<PAGE>
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: August 31, 2000
--------------------------------------------
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
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PAUL-SON GAMING CORPORATION
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(Exact name of registrant as specified in its charter)
NEVADA 88-0310433
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(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
1700 S. 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
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(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.
3,449,757 shares of Common Stock, $0.01 par value, as of October 12, 2000
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PAUL-SON GAMING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
AUGUST 31, 2000 AND MAY 31, 2000
ASSETS
<TABLE>
<CAPTION>
AUGUST 31, MAY 31,
2000 2000
------------ ------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 2,295,171 $ 2,071,952
Trade receivables, less allowance for doubtful accounts
of $410,000 and $380,000 2,142,779 2,298,336
Inventories, net 3,644,090 4,146,065
Prepaid expenses 171,507 128,128
Other current assets 112,193 137,162
------------ ------------
Total current assets 8,365,740 8,781,643
PROPERTY AND EQUIPMENT, NET 8,325,008 8,396,365
OTHER ASSETS 673,066 577,868
------------ ------------
$ 17,363,814 $ 17,755,876
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 1,632,846 $ 1,899,443
Accounts payable 881,233 779,309
Accrued expenses 792,918 818,092
Customer deposits 329,115 199,078
Income taxes payable 38,072 22,927
------------ ------------
Total current liabilities 3,674,184 3,718,849
------------ ------------
LONG-TERM DEBT, NET OF CURRENT MATURITIES 594,046 667,401
------------ ------------
COMMITMENTS AND CONTINGENCIES -- --
STOCKHOLDERS' EQUITY
Preferred stock, authorized 10,000,000 shares,
$.01 par value, none issued and outstanding -- --
Common stock, authorized 30,000,000 shares,
$.01 par value, issued: 3,477,050
shares as of August 31, 2000 and May 31, 2000 34,771 34,771
Additional paid-in capital 13,652,936 13,652,936
Accumulated deficit (396,343) (129,351)
Less: Treasury stock, at cost, 27,293 and 24,293 shares (195,780) (188,730)
------------ ------------
Total stockholders' equity 13,095,584 13,369,626
------------ ------------
$ 17,363,814 $ 17,755,876
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE>
PAUL-SON GAMING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
AUGUST 31,
----------------------------
2000 1999
----------- -----------
<S> <C> <C>
Revenues $ 5,309,447 $ 6,356,576
Cost of revenues 4,049,411 4,746,564
----------- -----------
Gross profit 1,260,036 1,610,012
Selling, general and administrative expenses 1,487,951 1,619,694
----------- -----------
Operating loss (227,915) (9,682)
Other income 23,301 104,471
Interest expense (62,378) (64,205)
----------- -----------
Income (loss) before income taxes (266,992) 30,584
Income tax (expense) benefit -- (11,000)
----------- -----------
Net income (loss) $ (266,992) $ 19,584
=========== ===========
Income (loss) per share:
Basic ($0.08) $0.01
Diluted ($0.08) $0.01
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
PAUL-SON GAMING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
AUGUST 31,
2000 1999
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (266,992) $ 19,584
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation and amortization 258,177 256,545
Provision for doubtful accounts 63,242 40,589
Provision for inventory obsolescence 60,000 50,000
Gain on sale/disposal of assets -- (95,046)
Change in operating assets and liabilities:
Accounts receivable 92,315 559,829
Inventories 441,975 434,082
Other current assets (18,410) 116,370
Deferred tax asset -- 11,000
Accounts payable and accrued expenses 76,750 (619,881)
Other assets (120,291) --
Customer deposits 130,037 (268,016)
Income taxes payable 15,145 (10,922)
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 731,948 494,134
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds received on sale of property and equipment -- 161,542
Purchase of property and equipment (161,727) (26,597)
----------- -----------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (161,727) 134,945
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Purchases of treasury stock (7,050) --
Proceeds from the issuance of long-term notes 39,452 --
Principal payments on short-term/long-term borrowings (379,404) (80,191)
----------- -----------
NET CASH USED IN FINANCING ACTIVITIES (347,002) (80,191)
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 223,219 548,888
Cash and cash equivalents, beginning of year 2,071,952 656,299
----------- -----------
Cash and cash equivalents, end of year $ 2,295,171 $ 1,205,187
=========== ===========
Supplemental cash flows information:
Operating activities include cash payments for interest and income taxes as
follows:
Interest paid $ 62,378 $ 64,205
Income taxes paid -- 12,400
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
PAUL-SON GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Paul-Son Gaming Corporation, including its subsidiaries (collectively
"Paul-Son" or the "Company"), is a leading manufacturer and supplier of casino
table game equipment in the United States. The Company's products include casino
chips, table layouts, playing cards, dice, furniture, table accessories and
other products which are used with casino table games such as blackjack, poker,
baccarat, craps and roulette. The Company sells its products in every state in
which casinos operate in the United States and in various countries throughout
the world.
