligations) to operating cash flow and ratio of total loans andsimilar debt (inclusive of capital lease obligations) to stockholders’ equitywere 0.71 and 0.18, respectively, as of September 30, 2004. Wereclassified this debt from current maturities of long term debt to long termdebt as of June 30, 2004, and it remains classified as long term debt asof December 31, 2004.

In March 2002, GPI-USA entered into a$995,000 loan transaction secured by a Deed of Trust on its Las Vegas building,which matures on March 1, 2012, at an interest rate equal to the greaterof (i) 8% per annum, or (ii) 362.5 basis points over the average ofthe London Interbank Offered Rates for six-month dollar deposits in the Londonmarket based on quotations of major banks, or LIBOR, but may not exceed 12% perannum. This loan is payable in arrears in equal monthly installments throughand including March 1, 2012, at which time the entire remaining principalbalance of approximately $874,000 will be due and payable. As of December 31,2004, there is no prepayment penalty.

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On January 9,2004, GPI-SAS entered into a 350,000 Euro (approximately $447,000 USat the January 9, 2004 exchange rate) loan transaction, with BanqueNationale de Paris (B.N.P), a French bank, for the purposes of buildingexpansion in France. The general terms of this loan are as follows:

·       *Interest Rate.*3.6%, fixed per annum.

·       *Maturity Date*. The maturity date is January 2010.

·       *Security.*The loan is secured by a mortgage on the buildingpremises.

·       *Monthly Payment.*4,720 Euros; no balloon payment.

*Seasonality*.   We do not typically experienceseasonality relative to our revenues, except, potentially, for the thirdquarter of each year, when the French location (office and manufacturingfacility) is closed for a substantial part of the month of August, due toholiday.

*Las Vegas, Nevada Facilities*.   In May 1997, we purchased ourcurrent corporate headquarters, an approximately 60,000 square foot buildinglocated in Las Vegas. The Las Vegas headquarters secures the $995,000 loanpursuant to the Deed of Trust. See “Secured Debt” above. In connection with theCombination, the former Bud Jones relocated its operations to the Las Vegasheadquarters during the fourth quarter of 2002.

*San Luis Rio Colorado, Mexico Facilities.  *Welease a 34,000 square foot facility pursuant to a one-year lease, which expiredon March 31, 2004. In April 2004, we extended the lease for anadditional five years at the same monthly rent amount of approximately $0.35per square foot, or $12,000, except that the rent amount may be prorated,commensurate with the space that we elect to use. We also own an approximately66,000 square foot facility used for the manufacture of playing cards, tables,and layouts products that is adjacent to the leased building. (See Part II—Item 8.Financial Statements and Supplementary Data—Notesto Consolidated Financial Statements—Note 14).

*Beaune, France Facilities.  *Weown an approximately 33,000 square foot manufacturing and administrativefacility in Beaune, France. In January 9, 2004, GPI-SAS entered intoa 350,000 Euro (or approximately $447,000 US as of January 9, 2004)loan agreement, with Banque Nationale de Paris (B.N.P), a French bank, forbuilding expansion. See “Secured Debt” above. On December 22, 2004, weentered into a construction contract for a 1,600 square foot additionalexpansion to be completed in the second quarter of 2005, to extend the jetonand plaque production area. We anticipate the cost to be approximately$174,000, which will be paid for out of ouroperating funds. Additional expansion is planned for other productionoperations in 2005, but has not yet beenfinalized.

*Capital Expenditures.  *Wecurrently plan to purchase approximately $1.0 million to $3.0 million incapital equipment and improvements in 2005. In addition, in the fourth quarterof 2004, we entered into an agreement to purchase an approximately one acreparcel of land adjacent to our Las Vegas headquarters for $800,000. Theproperty is currently in escrow and is expected to close in April 2005. Weintend to use the property for additional employee parking. Additionalexpansion is also planned for 2005 at the French location, due to the increasedsales in the far eastern part of the world.

*Inventory.  *During the lastseveral years we have had inventory obsolescence charges, which contributed tothe cost of sales as a percentage of revenues. Several factors contributed tothese provisions, including changes in materials, thereby causing certainobsolescence and slow movement of certain products. Additionally, increasedsecurity features added to casino playing cards and casino chips, which madecertain materials or finished goods on hand at the time obsolete, contribute tothe provisions recorded.

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**ContractualObligations and Commercial Commitments**

The following table presents contractual obligationsand commercial commitments as of December 31, 2004.

The impact that our contractual obligations areanticipated to have on our liquidity and cash flow in future periods isreflected in the table below. We have no other significant contractualobligations or commercial commitments either on or off balance sheet as of December 31,2004, except for our land purchase. Operating leases on a month-to-month basisare not included in the table below. (See Part II-Item 8. FinancialStatements and Supplementary Data-Notes to Consolidated FinancialStatements-Note 10). 
| ** **                                    | ** ** | ** **              | ** ** | **Payments Due by Period** | ** ** |
|-----------------------------------------------|------------|-------------------------|------------|-------------------------------------------|------------|
| **Contractual Obligations**              | ** ** | ** **              | ** ** | **Total**                                 | ** ** | **Less Than  1 Year** | ** ** | **1-3 Years** | ** ** | **4-5 Years** | ** ** | **Beyond** | ** ** |
| ** **                                    | ** ** | **(in thousands)** | ** ** |
| Long-term debt(1)                             |       | $                       | 3,349      |                                      |       | $ | 705 |   |   |   | $ | 1,545 |   |   |   | $ | 176 |   |   | $ | 923 |   |
| Capital lease  obligations                    |       | 628                     |       |                                      | 416        |   |   |   | 196 |   |   |   | 16 |   |   | — |   |
| Purchase and  other commitment obligations(2) |       | 3,977                   |       |                                      | 1,771      |   |   |   | 1,331 |   |   |   | 250 |   |   | 625 |   |
| Interest                                      |       | 852                     |       |                                      | 240        |   |   |   | 177 |   |   |   | 150 |   |   | 285 |   |
| Operating leases                              |       | 1,095                   |       |                                      | 181        |   |   |   | 639 |   |   |   | 275 |   |   | — |   |
| Total Contractual Cash  Obligations           |       | $                       | 9,901      |                                      |       | $ | 3,313 |   |   |   | $ | 3,888 |   |   |   | $ | 867 |   |   | $ | 1,833 |   |
|                                               |            |                         |            |                                           |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

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(1)          The total represents theexpected cash payments of our long-term debt, including the current portion ofthe long-term debt, but excluding any fair value adjustments.

(2)          Amountsrepresent purchase obligations, agreements to purchase goods or services,obligations that relate to an intellectual property agreement, and employmentagreements that are enforceable and legally binding on us and that specify allsignificant terms, but excluding any agreements that are cancelable withoutpenalty.

**Related Party Transactions**

Our majority stockholder, Holding Wilson, S.A.,provided assistance for the acquisition of the former Bud Jones, Trend Plastics, Inc.,and T-K Specialty Company, Inc. Fees charged to us by our majoritystockholder for the years ended December 31, 2004, 2003 and 2002 wereapproximately $0, $0, and $43,000, respectively.

Ron-Lyn Enterprises, a company co-owned by Ron Coiro,East Coast Sales Manager of GPI-USA, provided miscellaneous table gameplastic accessories to GPI-SAS, including dealing shoes, money paddlesand discard holders. After December 31, 2004, we will no longer purchaseany products from Ron-Lyn Enterprises. For the fiscal years ended December 31,2004, 2003 and the 111 days ended December 31, 2002, GPI-USA paid Mr. Coiro,through Ron-Lyn Enterprises, approximately $186,000, $113,300 and $12,000,respectively.

We lease our main 34,000 square foot manufacturingfacility located in San Luis Rio Colorado, Mexico from an entity controlled bythe family of Frank Moreno, General Manager of GPI-Mexico. The currentlease was extended in April 2004, for an additional five years at the samemonthly rent amount of approximately $0.35 per square foot, or $12,000. If weelect, at our discretion, to use more or less square footage, our rent will beincreased or decreased accordingly. We also own an approximately 66,000 squarefoot facility used for the manufacture of playing cards, tables, and layoutsproducts that is adjacent to the leased building. (See Part II—Item 8.Financial Statements and Supplementary Data—Notesto Consolidated Financial Statements—Note 14).

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Neither Mr. Coiro norMr. Moreno is a director or executive officer. We require the AuditCommittee of our board of directors to review related party transactionsinvolving our directors and executive officers.

**CriticalAccounting Policies and Estimates**

Our consolidated financialstatements are prepared in conformity with accounting principles generallyaccepted in the United States of America. Certain of our accounting policies,including revenue recognition, accounting for stock-based compensation, thedepreciable lives of our assets, the recoverability of deferred tax assets, theallowance for doubtful accounts receivable, write-downs of obsolete, excess orslowing moving inventories, and the estimated cash flows in assessing therecoverability of long-lived assets, require that we apply significantsubjective judgment in defining the appropriate assumptions for calculatingfinancial estimates. By their nature, these judgments are subject to aninherent degree of uncertainty. Our judgments are based on our historicalexperience, terms of existing contracts, our observance of industry trends,information provided by or gathered from our customers and informationavailable from other outside sources, as appropriate. There can be no assurancethat actual results will not differ from our estimates. The policies andestimates discussed below are considered by management to be those in which ourpolicies, estimates and judgments have a significant impact on issues that areinherently uncertain. To provide a further understanding of the methodology weapply, our significant accounting policies are discussed where appropriate inthis discussion and analysis and in the notes to our consolidated financialstatements.

*Revenue Recognition*

Revenue may be recognized under different methods,depending on the circumstances. In general, we recognize revenue when thefollowing criteria are met: persuasive evidence of an arrangement between ourcustomer and us exists, shipment has occurred or services have been rendered,the sales price is fixed or determinable, and collectibility is reasonablyassured.

Generally, that means we recognize revenue when ourproducts are shipped to our customers and title to the products and risk ofloss are transferred according to the shipping terms, at which time, theproducts are deemed delivered. We typically sell our products with paymentterms of net 30 days or less and generally require a 50% down payment.

We offer a limitedstandard warranty on some of our products, primarily in France. Warrantyreserves are provided under the accrual basis and are based on estimates offuture costs associated with fulfilling the warranty obligation. The estimatesare derived from historical cost experience.

*Property andEquipment*

We have significantcapital invested in our property and equipment, which represents approximately24% of our total assets in 2004 and 30% in 2003. Judgments are made indetermining the estimated useful lives of assets, salvage value to be assignedto the assets and if or when an asset has been impaired. These estimates andthe accuracy thereof affect the amount of depreciation expense recognized inthe financial results and whether we have a gain or a loss on the disposal ofthe asset. We assign lives to our assets based on our standard policy, which isestablished by management as representative of the useful life of each categoryof asset. The carrying value of property and equipment is reviewed wheneverevents and circumstances indicate that the carrying value of an asset may notbe recoverable from the estimated future cash flows expected to result from itsuse and eventual disposition. The factors considered by management inperforming this assessment include: current operating results, trends andprospects, historical data, useful life changes, as well as the effect ofobsolescence, market price changes, demand, competition and other economicfactors. Our estimates have been within our expectations and the life anddepreciation amounts established. However, a change in our estimates may resultin an adjustment to our depreciation 

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expenseor to the gain or loss realized on the disposal of an asset(s), which could havea material adverse effect on our consolidated results of operations.

*Goodwill and OtherIntangible Assets*

We have approximately $3.1 million in goodwill andother intangible assets on our consolidated balance sheet at December 31,2004 and $3.3 million at December 31, 2003, primarily resulting from ouracquisition of other businesses. Effective November 1, 2002, in connectionwith the implementation of Statement of Financial Accounting Standards “SFAS” No. 142,“Goodwill and Other Intangible Assets,” goodwill and trademarks with indefiniteuseful lives are not amortized. We review goodwill and all intangibles withindefinite lives for impairment, annually as of December 31, 2004, andwhenever events or changes in circumstances indicate that the carrying value ofan asset may not be recoverable in accordance with SFAS No. 142. Wecompleted the annual goodwill impairment test, and as a result of this test, noimpairment of goodwill was deemed necessary. Management made its judgment aboutthe fair value of our goodwill with assistance from an independent accountantand reviewed by an appraiser.

Other intangible assets such as patents, non-competeagreements and others with definite lives are amortized using the straight-linemethod, over their economic useful lives, ranging from three to fourteen years.We evaluate these intangible assets with definite lives for potentialimpairment whenever events or changes in circumstances indicate the carryingvalue may not be recoverable.

We would record animpairment loss if the carrying amount of the intangible asset is notrecoverable and the carrying amount exceeds the estimated value. Factors thatwe consider important that could trigger an impairment review or adjustment,that may cause it to not be recoverable include the following:

·       asignificant adverse change in legal factors or in the business climate

·       anadverse action or assessment by a regulator

·       unanticipatedcompetition

·       negativehistorical experience

·       anegative change in the estimate of the useful lives of products

·       technologicalobsolescence potential

·       anegative estimate of the commercial viability of our patents and licenses

·       theloss of key personnel

·       asignificant change in the manner of our use of our acquired assets or thestrategy for our business operations

·       asignificant decrease in the market price of an asset

·       acurrent period operating or cash flow loss, combined with a history ofoperating or cash flow losses or a projection or forecast that demonstratesreduced profitability associated with the use of an asset

·       acurrent belief or expectation that, more likely than not, an asset will be soldor otherwise disposed of significantly before the end of its previouslyestimated useful life

All of these assessments require management judgment.Any changes in the key assumptions about the business and its prospects, orchanges in the market conditions or other external conditions, could result inan impairment charge and such charge could have a material adverse effect onour consolidated results of operations.

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*Deferred Taxes*

We record a valuation allowance to reduce our deferredtax assets to the amount that is more likely than not to be realized. We haveconsidered estimated future taxable income and ongoing tax planning strategiesin assessing the amount needed for the valuation allowance. In assessing theneed for a valuation allowance, we look to the future reversal of existingtaxable temporary differences, taxable income in prior carryback years, thefeasibility of tax planning strategies and estimated future taxable income. Thevaluation allowance can be affected by changes to tax laws, both foreign anddomestic, changes to statutory tax rates and changes to future taxable incomeestimates.

The amount of income taxes we pay is subject toongoing audits by federal, state and foreign tax authorities, which may resultin proposed assessments. Our estimate for the potential outcome for anyuncertain tax issue is highly subjective and judgmental. We believe we haveadequately provided for any reasonably foreseeable outcome related to thesematters. However, our future results may include favorable or unfavorableadjustments to our estimated tax liabilities due to closure of income taxexaminations, new regulatory or judicial pronouncements, or other relevantevents. As a result, our effective tax rate may fluctuate significantly on aquarterly basis.

If actual results differunfavorably from those estimates used, we may not be able to realize all orpart of our net deferred tax assets and additional valuation allowances may berequired. Deferred tax assets and liabilities are determined based on temporarydifferences between the financial reporting and tax bases of assets andliabilities, applying enacted tax rates expected to be in effect for the yearin which the differences are expected to reverse. We periodically assess thelikelihood that we will be able to recover our deferred tax assets and reflectany changes in our estimates in the valuation allowance, with a correspondingadjustment to earnings or other comprehensive loss, as appropriate.

*Bad Debt Reserves*

We recognize an allowancefor doubtful accounts (bad debt reserves) to ensure trade receivables are notoverstated due to uncollectibility. This allowance is maintained for allcustomers, and reviewed on an ongoing basis, based on a variety of factors,including the length of time the receivables are past due, economic conditionsand trends, significant one-time events and historical experience. Variouspercentages are applied to the aged receivables. Additional amounts arerecorded to the allowance based on our awareness of a particular customer’sability to meet its financial obligations. At December 31, 2004 and 2003,we had $296,000 and $382,000, respectively, in our bad debt reserves,representing 7.6% and 10.1%, respectively, of total accounts receivable. Aswith many estimates, management must make judgments about potential actions bythird parties in establishing and evaluating our reserves for bad debts. Ourestimates have been within our expectations and the provisions established. However,a change in the financial condition of specific customers or in overall trendsexperienced may result in future adjustments to our bad debt reserves.

*Inventory*

We evaluate our inventoryfor slow-moving, excess, and obsolete inventory that may not be saleable orrecoverable. Analysis of inventory levels, market conditions and future salesforecasts are some of the methodologies for estimating the inventorywrite-downs. Historical inventory usage activity, industry trends, and scraprates are considered in determining the level of reserves. As with manyestimates, management must make judgments about potential actions by thirdparties, including customer demands in establishing and evaluating ourinventory reserves.

