UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: February 28, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from: to
Commission file number: 0-23588
PAUL-SON GAMING CORPORATION
(Exact name of registrant as specified in its charter)
NEVADA 88-0310433
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2121 Industrial Road, Las Vegas, Nevada 89102
(Address of principal executive offices) (Zip Code)
(702) 384-2425
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
3,324,000 shares of Common Stock, $0.01 par value as of February
28, 1997
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
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<CAPTION>
PAUL-SON GAMING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
FEBRUARY 28, 1997 and MAY 31, 1996
ASSETS (Note 3)
FEBRUARY 28, MAY 31,
1997 1996
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,229,720 $ 997,509
Trade receivables, less allowance for doubtful
accounts ($354,477, February 28, 1997; $281,712,
May 31, 1996) 4,144,942 2,601,910
Inventories (Note 2) 5,597,377 5,604,630
Prepaid expenses 105,107 170,903
Other current assets 334,248 296,660
Total current assets 11,411,394 9,671,612
PROPERTY AND EQUIPMENT, net (Note 4) 7,223,341 7,259,423
OTHER ASSETS
Note receivable (Note 5) 150,000 -
Other assets 461,506 470,090
611,506 470,090
$ 19,246,241 $ 17,401,125
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term borrowings (Note 3) $ 150,000 $ -
Current maturities of long-term debt (Note 4) 32,646 85,914
Accounts payable (Note 5) 641,150 661,521
Accrued expenses 378,200 403,627
Customer deposits 1,269,330 865,438
Income tax payable 486,057 54,170
Total current liabilities 2,957,383 2,070,670
LONG-TERM DEBT, net of current maturities
Due to related parties (Note 5) - 15,000
Other (Note 4) 64,942 456,161
64,942 471,161
STOCKHOLDERS' EQUITY
Preferred stock, authorized 10,000,000 shares,
$.01 par value, none issued and outstanding - -
Common stock, authorized 30,000,000 shares,
$.01 par value, issued and outstanding
3,324,000 shares 33,240 33,240
Additional paid-in capital 12,256,698 12,256,698
Retained earnings 3,933,978 2,569,356
16,223,916 14,859,294
$ 19,246,241 $ 17,401,125
</TABLE>
<TABLE>
<CAPTION>
PAUL-SON GAMING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED NINE MONTHS ENDED
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 29,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Revenues $ 6,874,845 $ 5,188,506 $19,224,621 $17,092,263
Cost of revenues
Related party - 341,792 - 788,112
Other 4,821,270 3,486,219 13,048,489 11,382,470
4,821,270 $ 3,828,011 $13,048,489 $12,170,582
Gross profit $ 2,053,575 1,360,495 6,176,132 4,921,681
Selling, general and
administrative expenses 1,539,791 1,496,188 4,417,305 5,028,261
Operating income (loss) $ 513,784 $ (135,693) $ 1,758,827 $ (106,580)
Other income 360,125 12,113 407,209 82,979
Interest expense (Note 5) (1,247) (14,974) (36,659) (50,603)
Income (loss) before income taxes $ 872,662 $ (138,554) $ 2,129,377 $ (74,204)
Income tax (expense)/benefit (302,039) 48,494 (764,755) 25,971
Net income (loss) $ 570,623 $ (90,060) $ 1,364,622 $ (48,233)
Net income per share $ 0.17 $ (0.03) $ 0.41 $ (0.01)
Weighted average common
shares outstanding 3,324,000 3,324,000 3,324,000 3,324,000
</TABLE>
<TABLE>
<CAPTION>
PAUL-SON GAMING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED
FEBRUARY 28, FEBRUARY 29,
1997 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from customers $ 18,041,084 $ 19,047,679
Cash paid to suppliers and employees (16,756,283) (18,422,049)
Interest received 57,056 50,747
Interest paid (36,659) (50,603)
Income tax refund 842 400,000
Income taxes paid (344,700) (6,750)
Net cash provided by operating activities 961,340 1,019,024
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds received from sale of property and equipment 464,161 13,000
Decrease in short-term investments - 1,493,536
Investment in note receivable (note 5) (150,000) -
Purchase of property and equipment (733,803) (2,682,971)
Net cash provided by (used in) investing activities (419,642) (1,176,435)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on due to related party (15,000) (175,000)
Proceeds received from short-term borrowings 150,000