BASIS OF CONSOLIDATION AND PRESENTATION
The condensed consolidated financial statements include the accounts of
Paul-Son and its wholly-owned subsidiaries, Paul-Son Gaming Supplies, Inc.
("Paul-Son Supplies"), Paul-Son Mexicana, S.A. de C.V. and Authentic Products,
Inc. All material intercompany balances and transactions have been eliminated in
consolidation. The condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and do not include all of the information and notes
required by generally accepted accounting principles for complete financial
statements. These statements should be read in conjunction with the Company's
annual audited consolidated financial statements and related notes included in
the Company's Form 10-K for the year ended May 31, 2000.
The condensed consolidated balance sheet as of August 31, 2000 and
statements of operations and cash flows for the three month periods ended August
31, 2000 and 1999 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 follows:
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments and repurchase
agreements with maturities of three months or less to be cash and cash
equivalents.
5
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PAUL-SON GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
ACCOUNTS RECEIVABLE AND CUSTOMER DEPOSITS
The Company performs ongoing credit evaluations of its customers and
generally requires a fifty percent deposit for manufactured or purchased
products at the discretion of management. These customer deposits are classified
as a current liability on the balance sheet. The Company maintains an allowance
for doubtful accounts, and charges against the allowance have been within
management's expectations.
INVENTORIES
Inventories are stated at the lower of cost or market, net of reserves for
slow-moving, excess and obsolete items. Cost is determined using the first-in,
first-out method.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, net of depreciation.
Depreciation is computed primarily on the straight-line method for financial
reporting purposes over the following estimated useful lives:
<TABLE>
<CAPTION>
Years
-----
<S> <C>
Buildings and improvements 18-27
Furniture and equipment 5-10
Vehicles 5-7
</TABLE>
OTHER ASSETS
Included in other assets are goodwill, which is being amortized on a
straight-line basis over 20 years, and patent rights costs, which are being
amortized over 5 years.
REVENUE RECOGNITION
Substantially all revenue is recognized when products are shipped to
customers. The Company typically sells its products with payment terms of net 30
days or less.
INCOME TAXES
The Company uses Statement of Financial Accounting Standards ("SFAS") No.
109 for financial accounting and reporting for income taxes. A current tax
liability or asset is recognized for the estimated taxes payable or refundable
on tax returns for the current year.
6
<PAGE>
PAUL-SON GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
A deferred tax liability or asset is recognized for the estimated future
tax effects, based on provisions of the enacted law, attributable to temporary
differences and carryforwards.
FOREIGN TRANSACTIONS
Sales outside of the United States are not significant and substantially
all transactions occur in United States dollars.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Estimates and assumptions have been made in determining the
depreciable life of assets and the allowance for doubtful accounts and
slow-moving, excess and obsolete inventories. Actual results could differ from
those estimates.
RECENTLY ISSUED ACCOUNTING GUIDANCE
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standard ("SFAS") No. 133 "Accounting for Derivative Instruments and
Hedging Activities" in June 1998. This statement establishes accounting and
reporting standards for derivative instruments and hedging activities. This
statement is effective for all fiscal quarters of fiscal years which begin after
June 15, 2000. The statement requires entities to recognize all derivatives as
either assets or liabilities in the statement of financial position and to
measure instruments at fair value. As the Company does not have significant
derivative instruments, management believes that SFAS No. 133 will not have a
material impact on its consolidated financial statements.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB
101"). SAB 101 clarifies existing accounting principles related to revenue
recognition in financial statements. The Company is required to comply with the
provisions of SAB 101 by the fourth quarter of its fiscal year ending May 31,
2001. Due to the nature of the Company's operations, management does not believe
that SAB 101 will have a significant impact on the Company's consolidated
financial statements.