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*Equity CompensationPlans*

We currently account for our stock option plans underAccounting Principles Board (“APB”) Opinion No. 25, “Accounting for StockIssued to Employees,” under which no compensation cost is required to berecognized. However, after June 15, 2005, GPIC will be required to expensethese costs pursuant to the recent Financial Accounting Standards Board (“FASB”)SFAS 123-R.

Under both methods, theBlack-Scholes option-pricing model is used, which requires management to makeassumptions. The most significant assumptions are the expected futurevolatility of our stock price and the expected period of time an optionee willhold an option, which is based on historical data, the underlying option valueestimates, such as the risk-free interest rate, and tax deductions foremployees. If these estimates differ from actual results, the disclosed amountsfor the pro forma net income and earnings for this year and the results foractual results of operations in the future under SFAS 123-R could besignificantly different.

*Earnings (Loss) PerShare or EPS*

Inaccordance with SFAS No. 128, “Earnings per Share,” basic EPS iscalculated by dividing net income (loss) by the weighted-average number ofcommon shares outstanding for the period. Diluted EPS reflects the effect ofpotential common stock, which consists primarily of assumed stock option andwarrant exercises. The weighted-average number of common shares outstandingused in the computation of basic and diluted earnings per share as of December 31is as follows:
| ** **                                                         | ** ** | **2004**  | ** ** | **2003**  | ** ** | **2002**  | ** ** |
|--------------------------------------------------------------------|------------|-----------|------------|-----------|------------|-----------|------------|
| Weighted average  number of common shares outstanding—Basic   |       | 7,607,900 |       | 7,594,900 |       | 5,131,000 |       |
| Potential  dilution form equity grants                             |       | 146,300   |       | 77,354    |       | —    |       |
| Weighted average number  of common shares outstanding—Diluted |       | 7,754,200 |       | 7,672,254 |       | 5,131,000 |       |

 

For the years ended December 31,2004, 2003, and 2002, 270,000, 203,500 and 649,500 shares respectively, wouldhave been included in the calculation of diluted EPS; however the exerciseprice of those options exceeded the average market price.

**RecentlyIssued and Adopted Accounting Guidance**

In November 2004, the FASB issued SFAS No. 151,“Inventory Costs—anamendment of Accounting Research Bulletin (“ARB”) No. 43, Chapter 4.”  The amendment clarifies that abnormal amountsof idle facility expense, freight, handling costs, and wasted materials(spoilage) should be recognized as current-period charges and requires theallocation of fixed production overheads to inventory based on the normalcapacity of the production facilities. The guidance is effective for our fiscalyear beginning on January 1, 2006. We believe that the adoption of thisamendment will not have a material impact to our overall results of operationsor financial position.

In December 2004, theFASB issued SFAS No. 123 “SFAS 123-R”, which replaces SFAS No. 123,“Accounting for Stock-Based Compensation” (“SFAS 123”) and supercedesAccounting Principles Board Opinion No. 25, “Accounting for Stock Issuedto Employees.”  SFAS 123-R requirescompanies to measure compensation costs for share-based payments to employees,including stock options, at fair value and to expense such compensation overthe service period beginning with the first interim or annual period after June 15,2005. The pro forma disclosures previously permitted under SFAS 123 will nolonger be an alternative to financial statement recognition. GPIC is requiredto adopt SFAS 123-R in the third quarter of fiscal 2005. Under SFAS 123-R,companies must determine the appropriate fair value model to be used 

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forvaluing share-based payments, the amortization method for compensation cost andthe transition method to be used at date of adoption. The transition methodsinclude prospective and retroactive adoption options. Management is evaluatingthe requirements of SFAS 123-R. We believe the impact of adopting SFAS 123-Rwill result in additional expense for 2005. This estimate is subject to changebased on a number of factors, including the actual number of stock optionawards granted, number of warrants exercised, changes in assumptions underlyingthe option value estimates, such as the risk-free interest rate, and taxdeductions for employee disqualifying dispositions, if any.

**Forward-LookingInformation Statements and Risk Factors**

Through this Annual Report on Form 10-K, wemake some forward-looking statements, which do not relate to historical orcurrent facts, but are forward-looking statements within the meaning of thePrivate Securities Litigation Reform Act of 1995. These statements relate toanalyses and other information based on forecasts of future results andestimates of amounts not yet determinable that, while considered reasonable byus, are inherently subject to significant business, economic and competitiverisks and uncertainties, many of which are beyond our control and are subjectto change. The statements also relate to our future prospects and anticipateperformance, development and business strategies. These statements areidentified by their use of terms and phrases such as anticipate, believe,could, would, estimate, expect, intend, may, plan, predict, project, pursue,will, continue, feel, or the negative or other variations thereof, and othersimilar terms and phrases, including references to assumptions.

Although we believe that the expectations reflected inany of our forward-looking statements are reasonable, actual results coulddiffer materially from those expressed or implied. Our future financialcondition and results of operations, as well as any forward-looking statements,are subject to change and to inherent known and unknown risks and uncertainties.We do not intend, and undertake no obligation, to update our forward-lookingstatements to reflect future events or circumstances.

We urge you to carefullyreview the following discussion of the specific risks and uncertainties thataffect our business. These include, but are not limited to, the following:

**Demand for our products would be adversely affectedby:**

·        areduction in the growth rate of new and existing casinos and marketsparticularly in Asia;

·        delaysof scheduled openings of newly constructed or planned casinos; and

·        adecline in the public acceptance of gaming.

**Our intellectual property rights are subject to risks,including:**

·        potentialinability to obtain and maintain patents, trademarks and copyrights to protectour newly developed products and technology;

·        competitors’infringement upon our existing trademarks, patents and copyrights;

·        costsin defending our intellectual property rights against unexpected claims;

·        approvalof competitors’ patent applications that may restrict our ability to competeeffectively; and

·        successfulchallenge of the patents underlying our exclusive license regarding our RFID embeddedgaming chips.

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**Our business is vulnerable to changing economicconditions, including:**

·        unfavorablechanges in economic conditions including those that affect the relative healthof the gaming industry;

·        higherthan anticipated manufacturing, selling, administrative, legal and/ordistribution costs;

·        unfavorablechanges in United States or foreign state or federal taxation laws or applicationof such laws that could reduce our profitability;

·        politicalor economic instability in international markets;

·        changesin interest rates causing a reduction of investment income or in the value ofmarket rate sensitive instruments;

·        issuanceof a substantial number of shares of our common stock, or the perception thatthis will occur;

·        fluctuationsin foreign exchange rates, tariffs and other trade barriers;

·        aninability to effectively hedge our foreign currency exposures; and

·        consolidationswithin the casino industry.

**We operate in a highly regulated industry and ourability to sell our products in certain jurisdictions could be adverselyaffected by:**

·        unfavorablepublic referendums or anti-gaming legislation, especially in other countries;

·        unfavorablelegislation affecting or directed at manufacturers or gaming operators, such asreferendums to increase taxes on gaming revenues;

·        adversechanges in or findings of non-compliance with applicable governmental gamingregulations;

·        delaysin approvals from regulatory agencies;

·        alimitation, conditioning, suspension or revocation of any of our gaminglicenses; and

·        unfavorabledeterminations or challenges of suitability by gaming regulatory authoritieswith respect to our officers, directors or key employees.

**Our success in the gaming industry depends in part onour ability to develop innovative products and would be adversely affected by:**

·        adecline in the popularity of our gaming products with players and casinos;

·        alack of success in developing new products, in particular our products withsecurity features;

·        thedevelopment of competing new technologies, making ours obsolete or undesirable;

·        failureof the casino industry to accept RFID technology with respect to gaming chipsand readers; and

·        an increase in thepopularity of competitors’ products.

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**Investors may not be able to exercise control over ourCompany as a result of principal stockholders’ ownership due to:**

·        thecurrent executive officers and directors of our Company beneficially ownapproximately 68.8% of our outstanding common stock as of March 15, 2005. Asa result, the executive officers and directors of our Company can significantlyinfluence the management and affairs of our Company and all matters requiringstockholder approval, including the election of directors and approval ofsignificant corporate transactions;

·        thisconcentration of ownership could have the effect of delaying or preventing achange in control of our Company, even when such change of control is in thebest interests of stockholders; and

·        thisconcentration of ownership also might adversely affect the market price of thecommon stock and the voting and other rights of our Company’s otherstockholders.

**Our outstanding debt obligations subject us to certainadditional risks, including:**

·        increasingour vulnerability to general adverse economic and industry conditions;

·        limitingour ability to obtain additional financing to fund future working capital,capital expenditures, acquisitions and other general corporate requirements;

·        requiringa substantial portion of our cash flows from operations for the payment ofinterest on our indebtedness and reducing our ability to use our cash flows tofund working capital, capital expenditures, acquisitions and general corporaterequirements;

·        limitingour flexibility in planning for, or reacting to, changes in or business and theindustry; and

·        creatinga disadvantage to us compared to competitors with less indebtedness.

**We are subject to risk related to our combination withGPI-SAS, including:**

·        unexpectedfees, charges, taxes or costs that could result from the Combination; and

·        volatilityin our intercompany international operations.

**Our business operations are subject to other risks,including:**

·        theloss or retirement of our key executives of other key employees;

·        thelimited or unique key suppliers for certain raw materials;

·        adversechanges in the creditworthiness of parties with whom we have receivables;

·        thediscovery of facts with respect to legal actions pending against us notpresently known to us or determinations by judges, juries or other finders offact which do not accord with our evaluation of the possible liability oroutcome of existing litigation;

·        increasedcosts due to reliance on third party suppliers and contract manufacturers;

·        casualtytheft or loss of our gaming chips, prior to delivery to casinos;

·        agreementswith casinos in Native American jurisdictions which may subject us to sovereignimmunity risk;

·        naturaldisasters or acts of God that are concentrated in major gambling locations;

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·        actsof war, potential domestic or international terrorist incidents; and

·        anyfailures, difficulties or significant delays in implementing or maintaining ourcomputer information systems could result in material adverse consequences toour business, including disruption of operations, loss of information andunanticipated increases in costs.

In addition to the risksabove, new legislation or regulations requiring stricter corporate governanceand financial reporting standards will lead to an increase in our costs ofcompliance. Beginning in fiscal 2006, Section 404 of the Sarbanes-OxleyAct of 2002 will require us to include an internal control report of managementin our 2006 and post-2005 Annual Reports on Form 10-K. Whilewe intend to fully comply with these new laws and regulations, a failure tocomply may impact market perception of our financial condition and couldmaterially harm our business and operating results.

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

Market risk refers to the potential losses arisingfrom changes in interest rates, foreign currency fluctuations and exchangerates, equity prices and commodity prices including the correlation among thesefactors and their volatility. We are primarily exposed to foreign currencyfluctuations and exchange risk and interest rate risk.

*Foreign Currency Risk*.   Thereare two types of foreign currency exchange risks that we may be subjectto:  transaction and translation gainsand losses. Foreign exchange transaction gains or losses are distinguished fromtranslation gains or losses as follows:  (i) translationadjustments do not involve the movement of cash, they are accounting conversioncalculations of an existing functional currency to a reporting currency and (ii) transactiongains or losses which are based on an actual transaction that requires formalpayment at a future point in time.

We are subject to foreign currency exchange riskrelating to the translation of GPI-SAS’ assets, liabilities, and incomeand expense accounts. The translation adjustment for assets and liabilities isreflected in the other accumulated comprehensive income (loss) caption includedin the stockholders’ equity section on our condensed consolidated balance sheet.GPI-SAS uses the local currency as its functional currency.

The assets and liabilities of GPI-SAS aretranslated into U.S. dollars at the rate of exchange at the end of the period. Theincome and expense accounts are translated using the average rate of exchangeduring the period. GPI-SAS typically incurs gains or losses of specifiedforeign currency transactions and these amounts are occasionally material. Thesegains and losses are reflected in our statementof operations. The U.S. dollar weakened against the Euro from $0.79670at December 31, 2003 to $0.73310 at December 31, 2004. For the twelvemonths ended December 31, 2004, we did not have any forwards, options orother derivative contracts in force.

Although our manufacturing is partially performed inMexico, the functional currency of GPI-Mexico is considered to be theU.S. dollar. GPI-Mexico is funded by our U.S. subsidiary in U.S. dollarsand GPI-Mexico does not have significant financial transactions otherthan the receipt of U.S. dollar funds to pay employees and the payment ofcertain costs to operate its manufacturing plants. Balance sheet accounts ofGPI-Mexico are maintained and reported principally in U.S. dollarhistorical amounts. Therefore, the balance sheet of GPI-Mexico is notsubject to translation adjustment risk.

Because of our significant international operations,we are exposed to currency fluctuations and exchange risk on all loans andcontracts in foreign currencies. We may engage in hedging as it relates to salecontracts between GPI-SAS and other foreign countries, which havecurrencies that are different than the Euro. Although we have not entered intoany hedging agreements during the periods reflected in this report, there is apossibility that we may enter into a hedging agreement, dependent on the worldmoney market conditions and other foreign currency fluctuation considerations. Tominimize the financial impact 

36

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of these items, we attemptto contract a majority of our services in U.S. dollars. We continually monitorthe currency exchange risk associated with all transactions not denominated inthe U.S. dollar.

*Interest Rate Risk*.   Changesin interest rates may result in changes in the fair market value of ourfinancial instruments, interest income and interest expense. As of December 31,2004, we had total interest bearing debt and capital lease obligations ofapproximately $4.0 million. Of this amount, approximately $3.0 million has afixed rate of interest and we believe that these agreements have fair values,which approximate reported amounts.

The remainingapproximately $1.0 million of interest bearing obligations have variableinterest rates which are tied to the (i) U.S.-based prime borrowing rateof interest, and (ii) LIBOR, or a London Interbank Offered Rate, forsix-month dollar deposits, plus 362.5 basis points. To the extent there aresignificant changes to the U.S.-based prime lending rate, which isapproximately 5.25% as of December 31, 2004, and to the extent there aresignificant increases to LIBOR that would exceed a floor of 8%, we would haveincreased interest expense on approximately $1.0 million of debt over thesucceeding eight years. For each 1.0% increase in interest rates, we wouldincur increased interest expense of approximately $10,000 over the nexttwelve-month period.

37

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**Item 8.**                        *Financial Statements and Supplementary Data.*
| Report of Independent  Registered Public Accounting Firm                                                                                                             |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Consolidated  Balance Sheets at December 31, 2004 and 2003                                                                                                      |
| Consolidated  Statements of Operations for the Years Ended December 31, 2004, 2003 and  2002                                                                    |
| Consolidated  Statements of Stockholders’ Equity and Other Comprehensive Income (Loss) for  the    Years Ended  December 31, 2004, 2003 and 2002 |
| Consolidated  Statements of Cash Flows for the Years Ended December 31, 2004, 2003 and  2002                                                                    |
| Notes to Consolidated Financial Statements                                                                                                                           |

 

38

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**GAMING PARTNERSINTERNATIONAL CORPORATION**

**ANDSUBSIDIARIES**

**CONSOLIDATED FINANCIALSTATEMENTS**

39

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**REPORT OFINDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

To the Board of Directors and Stockholders ofGaming Partners International Corporation and SubsidiariesLas Vegas, Nevada

We have audited the accompanying consolidated balancesheets of Gaming Partners International Corporation (formerly known as Paul-SonGaming Corporation) and Subsidiaries (the “Company”) as of December 31,2004 and 2003, and the related consolidated statements of operations,stockholders’ equity and other comprehensive income (loss), and of cash flowsfor each of the three years in the period ended December 31, 2004. Thesefinancial statements are the responsibility of the Company’s management. Ourresponsibility is to express an opinion on these financial statements based onour audits.

We conducted our audits in accordance with thestandards of the Public Company Accounting Oversight Board (United States). Thosestandards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement. The Company is not required to have, nor were we engaged toperform, an audit of its internal control over financial reporting. Our auditincluded consideration of internal control over financial reporting as a basisfor designing audit procedures that are appropriate in the circumstances butnot for the purpose of expressing an opinion on the effectiveness of theCompany’s internal control over financial reporting. Accordingly, we express nosuch opinion. An audit also includes examining, on a test basis, evidencesupporting the amounts and disclosures in the financial statements, assessingthe accounting principles used and significant estimates made by management, aswell as evaluating the overall financial statement presentation. We believethat our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statementspresent fairly, in all material respects, the financial position of GamingPartners International Corporation and Subsidiaries as of December 31,2004 and 2003, and the results of their operations and their cash flows foreach of the three years in the period ended December 31, 2004, inconformity with accounting principles generally accepted in the United Statesof America.

