10-Q 1 doc1.txt 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 SEPTEMBER 30, 2002 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 000-25306 EQUUS GAMING COMPANY L.P. ------------------------------------------------------- (Exact name of registrant as specified in its charter) Virginia 54-1719877 --------------------------------- ------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) El Comandante Race Track Main Building First Floor 65th Infantry Avenue Rd. 3 Km. 15.3 Canovanas, PR 00729 ----------------------------------------------------- (Address of Principal Executive Offices and Zip Code) (787) 641-5844 ----------------------------------------------------- (Registrant's telephone number, including area code) ----------------------------------------------------- (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 report(s), 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 (November 1, 2002). 14,389,824 Class A Units

10 EQUUS GAMING COMPANY L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES: Equus Gaming Company L.P. (the "Company"), a Virginia limited partnership, is engaged in thoroughbred racing, wagering and other gaming businesses in the Caribbean and South America. Through its subsidiaries, the Company operates three racetracks and manages an extensive off-track betting ("OTB") system in the various countries where the Company operates. The Company has a 99% interest in Housing Development Associates S.E. ("HDA") who has a 100% interest in the El Comandante Group ("ECG"), which is comprised of HDA, El Comandante Management Company LLC ("ECMC"), the manager of El Comandante Race Track and El Comandante Capital Corporation ("ECCC"), the issuer of the First Mortgage Notes (See Note 3 below). El Comandante is the only licensed thoroughbred racing facility in Puerto Rico. The track has been operated by ECG since January 1, 1998. Satellites Services International, Inc. ("SSI") and Agency Betting Network, Inc. ("ABN") are wholly owned subsidiaries of the Company. SSI will provide up-link services, satellite time (contracted from a third party), and leasing of video and data telecommunication equipment to transmit (or simulcast) live races from and to the Company's racetracks and OTB agencies, including live races from outside the Company's operational territories to the Company's agency distribution network in order to increase the level of wagering revenues through the OTB systems. ABN is establishing and operating an OTB agency system in Colombia in conjunction with Los Comuneros Race Track in Medellin, Colombia ("Los Comuneros"), owned and operated by Equus Comuneros S.A. ("Equus-Comuneros"), of which the Company has a 50% ownership. The Colombia OTB system is expected to operate in Bogota, Medellin and other major cities. In 1999 the Company initiated a vertical integration process to consolidate its telecommunications needs into a centralized hub-and-spoke system based at El Comandante racetrack in Puerto Rico. During 2000 and 2001 the development of this system encountered significant technical obstacles, which necessitated the redesigning of its architecture, reallocation of the equipment and ultimately, a strategic revision of the objectives for the system. The vertical integration process began with the development of a C-Band satellite uplink facility in Panama in the fall of 1999 to fulfill the broadcasting needs of this jurisdiction which, at the time, belonged to the Company's international network of pari-mutuel operations. By December of that year the consolidation process had identified VSAT technology via the Ku-Band medium as the application necessary to address the Company's needs for video and data transmission throughout its proprietary agency-betting network in Puerto Rico, Panama, Colombia and the Dominican Republic. The significant investment made by the Company during 1999-2000 in the satellite telecommunications equipment required to implement the VSAT system included the development of a main uplink Hub in Puerto Rico, and of supporting Ku-Band uplinks to service the markets of Panama and Colombia. Initial steps were also taken to establish a supporting uplink in the Dominican Republic although the facility has not been completed at this time. Several factors altered the course of the VSAT project, and namely, the incompatibility of this technology with the Autotote system currently in use throughout the Company's pari-mutuel operations hindered its deployment as the primary means of transmission for the agency-betting network's wagering data. Consequently, the Company is in the process of evaluating several alternate commercial applications for this equipment both in Colombia and Puerto Rico. 11 Conversely, the aforementioned satellite uplink facilities continue to provide video broadcasting services for the Company's pari-mutuel