7
<PAGE>
PAUL-SON GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 2 - INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
August 31, May 31,
2000 2000
---------- ----------
<S> <C> <C>
Raw materials $2,056,357 $2,321,531
Work in process 196,556 225,507
Finished goods 2,151,177 2,299,027
---------- ----------
4,404,090 4,846,065
Less inventory reserves 760,000 700,000
---------- ----------
$3,644,090 $4,146,065
========== ==========
</TABLE>
NOTE 3 - LONG-TERM DEBT AND PLEDGED ASSETS
Paul-Son Supplies has a $1.8 million note and a $500,000 note to a bank
(collectively the "Facilities"). The Facilities are secured by a first deed of
trust on certain real estate owned by Paul-Son Supplies and by a secured
interest in all accounts, equipment, inventory and general intangibles of
Paul-Son Supplies. The Company is also the guarantor of the facilities. The
Facilities contain restrictive covenants, generally requiring the Company to
maintain certain financial ratios, as defined in the agreement, and to maintain
net income annually of at least $250,000. As of May 31, 2000 the Company was in
violation of certain covenants. As a result of the violations, the Company and
the bank, in June 2000, entered into a forbearance agreement. This agreement
requires the Company to pay additional monthly principal payments of $100,000
which began June 15, 2000. The additional monthly principal payments increase to
$125,000 beginning October 15, 2000 and to $150,000 beginning February 15, 2001.
The bank has agreed to waive its rights to declare a default on the Facilities
as long as principal payments are made in accordance with the forbearance
agreement. The Company made the required payments under the forbearance
agreement during the quarter ended August 31, 2000.
8
<PAGE>
PAUL-SON GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Long-term debt consists of the following:
<TABLE>
<CAPTION>
August 31, May 31,
2000 2000
-------------- --------------
<S> <C> <C>
Note payable to bank in monthly installments of $18,118, including
interest of 8.87%, plus additional monthly graduating principal
payments of $100,000 to $150,000 from June 2000 through May 2001,
secured by a first deed of trust on the Company's main facility in
Las Vegas, Nevada and a first security interest on all Company
assets.............................................................. $ 1,323,254 $ 1,643,518
Note payable to bank in monthly principal installments of $13,889 plus
interest of 9.75% through July 2001 with a balloon payment of
approximately $42,000 due August 2002, secured by a first deed of
trust on the Company's main facility in Las Vegas, Nevada and a
first security interest on all Company assets....................... 194,444 236,111
Notes payable to mortgage company, collateralized by real estate,
interest at 7.5%, with principal and interest payments of
approximately $500 due monthly through July 2001.................... 4,840 6,235
Various notes payable to finance company, interest at 2% to 5%, with
principal and interest payments of approximately $1,125 due monthly
through July 2003................................................... 38,853 --
Capital lease obligation payable for equipment, variable interest
(approximately 9% at August 31, 2000), payable in monthly
installments of approximately $12,250 through March 2006,
collateralized by a second security interest on principally all
Company assets...................................................... 665,501 680,980
-------------- --------------
2,226,892 2,566,844
Less current portion.......................................... 1,632,846 1,899,443
-------------- --------------
$ 594,046 $ 667,401
============== ==============
</TABLE>
NOTE 4 - EARNINGS PER SHARE
The following table provides a reconciliation of basic and diluted income
(loss) per share as required by SFAS No. 128, "Earnings per Share":
9
<PAGE>
PAUL-SON GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
<TABLE>
<CAPTION>
Dilutive
Stock
Basic Options Diluted
-------------- -------------- --------------
<S> <C> <C> <C>
For the 3 month period ended August 31, 2000
--------------------------------------------
Net loss $ (266,992) $ (266,992)
Weighted Average Shares 3,452,647 -- 3,452,647
Per Share Amount ($0.08) ($0.08)
For the 3 month period ended August 31, 1999
--------------------------------------------
Net income $ 19,584 $ 19,584
Weighted Average Shares 3,455,757 38,372 3,494,129
Per Share Amount $0.01 $0.01
</TABLE>
There were no dilutive stock options for the three months ended August 31,
2000.
The Company has granted certain stock options to purchase common stock
which had an exercise price greater than the average market price. These
antidilutive options have been excluded from the computation of diluted net
income (loss) per share for the three months ended August 31, 2000 and 1999.
These outstanding antidilutive options for the three months ended August 31,
2000 and 1999 were approximately 530,000.
NOTE 5. BUSINESS SEGMENTS
The FASB issued SFAS No. 131, "Disclosures About Segments of an Enterprise
and Related Information" effective for financial statements for fiscal years
beginning after December 1997. This statement, which supersedes SFAS No. 14,
establishes standards for reporting information about operating segments in
annual financial statements. The statement requires public business enterprises
to report selected reporting information about operating segments in annual
financial statements and requires public business enterprises to report selected
information about operating segments in interim financial reports. The Company's
reportable segments have been identified as follows:
- Sale of Gaming Supply Products to New Casino Openings - Significant
sales of products to casinos which opened during the fiscal year, the
majority of which sales are not replaced on a regular, recurring
basis.