As discussed in Note 1 tothe consolidated financial statements, in 2002, the Company changed its methodof accounting for goodwill and other intangible assets to conform to Statementof Financial Accounting Standards No. 142, “Goodwill and Other IntangibleAssets”.

DELOITTEAND TOUCHE LLP

Las Vegas, NevadaMarch 31, 2005

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**GAMINGPARTNERS INTERNATIONAL CORPORATION AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETSDecember 31,**(dollars in thousands, except share amounts)
| ** **                                                                                                                 | ** ** | **2004**   | ** ** | **2003**   | ** ** |
|----------------------------------------------------------------------------------------------------------------------------|------------|------------|------------|------------|------------|
| *ASSETS*                                                                                                                   |       |       |       |       |       |
| Current Assets:                                                                                                            |       |       |       |       |       |
| Cash and cash equivalents                                                                                                  |       | $          | 8,012      |       | $          | 4,186 |   |
| Marketable securities                                                                                                      |       | 4,971      |       | 2,580      |       |
| Accounts receivables, less allowance for doubtful  accounts of $296 and $382, respectively                            |       | 3,591      |       | 3,417      |       |
| Inventories                                                                                                                |       | 7,358      |       | 5,382      |       |
| Prepaid expenses                                                                                                           |       | 488        |       | 490        |       |
| Deferred income tax asset                                                                                                  |       | 1,032      |       | 24         |       |
| Other current assets                                                                                                       |       | 738        |       | 467        |       |
| **Total current assets**                                                                                                   |       | 26,190     |       | 16,546     |       |
| Property and  equipment, net                                                                                               |       | 9,469      |       | 8,658      |       |
| Goodwill, net                                                                                                              |       | 1,569      |       | 1,374      |       |
| Other intangibles,  net                                                                                                    |       | 1,580      |       | 1,897      |       |
| Other assets, net                                                                                                          |       | 417        |       | 121        |       |
| **Total Assets**                                                                                                           |       | $          | 39,225     |       | $          | 28,596 |   |
| *LIABILITIES  AND STOCKHOLDERS’ EQUITY*                                                                               | ** ** | ** ** | ** ** | ** ** | ** ** |
| Current Liabilities:                                                                                                       | ** ** | ** ** | ** ** | ** ** | ** ** |
| Current maturities of long-term debt                                                                                       |       | $          | 1,121      |       | $          | 2,609 |   |
| Accounts payable                                                                                                           |       | 4,263      |       | 2,135      |       |
| Accrued expenses                                                                                                           |       | 2,705      |       | 2,103      |       |
| Customer deposits                                                                                                          |       | 3,532      |       | 1,601      |       |
| Income taxes payable                                                                                                       |       | 1,831      |       | 297        |       |
| Other current liabilities                                                                                                  |       | 508        |       | 474        |       |
| **Total current liabilities**                                                                                              |       | 13,960     |       | 9,219      |       |
| Long-term debt, less current maturities                                                                                    |       | 2,856      |       | 1,563      |       |
| Deferred income tax liability                                                                                              |       | 789        |       | —     |       |
| **Total liabilities**                                                                                                      |       | 17,605     |       | 10,782     |       |
| Commitments and  Contingencies (Note 10)                                                                                   | ** ** | ** ** | ** ** | ** ** | ** ** |
| 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, 7,729,400 and 7,594,900, respectively, issued and outstanding |       | 77         |       | 76         |       |
| Additional paid-in capital                                                                                                 |       | 14,901     |       | 14,253     |       |
| Treasury stock, at cost, 8,061 shares                                                                                      |       | (196       | )          | (196       | )          |
| Retained earnings                                                                                                          |       | 5,225      |       | 2,611      |       |
| Accumulated other comprehensive income                                                                                     |       | 1,613      |       | 1,070      |       |
| **Total stockholders’ equity**                                                                                        |       | 21,620     |       | 17,814     |       |
| **Total  Liabilities and Stockholders’ Equity**                                                                       |       | $          | 39,225     |       | $          | 28,596 |   |

 

See Notes to Consolidated Financial Statements.

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**GAMINGPARTNERS INTERNATIONAL CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONSYears ended December 31,**(dollars in thousands, except per share amounts)

| ** **                                           | ** ** | ** ** | ** ** | ** ** | ** ** | **(See Note 2)** | ** ** |
|------------------------------------------------------|------------|------------|------------|------------|------------|----------------------------|------------|
| ** **                                           | ** ** | **2004**   | ** ** | **2003**   | ** ** | **2002**                   | ** ** |
| Revenues                                             |       | $          | 44,585     |       |       | $                          | 36,171     |   |   |   | $ | 21,861 |   |   |
| Cost of revenues                                     |       | 27,249     |       |       | 22,387     |                       |       |   | 14,770 |   |   |
| **Gross profit**                                     |       | 17,336     |       |       | 13,784     |                       |       |   | 7,091 |   |   |
| Product  development                                 |       | 259        |       |       | 154        |                       |       |   | 142 |   |   |
| Marketing and  sales                                 |       | 3,768      |       |       | 3,168      |                       |       |   | 2,424 |   |   |
| Restructuring and  costs associated with Combination |       | —     |       |       | —     |                       |       |   | 622 |   |   |
| General and  administrative                          |       | 9,233      |       |       | 8,720      |                       |       |   | 5,041 |   |   |
| **Operating income (loss)**                          |       | 4,076      |       |       | 1,742      |                       |       |   | (1,138 | ) |   |
| Other income  (expense)                              | ** ** | ** ** | ** ** |       |       |                       |       |   |   |   |   |
| Loss on foreign currency transactions                |       | (155       | )          |       | (292       | )                          |       |   | (529 | ) |   |
| Interest expense                                     |       | (253       | )          |       | (264       | )                          |       |   | (232 | ) |   |
| Other income, net                                    |       | 98         |       |       | 148        |                       |       |   | 128 |   |   |
| **Income (loss) before income taxes**                |       | 3,766      |       |       | 1,334      |                       |       |   | (1,771 | ) |   |
| Income tax expense                                   |       | 1,152      |       |       | 101        |                       |       |   | 383 |   |   |
| **Net income (loss)**                                |       | $          | 2,614      |       |       | $                          | 1,233      |   |   |   | $ | (2,154 | ) |   |
| Earnings (loss)  per share:                          | ** ** | ** ** | ** ** |       |       |                       |       |   |   |   |   |
| Basic                                                |       | $          | 0.34       |       |       | $                          | 0.16       |   |   |   | $ | (0.42 | ) |   |
| Diluted                                              |       | $          | 0.34       |       |       | $                          | 0.16       |   |   |   | $ | (0.42 | ) |   |
| Weighted-average  shares outstanding                 |       |       |       |       |       |                       |       |   |   |   |   |
| Basic                                                |       | 7,608      |       |       | 7,595      |                       |       |   | 5,131 |   |   |
| Diluted                                              |       | 7,754      |       |       | 7,672      |                       |       |   | 5,131 |   |   |

 

See Notes to Consolidated Financial Statements.

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**GAMINGPARTNERS INTERNATIONAL CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND OTHER COMPREHENSIVE INCOME(LOSS)Years ended December 31, 2004, 2003 and 2002**(dollars in thousands, except share amounts)
| ** **                                                                      | ** ** | **Comprehensive**      | ** ** | **Common Stock** | ** ** | **Additional  Paid-In** | ** **  | **Treasury** | ** ** | **Retained** | ** ** | **Accumulated  Other  Comprehensive** | ** ** | ** **             | ** ** |
|---------------------------------------------------------------------------------|------------|------------------------|------------|-----------------------|------------|-------------------------|-------------|--------------|------------|--------------|------------|---------------------------------------|------------|------------------------|------------|
| ** **                                                                      | ** ** | **Income (Loss)** | ** ** | **Shares**            | ** ** | **Amount**              | ** **  | **Capital**  | ** ** | **Stock**    | ** ** | **Earnings**                          | ** ** | **Income (Loss)** | ** ** | **Total** | ** ** |
| **Balance, January 1, 2002**                                               | ** ** |                   | **$**      | **—**            | ** ** |                    | **225,184** | ** **   | **$**      | **7,683**    | ** ** |                                  | **$**      | **—**             | ** ** |   |   | **$** | **—** | ** ** |   |   | **$** | **3,532** | ** ** |   |   | **$** | **(1,011** | **)** |   | **$** | **10,204** | ** ** |
| Net loss                                                                        |       |                   | (2,154     | )                     |       | —                  |        | —       |       |         | —     |                                  |       |                   | —     |   |   |   | (2,154 | ) |   |   | — |   |   | (2,154 | ) |
| Issuance of Paul-Son stock to B&G                                           |       |                   | —     |                  |       | 3,828,452               |        | (7,642       | )          |         | 7,642      |                                  |       |                   | —     |   |   |   | — |   |   |   | — |   |   | — |   |
| Paul-Son stock outstanding prior to the Combination  at September 12, 2002 |       |                   | —     |                  |       | 3,541,264               |        | 35           |       |         | 6,611      |                                  |       |                   | (196       | ) |   |   | — |   |   |   | — |   |   | 6,450 |   |
| Unrealized gain on securities, net of $4 tax                                    |       |                   | 8          |                  |       | —                  |        | —       |       |         | —     |                                  |       |                   | —     |   |   |   | — |   |   |   | 8 |   |   | 8 |   |
| Foreign currency translation adjustment                                         |       |                   | 970        |                  |       | —                  |        | —       |       |         | —     |                                  |       |                   | —     |   |   |   | — |   |   |   | 970 |   |   | 970 |   |
| Total Comprehensive Loss                                                        |       |                   | $          | (1,176                | )          |                    | —      |         | —     |         |       | —                                |       |                   |       | — |   |   |   | — |   |   |   | — |   |   | — |   |
| **Balance, December 31, 2002**                                             | ** ** |                   | ** ** | ** **            |       | **7,594,900**           | ** **  | **76**       | ** ** |         | **14,253** | ** **                            |       |                   | **(196**   | **)** |   |   | **1,378** | ** ** |   |   | **(33** | **)** |   | **15,478** | ** ** |
| Net income                                                                      |       |                   | $          | 1,233                 |       |                    | —      |         | —     |         |       | —                                |       |                   |       | — |   |   |   | 1,233 |   |   |   | — |   |   | 1,233 |   |
| Unrealized loss on securities, net of $1 tax                                    |       |                   | (34        | )                     |       | —                  |        | —       |       |         | —     |                                  |       |                   | —     |   |   |   | — |   |   |   | (34 | ) |   | (34 | ) |
| Foreign currency translation adjustment                                         |       |                   | 1,137      |                  |       | —                  |        | —       |       |         | —     |                                  |       |                   | —     |   |   |   | — |   |   |   | 1,137 |   |   | 1,137 |   |
| Total Comprehensive Income                                                      |       |                   | $          | 2,336                 |       |                    | —      |         | —     |         |       | —                                |       |                   |       | — |   |   |   | — |   |   |   | — |   |   | — |   |
| **Balance, December 31, 2003**                                             | ** ** |                   | ** ** | ** **            |       | **7,594,900**           | ** **  | **76**       | ** ** |         | **14,253** | ** **                            |       |                   | **(196**   | **)** |   |   | **2,611** | ** ** |   |   | **1,070** | ** ** |   | **17,814** | ** ** |
| Net income                                                                      |       |                   | 2,614      |                  |       | —                  |        | —       |       |         | —     |                                  |       |                   | —     |   |   |   | 2,614 |   |   |   | — |   |   | 2,614 |   |
| Unrealized loss on securities, net of $1 tax                                    |       |                   | (1         | )                     |       | —                  |        | —       |       |         | —     |                                  |       |                   | —     |   |   |   | — |   |   |   | (1 | ) |   | (1 | ) |
| Common stock options and warrants exercised                                     |       |                   | —     |                  |       | 134,500                 |        | 1            |       |         | 648        |                                  |       |                   | —     |   |   |   | — |   |   |   | — |   |   | 649 |   |
| Foreign currency translation adjustment                                         |       |                   | 544        |                  |       | —                  |        | —       |       |         | —     |                                  |       |                   | —     |   |   |   | — |   |   |   | 544 |   |   | 544 |   |
| Total Comprehensive Income                                                      |       |                   | $          | 3,157                 |       |                    |        |         |       |         |       |                                  |       |                   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Balance,  December 31, 2004**                                            | ** ** |                   | ** ** | ** **            |       | **7,729,400**           | ** **  | **$**        | **77**     | ** **   |       | **$**                                 | **14,901** | ** **             |       |   | **$** | **(196** | **)** |   |   | **$** | **5,225** | ** ** |   |   | **$** | **1,613** | ** ** |   | **$** | **21,620** | ** ** |

 

See Notes toConsolidated Financial Statements.

43

 

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**GAMINGPARTNERS INTERNATIONAL CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS**Years ended December 31,(dollars in thousands)
| ** **                                                                                           | ** ** | **2004**   | ** ** | **2003**   | ** ** | **2002**   | ** ** |
|------------------------------------------------------------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|
| Cash Flows from Operating  Activities                                                                |       |       |       |       |       |       |       |
| Net income (loss)                                                                                    |       | $          | 2,614      |       | $          | 1,233      |       | $ | (2,154 | ) |
| Adjustments  to reconcile net income (loss) to net cash provided by (used in) operating  activities: | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Depreciation                                                                                         |       | 1,673      |       | 1,796      |       | 1,229      |       |
| Amortization                                                                                         |       | 324        |       | 326        |       | 280        |       |
| Provision for bad debt                                                                               |       | (86        | )          | 48         |       | 92         |       |
| Provision for inventory obsolescence                                                                 |       | (46        | )          | 206        |       | 61         |       |
| Deferred income taxes                                                                                |       | (1,008     | )          | (24        | )          | 406        |       |
| Loss on sale/disposal of property and equipment                                                      |       | 3          |       | —     |       | 61         |       |
| Gain on sale of marketable equity securities                                                         |       | (55        | )          | (98        | )          | (33        | )          |
| Change  in operating assets and liabilities:                                                         |       |       |       |       |       |       |       |
| Accounts receivable                                                                                  |       | (88        | )          | 349        |       | 2,326      |       |
| Income tax refund                                                                                    |       | —     |       | 846        |       | (846       | )          |
| Inventories                                                                                          |       | (1,930     | )          | 116        |       | (187       | )          |
| Other current assets, including prepaids                                                             |       | (269       | )          | (72        | )          | (710       | )          |
| Accounts payable                                                                                     |       | 2,128      |       | (1,541     | )          | (1,688     | )          |
| Customer deposits                                                                                    |       | 1,931      |       | (575       | )          | 355        |       |
| Accrued expenses                                                                                     |       | 602        |       | 157        |       | (427       | )          |
| Income taxes payable                                                                                 |       | 1,534      |       | 184        |       | (1,525     | )          |
| Deferred income taxes liability                                                                      |       | 789        |       | —     |       | —     |       |
| Other current liabilities                                                                            |       | 34         |       | 135        |       | 680        |       |
| Net cash provided by (used in) operating activities                                                  |       | 8,150      |       | 3,086      |       | (2,080     | )          |
| Cash Flows from Investing  Activities                                                                |       |       |       |       |       |       |       |
| Purchase of marketable equity securities                                                             |       | (12,202    | )          | (12,770    | )          | (571       | )          |
| Proceeds from sale of marketable equity securities                                                   |       | 10,258     |       | 11,955     |       | 418        |       |
| Acquisition of property and equipment                                                                |       | (2,879     | )          | (2,214     | )          | (634       | )          |
| Proceeds from sale of property and equipment                                                         |       | —     |       | 450        |       | 45         |       |
| Cash acquired in business combination                                                                |       | —     |       | —     |       | 1,143      |       |
| (Increase) decrease in other assets                                                                  |       | (296       | )          | 25         |       | (107       | )          |
| Net cash provided by (used in) investing activities                                                  |       | (5,119     | )          | (2,554     | )          | 294        |       |
| Cash Flows from Financing  Activities                                                                |       |       |       |       |       |       |       |
| Proceeds from long-term debt                                                                         |       | 599        |       | 446        |       | —     |       |
| Repayment of long-term debt                                                                          |       | (794       | )          | (665       | )          | (348       | )          |
| Proceeds from issuance of common stock, net                                                          |       | 649        |       | —     |       | —     |       |
| Net cash provided by (used in) financing activities                                                  |       | 454        |       | (219       | )          | (348       | )          |
| Effect of exchange rate changes on cash                                                              |       | 341        |       | 1,540      |       | 213        |       |
| Net increase (decrease) in cash and cash equivalents                                                 |       | 3,826      |       | 1,853      |       | (1,921     | )          |
| Cash and cash equivalents, beginning of year                                                         |       | 4,186      |       | 2,333      |       | 4,254      |       |
| Cash and cash equivalents, end of year                                                               |       | $          | 8,012      |       | $          | 4,186      |       | $ | 2,333 |   |
| **Supplemental disclosure of cash  flow information:**                                               |       |       |       |       |       |       |       |
| Cash paid for interest                                                                               |       | $          | 232        |       | $          | 252        |       | $ | 175 |   |
| Cash paid (received from) income tax refunds or paid  for income taxes                               |       | 171        |       | (913       | )          | (1,125     | )          |
| **Non-cash transactions:**                                                                           |       |       |       |       |       |       |       |
| Non-cash currency translation adjustment                                                             |       | $          | 544        |       | $          | 1,137      |       | $ | 970 |   |
| **Business combination:**                                                                            |       |       |       |       |       |       |       |
| Cash acquired                                                                                        |       | $          | —     |       | $          | —     |       | $ | 1,143 |   |
| Current assets, net of cash                                                                          |       | —     |       | —     |       | 4,582      |       |
| Property and equipment, net                                                                          |       | —     |       | —     |       | 7,231      |       |
| Other assets                                                                                         |       | —     |       | —     |       | 535        |       |
| Current liabilities                                                                                  |       | —     |       | —     |       | (2,764     | )          |
| Long-term debt                                                                                       |       | —     |       | —     |       | (1,332     | )          |
| Net equity                                                                                           |       | —     |       | —     |       | (9,395     | )          |
|                                                                                                 |       | $          | —     |       | $          | —     |       | $ | — |   |

 

See Notes to Consolidated Financial Statements.