operations in Puerto Rico, Colombia and the Dominican Republic. In addition to the alternate commercial uses being sought for the VSAT equipment, the Company's uplink facilities are uniquely positioned to provide satellite broadcast services to prospective clients in Puerto Rico, Colombia, and potentially in the Dominican Republic. The Company has a 55% interest in Galapagos, S.A. ("Galapagos"), the operator since April 1995 of the V Centenario Race Track in the Dominican Republic ("V Centenario"). The racetrack is government owned and operated by the subsidiary under a long-term contract. The Company disposed of its 51% interest in Equus Entertainment de Panama, S.A., the operator since January, 1998 of the Presidente Remon Race Track in the Republic of Panama. On October 9, 2001 the Company entered into the following restructuring with its minority shareholder of Equus Entertainment de Panama, Wall Street Securities Trading Group, Inc. effective September 30, 2001: 1) The Company entered into a stock purchase agreement whereby the Company sold its 204,000 shares of common stock, representing 51% of the total issued and outstanding shares of Equus Entertainment de Panama, for release from any obligations resulting from the Panama operation. The Company recorded a net loss of $1,149,579 on the transaction. a. The Company has been released of all prior, present and future obligations, known or unknown from October 9, 2001, until the "Termination and Mutual Release" document is signed. b. The purchaser has committed to using its best efforts to release the Company from any obligations the Company may have assumed under its concession from the Government of Panama in operating and managing Hipodromo Presidente Remon. Until such time as the aforementioned release is received by the Company, the purchaser has drafted an "Undertaking and Indemnity" document indemnifying the Company from any claims by the Government of Panama under the Concession Agreement. 2) The Company then accepted 3,000 shares of $1,000 par value, preferred stock in exchange for net claims due the Company. The number of shares issued were to be reduced if the net claims were less than $2,859,680. The final net claims on the Company's books amounted to $3,294,391 and the investment was recorded at that amount as of September 30, 2001. Terms and conditions of the preferred stock issue are as follows: a. The shares will be redeemed by the issuer upon the racetrack's concession agreement being terminated or October 31, 2021, whichever comes first. b. The issuer has the option to redeem the shares at par at anytime. c. No dividends will accumulate up to October 2006; thereafter, the shares will earn an annual cumulative dividend of 12%, payable quarterly. d. The shares have no voting rights except that no change in the terms of the preferred stock can occur without the consent of the preferred shareholders. e. No other preferred shares can be issued with priority over these shares, and in liquidation these shares have the same priority as the common shares now existing. 12 f. No dividends will be paid to common shares while accumulated dividends are payable to the preferred shares. As of November 1, 2002, the Company has not received copies of the fully executed documents mentioned above, nor received the 3,000 shares of preferred stock. In addition, all attempts to obtain certified financial statements from Equus Entertainment de Panama as of September 30, 2001 have failed; therefore, Panama has been "deconsolidated" for year 2001. The Company also has since 1999 a controlling 50% interest in Equus Comuneros S.A. ("Equus-Comuneros"), the owner and operator of Los Comuneros, which it acquired for approximately $2.1 million. In 1999 Equus-Comuneros received as a capital contribution from the minority stockholder, Los Comuneros S.A., all assets and liabilities that were employed by the prior operator of Los Comuneros. The assets mainly consisted of land, buildings and equipment for approximately $4.7 million and liabilities of approximately $2.6 million. The liabilities included mainly accounts payable to vendors and horse owners and certain financial obligations with various maturities through 2004. By means of Resolution 213 of October 31, 2001, of the Colombian Superintendency of Societies, Equus Comuneros was accepted for government supervised restructuring under the provisions of Colombian Law 550 of 1999. Presently, negotiations with the Comuneros creditors are in process and will result in one of the following two situations: 1. The creditors believe that Comuneros is a viable operation and will settle all claims, or 2. The creditors believe that Comuneros is not viable causing an end to claim negotiations and thereby forcing the government to commence liquidation pursuant to Colombian law. Equus Comuneros has not