- Sale of Gaming Supply Products to Established Casinos - Sales of
products to casino customers which had opened prior to the fiscal year
and are principally considered on-going, recurring sales.
The accounting policies of the segments are the same as those described in the
"Summary of Significant Accounting Policies." The Company evaluates the
performance of each segment by
10
<PAGE>
PAUL-SON GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
allocating certain overhead expenses to the segments based on management's
estimates. The following information represents the disclosure requirements and
information management utilizes in measuring the profit or loss of each
significant segment:
The table below presents information about the reported operating income of the
Company for the three-month periods ended August 31, 2000 and 1999. Asset
information by reportable segment is not reported since no segregation of assets
exists between segments.
<TABLE>
<CAPTION>
2000 Product Sales - New Product Sales - Consolidated
---- Casino Openings Established Casinos totals
-------------------- ------------------- -----------------
<S> <C> <C> <C>
Revenues $ 553,687 $ 4,755,760 $ 5,309,447
Operating income (loss) $ (17,395) $ (210,520) $ (227,915)
-------------------- ------------------- -----------------
-------------------- ------------------- -----------------
1999 Product Sales - New Product Sales - Consolidated
---- Casino Openings Established Casinos totals
-------------------- ------------------- -----------------
Revenues $ 1,517,541 $ 4,839,035 $ 6,356,576
Operating income (loss) $ 222,398 $ (232,080) $ (9,682)
-------------------- ------------------- -----------------
</TABLE>
Corporate expenses and certain overhead expenses have been allocated to each
segment based on management's estimate of the segment's utilization of the
resources or expenses. During the three-month periods ended August 31, 2000 and
1999, management estimated gross margins of the reportable segments to be equal.
However, management's estimation used in the operating income (loss) for the
segments' overhead and corporate expenses was 90% from product sales to
established casinos and 10% from product sales to new casino openings.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Paul-Son is a leading manufacturer and supplier of casino table game
equipment in the United States. The Company's products include casino chips,
table layouts, playing cards, dice, gaming furniture, and miscellaneous table
accessories such as chip trays, drop boxes, and dealing shoes, which are used in
conjunction with casino table games such as blackjack, poker, baccarat, craps
and roulette. The Company is headquartered in Las Vegas, Nevada, with its
primary manufacturing facilities located in San Luis, Mexico, and sales offices
in Las Vegas and Reno, Nevada; Atlantic City, New Jersey; 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.
COMPARISON OF OPERATIONS FOR THE THREE MONTHS ENDED AUGUST 31, 2000 AND AUGUST
31, 1999
REVENUES. For the three months ended August 31, 2000, revenues were
approximately $5.3 million, a decrease of approximately $1.0 million, or 16%,
versus revenues of approximately $6.3 million for the three months ended August
31, 1999. The decrease in revenues for the 2000 period was caused principally by
a decline in new casino openings and expansions during the three months ended
August 31, 2000 as compared to the three months ended August 31, 1999. During
the three months ended August 31, 1999, casino chip and furniture revenues from
new casino openings were approximately $1.5 million. During the same three month
period ended August 31, 2000 new casino opening revenues totaled approximately
$554,000. Sales of products manufactured by the Company totaled approximately
$4.7 million in the 2000 period versus approximately $4.9 million in the same
period of the prior year.
COST OF REVENUES. Cost of revenues, as a percentage of sales, increased to
76.3% for the three months ended August 31, 2000 as compared to 74.7% for the
three months ended August 31, 1999. This decline in the gross margin for the
three months ended August 31, 2000 occurred primarily due to 1) an increase in
costs to operate the Company's Mexican manufacturing plant as inflationary costs
were not offset by a devaluation of the Mexican peso and 2) a larger
underabsorption of fixed manufacturing overhead costs as production levels,
primarily a function of sales volume, were less than the previous year's three
month period.
GROSS PROFIT. Gross profit for the three months ended August 31, 2000
decreased in absolute dollars by approximately $350,000 from the comparable
period in the prior year as a result of the aforementioned decrease in revenues
and the aforementioned decline in the gross margin percentage from 25.3% in the
1999 period to 23.7% in the 2000 quarter.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. For the three months ended
August 31, 2000, selling, general and administrative ("SG&A") expenses decreased
approximately $132,000 or 8%, compared to the comparable period of the prior
year. Reductions in sales related personnel, as well as certain sales office
activities, occurred throughout the fiscal year ended May 31, 2000 and were
principally the cause of the aforementioned decrease.