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**GAMING PARTNERS INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**Note 1.**   Nature of Businessand Significant Accounting Policies

***Organization and Nature of Business***

Effective September 1, 2004, Paul-SonGaming Corporation completed its name change to Gaming Partners InternationalCorporation. Gaming Partners International Corporation, a Nevada corporation (“GPIC”)and each of its subsidiaries are sometimes collectively referred to herein asthe “Company,” “we,” “us,” or “our.”  Thename change was approved by a vote of stockholders at the Company’s annualmeeting held on May 26, 2004. The Company’s established brand names suchas Paul-Son, Bourgogne et GrassetÒ,or B&G, Bud JonesÒ, and T-KTMbrands remain unchanged. The Company’s subsidiary, Paul-Son GamingSupplies, Inc. changed its name to Gaming Partners International USA, Inc.,or GPI-USA. The Company’s subsidiary, Etablissements Bourgogne et GrassetS.A. also changed its name to Gaming Partners International SAS, or GPI-SAS.The Company’s subsidiary, Paul-Son Mexicana, S.A. de C.V., changed itsname to GPI Mexicana S.A. de C.V., or GPI-Mexico.

A Combination Agreement was executed on September 12,2002, combining GPIC (formerly known as Paul-Son Gaming Corporation) withGPI-SAS (formerly known as Etablissements Bourgogne et Grasset S.A.). Atthe closing, the businesses of GPIC, GPI-SAS and GPI-SAS’ thenwholly-owned subsidiary, the former Bud Jones Company, Inc., or Bud Jones,were combined, with GPI-SAS and Bud Jones becoming wholly-ownedsubsidiaries of GPIC, or the Combination. The Combination was accounted for asa purchase transaction for financial accounting purposes. Because the formerGPI-SAS stockholders owned a majority of the outstanding GPIC commonstock as a result of the Combination, the Combination was accounted for as areverse acquisition in which GPI-SAS is the purchaser of GPIC. On December 31,2002, Bud Jones merged into GPI-USA, which was a wholly-owned subsidiaryof GPIC and GPI-USA was the surviving entity. Bud Jones was a gamingsupply manufacturing company, which was also headquartered in Las Vegas. Bothformer operations (GPI-USA and Bud Jones) have been consolidated into onefacility at the Company’s headquarters in Las Vegas, Nevada with the new nameof GPI-USA.

Our business activitiesinclude the manufacture and supply of casino table game equipment and supplies,including gaming chips, table layouts, playing cards, dice, wheels, gamingfurniture, and miscellaneous table accessories such as chip trays, drop boxesand dealing shoes, which are used in conjunction with casino table games suchas blackjack, poker, baccarat, craps and roulette.

***Basis of Consolidation and Presentation***

The consolidated financial statements include theaccounts of GPIC and its wholly owned subsidiaries, including GPI-SAS,GPI-USA and GPI-Mexico (See Note 2). The assets andliabilities of our inactive former wholly-owned subsidiary, Authentic Products, Inc.were transferred into GPIC during the second quarter of 2004. All materialintercompany balances and transactions have been eliminated in consolidation. Theconsolidated financial statements have been prepared in accordance withaccounting principles generally accepted in the United States of America.

As a result of this reverse acquisitiontreatment:  (a) our historicalfinancial statements for periods prior to the Combination are no longer thefinancial statements of GPI-USA, as reported before the Combination, andare therefore no longer presented; (b) our historical financial statementsfor the periods 

45

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**GAMING PARTNERS INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**Note 1.**   Nature ofBusiness and Significant Accounting Policies (Continued)

prior to the Combinationare those of GPI-SAS (adjusted to reflect the number of shares GPI-USAissued to GPI-SAS as if they had been outstanding as of the earliest datepresented); (c) based on the closing date of September 12, 2002, theconsolidated financial statements for the fiscal year ended December 31,2002 include 111 days (September 12 to December 31, 2002) ofoperating activity for GPI-USA and its subsidiaries (other than GPI-SASand the former Bud Jones). The financial statements for the fiscal year ended December 31,2002 include the consolidated results of GPI-SAS for the entire periodpresented. The consolidated financial statements for the fiscal years ended December 31,2004 and 2003 include all operating activity for GPIC and its subsidiaries,including GPI-SAS, GPI-USA and the former Bud Jones Company.

A summary of oursignificant accounting policies follows:

*Cash and CashEquivalents*

We consider all highlyliquid investments and repurchase agreements with maturities of three months orless at the date of purchase to be cash and cash equivalents.

*Fair Value ofFinancial Instruments*

The fair value of cash,accounts receivable, and accounts payable approximates the carrying amount ofthese financial instruments due to their short-term nature. The fair value oflong-term debt, which approximates its carrying value, is based on currentrates at which we could borrow funds with similar remaining maturities.

*AccountsReceivables and Customer Deposits*

We perform ongoing credit evaluations of our customersand generally require a fifty percent deposit for manufactured or purchasedproducts at the discretion of management. These customer deposits areclassified as a current liability on the balance sheet.

We also maintain anallowance for doubtful accounts. (See Note 13). We recognize an allowance fordoubtful accounts (bad debt reserves) to ensure trade receivables are notoverstated due to uncollectibility. This allowance is maintained for allcustomers, based on a variety of factors, including the length of time thereceivables are past due, economic conditions and trends, significant one-timeevents and historical experience. Various percentages are applied to the agedreceivables. Additional amounts are recorded to the allowance based on ourawareness of a particular customer’s inability to meet its financialobligations.

*MarketableSecurities*

We account for ourinvestments in marketable securities in accordance with Statement of FinancialAccounting Standards (“SFAS”) No. 115, “Accounting For Certain Investmentsin Debt and Equity Securities” No. 115. Under SFAS No. 115, oursecurities are classified as available-for-sale and, as such, are carried atfair value with unrealized holding gains and losses excluded from earnings andreported within accumulated other comprehensive income (loss). The first-in,first-out method is used to determine the cost of securities disposed of. Marketablesecurities consist of investments in securities offered by French banks,primarily bond portfolios, that are designated by these banks as “risk free orminimum risk instruments.”  Theseinvestments are primarily held with one major financial institution in ourname.

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**GAMING PARTNERS INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**Note 1.**   Nature ofBusiness and Significant Accounting Policies (Continued)

*Inventories*

Inventories are stated atthe lower of cost or market, net of write-downs for slow-moving, excess andobsolete items. Cost is determined using the weighted average method in Franceand the first-in, first-out method in the United States of America. Inventoriesconsist of dice, cards, chips, other gaming equipment and supplies.

*Property andEquipment*

Propertyand equipment are stated at cost, net of depreciation. We include capitalizedlease equipment in our property and equipment for financial statement purposes.Depreciation is computed primarily on the straight-line method for financialreporting purposes over the following estimated useful lives:
| ** **                  | ** ** | **Years** | ** ** |
|-----------------------------|------------|-----------|------------|
| Buildings and  improvements |       | 10-27     |       |
| Furniture and  equipment    |       | 5-10      |       |
| Vehicles                    |       | 4-7       |       |

 

*Goodwill and OtherIntangible Assets*

Effective November 1, 2002, in connection withthe implementation of SFAS No. 142, “Goodwill and Other Intangible Assets,”economic goodwill and trademarks with indefinite useful lives are not amortized.We review goodwill and all intangible assets with indefinite lives forimpairment, annually and whenever events or changes in circumstances indicatethat the carrying value of an asset may not be recoverable in accordance withSFAS No. 142. We completed the annual goodwill impairment test as of December 31,2004, and as a result of this test, no impairment of goodwill was deemednecessary. Management derived the fair value of our goodwill with assistancefrom an independent accountant and reviewed by an appraiser.

Other intangible assetssuch as patents, non-compete agreements and others with definite lives areamortized, using the straight-line method over their original economic usefullives, up to fourteen years. We evaluate these intangible assets with definitelives for potential impairment whenever events or changes in circumstancesindicate the carrying value may not be recoverable.

*Debt*

We include obligationsfrom capitalized leases in our long and short-term debt captions for financialstatement purposes.

*Revenue Recognition*

Substantially all revenue is recognized when productsare shipped to our customers, according to the shipping terms. We typicallysell our products with payment terms of net 30 days or less.

We offer alimited standard warranty on some of our products, primarily in France. Salesreturns and warranty reserves are provided under the accrual basis and arebased on estimates of future costs 

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**GAMING PARTNERS INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**Note 1.**   Nature ofBusiness and Significant AccountingPolicies (Continued)

associatedwith fulfilling the warranty obligation. The estimates are derived fromhistorical cost experience. Sales returns were not material for us for theperiods presented.

*Income Taxes*

We use SFAS No. 109, “Accounting for IncomeTaxes,” for financial accounting and reporting for income taxes. A current taxliability or asset is recognized for the estimated taxes payable or refundableon tax returns for the current year.

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

GPIC and our subsidiariesfile separate income tax returns in our respective jurisdictions. Income taxesare provided for the tax effects of transactions reported in the financialstatements and consist of taxes currently due plus deferred taxes relatedprimarily to differences between the basis of assets and liabilities acquiredfor financial and income tax reporting. The deferred tax assets and liabilitiesrepresent the future tax consequences of those differences, which will eitherbe taxable or deductible when the assets and liabilities are recovered orsettled. Deferred taxes also are recognized for operating losses that areavailable to offset future income taxes.

*Foreign CurrencyTransactions*

The financial statements of GPI-SAS are measuredusing the Euro as the local functional currency. Assets and liabilities of GPI-SASare translated into the U.S. Dollar at exchange rates as of the balance sheet date.Revenues and expenses are translated into the U.S. Dollar at average rates ofexchange in effect during the year. The resulting cumulative translationadjustments have been recorded in accordance with the provisions of SFAS No. 52,“Foreign Currency Translation” and are shown within accumulated othercomprehensive income.

Transaction gains andlosses that arise from exchange rate fluctuations on transactions denominatedin a currency other than the functional currency are included in the results ofoperations as incurred.

*ComprehensiveIncome*

Comprehensive income includes net earnings as well asadditional other comprehensive income. Our other comprehensive income alsoconsists of unrealized gains and losses on available-for-sale securities, recordednet of tax, and cumulative translation adjustments.

Comprehensive incomeconsists of the following:
| ** **                                 | ** ** | **Years Ended December 31,** | ** ** |
|--------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                 | ** ** | **2004**                                    | ** ** | **2003** | ** ** |
| Net income                                 |       | $                                           | 2,614      |   | $ | 1,233 |   |
| Unrealized loss  on securities, net of tax |       | (1                                          | )          | (34 | ) |
| Foreign currency  translation adjustment   |       | 544                                         |       | 1,137 |   |
| **Total Comprehensive Income**             |       | $                                           | 3,157      |   | $ | 2,336 |   |

 

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**GAMING PARTNERS INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**Note 1.**   Nature ofBusiness and Significant Accounting Policies (Continued)

*Estimates*

The preparation offinancial statements in conformity with accounting principles generallyaccepted in the United States of America requires management to make estimatesand assumptions that affect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities at the date of the financialstatements and the reported amounts of revenues and expenses during thereporting period. Estimates and assumptions have been made in determining thedepreciable lives of assets, the recoverability of deferred tax assets, theallowance for doubtful accounts receivable, write-downs of slow moving, excessand obsolete inventories, estimates for the recoverability of long livedassets, litigation, claims and assessments; and/or the recoverability of goodwill.Actual results could differ from those estimates and assumptions.

*Long-Lived Assets*

In accordance with SFAS No. 144, “Accounting forthe Impairment or Disposal of Long-Lived Assets,” we review for impairment oflong-lived assets and certain identifiable intangibles whenever events orchanges in circumstances indicate that the carrying amount of an asset may notbe recoverable. In general, we will recognize an impairment loss when the sumof undiscounted expected future cash flows is less than the carrying amount ofsuch assets. The measurement for such an impairment loss is then based on thefair value of the assets. We had no impairment losses for each of the threeyears in the period ended December 31, 2004.

Assets are grouped andevaluated for impairment at the lowest level for which there are identifiablecash flows, which are largely independent of the cash flows of other groups ofassets. We operate in only one primary marketplace (legalized casinos), it hasonly one identifiable business segment with a centralized business operation,and all cash flows are generated by this one segment and are not disaggregated.(See Note 15 for the presentation of the one business segment bygeographic area.) Long-lived assets are principally real estate and, to alesser extent, production assets in and through which business operations andproducts are manufactured and distributed.

*Earnings (Loss) PerShare or “EPS”*

In accordance with SFAS No. 128, “Earnings perShare,” basic EPS is calculated by dividing net income (loss) by theweighted-average number of common shares outstanding for the period. DilutedEPS reflects the effect of potential common stock, which consists primarily ofassumed stock option and warrant exercises. Per share data is based on thenumber of our common shares as if the GPI-SAS shares had been convertedinto GPIC shares as of the earliest period presented. In order to compute thenumber of shares used in the calculation of basic and diluted income per share,the number of shares was converted into the equivalent GPIC shares and the 2002number of shares included those equivalent shares as well as the outstandingshares of GPIC prior to the Combination. All common shares outstanding for 2004and 2003 were used in the calculation of basic and diluted income per share for2004 and 2003. Potentially dilutive securities are not taken into account whentheir effect would be antidilutive. The weighted-average 

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**GAMING PARTNERS INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**Note 1.**   Nature ofBusiness and Significant Accounting Policies (Continued)

number of commonshares outstanding used in the computation of basic and diluted earnings pershare as of December 31 is as follows:
| ** **                                                         | ** ** | **2004**  | ** ** | **2003**  | ** ** | **2002**  | ** ** |
|--------------------------------------------------------------------|------------|-----------|------------|-----------|------------|-----------|------------|
| Weighted average  number of common shares outstanding—Basic   |       | 7,607,900 |       | 7,594,900 |       | 5,131,000 |       |
| Potential  dilution from equity grants                             |       | 146,300   |       | 77,354    |       | —    |       |
| Weighted average number  of common shares outstanding—Diluted |       | 7,754,200 |       | 7,672,254 |       | 5,131,000 |       |

 

We have outstandingcertain stock options to purchase common stock, which have an exercise pricegreater than the average market price. These antidilutive options have beenexcluded from the computation of diluted net income per share for therespective fiscal years. These outstanding antidilutive options for the yearsended December 31, 2004, 2003 and 2002 were approximately 270,000, 203,500and 649,500, respectively.

