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: November 30, 1996
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
January 10, 1996
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PAUL-SON GAMING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
NOVEMBER 30, 1996 and MAY 31, 1996
ASSETS (Note 3)
NOVEMBER 30, MAY 31,
1996 1996
(unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 1,681,165 $ 997,509
Trade receivables, less allowance for doubtful accounts
($329,712, November 30, 1996; $281,712, May 31, 1996) 3,208,938 2,601,910
Inventories (Note 2) 5,468,117 5,604,630
Prepaid expenses 123,840 170,903
Other current assets 604,202 296,660
Total current assets 11,086,262 9,671,612
PROPERTY AND EQUIPMENT, net (Note 4) 7,300,388 7,259,423
OTHER ASSETS
Note receivable (Note 5) 150,000 -
Other assets 467,808 470,090
617,808 470,090
$ 19,004,458 $ 17,401,125
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt (Note 4) $ 83,115 $ 85,914
Accounts payable (Note 5) 344,051 661,521
Accrued expenses 511,259 403,627
Customer deposits 1,772,413 865,438
Income tax payable 215,904 54,170
Total current liabilities 2,926,742 2,070,670
LONG-TERM DEBT, net of current maturities
Due to related parties (Note 5) - 15,000
Other (Note 4) 413,423 456,161
413,423 471,161
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 share 33,240 33,240
Additional paid-in capital 12,256,698 12,256,698
Retained earnings 3,374,355 2,569,356
15,664,293 14,859,294
$ 19,004,458 $ 17,401,125
2
PAUL-SON GAMING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED SIX MONTHS ENDED
NOVEMBER 30, NOVEMBER 30,
1996 1995 1996 1995
(unaudited) (unaudited) (unaudited) (unaudited)
Revenues $ 6,307,018 $ 6,130,128 $ 12,349,776 $ 11,903,757
Cost of revenues
Related party - 216,343 - 446,320
Other 4,100,826 3,939,753 8,227,219 7,896,251
4,100,826 4,156,096 8,227,219 8,342,571
Gross profit 2,206,192 1,974,032 4,122,557 3,561,186
Selling, general and administrative
expenses 1,461,965 1,742,208 2,877,514 3,532,073
Operating income 744,227 231,824 1,245,043 29,113
Other income 27,362 18,918 47,084 70,866
Interest expense (Note 5) (11,018) (16,433) (24,412) (35,629)
Income before income taxes 760,571 234,309 1,267,715 64,350
Income taxes (277,608) (82,008) (462,716) (22,522)
Net income $ 482,963 $ 152,301 $ 804,999 $ 41,828
Net income per share $ 0.15 $ 0.05 $ 0.24 $ 0.01
Weighted average common shares
outstanding 3,324,000 3,324,000 3,324,000 3,324,000
3
PAUL-SON GAMING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED
NOVEMBER 30,
1996 1995
(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from customers $ 12,618,784 $ 13,004,916
Cash paid to suppliers and employees (10,969,358) (12,707,090)
Interest received 32,617 46,321
Interest paid (24,412) (35,629)
Income tax refund 842 400,000
Income taxes paid (319,700) 6,750
Net cash provided by (used in) operating activities $ 1,338,773 $ 701,678
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds received on sale of equipment $ 3,600 $ 13,000
Decrease in short-term investments - 1,493,536
Investment in note receivable (note 5) (150,000) -
Purchase of property and equipment (448,181) (2,616,301)
Net cash provided by (used in) investing activities $ (594,581) $ (1,109,765)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on due to related party (15,000) (125,000)
Principal payments on long-term borrowings (45,536) (46,301)
Net cash provided by (used in) financing activities $ (60,536) $ (171,301)
Net increase (decrease) in cash and cash equivalents $ 683,656 $ (579,388)
CASH AND CASH EQUIVALENTS, beginning 997,509 1,253,987
CASH AND CASH EQUIVALENTS, ending $ 1,681,165 $ 674,599
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY (USED IN) OPERATING ACTIVITIES
Net Income $ 804,999 $ 41,828
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 401,022 337,146
Provision for bad debts 48,000 34,178
Loss on sale of assets 2,594 5,407
Change in assets and liabilities:
(Increase) decrease in accounts receivable (655,028) 971,379
Decrease in income tax refund claim - 400,000
(Increase) decrease in inventories 136,513 (113,710)
(Increase) decrease in other current assets (307,542) 158,174
(Increase) decrease in other assets 2,281 6,200
(Increase) decrease in prepaid expenses 47,063 (76,615)
Increase (decrease) in account payable and accrued expenses (209,838) (1,184,569)
Increase (decrease) in customer deposits 906,975 99,738
Increase (decrease) in income taxes payable 161,734 22,522
Net cash provided by (used in) operating activities $ 1,338,773 $ 701,678
4
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
(collectively "Paul-Son" or the "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 November 30, 1995 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 November 30, 1996 include the accounts of
Paul-Son, Paul-Son Supplies and Mexicana. All material
intercompany balances and transactions have been eliminated in
consolidation.