Principal payments on long-term borrowings (444,487) (69,681)
Net cash provided by (used in) financing activities (309,487) (244,681)
Net increase (decrease) in cash and cash equivalents 232,211 (402,092)
CASH AND CASH EQUIVALENTS, beginning 997,509 1,253,987
CASH AND CASH EQUIVALENTS, ending $ 1,229,720 $ 851,895
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
Net Income $ 1,364,622 $ (48,233)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 628,273 507,921
Provision for bad debts 72,000 58,178
(Gain) loss on sale of assets (322,549) 5,407
Change in assets and liabilities:
(Increase) decrease in accounts receivable (1,615,032) 794,247
Decrease in income tax refund claim - 400,000
(Increase) decrease in inventories 7,253 (113,581)
(Increase) decrease in other current assets (37,588) 157,000
(Increase) decrease in other assets 8,584 12,503
(Increase) decrease in prepaid expenses 65,796 (21,109)
Increase (decrease) in account payable and accrued expenses (45,798) (1,856,840)
Increase (decrease) in customer deposits 403,892 1,123,531
Increase (decrease) in income taxes payable 431,887 -
Net cash provided by operating activities $ 961,340 $ 1,019,024
</TABLE>
PAUL-SON GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Paul-Son Gaming Corporation and its subsidiaries ("Paul-Son"
or "Company") is the leading manufacturer and supplier of casino
table game equipment in the United States. The Company's
products include casino chips, table layouts, playing cards,
dice, furniture, table accessories and other products, which are
used with casino table games such as blackjack, poker, baccarat,
craps and roulette. The Company sells its products in every
state in which casinos operate in the United States.
Basis of presentation
Paul-Son Gaming Corporation was incorporated on December 22,
1993. The consolidated statements of operations and cash flows
of Paul-Son for the period ended February 29, 1996 include the
accounts of Paul-Son, Paul-Son Gaming Supplies, Inc. ("Paul-Son
Supplies"), Paul-Son Mexicana, S.A. de C.V. ("Mexicana") and
Commercial Paul-Son, S.A. de C.V. ("Commercial"). The
consolidated statements of operations and cash flows of Paul-Son
for the period ended February 28, 1997 include the accounts of
Paul-Son, Paul-Son Supplies and Mexicana. In July 1994, Paul-
Son Supplies' name was changed from Paul-Son Dice and Card, Inc.,
to its current name. All material intercompany balances and
transactions have been eliminated in consolidation.
The consolidated balance sheet as of February 28, 1997 and
the related consolidated statements of operations and statements
of cash flows for the nine month periods ended February 28, 1997
and February 29, 1996 are unaudited, but in the opinion of
management, reflect all adjustments, which consist of only normal
recurring adjustments, necessary for a fair presentation of
results for such periods. The results of operations for an
interim period are not necessarily indicative of the results for
the full year.
A summary of the Company's significant accounting policies
are as follows:
Cash and cash equivalents
The Company considers all highly liquid investments with
original maturities of three months or less to be cash and cash
equivalents.
Inventory
Inventories are stated at the lower of cost or market. Cost
is determined using the first-in, first-out method.
Goodwill
Goodwill is amortized on a straight-line basis over 20
years.
Earnings per share
Earnings per share is computed based on the weighted average
number of shares outstanding during the period. The effect of
common stock equivalents to date have not been material.
Recently Issued Accounting Standards
The Financial Accounting Standards Board ("FASB") recently
issued SFAS N. 128 "Earnings per Share". This statement
establishes standards for computing and presenting earnings per
share and is effective for financial statements issued for
periods ending after December 15, 1997. Earlier application of
this statement is not permitted and upon adoption requires
restatement (as applicable) of all prior-period earnings per
share data presented. Management has not determined the effect
of this statement on earnings per share as presented.