*Equity CompensationPlan Information*

Weaccount for our stock option plans under Accounting Principles Board (“APB”)Opinion No. 25, “Accounting for Stock Issued to Employees,” under which nocompensation cost is required to be recognized. Had compensation cost for theseplans been determined consistent with SFAS No. 123, “Accounting for StockBased Compensation,” and SFAS No. 148, “Accounting for Stock-BasedCompensation- Transaction and Disclosure, an Amendment to SFAS No. 123,”our net income (loss) and earnings (loss) per share would have been reduced tothe following pro forma amounts for the fiscal years ended December 31, 2004,2003 and 2002 (dollars in thousands, except per share amounts):
| ** **                     | ** ** | ** **                                                  | ** ** | **2004**   | ** ** | **2003**   | ** ** | **2002**   | ** ** |
|--------------------------------|------------|-------------------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|
| Net income  (loss):            |       | As reported                                                 |       | $          | 2,614      |       | $          | 1,233      |       | $ | (2,154 | ) |
|                           |       | Stock based  compensation  expense under fair value  method |       | (150       | )          | (199       | )          | (87        | )          |
|                           |       | Pro forma                                                   |       | $          | 2,464      |       | $          | 1,034      |       | $ | (2,241 | ) |
| Net earnings (loss) per share: |       | As reported:                                                | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
|                           |       | Basic                                                       |       | $          | 0.34       |       | $          | 0.16       |       | $ | (0.42 | ) |
|                           |       | Diluted                                                     |       | $          | 0.34       |       | $          | 0.16       |       | $ | (0.42 | ) |
|                           |       | Pro forma:                                                  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
|                           |       | Basic                                                       |       | $          | 0.32       |       | $          | 0.14       |       | $ | (0.44 | ) |
|                           |       | Diluted                                                     |       | $          | 0.32       |       | $          | 0.14       |       | $ | (0.44 | ) |

 

The fair value of each option grant is estimated onthe date of grant using the Black-Scholes option-pricing model with thefollowing weighted average assumptions used for grants in the years ended 2004,2003 and for the 111 days from September 12, 2002 through December 2002,respectively:  dividend yield of zeropercent for all periods; expected volatility of 64%, 45%, and 40% for the yearsended 2004 and 

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**GAMING PARTNERS INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**Note 1.**   Nature ofBusiness and Significant AccountingPolicies (Continued)

2003 and for the period ended December 31, 2002,respectively; risk-free interest rates of 3.63%, 3.38% and 3.5%, respectively,and an expected life of 2, 5, and 5 years, respectively, for each of theoptions granted.
| ** **                                          | ** ** | **2004** | ** ** | **2003** | ** ** |
|-----------------------------------------------------|------------|----------|------------|----------|------------|
| The weighted  average fair value of options granted |       |     | $          | 1.67     |       |   |   | $ | 1.12 |   |   |
|                                                     |            |          |            |          |            |  |  |  |  |  |  |

 

*Recently IssuedAccounting Guidance*

In November 2004, the Financial AccountingStandard Board (“FASB”) issued SFAS No. 151, “Inventory Costs - anamendment of Accounting Research Bulletin (“ARB”) No. 43, Chapter 4.” Theamendment clarifies that abnormal amounts of idle facility expense, freight,handling costs, and wasted materials (spoilage) should be recognized ascurrent-period charges and requires the allocation of fixed productionoverheads to inventory based on the normal capacity of the productionfacilities. The guidance is effective for our fiscal year beginning on January 1,2006. We believe that the adoption of this amendment will not have a materialimpact to our overall results of operations or financial position.

In December 2004,the FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment”, thatfocuses primarily on accounting for transactions in which an entity obtainsemployee services in share-based payment transactions. Beginning with ourquarterly period that begins July 1, 2005, we will be required to expensethe fair value of employee stock options and similar awards. As a publiccompany, we are allowed to select from two alternative transition methods, eachhaving different reporting implications. We are currently evaluating theprovisions SFAS No-123-R to determine the impact on our futurefinancial statements.

**Note 2.   BusinessCombinations**

Pursuant to the Combination Agreement in September 2002,the Company acquired 100% of the stock of GPI-SAS (formerly known asB&G) in exchange for (a) shares of GPI-USA (formerly known asPaul-Son) common stock which immediately after the closing equaled 53.45%of the outstanding shares of GPIC’s common stock and (b) warrants toprovide anti-dilution protection to the extent that the stock options and otherrights to acquire GPIC’s common stock outstanding at the closing aresubsequently exercised.

The Combination wasaccounted for as a reverse acquisition under United States of America generallyaccepted accounting principles with GPI-SAS considered the acquiringentity even though GPIC survives and is the legal parent of GPI-SAS. Theconsolidated financial statements for the years ended December 31, 2004and 2003 include the results of GPIC and its post combination subsidiaries. Theconsolidated financial statements for the fiscal year ended December 31,2002 include 111 days (September 12 through December 31, 2002) ofoperating activity for GPI-USA and its subsidiaries (other than GPI-SASand the former Bud Jones).

 

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**GAMING PARTNERS INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**Note 2.   BusinessCombinations (Continued)**

Pro forma unauditedfinancial information for GPI-USA for the year ended December 31,2002 on a consolidated basis, giving effect to the Combination, as if it hadoccurred at the beginning of 2002 is shown below.  The pro forma information presented below isnot necessarily indicative of the results that would have occurred, or thatwill occur in the future.  
| ** **         | ** ** | **2002**                                                       | ** ** |
|--------------------|------------|----------------------------------------------------------------|------------|
| ** **         | ** ** | **(in thousands,   except share amounts)** | ** ** |
| Operating revenue  |       |                                                           | $          | 34,943 |   |   |
| Operating loss     |       |                                                           | (2,683     | ) |   |
| Net loss           |       |                                                           | (4,326     | ) |   |
| Net loss per share |       |                                                           | (0.57      | ) |   |

 

**Note 3.**   Marketable Securities

Marketablesecurities consist of investments in securities offered by French banks,primarily bond portfolios, that are designated by these banks as “risk free orminimum risk instruments.”  As of December 31,marketable securities consisted of the following (in thousands):
| ** **           | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|----------------------|------------|----------|------------|----------|------------|----------|------------|
| Proceeds from  sales |       | $        | 10,258     |     | $          | 11,955   |       | $ | 418 |   |
| Gross realized gains |       | 55       |       | 98       |       | 33       |       |
|                      |            |          |            |          |            |          |            |  |  |  |

 
| ** **                       | ** ** | **December 31, 2004** | ** ** | **December 31, 2003** | ** ** | **December 31, 2002** | ** ** |     |
|----------------------------------|------------|---------------------------------|------------|---------------------------------|------------|---------------------------------|------------|----------|
| ** **                       | ** ** | **Cost**                        | ** ** | **Gross  Unrealized  Gain**     | ** ** | **Fair  Value**                 | ** ** | **Cost** | ** ** | **Gross  Unrealized  Gains** | ** ** | **Fair  Value** | ** ** | **Cost** | ** ** | **Gross  Unrealized  Gains** | ** ** | **Fair  Value** | ** ** |   |
| Available for  sale mutual funds |       | $                               | 4,970      |                            |       | $                               | 1          |     |   | $ | 4,971 |   | $ | 2,579 |   |   | $ | 1 |   |   | $ | 2,580 |   | $ | 1,277 |   |   | $ | 52 |   |   | $ | 1,329 |   |
|                                  |            |                                 |            |                                 |            |                                 |            |          |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

**Note 4.**   Inventories

Inventoriesconsist of the following at December 31 (in thousands):
| ** **      | ** ** | **2004** | ** ** | **2003** | ** ** |
|-----------------|------------|----------|------------|----------|------------|
| Raw materials   |       | $        | 4,503      |     | $          | 3,025 |   |
| Work in process |       | 1,449    |       | 1,144    |       |
| Finished goods  |       | 1,406    |       | 1,213    |       |
| Total           |       | $        | 7,358      |     | $          | 5,382 |   |

 

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**GAMING PARTNERS INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**Note 5.**   Other Current Assets

Othercurrent assets consist of the following at December 31 (in thousands):
| ** **                  | ** ** | **2004** | ** ** | **2003** | ** ** |
|-----------------------------|------------|----------|------------|----------|------------|
| Refundable value  added tax |       | $        | 435        |     | $          | 258 |   |
| Deposit current             |       | 168      |       | 68       |       |
| Other assets                |       | 135      |       | 141      |       |
| Other current assets        |       | $        | 738        |     | $          | 467 |   |

 

**Note 6.**   Property and Equipment

Propertyand equipment consist of the following at December 31 (in thousands):
| ** **                     | ** ** | **2004** | ** ** | **2003** | ** ** |
|--------------------------------|------------|----------|------------|----------|------------|
| Land                           |       | $        | 853        |     | $          | 839 |   |
| Buildings and  improvements    |       | 5,439    |       | 4,499    |       |
| Furniture and  equipment       |       | 12,286   |       | 10,661   |       |
| Vehicles                       |       | 473      |       | 339      |       |
|                           |       | 19,051   |       | 16,338   |       |
| Less accumulated  depreciation |       | (9,582   | )          | (7,680   | )          |
| Property and equipment,  net   |       | $        | 9,469      |     | $          | 8,658 |   |

 

Depreciation expense forthe years ended December 31, 2004, 2003 and 2002 was $1,673,000,$1,796,000 and $1,229,000, respectively.

**Note7.**   Goodwilland Other Intangible Assets (in thousands):
| ** **              | ** ** | **December 31, 2004** | ** ** | **December 31, 2003** | ** ** | ** **                | ** ** |
|-------------------------|------------|---------------------------------|------------|---------------------------------|------------|---------------------------|------------|
| ** **              | ** ** | **Gross  Carrying  Amount**     | ** ** | **Accum.  Amortization**        | ** ** | **Net  Carrying  Amount** | ** ** | **Gross  Carrying  Amount** | ** ** | **Accum.  Amortization** | ** ** | **Net  Carrying  Amount** | ** ** | **Estimated  Useful Life  (Years)** | ** ** |
| Goodwill(1)             |       | $                               | 1,637      |                            |       | $                         | (68        | ) |   | $ | 1,569 |   | $ | 1,435 |   |   | $ | (61 | ) |   | $ | 1,374 |   | Indefinite |   |
| Trademarks              |       | 620                             |       |                            | (37        | )                         |       | 583 |   | 620 |   |   | (37 | ) |   | 583 |   | Indefinite |   |
| Patents                 |       | 1,007                           |       |                            | (530       | )                         |       | 477 |   | 1,007 |   |   | (400 | ) |   | 607 |   | 8 to  14 |   |
| Customer  relationships |       | 432                             |       |                            | (233       | )                         |       | 199 |   | 432 |   |   | (166 | ) |   | 266 |   | 7 |   |
| Non-compete  agreements |       | 730                             |       |                            | (409       | )                         |       | 321 |   | 730 |   |   | (289 | ) |   | 441 |   | 5 to  6 |   |
| Total                   |       | $                               | 4,426      |                            |       | $                         | (1,277     | ) |   | $ | 3,149 |   | $ | 4,224 |   |   | $ | (953 | ) |   | $ | 3,271 |   |   |   |

----

(1)          The amount of goodwillrelated to GPI-SAS for 2004 above, included the net effect of foreigncurrency exchange of $195,000.

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**GAMING PARTNERS INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**Note 7.**   Goodwill andOther Intangible Assets (in thousands): (Continued)

Amortization expense forthe years ended December 31, 2004, 2003 and 2002 was $324,000, $326,000and $280,000, respectively (in thousands): 
| **Estimated Amortization Expense for the  years ending December 31,** | ** ** | ** ** | ** ** |
|----------------------------------------------------------------------------------------------------------|------------|------------|------------|
| **(in thousands)**                                                                                  | ** ** | ** ** | ** ** |
| 2005                                                                                                     |       | $          | 287        |   |
| 2006                                                                                                     |       | 263        |       |
| 2007                                                                                                     |       | 260        |       |
| 2008                                                                                                     |       | 45         |       |
| Thereafter                                                                                               |       | —     |       |
| Total                                                                                                    |       | $          | 855        |   |

 

**Note 8.**   Accrued Expenses

Accruedexpenses consist of the following at December 31 (in thousands):
| ** **                 | ** ** | **2004** | ** ** | **2003** | ** ** |
|----------------------------|------------|----------|------------|----------|------------|
| Wages and related  costs   |       | $        | 752        |     | $          | 821 |   |
| Accrued vacation           |       | 1,263    |       | 547      |       |
| Accrued interest           |       | 15       |       | 15       |       |
| Accrued sales  taxes       |       | 160      |       | 215      |       |
| Other accrued expenses     |       | 370      |       | 264      |       |
| Accrued sales  commissions |       | 145      |       | 241      |       |
| Accrued expenses           |       | $        | 2,705      |     | $          | 2,103 |   |

 

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**GAMING PARTNERS INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**Note 9.**   Long-Term Debt and Pledged Assets

Long-termdebt consists of the following at December 31 (in thousands):
| ** **                                                                                                                                                                                                                                                                                                                                                        | ** ** | **2004** | ** ** | **2003** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Note payable due  to a commercial bank in quarterly installments of $150 including a fixed  interest rate of 5.10% through February 2008. This note is guaranteed by  the majority stockholder                                                                                                                                                               |       | $        | 1,795      |     | $          | 2,124 |   |
| Note payable to bank in monthly installments of  approximately $7 including variable interest (approximately 8.0% at  December 31, 2004 and 2003) commencing April 1, 2002 with a  maturity date of March 1, 2012 and an approximate $872 balloon payment.  The note is secured by a first deed of trust on our headquarters in Las  Vegas, Nevada |       | 969      |       | 979      |       |
| Capital lease obligation payable for equipment,  fixed interest rate of 7.77% payable in monthly installments of approximately  $8 through December 7, 2005                                                                                                                                                                                                  |       | 95       |       | 187      |       |
| Capital lease obligation payable for equipment,  fixed interest rate of 8.309% payable in monthly installments of  approximately $11 through March 4, 2006                                                                                                                                                                                                   |       | 177      |       | 294      |       |
| Other capital lease obligations with varying fixed  rates and maturities                                                                                                                                                                                                                                                                                          |       | 356      |       | 340      |       |
| Note payable to commercial bank, at a fixed rate of  3.6%, payable in monthly installments of approximately $6 through  May 2011, collateralized by office and production buildings in France                                                                                                                                                                |       | 441      |       | —   |       |
| Various notes payable to commercial banks, with  fixed interest rates from 3.5% to 5.4% with principal and interest payments  due monthly from through 2006                                                                                                                                                                                                       |       | 144      |       | 248      |       |
| Principal balance as of December 31                                                                                                                                                                                                                                                                                                                          |       | 3,977    |       | 4,172    |       |
| Less current portion                                                                                                                                                                                                                                                                                                                                              |       | (1,121   | )          | (2,609   | )          |
| Long-term debt as  of December 31                                                                                                                                                                                                                                                                                                                            |       | $        | 2,856      |     | $          | 1,563 |   |

 

GPI-USA entered into a $995,000 loan transaction(“Loan”) with Jackson Federal Bank, a federal savings bank (“Jackson”), on March 5,2002. The interest rate equals the greater of 8% per annum (“Floor Rate”) or362.5 basis points over the average of the London Interbank Offered Rates forsix month dollar deposit in the London market based on quotations of majorbanks (“LIBOR”). The interest rate shall not be less than the Floor Rate normore than 12% per annum, nor shall the interest rate increase or decrease bymore than two percentage points per annum during any twelve month period orone-half percentage point per annum during any three month period. The maturitydate is March 1, 2012. The Loan is payable in arrears in equal monthlyinstallments of principal and interest of approximately $7,300 (based upon athirty year amortization schedule) beginning April 1, 2002 and continuingon the first day of each month through and including March 1, 2012, atwhich time the entire remaining principal balance of $874,000 will be due andpayable. The Loan is secured by a Deed of Trust, Security Agreement, Assignmentof Rents and Fixture Filing (“Deed of Trust”) encumbering the Company’s LasVegas, Nevada headquarters. We executed a Guaranty in favor of Jackson by whichwe guaranteed the obligations of GPI-USA under the Loan and Deed of Trustand the related loan documents executed in connection with the Loan. The Loan 

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**GAMING PARTNERS INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**Note 9.**   Long-Term Debtand Pledged Assets (Continued)

may now be prepaid in partor in whole at any time without a prepayment premium. The Deed of Trustrestricts GPI-USA from encumbering or transferring (1) the Company’sLas Vegas, Nevada headquarters; and (2) ownership interests in GPI-USA.Further, the Deed of Trust also grants to Jackson a security interest in GPI-USA’spersonal property, including, but not limited to, machinery, furniture,fixtures, licenses and income.