The consolidated balance sheet as of November 30, 1996 and
the related consolidated statements of operations and statements
of cash flows for the six month periods ended November 30, 1996
and November 30, 1995 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
INVENTORY
Inventories are stated at the lower of cost or market. Cost
is determined using the first-in, first-out method.
5
PAUL-SON GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 1 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
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. Common stock
equivalents were not material.
NOTE 2 - INVENTORIES
Inventories consist of the following:
November 30, May 31,
1996 1996
Raw materials $2,184,723 $2,778,329
Work in process 452,366 436,726
Finished goods 2,831,028 2,389,575
$5,468,117 $5,604,630
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 of the Company's assets. There was no balance
outstanding under the LOC at November 30, 1996 or 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
credit agreement. The maturity date of the line of credit is
January 2, 1998.
6
PAUL-SON GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 4 - LONG-TERM DEBT AND PLEDGED ASSETS
Long-term debt, other than amounts due to related parties,
consists of the following:
November 30, May 31,
1996 1996
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 $7,390 $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 66,515 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 386,292 406,376
Various capital lease obligations for
equipment, interest imputed at 15.5% to
25.2%, payable in monthly payments of
$5,220 through January 1998 36,341 57,246
$496,538 $542,075
Less current portion 83,115 85,914
$413,423 $456,161
NOTE 5 - RELATED PARTIES
The Company purchased plastic coated playing cards from an
entity owned in part by a former member of the Company's Board of
Directors. Included in accounts payable at November 30, 1996 and
May 31, 1996 are payables to the related entity for purchases in
the amounts of $0 and $33,859, respectively. Included in
interest expense is related party interest of approximately $0
and $5,055 for the six months ended November 30, 1996 and 1995
respectively.
The following amounts were paid for legal, accounting and
consulting fees to individuals who are or were members of the
Company's Board of Directors.
7
Six Months Ended
November 30,
1996 1995
Laurence A. Speiser $53,042 $66,919
Wayne H. White 0 23,819
Michael E. Cox 8,117 25,913
$61,159 $116,651
Long-Term Debt due to related parties consisted of the
following:
November 30, May 31,
1996 1996
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
On November 22, 1996, the Company advanced to Martin S.
Winick, a member of the Company's Board of Directors, the sum of
$150,000 under a line of credit loan ("Winick Loan") dated
November 19, 1996. Outstanding amounts under the Winick Loan are
to be repaid in full on or before December 1, 1998; until which
time only interest is payable quarterly to the Company at an
interest rate equal to prime plus 2%. The Winick Loan is secured
by a general pledge agreement covering all of Mr. Winick's
assets, rights to purchase certain shares of the Company's common
stock, and a pledge of certain shares of the Company's common
stock by the Company's majority stockholder.