considered it necessary to make any adjustments to the financial statements with respect to it not being able to continue operating. In 2000, the Company was awarded exclusive rights by the Government of Uruguay to operate the Maronas racetrack in Montevideo and an off-track betting agency network together with the right to operate up to 1,500 slot machines in 5 locations. The necessary restoration of the racetrack would, in management's opinion, require an initial investment of $12 million. Efforts to raise the $12 million by the due date were unsuccessful. Consequently, the concession expired on June 30, 2001, and the Company's bid bond in the amount of $450,000 was forfeited and thus, expensed during the fiscal year 2001. Subsequently, the concession was awarded to another operator in the fourth quarter of 2001, which resulted in the Company writing off its entire investment as of December 31, 2001. As noted in the accompanying consolidated financial statements, the Company has incurred recurring losses from operations, has a partners' deficit of $40,685,029 and projects a negative cash flow for 2002. These factors, among others, raise substantial doubt about the Company's ability to continue as a going concern and to meet its obligations during 2002. The accompanying financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern. 13 Management has plans to overcome the Company's problems as follows: (i) Request license approval in Colombia and Dominican Republic for casino and/or sports book operations. (ii) Continue to Implement cost reductions at all properties. (iii) Request designation of the El Comandante facility as a tourist zone, which would allow the addition of slot machines and authorization for low interest bonds or notes. As of November 1, 2002, such approvals have not been obtained. (iv) Expand simulcasting in Colombia and Dominican Republic as well as expand betting pool races. (v) Obtain new bank financing or financing by the Wilson family. There can be no assurance that any of the above will be achieved, or if achieved, the results will be sufficient to enable the Company to continue to operate. On December 15, 2000 and June 15, 2002, the ECG failed to pay interest of $7.2 million and principal of $10.2 million on the First Mortgage Notes (See Note 3). This constituted a default under the Indenture. In addition, defaults have occurred in the performance or breach, of covenants and/or warranties of HDA and/or ECCC. There have been discussions with representatives of the Government Development Bank for Puerto Rico and other government officials to explore ways to obtain funds to bring the interest and principal current on the Notes. There can be no assurance that the ECG will obtain the required funding to bring the delinquent interest and principal current, in which case the note holders have indicated they intend to exercise their remedies under the Indenture to declare the principal on the Notes to be due and immediately payable and to seek a judgment or decree for payment of all money due. ECG has the sole obligation to cure the defaults. GOVERNMENT MATTERS El Comandante is required to pay the Government of Puerto Rico various taxes on wagering placed on thoroughbred horse races held at or simulcasted by El Comandante (Puerto Rico). The taxes on wagering are required to be remitted to the Department of the Treasury of Puerto Rico within two (2) days of the date wagers are placed. From October 16, 2000 to February 7, 2001, El Comandante failed to remit tax payments totaling $9,949,182. On May 24, 2001, ECMC executed a Closing Agreement (the "Agreement") with the Secretary of the Treasury of Puerto Rico (the "Secretary") whereby ECMC will settle its assessed debt of unpaid excise taxes and commissions for the period October, 2000 through February, 2001, in the amount of $11,172,450 (including interest and late charges), plus an additional assessment of $60,141 (including interest) for unpaid commissions for the period February 2, 2001 through February 7, 2001 as follows: 1. Upon execution of the Agreement, ECMC paid $60,141 in full payment of the February, 2001 assessment. 2. For a six-month period commencing June 1, 2001 and ending November 30, 2001, ECMC will pay $50,000 per week against the October, 2000 through January, 2001 assessment. After the six-month period, the Secretary will reevaluate the financial condition of ECMC, and may, upon reasonable grounds, continue, modify or revoke the Agreement. 14 3. ECMC will continue to pay on a timely basis current excise taxes and commissions. 4. ECMC will provide and maintain a bond in favor of the Secretary in the amount of $500,000. 5. In the event ECMC defaults during the term of the Agreement, the Secretary may accelerate the balance due plus any additional amounts due as a result of the default. 