In February 2001, GPI-SAS borrowed approximately$2.2 million from an unaffiliated party. Principal and interest paymentsare due quarterly in the original approximate amount of $116,000 until February 2008,varying with the fluctuation in the Euro. Interest accrues at the fixed rate of5.1% per annum. The loan is guaranteed by our majority stockholder, HoldingWilson, S.A. Under the terms of the GPI-SAS loan agreement, GPI-SASmust comply with certain financial covenants that are calculated annually basedon the financial statements of GPI-SAS. Specifically, GPI-SAS’sratio of total loans and similar debt (inclusive of capital lease obligations)to operating cash flow (defined under French GAAP as operating income beforedepreciation and provisions) must not exceed 1.7, and the ratio of total loansand similar debt (inclusive of capital lease obligations) to stockholders’equity must not exceed 0.5. At December 31, 2003 and March 31, 2004,GPI-SAS’s ratios of total loan and similar debt (inclusive of capital leaseobligations) to operating cash flow exceeded the required limits. However GPI-SAShas met the total loan and similar debt (inclusive of capital leaseobligations) to operating cash flow ratio as of June 30, 2004. GPI-SAS’sactual ratio of total loans and similar debt (inclusive of capital leaseobligations) to operating cash flow and ratio of total loans and similardebt (inclusive of capital lease obligations) to stockholders’ equity were 0.49and 0.14, respectively, as of December 31, 2004. We reclassified this debtfrom current maturities of long-term debt to long-term debt as of June 30,2004 and it remains classified as long-term debt as of December 31, 2004.

On January 9, 2004, GPI-SAS entered into a350,000 Euro (approximately $447,000 U.S. at the January 9, 2004exchange rate) loan transaction, with Banque Nationale de Paris (B.N.P), aFrench bank for the purposes of building expansion. The other principal termsof this loan are as follows:

·       *Interest Rate*. 3.6% fixed.

·       *Maturity Date*. The maturity date is January 2010.

·       *Security.*The loan is secured by amortgage on the building premises.

·       *Monthly Payment:*  4,720 Euros; no balloon payment.

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**GAMING PARTNERS INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**Note 9.**   Long-Term Debtand Pledged Assets (Continued)

Estimated annual principalmaturities of long-term debt and future minimum payments under capital leaseobligations at December 31, 2004 are as follows (in thousands):
| ** ** | ** ** | **Capital Leases** | ** ** | **Long-Term Debt** | ** ** |
|------------|------------|-------------------------|------------|-------------------------|------------|
| 2005       |       |                    | $          | 417                     |       |   |   | $ | 704 |   |   |
| 2006       |       |                    | 211        |                    |       |   | 658 |   |   |
| 2007       |       |                    | —     |                    |       |   | 656 |   |   |
| 2008       |       |                    | —     |                    |       |   | 231 |   |   |
| 2009       |       |                    | —     |                    |       |   | 86 |   |   |
| Thereafter |       |                    | —     |                    |       |   | 1,014 |   |   |
| Total      |       |                    | $          | 628                     |       |   |   | $ | 3,349 |   |   |

 

**Note 10.   Commitmentsand Contingencies**

*Operating LeaseObligations*

Thefollowing is a schedule by years of future minimum lease payments underoperating leases as of December 31, 2004 (in thousands):
| 2005                           |   | $   | 239    |   |
|--------------------------------|--------|-----|--------|--------|
| 2006                           |   | 199 |   |
| 2007                           |   | 201 |   |
| 2008                           |   | 204 |   |
| 2009                           |   | 71  |   |
| Thereafter                     |   | 0   |   |
| Future minimum lease  payments |   | $   | 914    |   |

 

Rent expense totaled$285,000, $319,000 and $610,000 for the years ended December 31, 2004,2003 and 2002, respectively.

***Legal Proceedings***

*Tesh Sewnarain and Ghanshamani Sewnarain,Plaintiffs v. Trump Plaza Hotel & Casino, Trump Plaza Associates,Trump Hotels & Casino Resorts, Inc., Gasser Chair Co., Inc.,Infanti International, Inc., Infanti Chair Manufacturing Corp. andPaul-Son Dice & Card Company, Inc., Defendants, Supreme Court ofthe State of New York, County of New York, Index No. 107705-03.*On or about January 15, 2004, Tesh Sewnarain and Ghanshamani Sewnarainfiled a Complaint in the above-mentioned Court against Trump Plaza Hotel andCasino, its holding and parent companies, two chair manufacturers and Paul-SonDice & Card Company, Inc., claiming that on February 23,2002, plaintiff Tesh Sewnarain, fell from a slot stool upon which he was seatedand suffered personal injury as a result. Plaintiffs claim damages of $2.5million, based on alleged negligence, product liability, product defect andloss of consortium. The Second Amended Complaint was filed by plaintiffs on orabout September 1, 2004, and the Second Amended Complaint, Summons andOrder to Show Cause returnable October 22, 2004 was served on GPIC on or 

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**GAMING PARTNERS INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**Note 10.**   Commitments andContingencies (Continued)

about September 20,2004. Our Answer to the Second Amended Complaint was served on November 24,2004 with the appropriate affirmative defenses, cross claims and demands. On November 21,2004, Trump Plaza Associates filed for Chapter 11 bankruptcy protection in theUnited States Bankruptcy Court for the District of New Jersey and as a resultthe instant matter is stayed.

*Valora Smith, Plaintiff vs. Park PlaceEntertainment Corp, ABC Corporation, (1-100); Bally’s Park Place, Inc.Def Corporation, Bally’s Skyscraper Inc. d/b/a/ Claridge Casino Hotel, et al,j/s/a, Defendants and Bally’s Skyscraper, Inc. d/b/a/ Claridge CasinoHotel, Defendant/Third Party Plaintiff vs. Paul-Son Casino Supplies and GasserChair Company, and John Does 1-10 (fictitious names of chair designers,installers, inspectors, manufacturers), Third Party Defendants, Superior Courtof New Jersey, Law Division, Camden County, Docket No. CAM-L-173-04.*On January 8, 2004, Valora Smith filed a Civil Action Complaint in theabove-mentioned Court against Claridge Casino Hotel, or Claridge, and itsparent company for negligence seeking damages, interest, costs of suit and suchother relief as is just and equitable. Plaintiff Smith alleges having sustainedpersonal injury on or about January 9, 2002, when she fell from a chair ata slot machine, which did not have a back, in Claridge Casino Hotel. As aresult, Plaintiff Smith claims that she is incurring and shall incur severeconsequential and significant and/or permanent personal injuries, medicalbills, various costs and expenses, emotional distress, other damages and/orpain and suffering. On June 14, 2004, Claridge filed its Answer,Crossclaims, Jury Demand and Third-Party Complaint against Paul-Son CasinoSupplies, Gasser Chair Company, and fictitious named defendant chair designers,installers, inspectors and manufacturers seeking contribution andindemnification. The summons and Third-Party Complaint were served upon us on July 20,2004. The matter has been submitted to our insurance carrier for defense.  Our answer to the Third Party Complaint wasfiled on September 23, 2004. On January 26, 2005, Plaintiff filed herFirst Amended Complaint claiming that we violated the New Jersey State ProductLiability Act. Our Answer to the First Amended Complaint will be filed denyingthe allegations made therein. The discovery end date is currently set for June 9,2005.

*Paul-Son Gaming Corporation, Plaintiff, vs. Skipco, Inc.,Toshiba Business Solutions, US Bancorp, and ROE corporations 1 through 10,inclusive, Defendants. Skipco, Inc., Toshiba Business Solutions,Third-Party Plaintiffs, v. Gerry Tieri, Third-Party Defendant, Case No. A453852filed in the District Court for Clark County, Nevada.* Between1998 and 2000, we entered into a series of lease agreements with Skipco, Inc.,or Skipco, pursuant to which we leased certain office equipment, includingcopiers and facsimile machines. Skipco subsequently assigned the leaseagreements to US Bancorp. We believe that Skipco, by and through a formeremployee, fraudulently engaged in a business practice whereby, withoutauthorization, it increased the base usage charges per copy and monthlyguaranteed minimum copies. On July 26, 2002, we filed a Complaint againstSkipco, Toshiba Business Solutions, or Toshiba, the successor to Skipco, and USBancorp, asserting claims for Fraud, Misrepresentation, Reformation ofAgreement, Rescission of Agreement, Declaratory Relief and Breach of theImplied Covenant of Good Faith and Fair Dealing. We seek to recover, amongother things, compensatory damages, punitive damages, attorney’s fees, cost ofsuit, and a declaratory judgment rescinding or reforming the lease agreements. Skipcoand Toshiba answered the Complaint and filed a Third-Party Complaint againstits former employee. Lyon Financial Services, Inc., or Lyon, has filed aComplaint in Intervention, claiming that US Bancorp is only a fictitious nameof Lyon and that Lyon financed the lease agreements that gave rise to this action.Lyon has asserted claims against us for breach of the lease agreements andunjust enrichment. We have agreed to settle the claims involving all parties. Wehave entered into a settlement agreement with Lyon restructuring the leaseagreements at reduced rental payments in the aggregate amount of approximately$5,350 per month for 

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**GAMING PARTNERS INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**Note 10.**   Commitments andContingencies (Continued)

36 months. Skipco andToshiba have agreed in principle to pay us a sum in the aggregate amount of$10,000. Upon execution of the settlement agreement with Skipco and Toshiba,the action in its entirety will be dismissed.

*John Fucile, Plaintiff vs. The Bud Jones Company,Paul-Son Gaming Supplies, Inc., Bourgogne et Grasset and Laurent Gaubout.*This case was brought in the Puerto Rico courts by John Fucile and his company.Fucile claims, in essence, that in 1994 he was appointed as exclusive salesrepresentative of Bud Jones for Puerto Rico and the Caribbean for the sale ofproducts used in the casino industry; that he and, subsequently his company,acted as such until December 31, 2002, when co-defendant Paul-Son GamingSupplies terminated the commercial relationship, in alleged violation of aPuerto Rico statute which protects exclusive sales representatives fromtermination without just cause, and provides a cause of action for damages tothe terminated sales representative. The complaint is seeking monetary damagestotaling $642,000, for alleged economic damages, damages to the business andcommercial reputation of the plaintiffs, alleged mental anguish and unpaidcommissions. The San Juan law firm of O’Neill & Borges has assumed therepresentation of the defendants and is in the process of evaluating the claimsand the relevant documents and information, some of which is still in theprocess of being gathered. An answer to the complaint has been filed and theparties have engaged in the discovery process with initial exchanges ofinterrogatories. A settlement conference was conducted on February 26,2004. Pending analysis of the responses to the discovery in the case, theycannot make a prediction at this time as to the outcome of the case or therange of loss.

We are also engaged indisputes and claims arising in the normal course of business. We believe theultimate outcome of these proceedings and the above proceedings will not have amaterial adverse impact on the consolidated financial position, results ofoperations or cash flows.

***Commitments***

On March 3, 2004, we entered into an agreementwith CIAS, Inc. by which we may manufacture and distribute gamingchips carrying information, with the exception of binary bar coded chips,and appropriate readers for gaming chip tracking, and with the exception ofplayer’s tracking, without the potential for any claims by CIAS forinfringement of any of its related patents against us or third party users ofthe subject products. The duration of the agreement is for the life of thepatents, the last of which expire in 2011.

On October 25, 2001,GPI-SAS entered into an exclusive patent license agreement with Enpat, Inc.(subsequently sold to Shuffle Master Inc. in the fourth quarter of 2004). Theagreement grants GPI-SAS the exclusive rights to manufacture anddistribute a gaming chip tracking system and method, in the USA, which utilizesgaming chips with embedded electronic circuits scanned by antennas in gamingchip placement areas (gaming tables and casino cage). The duration of theexclusive agreement is for the life of the patents, the last of which expire in2015.

**Note 11.**   Income Tax Matters

The Company accounts forincome taxes using the asset and liability approach required by SFAS No. 109.The asset and liability approach requires the recognition of deferred income taxliabilities and assets for the expected future tax consequences of temporarydifferences between the carrying amounts of and the tax basis of the Company’sassets and liabilities. Future income tax benefits attributable to 

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**GAMING PARTNERS INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**Note 11.**   Income Tax Matters (Continued)

temporary differences are recognized to the extentthat realization of such benefits is more likely than not. These future taxbenefits are measured by applying currently enacted tax rates. The followingtable provides an analysis of the Company’s provision for income taxes for theyears ended December 31 (in thousands):
| ** **                  | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|-----------------------------|------------|----------|------------|----------|------------|----------|------------|
| Current:                    |       |     |       |     |       |     |       |
| U.S. Federal                |       | $        | (274       | )        | $          | 420      |       | $ | — |   |
| U.S. State                  |       | 36       |       | 74       |       | —   |       |
| France                      |       | 1,609    |       | 62       |       | (23      | )          |
| Total Current               |       | 1,371    |       | 556      |       | (23      | )          |
| Deferred:                   |       |     |       |     |       |     |       |
| U.S. Federal                |       | 41       |       | (431     | )          | —   |       |
| U.S. State                  |       | 4        |       | (4       | )          | —   |       |
| France                      |       | (264     | )          | (20      | )          | 406      |       |
| Total Deferred              |       | (219     | )          | (455     | )          | 406      |       |
| Provision for  income taxes |       | $        | 1,152      |     | $          | 101      |       | $ | 383 |   |

 

Pre-taxincome (loss) consisted of the following (in thousands):
| ** **     | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|----------------|------------|----------|------------|----------|------------|----------|------------|
| USA            |       | $        | (266       | )        | $          | 266      |       | $ | (457 | ) |
| France         |       | 4,032    |       | 1,068    |       | (1,314   | )          |
| Pre-tax income |       | $        | 3,766      |     | $          | 1,334    |       | $ | (1,771 | ) |

 

Areconciliation of our income tax expense as compared to the tax expensecalculated by applying the statutory federal tax rate to the income beforeincome taxes for the years ended December 31, is as follows:
| ** **                                                     | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|----------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Computed expected  income tax expense                          |       | 34.0     | %          | 34.3     | %          | 34.3     | %          |
| *Adjustments:*                                                 |       |     |       |     |       |     |       |
| Foreign  dividends-IRC Sec 78, 956, net of foreign tax credits |       | 16.6     | %          | 19.6     | %          | —   |       |
| State taxes                                                    |       | 0.7      | %          | 3.3      | %          | —   |       |
| Allowance for  deferred tax asset                              |       | (16.0    | )%         | (26.1    | )%         | (62.8    | )%         |
| French loss on  U.S. note receivable                           |       | (3.1     | )%         | (25.7    | )%         | —   |       |
| Other, net                                                     |       | (1.6     | )%         | 1.9      | %          | 6.9      | %          |
| Income tax expense  (benefit)                                  |       | 30.6     | %          | 7.3      | %          | (21.6    | )%         |

 

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**GAMING PARTNERS INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**Note 11.**   Income Tax Matters (Continued)

Valuation allowances have been established due to ouraccumulated losses in the U.S. as of December 31, 2004, 2003, and 2002. Inaccordance with the provisions of SFAS No. 109, in 2004, we have notreleased our domestic deferred income tax valuation allowance and notrecognized the benefit of the net deferred income tax assets due to theuncertainty of future taxable income. Deferred tax assets are primarilycomprised of net operating loss carryforwards, accrued expenses, and basisdifferences in intangibles. The Company’s net operating loss carryforwardsexpire between the years 2020 and 2023.

Theprimary components of the net deferred income tax assets at December 31were approximately as follows (in thousands):
| ** **                           | ** ** | **2004** | ** ** | **2003** | ** ** |
|--------------------------------------|------------|----------|------------|----------|------------|
| Operating loss  carryforwards        |       | $        | 2,525      |     | $          | 2,386 |   |
| Bad debt reserves                    |       | 209      |       | 349      |       |
| Other                                |       | 281      |       | 233      |       |
| Less valuation allowance             |       | (2,772   | )          | (2,944   | )          |
| Deferred tax asset  (liability), net |       | $        | 243        |     | $          | 24 |   |

 

Deferred income taxes havenot been provided on an excess book basis in the amount of approximately$423,000 in the shares of GPI-SAS, because these basis differences are notexpected to reverse in the foreseeable future and are essentially permanent induration. These basis differences arose primarily through the undistributedbook earnings of GPI-SAS. The basis difference could be reversed through a saleof the subsidiary, the receipt of dividends from the subsidiary, as well asvarious other events.

**Note 12.   StockOption Programs and Warrants**

Prior to the September 12, 2002 Combination, GPI-SASdid not have a non-qualified stock option plan or an employee stock purchaseplan; therefore, historical data for the above item with respect to thenon-qualified stock option plan for GPIC has been omitted because GPI-SASis considered the acquiring entity in the Combination even though GPIC survivesand is the legal parent of GPI-SAS.