Note 2 - INVENTORIES
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<CAPTION>
February 28, May 31,
1997 1996
<S> <C> <C>
Inventories consist of the following:
Raw materials $2,148,730 $2,778,329
Work in process 608,869 436,726
Finished goods 2,839,778 2,389,575
$5,597,377 $5,604,630
</TABLE>
Note 3 - SHORT-TERM BORROWINGS
The Company has available a revolving line of credit
("LOC") with a financial institution which allows maximum
borrowings of $750,000 and is collateralized by a general pledge
agreement covering all assets. The outstanding balance at
February 28, 1997 was $150,000. There was no outstanding balance
at May 31, 1996. Interest on advances under the LOC is based on
the financial institution's prime rate plus 2%, payable monthly.
The credit agreement contains restrictive covenants, generally
requiring the Company to maintain certain financial ratios as
defined in the agreement. The maturity date of the line of
credit is January 2, 1998.
Note 4 - LONG-TERM DEBT AND PLEDGED ASSETS
Long-term debt, other than amounts due to related parties,
consists of the following:
<TABLE>
<CAPTION>
February 28, May 31,
1997 1996
<S> <C> <C>
Note payable to an equipment financing company,
collateralized by a vehicle, with interest at
7.9%, principal and interest payments of $561
are due monthly through June 1998. $ 5,842 $ 10,397
Notes payable to mortgage companies, collateralized
by real estate, interest at 7.5% to 9.5%, principal
and interest payments of $898 are due
monthly through 2016 65,272 68,056
Note payable to a bank, collateralized by a deed of
trust, interest at 8%, principal and interest
payments of $6,067 are due monthly through
December 1998 0 406,376
Various capital lease obligations for equipment,
interest imputed at 15.5% to 25.2%, payable in
monthly payments of $5,220 through January 1998 26,474 57,246
97,588 542,075
Less current portion 32,646 85,914
$ 64,942 $ 456,161
</TABLE>
Note 5 - RELATED PARTIES
The Company purchases plastic coated playing cards from an
entity owned in part by one of the former Directors of the
Company. Included in accounts payable at February 28, 1997 and
May 31, 1996 are payables to the related entity for purchases in
the amounts of $76,684 and $33,859, respectively. Included in
interest expense is related party interest of approximately $0
and $6,566 for the nine months ended February 28 and 29, 1997 and
1996 respectively.
The following amounts were paid for legal, accounting and
consulting fees to individuals who were members of the Company's
Board of Directors.
<TABLE>
<CAPTION>
Nine Months Ended
February 28 & 29
1997 1996
<S> <C> <C>
Laurence A. Speiser $107,861 $ 97,651
Wayne H. White 0 23,819
Michael E. Cox 11,019 31,928
$118,880 $153,398
</TABLE>
Long-term debt due to related parties consisted of the following:
<TABLE>
<CAPTION>
February 28, May 31,
1997 1996
<S> <C> <C>
Unsecured note payable to majority stockholder,
annual payments of $125,000 plus interest at
6% with a maturity date of March 1998 $0 $15,000
$0 $15,000
Less current portion - -
$0 $15,000
</TABLE>
On November 22, 1996 the Company advanced to Martin S.
Winick, a member of the Board of Directors, the sum of $150,000
on a line of credit loan dated November 19, 1996, to be repaid in
full on or before December 1, 1998, with interest only payable
quarterly to the Company at an interest rate equal to prime plus
2%. The loan is secured by a general pledge agreement covering
all of Mr. Winick's assets, rights to purchase certain shares of
the Company's stock, and a guarantee by the Company's majority
stockholder.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
Paul-Son is the leading manufacturer and supplier of casino
table game equipment in the United States. The Company's
products include casino chips, table layouts, playing cards,
dice, gaming furniture, and miscellaneous table accessories such
as chip trays, drop boxes, and dealing shoes, which are used in
conjunction with casino table games such as blackjack, poker,
baccarat, craps and roulette. The Company is headquartered in
Las Vegas, Nevada, with manufacturing facilities located in Las
Vegas and San Luis, Mexico and sales offices in Las Vegas and
Reno, Nevada; Atlantic City, New Jersey; New Orleans, Louisiana;
Fort Lauderdale, Florida; Gulfport, Mississippi; Portland,
Oregon; and Ontario, Canada. The Company sells its products in
every state in which casinos operate in the United States, and
management believes that it has the leading market share for most
of its major product lines.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
Comparison of Operations for the Three Months Ended February 28,
1997 and February 29, 1996
Revenues. For the three months ended February 28, 1997,
revenues were $6.9 million, a 32.5% or $1.7 million increase