8
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
NOVEMBER 30, 1996 AND NOVEMBER 30, 1995
REVENUES. For the three months ended November 30, 1996,
revenues were approximately $6.3 million, a 2.9% or an
approximately $177,000 increase over the approximately $6.1
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 November 30, 1996 the Company supplied products
totaling approximately $2.9 million to nine new casinos and three
major casino expansions, versus approximately $2.5 million to
nine new casinos and three major expansions in the three months
ended November 30, 1995. (Note: The Company's sales from new
casino openings and major expansions for the quarter ended
November 30, 1995 have been revised up from the $904,000 reported
in the Company's report on Form 10-Q for the quarter ended
November 30, 1995.) Core sales revenue, however, decreased by
approximately $244,000 to approximately $3.4 million for the
three months ended November 30, 1996, versus approximately $3.6
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 November 30, 1996, compared to the
quarter ended November 30, 1995, principally due to a decrease in
plastic playing card sales of approximately $200,000 during the
quarter. During September of this year, the Company was notified
by it's primary supplier for plastic playing cards that it had
granted an exclusive distributorship for it's cards to one of the
Company's competitors and that the Company would no longer be a
distributor of it's products. The Company has secured a new
supplier for plastic playing cards at a substantially lower cost.
The Company believes that the lower cost of the new supplier will
enable it to re-gain the Company's prior market share of the
plastic playing card market. Sales of the Company's own paper
playing cards were also down during the quarter ended
November 30, 1996, when compared with the same quarter of the
prior year, by approximately $160,000, or 20%. Playing card
sales were down due to a number of factors including the
Company's efforts to restructure it's playing card sales force,
which resulted in a
9
temporary slowdown in playing card sales efforts, but which
management believes will provide greater sales coverage in all
geographic areas.
COST OF REVENUES. Cost of revenues, as a percentage of
sales, decreased to 65.0% for the current period as compared to
67.8% for the three months ended November 30, 1995. 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 quarter. Casino chip
sales, for which the Company generates the highest gross margin,
were approximately $2.9 million during the quarter, versus
approximately $1.9 million in the comparable quarter of the prior
year.
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
November 30, 1996 the value of the Mexican peso was more stable.
The Company cannot predict what impact peso fluctuations will
have on future costs of the Company's products manufactured in
Mexico.
GROSS PROFIT. Gross profit increased in absolute dollars by
approximately $232,000 to approximately $2.2 million for the
quarter ended November 30, 1996, up from approximately $2.0
million in the comparable period of the prior year. The increase
was a result of higher revenues and the lower cost of revenues as
a percentage of sales from 67.8% to 65.0%, as discussed above.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. For the three
months ended November 30, 1996, selling, general and
administrative expenses ("SG&A") decreased approximately
$280,000, or 16.1%, to $1.5 million, as compared to approximately
$1.7 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 ($68,000), outside
commissions ($50,000), legal and accounting ($46,000), and
advertising and promotion ($29,000). 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 increases in SG&A categories during the quarter ended
November 30, 1996 when compared to the quarter ended November 30,
1995 were in depreciation and amortization ($22,000) due to the
addition of property and equipment purchased during the last
year, and public relations costs ($21,000) associated with the
Company's efforts to increase its investor communications.
INTEREST EXPENSE. For the three months ended November 30,
1996, interest expense decreased approximately 33% to $11,000,
compared to $16,000 in the same fiscal quarter 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.
NET INCOME. For the three months ended November 30, 1996
the Company had a record quarterly net income of approximately
$483,000, an increase in net income of approximately $331,000
compared to the net income of approximately $152,000 for the
three months ended
10
November 30, 1995, 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. Net income per share was
$.15 for the three months ended November 30, 1996, compared to
net income of $0.05 per share for the three months ended
November 30, 1995, based on the weighted average number of shares
outstanding.
COMPARISON OF OPERATIONS FOR THE SIX MONTHS ENDED NOVEMBER 30,
1996 AND NOVEMBER 30, 1995
REVENUES. For the six months ended November 30, 1996,
revenues were approximately $12.3 million, a 3.7% or an
approximately $446,000 increase over the approximately $11.9
million in revenues in the comparable period of the prior year.
This increase was due principally to an increased number of new
casino openings, as the Company supplied products totaling
approximately $4.6 million to 14 new casinos and three major
expansions, versus approximately $3.4 million to 14 new casinos
and three major expansions in the comparable period of the prior
year. (Note: The Company's sales from new casino openings and
major expansions for the six months ended November 30, 1995 have
been revised up from the $1.9 million reported in the Company's
report on Form 10-Q for the quarter ended November 30, 1995.)