We have stock option programs, which consist of the1994 Long-Term Incentive Plan (the “Incentive Plan”) and the 1994 Directors’Stock Option Plan (the “Directors’ Plan”). The Incentive Plan provides for thegrant of stock options to executive officers, key employees, outsideconsultants and employee-directors. On July 29, 1996, the Board ofDirectors amended and stockholders subsequently approved an increase in theaggregate shares issuable under the Incentive Plan to 1,000,000 from 500,000shares. In general, an initial option grant under the Incentive Plan vests overa four year period, with one-fourth of the option grant vesting at the end ofeach year, however, the vesting schedule for individual participants may vary. Theoptions granted under the Incentive Plan expire 10 years after the date ofgrant.

The Directors’ Plan, as amended in September 2002,provides that each non-employee director, upon joining the Board of Directors,will receive an option to purchase 6,000 shares of common stock. In October 2003,the Board of Directors amended and the stockholders subsequently approved anamendment to the Directors’ Plan to: (i) increase the number of shares ofour common stock for which options may be granted to 150,000, an increase of75,000, and (ii) extend the expiration date of the plan to 

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**GAMING PARTNERS INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**Note 12.**   Stock OptionPrograms and Warrants (Continued)

January 31, 2009 fromJanuary 31, 2004, an increase of five years. The initial option grantvests over a 3-year period, with one-third of the option grant vesting atthe end of each year. At the beginning of the fourth year of service on theBoard of Directors, and each year thereafter, each non-employee directorreceives 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 sharesof common stock for serving on the following committees of the Board ofDirectors for at least six months prior to the date of grant: the AuditCommittee; the Compensation Committee; and the Compliance Committee. No optionis exercisable sooner than six months and one day after the date of the grant. Theoptions expire on the tenth anniversary of the date of grant, nine months afterretirement or two years after death. Options covering 12,500 shares weregranted to non-employee directors during the period of January 1, 2004 throughDecember 31, 2004, at a weighted-average exercise price of $8.44 pershare.

Thefollowing is a summary of option activity for the periods from September 11,2002 (date of the Combination) to December 31, 2002 and the years ended December 31,2003 and 2004:  
| ** **                                                   | ** ** | **Options  Outstanding** | ** ** | **Weighted  Average  Exercise Price** | ** ** |
|--------------------------------------------------------------|------------|--------------------------|------------|--------------------------------------------|------------|
| Outstanding at  September 12, 2002                      |       |                     | —     |                                       |       |   | $ | — |   |   |
| Granted                                                      |       |                     | 319,500    |                                       |       |   | 3.41 |   |   |
| Canceled                                                     |       |                     | —     |                                       |       |   | — |   |   |
| Exercised                                                    |       |                     | —     |                                       |       |   | — |   |   |
| Options from Combination (1)                                 |       |                     | 330,000    |                                       |       |   | 6.07 |   |   |
| Outstanding at December 31, 2002                        |       |                     | 649,500    |                                       |       |   | $ | 5.77 |   |   |
| Authorized per stockholders’ meeting  October 2003 |       |                     | —     |                                       |       |   | $ | — |   |   |
| Granted                                                      |       |                     | 12,500     |                                       |       |   | 4.94 |   |   |
| Canceled                                                     |       |                     | (104,000   | )                                          |       |   | 8.40 |   |   |
| Exercised                                                    |       |                     | —     |                                       |       |   | — |   |   |
| Outstanding at December 31, 2003                        |       |                     | 558,000    |                                       |       |   | $ | 4.94 |   |   |
| Granted                                                      |       |                     | 12,500     |                                       |       |   | 8.44 |   |   |
| Canceled                                                     |       |                     | (2,000     | )                                          |       |   | 3.40 |   |   |
| Exercised                                                    |       |                     | (79,500    | )                                          |       |   | 8.18 |   |   |
| Outstanding at  December 31, 2004                       |       |                     | 489,000    |                                       |       |   | $ | 4.92 |   |   |

----

(1)   Representsoptions granted to employee and non-employee directors prior toSeptember 12, 2002, under the Incentive Plan and the Directors’ plan.

(2)   Does notinclude warrants of 55,000 that were exercised during the fourth quarter of2004.

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**GAMING PARTNERS INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**Note 12.**   Stock OptionPrograms and Warrants (Continued)

The following tablesummarizes information concerning currently outstanding and exercisableoptions:
| ** **                         | ** ** | **Options Outstanding** | ** ** | **Options Exercisable** | ** ** |
|------------------------------------|------------|------------------------------|------------|------------------------------|------------|
| ** **                         | ** ** | ** **                   | ** ** | **Average**                  | ** ** | **Weighted** | ** ** | ** ** | ** ** | **Weighted** | ** ** |
| ** **                         | ** ** | ** **                   | ** ** | **Remaining**                | ** ** | **Average** | ** ** | ** ** | ** ** | **Average** | ** ** |
| ** **                         | ** ** | **Number**                   | ** ** | **Contractual**              | ** ** | **Exercise** | ** ** | **Number** | ** ** | **Exercise** | ** ** |
| **Range of  Exercise Prices** | ** ** | ** **                   | ** ** | **Outstanding**              | ** ** | **Life** | ** ** | **Price** | ** ** | **Exercisable** | ** ** | **Price** | ** ** |
| $1.69 to $3.00                     |       |                         | 13,000     |                         |       |   | 6.83 |   |   |   | $ | 2.05 |   |   |   | 13,000 |   |   |   | $ | 2.05 |   |   |
| $3.01 to $6.00                     |       |                         | 340,000    |                         |       |   | 6.15 |   |   |   | 3.46 |   |   |   | 36,000 |   |   |   | 3.99 |   |   |
| $6.01 to $9.00                     |       |                         | 118,500    |                         |       |   | 1.71 |   |   |   | 8.27 |   |   |   | 118,500 |   |   |   | 8.27 |   |   |
| $9.01 to $12.00                    |       |                         | 10,500     |                         |       |   | 3.81 |   |   |   | 10.55 |   |   |   | 10,500 |   |   |   | 10.55 |   |   |
| $12.01 to $20.00                   |       |                         | 7,000      |                         |       |   | 6.13 |   |   |   | 16.01 |   |   |   | 7,000 |   |   |   | 16.01 |   |   |
| Total                              |       |                         | 489,000    |                         |       |   | 4.93 |   |   |   | $ | 4.92 |   |   |   | 185,000 |   |   |   | $ | 5.29 |   |   |
|                                    |            |                              |            |                              |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

As of December 31,2004 and 2003, a maximum of 1,000,000 and 150,000 shares, respectively, ofcommon stock have been reserved for issuance under the Incentive Plan and theDirectors’ Plan. None of the options can be granted at less than the fairmarket value of our common stock on the date of grant.

**Warrants**

Prior to the Combination with GPI-SAS, GPIC had grantedoptions, warrants, or other convertible securities or rights to purchase GPICcommon stock to some of GPI-USA’s employees and directors. As part of theconsideration for the GPI-SAS shares in connection with the Combination, GPICissued to the stockholders of GPI-SAS, antidilutive warrants to purchase thatnumber of shares of GPIC common stock which equals the total number of sharesof GPIC common stock issuable pursuant those options, warrants, or otherconvertible securities or rights to purchase GPIC common stock which wereoutstanding immediately prior to the closing. The former stockholders ofGPI-SAS can only exercise those antidilutive warrants, however, if, when and tothe extent that GPIC issues common stock upon exercise or conversion or any ofthose options, warrants, securities or rights. The antidilutive warrants willexpire 30 days after the date on which GPIC notifies the antidilutive warrantholder that the last of those options, warrants, securities or rights has beenexercised, canceled or terminated. The purpose of the warrants is to provideantidilution protection to the former stockholders of GPI-SAS in the event anyof those options; warrants, securities or rights are exercised after theclosing.

The former GPI-SASstockholders were issued warrants to purchase an aggregate of 459,610 shares,of which 84,610 warrants were immediately exercised at the close of theCombination and 75,000 warrants were exercised in the fourth quarter of 2004.In addition, 149,000 warrants are subject to termination, leaving a balance of151,000 warrants exercisable at December 31, 2004. In the event thatcertain designated stock options are exercised, these warrants may be exercisedat $0.01 per share.

63

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**GAMING PARTNERS INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**Note 13.**   Allowance for Doubtful Accounts

We record, based onperiodic reviews of our accounts receivables, allowances for estimateduncollectible trade accounts receivable. A summary of provisions for estimatedbad debts and the related write-offs related to the allowance for doubtfulaccounts are as follows (in thousands):

**AccountsReceivables, Allowance for Doubtful Accounts:**
| **Years Ended December 31,** | ** ** | ** ** | ** ** | **Beginning  of Year  Balance** | ** ** | **Combination  and Merger** | ** ** | **Provisions** | ** ** | **Write-offs,  Net of  Recoveries** | ** ** | **End  of Year  Balance** | ** ** |
|---------------------------------------------|------------|------------|------------|--------------------------------------|------------|----------------------------------|------------|----------------|------------|------------------------------------------|------------|--------------------------------|------------|
| 2004                                        |       |       | $          | 382                                  |       |                             |       | $              | —     |                                     |       |                           | $          | 37 |   |   |   | $ | (123 | ) |   |   | $ | 296 |   |   |
| 2003                                        |       |       | $          | 390                                  |       |                             |       | $              | —     |                                     |       |                           | $          | 48 |   |   |   | $ | (56 | ) |   |   | $ | 382 |   |   |
| 2002                                        |       |       | $          | 102                                  |       |                             |       | $              | 210        |                                     |       |                           | $          | 92 |   |   |   | $ | (14 | ) |   |   | $ | 390 |   |   |

 

**Note 14.**   Related Party Transactions

GPIC’s majority stockholder, Holding Wilson, S.A.,provided assistance for the acquisition of the former Bud Jones, and the assetsof Trend Plastics, Inc., and T-K Specialty Company, Inc. Feescharged to GPIC by our majority stockholder for the years ended December 31,2004, 2003 and 2002 were approximately $0, $0, and $43,000, respectively.

Ron-Lyn Enterprises, a company co-owned by Ron Coiro,East Coast Sales Manager of GPI-USA, provided miscellaneous table gameplastic accessories to GPI-SAS, including dealing shoes, money paddlesand discard holders. After December 31, 2004, we will no longer purchaseany products from Ron-Lyn Enterprises. For the fiscal years ended December 31,2004, 2003 and the 111 days ended December 31, 2002, GPI-USA paid Mr. Coiro,through Ron-Lyn Enterprises, approximately $186,000, $113,300 and $12,000,respectively.

We lease our main 34,000 square foot manufacturingfacility located in San Luis Rio Colorado, Mexico from an entity controlled bythe family of Frank Moreno, General Manager of GPI-Mexico. The currentlease was extended in April 2004, for an additional five years at the samemonthly rent amount of approximately $0.35 per square foot, or $12,000. If weelect, at our discretion, to use more or less square footage, our rent will beincreased or decreased accordingly. We also own an approximately 66,000 square footfacility used for the manufacture of playing cards, tables, and layoutsproducts that is adjacent to the leased building.

Neither Mr. Coiro norMr. Moreno is a director or executive officer. We require the AuditCommittee of our board of directors to review and approve related partytransactions involving our directors and executive officers.

**Note 15.   BusinessSegments**

SFAS No. 131, “Disclosures About Segments of anEnterprise and Related Information” requires public business enterprises toreport selected reporting information about operating segments in annualfinancial statements and requires public business enterprises to reportselected information about operating segments in interim and annual financialreports. We manufacture and sell casino table game 

64

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**GAMING PARTNERS INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**Note 15.**   BusinessSegments (Continued)

equipment and havedetermined that we operate in one operating segment, which is casino gameequipment products. The segment is comprised of the following product lines:casino chips, table layouts, playing cards, gaming furniture, dice, and tableaccessories and other products. Although the Company derives its revenues froma number of different product lines, the Company does not allocate resourcesbased on the operating results from the individual product lines nor does itmanage each individual product line as a separate business unit.

The following tablepresents certain data by geographic area as of and for the periods ended December 31(in thousands):  
| ** **                                          | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|-----------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Net sales to  external customers:                   |       |     |       |     |       |     |       |
| USA                                                 |       | $        | 23,609     |     | $          | 23,505   |       | $ | 11,082 |   |
| Europe                                              |       | 4,921    |       | 4,146    |       | 7,224    |       |
| Asia                                                |       | 12,513   |       | 6,134    |       | 2,210    |       |
| Other(1)                                            |       | 3,542    |       | 2,386    |       | 1,345    |       |
| Total consolidated net  sales to external customers |       | $        | 44,585     |     | $          | 36,171   |       | $ | 21,861 |   |

----

(1)          IncludesCanada, Africa, Australia, South America and other countries.
| ** **                    | ** ** | **2004** | ** ** | **2003** | ** ** |
|-------------------------------|------------|----------|------------|----------|------------|
| Property and  equipment, net: |       |     |       |     |       |
| United States                 |       | $        | 5,140      |     | $          | 5,284 |   |
| Europe                        |       | 2,960    |       | 1,991    |       |
| Mexico                        |       | 1,369    |       | 1,383    |       |
| Total                         |       | $        | 9,469      |     | $          | 8,658 |   |

 

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**GAMING PARTNERS INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**Note 16.   PensionPlan**

GPI-SASsponsors a noncontributing, defined benefit plan for both its salaried andhourly-rated employees who meet certain age and service requirements. Theplan calls for benefits to be paid to eligible employees at retirement based onyears of participation and compensation rates in the last years prior toretirement. The following amounts relate to GPI-SAS’s defined benefitpension plan (in thousands):  
| ** **                                                                                 | ** ** | **December 31,** | ** ** |
|--------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                 | ** ** | **2004**              | ** ** | **2003** | ** ** | **2002** | ** ** |
| Change in benefit  obligation:                                                             |       |                  |       |   |   |   |   |
| Benefit obligation at beginning of year                                                    |       | $                     | 139        |   | $ | 90 |   | $ | 81 |   |
| Service cost                                                                               |       | 63                    |       | 28 |   | 7 |   |
| Interest cost                                                                              |       | —                |       | — |   | — |   |
| Actuarial gain (loss)                                                                      |       | —                |       | — |   | — |   |
| Benefits paid                                                                              |       | —                |       | — |   | — |   |
| Effect of foreign exchange rate changes                                                    |       | 17                    |       | 21 |   | 2 |   |
| Benefit obligation at end of year                                                          |       | 219                   |       | 139 |   | 90 |   |
| Change in plan  assets:                                                                    |       |                  |       |   |   |   |   |
| Fair value of plan assets at beginning of year                                             |       | 419                   |       | 334 |   | 270 |   |
| Actual return on plan assets                                                               |       | 15                    |       | 13 |   | 13 |   |
| Benefits paid                                                                              |       | —                |       | — |   | — |   |
| Effect of foreign exchange rate changes                                                    |       | 34                    |       | 72 |   | 51 |   |
| Fair value of plan assets at end of year(1)                                                |       | 468                   |       | 419 |   | 334 |   |
| Funded status                                                                              |       | 249                   |       | 280 |   | 244 |   |
| Unrecognized transition asset as of April 1998,  being recognized over 15 years  |       | (146                  | )          | (152 | ) | (140 | ) |
| Prepaid benefit cost                                                                       |       | $                     | 103        |   | $ | 128 |   | $ | 104 |   |

----

(1)   Comprised of equity securities
| Weighted-average  assumptions: |   |   |   |   |   |   |   |
|--------------------------------|--------|--------|--------|--------|--------|--------|--------|
| Discount rate                  |   | 4.5    | %      | 4.5    | %      | 5.0    | %      |
| Expected return on plan assets |   | 3.5    | %      | 3.5    | %      | 4.0    | %      |
| Rate of  compensation increase |   | 2.0    | %      | 1.5    | %      | 1.5    | %      |

 

Netpension expense/(benefit) for the years ended December 31 consists of thefollowing (in thousands): 
| ** **                                      | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|-------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Service cost-benefits  earned during the period |       | $        | 63         |     | $          | 28       |       | $ | 8 |   |
| Interest expense  on benefit obligation         |       | —   |       | —   |       | 4        |       |
| Expected return  on plan assets                 |       | (14      | )          | (13      | )          | (15      | )          |
| Actuarial loss  (gain)                          |       | —   |       | —   |       | (5       | )          |
| Amortization of  unrecognized transition asset  |       | (18      | )          | (15      | )          | (14      | )          |
| Total                                           |       | $        | 31         |     | $          | —   |       | $ | (22 | ) |

 

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**GAMING PARTNERS INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**Note 16.**   Pension Plan(Continued)

In accordance with Mexican Labor Law, we provideseniority premium benefits to our employees under certain circumstances. Thesebenefits consist of a one-time payment equivalent to 12 days wages for eachyear of service (at the employee’s most recent salary, but not to exceed twicethe legal minimum wage), payable to all employees who are involuntarilyterminated, with 15 or more years of service. At December 31, 2004, 2003and 2002, we had seniority premium benefits accrued of approximately $134,000,$134,000 and $40,800, respectively.