over the approximately $5.2 million in revenues in the comparable
period of the prior year. This increase was due principally to
an increase in revenues from new casino openings and major casino
expansions. During the three months ended February 28,1997 the
Company supplied products totaling approximately $2.9 million to
12 new casinos and 2 major casino expansions, versus
approximately $1.0 million to 9 new casinos in the comparable
period of the prior year. Core sales revenue however, decreased
by approximately $280,000 to approximately $3.9 million for the
three months ended February 28, 1997, versus approximately $4.2
million in core sales for the same period in the prior year. Core
sales, which are sales of consumable gaming supplies and
equipment to the Company' s existing customer base, decreased
during the quarter ended February 28, 1997 principally due to a
decrease in sales of paper playing cards of approximately
$203,000 or 24.7% during the quarter. Playing card sales were
down due to a number of factors including the Company's efforts
to restructure its playing card sales force and the transition of
a portion of the playing card production to the Company's San
Luis, Mexico factory, both of which resulted in a temporary
slowdown in playing card sales efforts. However, management
believes that the playing card sales and production transition is
substantially complete and sales of playing cards will improve in
the future.
Cost of Revenues. Cost of revenues, as a percentage of
sales, decreased to 70.1% for the current period as compared to
73.8% for the three months ended February 29, 1996. This
percentage decrease was primarily due to the higher sales volume
and corresponding higher operating efficiencies (i.e. increased
sales resulting in a higher number of units produced over the
same fixed production costs).
During several of its most recent reporting quarters, the
Company has generally had a positive impact from the decrease in
the value of the Mexican peso. During the quarter ended February
28, 1997 the value of the Mexican peso remained stable. The
Company cannot predict what impact fluctuations will have on
future costs of the Company's products manufactured in Mexico.
Gross Profit. Gross profit increased in absolute dollars by
approximately $693,000 to approximately $2.1 million for the
quarter ended February 28, 1997, up from approximately $1.4
million in the comparable period of the prior year. This increase
was a result of higher revenues and the lower cost of revenues as
a percentage of sales from 73.8% to 70.1% as discussed above.
Selling, General and Administrative Expenses. For the three
months ended February 28, 1997, 1996, selling, general and
administrative expenses ("SG&A") increased approximately $44,000
or 2.9%, to $1.54 million, as compared to $1.5 million in the
comparable period of the prior year, primarily due to an increase
of almost $50,000 in salaries and wages from increased sales
commissions paid on the Company' s higher revenues. Other
significant changes in SG&A expenses during the quarter ended
February 28, 1997 when compared to the quarter ended February 29,
1996 were increases in depreciation and amortization ($41,000)
due to the addition of property and equipment purchased during
the last year, and decreases in advertising and promotion
($22,000) and bad debt expense ($44,000). The reduction in bad
debt expense reflected a recovery of $44,000 from a customer
account previously written off in a prior reporting period.
Other Income. On February 28, 1997 the Company sold an
approximately 9,000 square foot building located at 2133
Industrial Road in Las Vegas which was part of the original Las
Vegas Facility (see the Company's discussion of Material Changes
In Financial Condition below) for $450,000. The Company's
depreciated cost basis of the building was $129,000, resulting in
a capital gain of $204,000 net of income taxes ($321,000 before
income taxes), which is included in the Company's increase of
approximately $348,000 in other income when compared to the prior
year.
Net Income. For the three months ended February 28, 1997
the Company had record quarterly net income of approximately
570,623, an increase in net income of $661,000 compared to the
February 29, 1996 net loss of approximately $90,000, primarily
as a result of increases in sales and gross profit over the
comparable period in the prior year, and the capital gain of
approximately $204,000 (net of tax) from the sale of one of the
Company's buildings as discussed above. Net income per share was
$.17 for the three months ended February 28, 1997, as compared
to a net loss of $(0.03) per share for the three months ended
February 29, 1996, based on the weighted average number of
shares outstanding.