12
<PAGE>
INTEREST EXPENSE. For the three months ended August 31, 2000, interest
expense decreased to approximately $62,000 from approximately $64,000 in the
1999 period. This decrease was due to a reduction in average borrowings
outstanding during the three months ended August 31, 2000.
OTHER INCOME. For the three months ended August 31, 2000, other income
decreased to approximately $23,000 from approximately $104,000 in the 1999
period. This decrease was due principally to nonrecurring gains realized in the
1999 period from the sale of certain non-operating assets.
NET INCOME/(LOSS). For the three months ended August 31, 2000 the Company
incurred a net loss of approximately $267,000, a decline of approximately
$287,000 from the net income of approximately $20,000 for the quarter ended
August 31, 1999. This decline was primarily due to the aforementioned decrease
in revenues, gross profit margin percentages and other income offset, in part,
by the decrease in SG&A expenses. Net loss per basic and diluted share was $.08
for the three months ended August 31, 2000 as compared to net income per basic
and diluted share of $.01 per share for the three months ended August 31, 1999.
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 on a short-term
basis. On a long-term basis, management of the Company believes that, depending
on future cash flow from operations, the Company may be required to secure
additional financing.
WORKING CAPITAL. Working capital totaled approximately $4.7 million at
August 31, 2000, a decrease of approximately $400,000 in working capital from
approximately $5.1 million in working capital at May 31, 2000.
CASH FLOW. Operating activities provided approximately $732,000 in cash
during the three months ended August 31, 2000, as compared to operating cash
provided of approximately $494,000 during the same period in the prior year. The
primary operational sources of cash during the period were related to reductions
of inventory balances of approximately $442,000, increases to customer deposits
of approximately $130,000 and net income before non cash charges of
approximately $114,000. Cash provided by operating activities were offset, in
part, by cash used to reduce debt obligations of approximately $379,000 and
purchases of fixed assets of approximately $162,000. Overall the Company
experienced an increase in cash and cash equivalents of approximately $223,000.
FORBEARANCE AGREEMENT. In June 2000, the Company entered into a forbearance
agreement with Wells Fargo Bank of Nevada. The agreement requires that the
Company make monthly additional principal payments beginning in June 2000 in the
amount of $100,000. The monthly additional principal payments increase to
$125,000 beginning October 2000 and to $150,000 beginning February 2000 until
all debt obligations to Wells Fargo Bank of Nevada have
13
<PAGE>
been satisfied. The Company has complied with the requirements of the
agreement as of October 12, 2000.
STOCK REPURCHASE PROGRAM. The Company's Board of Directors authorized the
open market repurchase of up to approximately 170,000 shares of the Company's
common stock. As of October 11, 2000, the Company had repurchased 8,000 shares
on the open market at a total cost of approximately $32,000 under this
authorization. The Company has funded the purchases made to date and intends to
fund any future repurchases from cash on hand.
RECENTLY ISSUED ACCOUNTING GUIDANCE. See Note 1 to the Condensed
Consolidated Financial Statements for a discussion of recently issued or adopted
accounting guidance and their expected impact on the Company's condensed
consolidated financial statements.
STATEMENT ON FORWARD-LOOKING INFORMATION
Certain information included herein contains statements that may be
considered forward-looking, such as statements relating to anticipated
performance and financing sources. 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, 2000,
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.
14
<PAGE>
PART II. OTHER INFORMATION
ITEM 5 OTHER EVENTS
The Company has determined to apply for a listing of its common stock on
The Nasdaq SmallCap Market. Subject to satisfying the listing requirements, the
Company anticipates the move to The Nasdaq SmallCap Market from the Nasdaq
National Market will be completed by December 31, 2000.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Description
---------- -----------
27.01 Financial Data Schedule
(b) Reports on Form 8-K
None.
15
<PAGE>
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: October 13, 2000 By: /s/ Eric P. Endy
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Eric P. Endy, Chairman of the Board
and Chief Executive Officer
(Duly Authorized Officer)
Date: October 13, 2000 By: /s/ John M. Garner
-------------------------------------
John M. Garner, Treasurer and
Chief Financial Officer
(Principal Financial Officer)
16
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EXHIBIT INDEX
Exhibit
Number Description Page
------- ----------- ----
27.01 Financial Data Schedule 18
17