Core sales revenue, however, decreased by approximately $800,000
to approximately $7.7 million for the six months ended
November 30, 1996, versus approximately $8.5 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 six months
ended November 30, 1996 compared to the six months ended
November 3, 1995, principally due to a decrease in playing card
sales during the quarter. Playing card sales were down due to a
number of factors including the change in the Company's supplier
of plastic playing cards, as discussed above, and a 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. Also,
during the six month period, the Company restructured it's
playing card sales force, which resulted in a temporary slowdown
in playing card sales efforts, but which management believes will
provide greater sales coverage in all geographic areas. 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 66.6% for the current period as compared to
70.1% for the six months ended November 30, 1995. 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 quarter. Casino chip
sales, for which the Company generates the highest gross margin,
were approximately $5.2 million during the six months, versus
approximately $3.4 million in the comparable quarter 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 quarter ended
November 30, 1996 the value of the Mexican peso was more stable.
The Company cannot
11
predict what impact peso fluctuations will have on the cost of
the Company's products manufactured in Mexico.
GROSS PROFIT. Gross profit increased in absolute dollars by
approximately $561,000 to approximately $4.1 million for the six
months ended November 30, 1996, up from approximately $3.6
million in the comparable period in the prior year. The increase
was a result of higher revenues and the lower cost of revenues as
a percentage of sales from 70.1% to 66.6%, due to the factors
discussed above.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. For the six
months ended November 30, 1996, SG&A decreased approximately
$655,000, or 18.5%, to approximately $2.9 million, as compared to
approximately $3.5 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 ($128,000),
outside labor and consultants ($45,000), advertising and
promotion ($78,000), outside commissions ($120,000), legal and
accounting ($73,000), postage and shipping ($40,000), and travel
and entertainment ($65,000). Most reductions were due to the cost
cutting and restructuring program initiated by the Company during
the second quarter of fiscal 1995.
INTEREST EXPENSE. For the six months ended November 30,
1996, interest expense decreased approximately 31% to
approximately $24,000, compared to approximately $36,000 in the
same six months of 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.
NET INCOME. For the six months ended November 30, 1996, the
Company had a record six month net income of approximately
$805,000, an increase in net income of approximately $763,000
compared to the net income of approximately $42,000 for the six
months in net income ended November 30, 1995, 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. Net
income per share was $.24 for the six months ended November 30,
1996, compared to net income of $0.01 per share for the six
months ended November 30, 1995, 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 $8.2
million at November 30, 1996, versus approximately $7.6 million
at May 31, 1996. Working capital increased during the six months
ended November 30, 1996, primarily due to the Company's net
income before depreciation of approximately $1.2 million, offset
by the Company's investment in property, plant and equipment, of
approximately $448,000 and notes receivable of $150,000 during
the quarter.
12
CASH FLOW. Operating activities provided approximately $1.3
million in cash during the six months ended November 30, 1996, as
compared to approximately $700,000 provided during the same
period in the prior year. Net income before depreciation and
income taxes was the major factor contributing approximately $1.2
million to the increase in cash provided by operations. Other
significant sources of cash during the period included collection
of customer deposits on future orders ($907,000), decreases in
inventory ($137,000) and increases in income taxes payable
($162,000). Significant uses of cash included investments in
property, plant and equipment ($448,000) and notes receivable
($150,000), income tax payments ($320,000), increases in accounts
receivable ($655,000) and other current assets ($308,000) and
reduction of accounts payable and accrued expenses ($210,000).
Overall cash increased by approximately $684,000 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 November 30,
1996, no advances were outstanding and the total amount 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 matures on
December 1, 1998 and is secured by a deed of trust on the
Company's headquarters (the "Las Vegas Facility").
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 November 30, 1996 totaled
approximately $3.2 million, compared to approximately $3.0
million as of November 30, 1995. 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 a 62,000 square foot facility (the "New Las Vegas
Facility") in Las Vegas, Nevada which is located near the Las
13
Vegas Facility for $2,000,000. 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. The additional production line will also 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 provides additional opportunities to 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 Company commenced
installation of the playing card production line in the San Luis,
Mexico facility on January 8, 1997 and anticipates that
installation will be complete within 30 days. The recently
expanded playing card production line at the New Las Vegas
Facility will continue to operate during the evaluation period.