Comparison of Operations for the Nine Months Ended February 28,
1997 and February 29, 1996
Revenues. For the nine months ended February 28, 1997,
revenues totaled approximately $19.2 million, a $2.1 million
increase over the approximately $17.1 million sold in the
comparable period of the prior year. This 12.5% increase was due
to an increased number of new casino openings, as the Company
supplied products totaling approximately $7.6 million to 25 new
casinos and 6 major expansions versus approximately $3.4 million
to 23 new casinos and 3 major expansions in the comparable period
of the prior year. (Note: The Company's sales from new casino
openings and major expansions for the nine months ended February
29, 1996 have been revised up from the $2.9 million previously
discussed in the Company's 10Q for the quarter ended February 29,
1996). Core sales revenue however, decreased by approximately
$2.0 million to approximately $11.7 million for the nine months
ended February 28, 1997, versus approximately $13.7 million in
core sales for the same period in the prior year. Core
sales, which are sales of consumable gaming supplies and
equipment to the Company's existing customer base, decreased
during the nine months ended February 29, 1997 principally due
to a decrease in playing card sales, both paper and plastic,
during the period. Playing card sales were down due to a number
of factors including a change in the Company's supplier of
plastic playing cards during the second quarter of the fiscal
year and the slowdown in shipments to many of the Company's
contract playing card customers who had a temporary overstock of
playing cards in their facilities during the first quarter of the
fiscal year. During the nine month period, the Company
restructured its playing card sales force and commenced the
transition of a portion of the playing card production to its
San Luis, Mexico factory, which resulted in a temporary slowdown
in playing card sales efforts, but which should provide greater
sales coverage in all geographic areas and more competitive
pricing in the future. The Company has also initiated the
development of an improved playing card product which the Company
believes will increase sales of playing cards in the future.
Cost of Revenues. Cost of revenues, as a percentage of
sales, decreased to 67.9% for the current period as compared to
71.2% for the nine months ended February 29, 1996. This
percentage decrease was due to a number of factors including
higher sales volume and corresponding higher operating
efficiencies (i.e. increased sales resulting in a higher number
of units produced over the same fixed production costs), and a
change in product mix sold during the period. Chip sales, for
which the Company generates the highest gross margin were $7.4
million during the nine months versus $5.1 million in the
comparable period of the prior year.
During several of its most recent reporting periods, the
Company has generally had a positive impact from the decrease in
the value of the Mexican peso. During the nine months ended
February 28, 1997 the value of the Mexican peso remained
relatively stable. The Company cannot predict what impact
fluctuations will have on future costs of the Company's products
manufactured in Mexico.
Gross Profit. Gross profit increased in absolute dollars
by approximately $1.3 million over the comparable period in the
prior year as a result of higher revenues and the lower cost of
revenues as a percentage of sales from 71.2% to 67.9% due to the
factors discussed above.
Selling, General and Administrative Expenses. For the nine
months ended February 28, 1997, SG&A decreased approximately
$611,000 or 12.2%, to $4.4 million as compared to $5.0 million in
the comparable period of the prior year. SG&A reductions were
achieved in almost all categories across the board with few
exceptions. Major reductions in SG&A expenses included reductions
in salaries and wages ($78,000), advertising and promotion
($81,000), outside commissions ($114,000), legal and accounting
($70,000), postage and shipping ($35,000), and travel and
entertainment ($64,000). Most reductions were due to the cost
cutting and restructuring program initiated by the Company during
the second quarter of fiscal 1995. The only significant increase
in SG&A costs was in depreciation and amortization ($75,000) due
to the addition of property and equipment purchased during the
several quarters.
Interest Expense. For the nine months ended February 28,
1997, interest expense decreased approximately 28% from $51,000
to $37,000 compared to the same nine months of the prior year, as
a result of the Company's efforts to pay down long-term debt and
fund operations and capital expenditures out of cash generated
from operations.
Other Income. On February 28, 1997 the Company sold an
approximately 9,000 square foot building located at 2133
Industrial Road in Las Vegas which was part of the original Las
Vegas Facility (see the Company's discussion of Material Changes
In Financial Condition below) for $450,000. The Company's
depreciated cost basis of the building was $129,000, resulting in
a capital gain of $204,000 net of income taxes ($321,000 before
income taxes), which is included in the Company's increase of
approximately $324,000 in other income when compared to the same
nine months of the prior year.