6. As of September 30, 2002, ECMC has paid a total of $3,500,000 on the indebtedness. As of November 1, 2002, ECMC had fully complied with the terms and provisions of the Agreement. As of September 30, 2002, Equus Comuneros, S.A. owed the Colombian Tax and National Customs Administration approximately $1,066,502, including interest, for withholding at source tax. Management has recently met with the Government to settle the amount outstanding. The plan proposed to the government is as follows: 1. Five (5) year amortization of 10%, 15%, 20%, 25% and 30%, respectively. 2. The Government is requesting a down payment, which is currently being negotiated. On August 18, 2001, ECMC executed a Closing Agreement (the "Agreement") with the Municipality of Canovanas whereby ECMC settled a longstanding dispute over the payment of the Volume of Business Tax assessed by the municipality. The following schedule lists the deficiencies by fiscal year with the corresponding interest and surcharges: FISCAL INTEREST TAX TAX AND YEAR DEFICIENCY SURCHARGES TOTAL ------- ----------- ----------- -------- 93/94 $ 74,087 $ 67,913 $142,000 96/97 120,397 68,224 188,621 97/98 126,666 59,110 185,776 98/99 123,366 45,233 168,599 99/00 93,367 24,897 118,264 00/01 116,735 19,455 136,190 ----------- ----------- -------- Totals $ 654,618 $ 284,832 $939,450 =========== =========== ======== Prior to settlement, the Company as of June 30, 2001 had accrued a total liability of $838,396 due for municipal taxes and other charges. On June 30, 2001, the Company recorded additional penalties and interest of $101,054. The terms of the Agreement are as follows: 1. For the period August 1, 2001 through January 31, 2003, ECMC will pay the Municipality of Canovanas $5,000 per week. 2. At the end of this eighteen (18) month period, the Municipality can request full payment of the remaining balance, $559,450, or renegotiate a final twelve (12) month payoff of the balance. 15 3. Should ECMC default at any time on the agreed payment terms, the Municipality may declare the entire remaining balance due. 4. To guarantee the timely payments of the amounts due, ECMC has provided to the Municipality two (2) payments bonds in the amount of $503,732 and $94,886, respectively. As of November 1, 2002, ECMC was in compliance with the provisions of the agreement. On April 2, 2001, the House of Representatives of the Commonwealth of Puerto Rico presented a resolution ordering an investigation of the operations of ECMC with emphasis on the fiscal and financial administration of El Comandante and its tax delinquency. As of October 22, 2001, all requested information had been submitted by ECMC. The investigation has been completed, but as of this date the House of Representatives has not issued their report or otherwise disclosed their findings. By means of Resolution 213 of October 31, 2001, of the Colombian Superintendency of Societies, Equus Comuneros was accepted for government supervised restructuring under the provisions of Colombian Law 550 of 1999. Presently, negotiations with the Comuneros creditors are in process and will result in one of the following two situations: 1. The creditors believe that Comuneros is a viable operation and will settle all claims, or 2. The creditors believe that Comuneros is not viable causing an end to claim negotiations and thereby forcing the government to commence liquidation pursuant to Colombian law. Equus Comuneros has not considered it necessary to make any adjustments to the financial statements with respect to it not being able to continue operating. CONSOLIDATION AND PRESENTATION The consolidated financial statements as of September 30, 2002 are unaudited but include all adjustments (consisting of normal recurring adjustments) which management considers necessary for a fair presentation of the consolidated results of operations for the interim periods. The operating results for the nine months ended September 30, 2002 are not necessarily indicative of results for the year. Net losses per unit are calculated based on weighted average number of Units outstanding. Outstanding warrants to purchase Units do not have a material dilutive effect on the calculation of earnings per Unit. The preparation of financial statements in conformity with accounting principles generally accepted in the United States ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities, if any, at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. These unaudited consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. While management believes that the disclosures presented are adequate to make the information not misleading, it is suggested that these financial statements be read in conjunction with the financial statements and the notes of the Company included in the Company's Annual Report filed on Form 10-K for the year ended December 31, 2001. 