We maintain a 401(k) planfor employees in the United States who work over one year and are 21 years ofage or older. During 2003, the former Paul-Son Gaming Supplies, Inc. planand the former Bud Jones Company plan were combined into one plan. Contributionsto the plan are based on the amounts contributed by the eligible employees.Eligible employees may elect to contribute up to the lesser of the IRS limit orfifteen percent of their earnings into the plan. We contribute $.50 for each$1.00 contributed by a participant in the plan up to four percent of theparticipant’s wages. The 401(k) contributions in the United States madeduring the period ending December 31, 2004 under the combined plan were$36,000 and $0 for the GPI-SAS plan. The 401(k) contributions in theUnited States made during the year ended December 31, 2003 under theformer Paul-Son Gaming Supplies, Inc. plan were $19,000 and GPI-SAS’s401(k) contributions for the year ended December 31, 2003 were $0.

**SelectedQuarterly Financial Information (Unaudited)**
| ** **                                  | ** ** | **Year Ended December 31, 2004 **         | ** ** |
|---------------------------------------------|------------|--------------------------------------------------------------------|------------|
| ** **                                  | ** ** | **First**                                                          | ** ** | **Second** | ** ** | **Third** | ** ** | **Fourth** | ** ** | **Total** | ** ** |
| ** **                                  | ** ** | **(in thousands, except per share data)** | ** ** |
| Net revenues                                |       | $                                                                  | 7,326      |   | $ | 14,843 |   | $ | 9,250 |   | $ | 13,166 |   | $ | 44,585 |   |
| Gross profit                                |       | 2,678                                                              |       | 6,648 |   | 3,122 |   | 4,888 |   | 17,336 |   |
| Operating income  (loss)                    |       | (434                                                               | )          | 3,055 |   | (351 | ) | 1,806 |   | 4,076 |   |
| Net income (loss)                           |       | $                                                                  | (470       | ) | $ | 1,940 |   | $ | (111 | ) | $ | 1,255 |   | $ | 2,614 |   |
| Basic net income  (loss) per common share   |       | $                                                                  | (0.06      | ) | $ | 0.26 |   | $ | (0.01 | ) | $ | 0.16 |   | $ | 0.34 |   |
| Diluted net income  (loss) per common share |       | $                                                                  | (0.06      | ) | $ | 0.25 |   | $ | (0.01 | ) | $ | 0.16 |   | $ | 0.34 |   |

 
| ** **                                                  | ** ** | **Year Ended December 31, 2003**               | ** ** |
|-------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|
| ** **                                                  | ** ** | **First**                                                          | ** ** | **Second** | ** ** | **Third** | ** ** | **Fourth** | ** ** | **Total** | ** ** |
| ** **                                                  | ** ** | **(in thousands, except per share data)** | ** ** |
| Net revenues                                                |       | $                                                                  | 7,760      |   | $ | 10,371 |   | $ | 7,128 |   | $ | 10,912 |   | $ | 36,171 |   |
| Gross profit                                                |       | 2,376                                                              |       | 4,469 |   | 2,179 |   | 4,760 |   | 13,784 |   |
| Operating income  (loss)                                    |       | (530                                                               | )          | 1,222 |   | (1,126 | ) | 2,176 |   | 1,742 |   |
| Net income (loss)                                           |       | $                                                                  | (601       | ) | $ | 1,197 |   | $ | (701 | ) | $ | 1,338 |   | $ | 1,233 |   |
| Basic and diluted net  income (loss) per common share  |       | $                                                                  | (0.08      | ) | $ | 0.16 |   | $ | (0.09 | ) | $ | 0.18 |   | $ | 0.16 |   |

 

In the second and fourth quarters of 2003 and 2004,the increases in net revenues were primarily due to the new larger casinoopenings in the United States and in Asia.

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**Item9**.   ***Changesin and Disagreements with Accountants on Accounting and Financial Disclosure******.***

None.

**Item 9A.**   *Controls and Procedures.*

The Company maintains disclosure controls andprocedures that are designed to ensure that information required to be disclosedin our reports under the Securities Exchange Act of 1934 is recorded, processed,summarized and reported within the time period specified in the SEC’s rules andforms and that such information is accumulated and communicated to ourmanagement, including the Chief Executive Officer and the Chief FinancialOfficer.

Company management, including the Chief ExecutiveOfficer and the Chief Financial Officer, has conducted an evaluation of theeffectiveness of disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(c) asof December 31, 2004. Based on that evaluation, the Chief ExecutiveOfficer and the Chief Financial Officer concluded that the disclosure controlsand procedures are effective in ensuring that all material information requiredto be filed in this annual report has been made known to them in a timelyfashion.

Therewere no changes in internal controls over financial reporting during the fourthfiscal quarter of 2004 that have materially affected, or are reasonably likelyto materially affect, the Company’s internal controls over financial reporting.

**Item 9B.**   *Other Information.*

None.

**PART III**

**Item 10.   ***Directors and Executive Officers of theRegistrant.*****

The sections labeled “Nomineesfor Election of Directors,” “Board of Directors and Committees of the Board,” “Compliancewith Section 16(a) of the Securities and Exchange Act of 1934” and “ExecutiveOfficers” of our definitive Proxy Statement to be filed within 120 days afterour fiscal year end of December 31, 2004, are incorporated herein byreference.

We have adopted a Code of Ethics that applies to ourChief Executive Officer, Chief Financial Officer, Corporate Controller andother finance organization employees and a Code of Conduct that applies to allemployees. The form of the Code of Ethics, including the Code of Conduct, ispublicly available on our website at *www.gpigaming.com*.If we make any substantive amendments to the Code of Ethics or grant anywaiver, including any implicit waiver, from a provision of the Code of Ethics toour Chief Executive Officer, Chief Financial Officer or Corporate Controller,we will disclose the nature of such amendment or waiver on that website. OurCorporate Governance charters for the Audit and Nominating and GovernanceCommittees of the Board of Directors can also be found on our website.

**Item 11.**   *Executive Compensation*.

The sections labeled “Compensationof Directors,” “Executive Compensation,” “Employment Contracts andChange-in-Control Arrangements,” “Aggregated Option Exercises in 2004 and OptionValue at December 31, 2004,” “Pension Plan” and “Compensation CommitteeInterlocks and Insider Participation” of our definitive Proxy Statement to befiled within 120 days after our fiscal year end of December 31, 2004, areincorporated herein by reference.

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**Item12.**   *Security Ownership ofCertain Beneficial Owners and Management.*

The sections labeled “Equity Security Ownership ofManagement and Other Beneficial Owners” and “Equity Compensation PlanInformation” of our definitive Proxy Statement to be filed within 120 daysafter our fiscal year end of December 31, 2004, are incorporated herein byreference.

**Item13.**   *Certain Relationships andRelated Transactions.*

The section labeled “CertainRelationships and Related Transactions” of our definitive Proxy Statement to befiled within 120 days after our fiscal year end of December 31, 2004, isincorporated herein by reference.

**Item14.**   *Principal Auditor Fees andServices.*

The sub-section labeled “PrincipalAuditor Fees and Services” of our definitive Proxy Statement to be filed within120 days after our fiscal year end of December 31, 2004, is incorporatedherein by reference.

**PART IV**

**Item15.**   *Exhibits, FinancialStatement Schedules.*

(a)(1)**   *Financial Statements***

Included in Part II of this report:

Consolidated Balance Sheets at December 31, 2004and 2003.

Consolidated Statements of Operations for the YearsEnded December 31, 2004, 2003 and 2002.

Consolidated Statements of Stockholders’ Equity andOther Compre­hensive Income (Loss) for the Years Ended December 31, 2004,2003 and 2002.

Consolidated Statements of Cash Flows for the YearsEnded December 31, 2004, 2003 and 2002.

Notes to Consolidated Financial Statements

(a)(2)**   *Financial StatementSchedules***

All required schedules are omitted because of theabsence of conditions under which they are required or because the requiredinformation is given in the financial statements or notes thereto.

(a)(3) and(c)**   *Exhibits***
| 2.01 |   | Agreement  and Plan of Exchange and Stock Purchase by and between Paul-Son Gaming  Corporation and Etablissements Bourgogne et Grasset S.A., as amended by the  First Amendment thereto, incorporated herein by reference to: Annex A to the  Company’s definitive proxy statement dated August 9, 2002, filed with  the SEC on August 9, 2002 (the “Proxy Statement”). |
|------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.01 |   | Certificate of Amendment and Restatement of Articles  of Incorporation of Paul-Son Gaming Corporation, incorporated herein by reference  to Annex B to the Proxy Statement.                                                                                                                                                                                                                 |
| 3.02 |   | Amended and Restated Bylaws of Paul-Son Gaming  Corporation, incorporated herein by reference to Annex C to the Proxy  Statement.                                                                                                                                                                                                                                                           |
| 4.01 |   | Specimen Common Stock Certificate for the Common  Stock of Paul-Son Gaming Corporation incorporated herein by reference from  our registration statement on Form S-1 (SEC No. 33-74758),  Part II, Item 16, Exhibit 4.01.                                                                                                                                               |

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| 10.01 |   | Paul-Son Gaming Corporation 1994 Directors’ Stock  Option Plan (as amended September 12, 2002), incorporated herein by  reference to: Annex A of our definitive proxy statement dated  October 3, 2003 filed with the SEC on October 3, 2003.*                                                                                                                                                                                                                                                    |
|-------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.02 |   | Paul-Son  Gaming Corporation 1994 Long-Term Incentive Plan (as amended July 29,  1996) incorporated herein by reference from our Annual Report on  Form 10-K for the year ended May 31, 1996, Part IV,  Item 14(c), Exhibit 10.04.*                                                                                                                                                                                                                                                          |
| 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 our registration statement on  Form S-1 (SEC No. 33-74758), Part II, Item 16,  Exhibit 10.05.                                                                                                                                                                                                                           |
| 10.04 |   | Promissory Note secured by Deed of Trust dated  February 22, 2002, in favor of Jackson Federal Bank; Deed of Trust,  Security Agreement, Assignment of Rents and Fixture Filing dated  February 22, 2002; Repayment Guaranty dated February 22, 2002;  Subordination and Attornment Agreement dated February 22, 2002; and  Assignment of Leases and Rents dated February 22, 2002, incorporated by  reference from our Form 8-K dated March 5, 2002, Item 7,  Exhibit 10.01. |
| 10.05 |   | Employment Agreement dated September 12, 2002  between Gerard Charlier and the Company, incorporated by reference to  Exhibit 10.1 to our Quarterly Report on Form 10-Q for the quarter  ended August 31, 2002.*                                                                                                                                                                                                                                                                                       |
| 10.06 |   | Employment Agreement dated September 12, 2002  between Eric Endy and the Company, incorporated by reference to  Exhibit 10.2 to our Quarterly Report on Form 10-Q for the quarter  ended August 31, 2002. Amendment dated March 27, 2003 to Employment  Agreement between Eric Endy and us, incorporated by reference to Exhibit  10.06 to our Annual Report on Form 10-K for the year ended  December 31, 2003.*                                                                            |
| 10.07 |   | Lease Agreement dated March 26, 2003, between  Copropledad Arte Y Diseno, as lessor, and Paul-Son Mexicana, S.A.  de C.V., as lessee, incorporated by reference to Exhibit 10.07 to our  Annual Report on Form 10-K for the year ended December 31, 2003.                                                                                                                                                                                                                                                   |
| 10.08 |   | Loan Agreement dated February 21, 2001, between  Bourgogne et Grasset, as borrower, and BNP Paribes, as lender (English  summary of French language document), incorporated by reference to Exhibit  10.08 to our Annual Report on Form 10-K for the year ended December 31,  2003.                                                                                                                                                                                                                              |
| 10.09 |   | Loan agreement executed January 9, 2004, between Bourgogne  et Grasset, as borrower, and BNP Paribes, S.A., as lender.                                                                                                                                                                                                                                                                                                                                                                                                     |
| 21.01 |   | List of subsidiaries.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 23.01 |   | Consent of Deloitte & Touche LLP                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 31.1  |   | Certification of Chief Executive Officer pursuant to  Rule 13a-14(a) and Rule 15d-14(a) of the  Securities Exchange Act, as amended.                                                                                                                                                                                                                                                                                                                                                                   |
| 31.2  |   | Certification of Chief Financial Officer pursuant to  Rule 13a-14(a) and Rule 15d-14(a) of the  Securities Exchange Act, as amended.                                                                                                                                                                                                                                                                                                                                                                   |
| 32    |   | Certification of Chief Executive Officer and Chief  Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                         |

----

*                    Managementcontracts or compensatory plans or arrangements required to be filed asexhibits to this Form 10-K by Item 601(b)(10)(iii) of RegulationS-K.

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**SIGNATURES**

Pursuantto the requirements of Section 13 or 15(d) of the Securities ExchangeAct of 1934, the registrant has duly caused this report to be signed on itsbehalf by the undersigned thereunto duly authorized. 
|                     |   | GAMING PARTNERS INTERNATIONAL  CORPORATION |
|---------------------|--------|--------------------------------------------|
| March 31, 2005 |   | By:                                        |   | /s/ GéRARD  CHARLIER |
| * *            |   |                                       |   | Gérard Charlier |
|                |   |                                       |   | *President  and Chief Executive Officer* |

 

Pursuantto the requirements of the Securities Exchange Act of 1934, this report hasbeen signed below by the following persons on behalf of the registrant and inthe capacities and on the dates indicated.
| March 31, 2005 |   | By:    |   | /s/ GéRARD  CHARLIER                                                        |
|---------------------|--------|--------|--------|----------------------------------------------------------------------------------|
| * *            |   |   |   | Gérard Charlier                                                             |
|                |   |   |   | *Director, President and Chief Executive Officer  (Principal Executive Officer)* |
| March 31, 2005 |   | By:    |   | /s/ MELODY SULLIVAN YOWELL                                                       |
| * *            |   |   |   | Melody Sullivan Yowell                                                           |
|                |   |   |   | *Chief Financial Officer  (Principal Financial and Accounting Officer)*          |
| March 31, 2005 |   | By:    |   | /s/ ERIC P. ENDY                                                                 |
| * *            |   |   |   | Eric P. Endy                                                                     |
|                |   |   |   | *Director*                                                                       |
| March 31, 2005 |   | By:    |   | /s/ PAUL S. DENNIS                                                               |
| * *            |   |   |   | Paul S. Dennis                                                                   |
|                |   |   |   | *Director*                                                                       |
| March 31, 2005 |   | By:    |   | /s/ ALAIN THIEFFRY                                                               |
| * *            |   |   |   | Alain Thieffry                                                                   |
|                |   |   |   | *Director*                                                                       |
| March 31, 2005 |   | By:    |   | /s/ BENOIT AUCOUTURIER                                                           |
| * *            |   |   |   | Benoit Aucouturier                                                               |
|                |   |   |   | *Director*                                                                       |
| March 31, 2005 |   | By:    |   | /s/ JERRY WEST                                                                   |
| * *            |   |   |   | Jerry West                                                                       |
|                |   |   |   | *Director*                                                                       |
| March 31, 2005 |   | By:    |   | /s/ ELISABETH CARRETTé                                                      |
| * *            |   |   |   | Elisabeth Carretté*Director*                                                |

 

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**EXHIBIT INDEX**
| EXHIBIT NO. | ** ** | **DESCRIPTION**                                                                                                                                                                    |
|-------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.09       |       | Loan agreement executed  January 9, 2004, between Bourgogne et Grasset, as borrower, and BNP Paribes,  S.A., as lender.                                                            |
| 21.01       |       | List of subsidiaries.                                                                                                                                                              |
| 23.01       |       | Consent of Deloitte   & Touche LLP                                                                                                                                        |
| 31.1        |       | Certification of Chief  Executive Officer pursuant to Rule 13a-14(a) and  Rule 15d-14(a) of the Securities Exchange Act, as amended.                           |
| 31.2        |       | Certification of Chief  Financial Officer pursuant to Rule 13a-14(a) and  Rule 15d-14(a) of the Securities Exchange Act, as amended.                           |
| 32          |       | Certification of Chief  Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350,  as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |

 

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