Net Income. For the nine months ended February 28, 1997,
the Company had record net income of approximately $1.4 million,
an increase of approximately $1.4 million over the net loss of
approximately $48,000 during the nine month period ended
February 29, 1996, primarily as a result of increases in sales
and gross profit and decreases in SG&A expenses over the
comparable period in the prior year and the capital gain of
approximately $204,000 (net of tax) from the sale of one of the
Company's buildings as discussed above. Net income per share was
$.41 for the nine months ended February 28, 1997 as compared to a
net loss of $(0.01) per share for the nine months ended February
29, 1996, based on the weighted average number of shares
outstanding.
MATERIAL CHANGES IN FINANCIAL CONDITION
Liquidity and Capital Resources
Overview. Management believes that the combination of cash
flow from operations and cash on hand will provide sufficient
liquidity both on a short term and long term basis.
Working Capital. Working capital totaled approximately
$8.5 million at February 28, 1997, versus approximately $7.6
million at May 31, 1996. Working capital increased during the
nine months ended February 28, 1997, primarily due to the
Company's net income before depreciation of approximately $2.0
million, offset by the Company's investment in property, plant
and equipment, of approximately $734,000 during the period.
Cash Flow. Operating activities provided almost $1.0
million in cash during the nine months ended February 28, 1997,
as compared to just over $1.0 million provided during the same
period in the prior year. Net income before depreciation and
income taxes was the major factor contributing approximately
$2.0 million to the cash provided by operations. Other
significant sources of cash during the period included
collection of customer deposits on future orders ($404,000), and
increases in income taxes payable ($432,000). Significant uses
of cash included investments in property, plant and equipment
($734,000), income tax payments ($345,000), and increases in
accounts receivable ($1,615,000). Overall cash increased by
approximately $232,000 during the period.
Line of Credit. The Company maintains a line of credit (the
"Line of Credit") with Wells Fargo Bank of Nevada ("Wells
Fargo") which presently allows the Company to borrow up to
$750,000. The Line of Credit matures on January 2, 1998. As of
February 28, 1997, $150,000 in advances were outstanding and
$600,000 of the Line of Credit was available. The Line of
Credit is collateralized by a first priority security interest in
substantially all of the Company's depository accounts at Wells
Fargo, accounts receivable, inventory, furniture, fixtures and
equipment, and bears interest at a variable rate of 2.0% over
Wells Fargo's prime lending rate.
Under the Line of Credit, the Company has agreed to comply
with certain financial covenants and ratios. Specifically, the
Company has agreed to maintain a current ratio (current assets
to current liabilities) of not less than 1.5 to 1, a debt to
worth ratio (total liabilities divided by stockholders' equity)
of less than 1 to 1 and a fixed charge coverage ratio ((earnings
before interest, taxes, depreciation and amortization) divided by
(prior period current maturities of long term debt plus interest
plus rent)) of at least 2.0 to 1.
Secured Debt. In December 1993, the Company obtained a
$500,000 loan for capital expenditures and working capital
purposes (the "Note") from a financial institution. The Note
bears interest at 8% per annum, with monthly payments of
principal and interest totaling $6,067. The Note was paid off in
connection with the sale of the approximately 9,000 square foot
building on February 28, 1997. The Note had an original maturity
date of December 1, 1998 and was secured by a deed of trust on
the building sold.
Seasonality. The Company has traditionally experienced some
seasonality, as new casino openings, particularly in Las Vegas,
have tended to occur near the end of a calendar year (typically
during the Company's second fiscal quarter). There does not
appear to be any seasonality associated with the Company's "core
sales" to existing customers.
Backlog. Open orders as of February 28, 1997 totaled
approximately $2.0 million, compared to approximately $4.0
million at February 29, 1996. Management believes that
substantially all of these orders will be filled within the next
six months, with the majority filled within the next fiscal
quarter.
New Las Vegas Facility. In September of 1995 the Company
purchased for $2,000,000 an existing 62,000 square foot office
and manufacturing facility ("New Las Vegas Facility") in Las
Vegas, Nevada which is located near its present headquarters.
Since September 1995, the Company has made improvements totaling
approximately $300,000 to the New Las Vegas Facility.