During the evaluation period, the Company has decided to
postpone the relocation of all of its present Las Vegas
operations to the New Las Vegas Facility. At the present time the
Company has placed both the New Las Vegas Facility and the Las
Vegas Facility on the market. Should either facility be sold
prior to an offer being made on the other facility, the Company
will relocate all of its office, manufacturing and warehouse
operations to the remaining facility. Should both facilities be
sold, the Company will buy or lease other facilities within the
Las Vegas metropolitan area.
STATEMENT ON FORWARD-LOOKING INFORMATION
Certain information included herein contains statements that
may be considered forward-looking within the safe harbor
provisions of Section 21E of the Securities Exchange Act of 1934,
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 sales efforts and customer response thereto, the level of new
casino openings and replacement of table game equipment by
existing casinos, the Company's success in lowering manufacturing
costs, 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.
14
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.
15
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
At the Company's annual meeting of stockholders held on
October 17, 1996, the Company's stockholders voted on the
following matters:
(a) Election of Directors.
NAME OF DIRECTOR For Against Abstain Unvoted
Eric P. Endy 3,137,202 67,826 0 0
Richard W. Scott 3,138,602 66,426 0 0
(b) Approval and ratification of an amendment to the
Paul-Son Gaming Corporation 1994 Long-Term Incentive Plan.
For Against Abstain Unvoted
2,248,321 119,358 14,073 823,276
ITEM 5. OTHER INFORMATION
None.
16
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT
NUMBER DESCRIPTION
10.01 Consulting Agreement dated as of July 29,
1996, by and between Paul-Son Gaming
Corporation and Martin S. Winick; Addendum
to Consulting Agreement by and between
Martin S. Winick and Paul-Son Gaming
Corporation dated as of November 19, 1996,
by and between Paul-Son Gaming Corporation
and Martin S. Winick.
10.02 Line of Credit Agreement dated as of
November 19, 1996, by and between Paul-Son
Gaming Corporation and Martin S. Winick,
Line of Credit Promissory Note, dated
November 1996, executed by Martin S. Winick,
in favor of Paul-Son Gaming Corporation;
Security Agreement dated November 19, 1996,
executed by Martin S. Winick, in favor of
Paul-Son Gaming Corporation; Assignment
Agreement dated November 19, 1996, by
Martin S. Winick to Paul-Son Gaming
Corporation; and Collateral Undertaking
Agreement dated November 19, 1996 by and
between Paul S. Endy, Jr., individually and
as trustee of the Paul S. Endy, Jr. Living
Trust, and Paul-Son Gaming Corporation.
27.01 Financial Data Schedule
(b) Reports on Form 8-K
None.
17
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
/s/ Eric P. Endy
Date: January 13, 1997 By: Eric P. Endy, President
(Duly Authorized Officer)
/s/ Kirk Scherer
Date: January 13, 1997 By: Kirk Scherer, Treasurer and
Chief Financial Officer
(Principal Financial
Officer)
18
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION PAGE
10.01 Consulting Agreement dated as of July 29, 20
1996, by and between Paul-Son Gaming
Corporation and Martin S. Winick; Addendum
to Consulting Agreement by and between
Martin S. Winick and Paul-Son Gaming
Corporation dated as of November 19, 1996,
by and between Paul-Son Gaming Corporation
and Martin S. Winick.
10.02 Line of Credit Agreement dated as of 34
November 19, 1996, by and between Paul-Son
Gaming Corporation and Martin S. Winick,
Line of Credit Promissory Note, dated
November 1996, executed by Martin S.
Winick, in favor of Paul-Son Gaming
Corporation; Security Agreement dated
November 19, 1996, executed by Martin S.
Winick, in favor of Paul-Son Gaming
Corporation; Assignment Agreement dated
November 19, 1996, by Martin S. Winick to
Paul-Son Gaming Corporation; and Collateral
Undertaking Agreement dated November 19,
1996 by and between Paul S. Endy, Jr.,
individually and as trustee of the Paul S.
Endy, Jr. Living Trust, and Paul-Son Gaming
Corporation.
27.01 Financial Data Schedule 79