On January 18, 1996 the Company announced that its Board of
Directors authorized management to install a playing card
production line in its San Luis, Mexico facility. The use of
existing space at its Mexico facility will provide additional
playing card production capacity while the Company evaluates
production costs and efficiencies that may be achieved in the
Mexico facility. During January of 1997, the Company completed
the installation of the playing card production line in San Luis
and commenced the start-up and transition of a portion of its
playing card production at this facility.
This additional production line will augment the Company's
ability to solicit orders from larger and multi-site casinos
both in the United States and from the international market,
which will provide additional opportunities for the Company. The
Company's ability to compete for additional market share in
playing card sales should be enhanced by lowering per unit
production costs. Management is analyzing whether the
anticipated lower production costs in the additional playing
card production facility will further direct the transition of
other portions of its manufacturing facilities to Mexico. The
recently expanded playing card production line at the New Las
Vegas Facility will continue to operate during the evaluation
period.
During this last quarter ended February 28, 1997, the
Company sold approximately 9,000 square feet of its facilities
at the original Las Vegas Facility. As a result, the Company has
decided to relocate of all of its present Las Vegas operations
except its retail showroom to the New Las Vegas Facility. The
remaining buildings at the original Las Vegas Facility are still
on the market for either sale or lease.
Statement on Forward-Looking Information
Certain information included herein contains statements that
may be considered forward-looking, such as statements relating
to anticipated performance, financing sources and the relocation
of certain operations. Any forward-looking statement made by
the Company necessarily is based upon a number of estimates and
assumptions that, while considered reasonable by the Company, is
inherently subject to significant business, economic and
competitive uncertainties and contingencies, many of which are
beyond the control of the Company, and are subject to change.
Actual results of the Company's operations may vary materially
from any forward-looking statement made by or on behalf of the
Company. Forward-looking statements should not be regarded as a
representation by the Company or any other person
that the forward-looking statements will be achieved. Undue
reliance should not be placed on any forward-looking statements.
Some of the contingencies and uncertainties to which any forward
looking statement contained herein is subject include, but are
not limited to, those relating to dependence on existing
management, gaming regulation (including action affecting
licensing), leverage and debt service (including sensitivity to
fluctuations in interest rates), domestic or global economic
conditions and changes in federal or state tax laws or the
administration of such laws.
For a summary of additional factors affecting forward
looking information, see the Company's annual report on Form 10-
K for the year ended May 31, 1996, Part II, Item 7.
"Management's Discussion and Analysis of Financial Condition and
Results of Operations - Statement on Forward-Looking
Information."
Note: Dollar amounts have been rounded for narrative
purposes while the percentages were calculated using actual
amounts.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT
NUMBER DESCRIPTION
27.01 Financial Data Schedule
(b) Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
PAUL-SON GAMING CORPORATION
Date: April 14, 1997 By: /s/ Eric P. Endy
Eric P. Endy, President
(Duly Authorized Officer)
Date: April 14,1997 By: /s/ Kirk Scherer
Kirk Scherer, Treasurer and
Chief Financial Officer
(Principal Financial
Officer)
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION PAGE
27.01 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial informatio extracted from the
consolidated balance sheet and statements of income or Paul-Son Gaming
Corporation, as of and for the quarter ended February 28, 1997, and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-END> FEB-28-1997
<CASH> 1,230
<SECURITIES> 0
<RECEIVABLES> 4,499
<ALLOWANCES> 354
<INVENTORY> 5,597
<CURRENT-ASSETS> 11,411
<PP&E> 10,804
<DEPRECIATION> 3,581
<TOTAL-ASSETS> 19,246
<CURRENT-LIABILITIES> 2,957
<BONDS> 0
0
0
<COMMON> 33
<OTHER-SE> 16,191
<TOTAL-LIABILITY-AND-EQUITY> 19,246
<SALES> 6,875
<TOTAL-REVENUES> 6,875
<CGS> 4,821
<TOTAL-COSTS> 4,821
<OTHER-EXPENSES> 1,540
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1
<INCOME-PRETAX> 873
<INCOME-TAX> 302
<INCOME-CONTINUING> 571
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 571
<EPS-PRIMARY> .17
<EPS-DILUTED> .17
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