16 The Company consolidates the entities in which it has a controlling interest. The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries after eliminating all significant intercompany transactions. All of the entities included in the consolidated financial statements are hereinafter referred to collectively, when practicable, as the "Company". The Company has minority partners in HDA, Galapagos and Equus-Comuneros. Therefore, the Company recorded minority interest based on the earnings (losses) of these consolidated subsidiaries that are attributable to the minority partners, as follows: FOR THE NINE MONTHS FOR THE THREE MONTHS ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, ---------- ------------ ---------- ---------- 2002 2001 2002 2001 ---------- ------------ ---------- ---------- SUBSIDIARY: HDA $ (34,880) $ (62,800) $ (14,890) $ (27,650) Galapagos - - - - Equus-Panama - - - - Equus-Comuneros (724,971) (1,039,144) (432,150) (136,563) ---------- ------------ ---------- ---------- $(759,851) $(1,101,944) $(447,040) $(164,213) ---------- ------------ ---------- ---------- In general, the minority interest is calculated based on the ownership interest of the minority partners. HDA has a minority partner owning a 1% interest. Galapagos' minority partners own a 45% interest. However, during the nine months ended September 30, 2002 and 2001 the Company did not recognize a minority interest in Galapagos' losses amounting to $267,769, and $279,182, respectively, because the minority partners have no legal obligation to fund losses in excess of their investment. As of September 30, 2002 the accumulated losses, not allocated to the minority partners, amount to $2,573,700. Equus-Comuneros minority partners own a 50% interest. CURRENCIES The Company consolidates its accounts with Galapagos and Equus-Comuneros whose functional currency are the Dominican Republic peso and the Colombian peso, respectively. The United States dollars ("US$") are also a recording currency in these countries. US$ are exchanged into those foreign currencies ("FC$") and vice versa through commercial banks and/or the central banks of the respective countries. The Company remeasures the monetary assets and liabilities of the foreign subsidiaries that were recorded in US$ into the FC$ using the exchange rates in effect at the balance sheet date (the "current rate") and all other assets and liabilities and capital accounts, at the historical rates. The Company then translates the financial statements of the foreign subsidiaries from FC$ into US$ using the current rates, for all assets and liabilities, and the average exchange rates prevailing during the year, for revenues and expenses. For the nine months ended September 30, 2002 and 2001, net exchange losses resulting from re - measurement of accounts, together with losses from foreign currency transactions, amounted to $961,113 and $373,795 respectively, which amounts are included as operating expenses. Accumulated net loss from changes in exchange rates due to the translation of assets and liabilities of the foreign subsidiaries are included in partners' deficit and at September 30, 2002 and December 31, 2001 amounted to $349,378 and $283,159 respectively. 17 The current exchange rates in Dominican Republic as of September 30, 2002 and 2001 were US$1.00 to FC$17.56 and US$1.00 to FC$17.15, respectively. The average exchange rates in Dominican Republic prevailing during the nine months ended September 30, 2002 and 2001 were US$1.00 to FC$17.41 and US$1.00 to FC$16.99, respectively. The current exchange rate in Colombia as of September 30, 2002 and 2001 were US$1.00 to FC$2,904 and $US1.00 to FC$2,407. The average exchange rate in Colombia prevailing during the nine months ended September 30, 2002 and 2001 were US$1.00 to FC$2,484 and US$1.00 to FC$2,301. 2. COMMITMENTS AND CONTINGENCIES: HORSE OWNERS' AGREEMENTS The Company has separate agreements with the horse owners' confederation of each country that establishes the amount payable to horse owners as purses in exchange for the availability of thoroughbred horses for races. Payments to horse owners are, in general, based on a percentage of wagering. The Dominican Republic contract expires in December 2005. The Colombia contract expires on December 31, 2009. It provides for certain minimum guaranteed payments to horse owners during the first three years ($1.2 million in 2000, increased in 2001 and 2002 in accordance with an inflation factor). The Puerto Rico horse owners contract expires in July 2010. Under the contract, the horse owners are guaranteed minimum earnings of $25,032,000 for years 2000 and 2001. ECMC is obligated among other things to pay the horse owners $90,000 annually for administrative costs and 50% of the principal and interest owed on an outstanding Confederation loan with a principal balance due of $526,000, plus accrued interest. ECMC also must invest $3,000,000 in improvements to the racetrack during the 10-year term of the contract, as well as provide up to $2,000,000 of financing the purchase of horses. Expenses related to the new horse owners' contract are included in Other Expenses. On March 16, 2001 an "Addendum to Contract" was executed by the Horse Owners' Confederation and the Company, whereby the parties jointly agreed to: (i) Increase the number of simulcast races each live race day from three (3) to six (6). (ii) Place three (3) of the simulcast races before the first live race and place three (3) intermingled races after the fifth live race;. (iii) Include simulcasting of nine (9) to twelve (12) races on Thursdays of each week, a day that currently holds no live races. (iv) In consideration for the above items, ECMC will pay an additional $1,000,000 to the Horse Owners' Confederation if approved by the Racing Board. On June 28, 2001, the Puerto Rico Racing Board granted ECMC the right to increase the number of simulcast races from the United States from three (3) to six (6) per live race day. The Order allowed a three (3) month probationary period commencing July 1, 2001, for ECMC to place three (3) simulcast races before the first live race and three (3) after the fifth live race. The Racing Board declined the simulcasting of races during the probationary period on Thursday's, a day that currently holds no live races. 18 Pending final approval by the Racing Board, ECMC was obligated to pay the Horse Owners' Confederation $1,000,000. On October 16, 2001 following a hearing, the Racing Board suspended effective October 22, all simulcasting temporarily allowed during the probationary period. Since no final approval was obtained from the Racing Board for the simulcasting of races, ECMC is no longer obligated to pay the additional $1,000,000 to the Horse Owners' Confederation. The Racing Board will allow simulcasting of special events such as the Breeders' Cup, Kentucky Derby and the Preakness as well as the Caribbean Classic and the Confraternity Classic from the host country if these races are not held in Puerto Rico. ECMC is currently doing a cost/benefit analysis to determine if the limited simulcasting will be economically worthwhile. WAGERING SERVICES AGREEMENTS The Company has separate agreements with Autotote Systems, Inc. ("Autotote") and United Tote Company ("United Tote") for providing wagering services, software and equipment to each racetrack, necessary for the operation of the off-track betting system. Payments under these contracts prior to July 20, 2002 are summarized as follows: 1. AUTOTOTE -------- EL COMANDANTE V CENTENARIO LOS COMUNEROS ------------- ------------ --------------- Expiration date 31-Mar-12 19-Jul-02 01-Jan-08 Cost of services, as a percentage of wagering 0.65% 0.65% 1.20% Minimum amount per year $ 800,800 $ 200,000 $ - As of July 20, 2002, ABN purchased from Autotote the totalisator computer system equipment and approximately 250 terminals. The purchase price for the computer system equipment is $125,000 and $500 per complete terminal. ABN shall pay for the equipment and terminals in 20 equal monthly installments together with interest at the rate of 8% per annum. As of July 20, 2002, Galapagos purchased from Autotote the totalisator computer system equipment and approximately 524 terminals. The purchase price for the computer system equipment is $135,000 and $500 per complete terminal. Galapagos shall pay for the equipment and terminals in 20 equal monthly installments together with interest at the rate of 8% per annum. 2. UNITED TOTE ----------- In August 2000 the Company obtained a $2.5 million unsecured loan at 3% over prime due in December 29, 2004. Principal and interest was to be paid from .25% of the wagering handle for the first four (4) years of the service contract with United Tote. Effective April 1, 2002, the Company and United Tote amended and restated the prior promissory note dated August 11, 2000, for $2,500,000, due December 29, 2004, as follows: 1. The principal balance was revised to $3,431,955 which includes all sums remaining due under the prior note, installation costs incurred by United Tote and totalisator fees due from Comuneros. 2. Interest on the unpaid principal balance at the rate of "prime" interest plus three (3) percent. 19 3. The note shall become due and payable on July 1, 2003. 4. If the Company obtains substantial financing for video gaming activity at its racetrack in Puerto Rico, then the terms of the note will be renegotiated to include an amortization schedule mutually agreed upon by both parties. OTHER LONG-TERM AGREEMENTS El Comandante has also entered in other long-term contracts that are essential for the operation of its racetracks such as to guarantee television coverage in Puerto Rico. ECMC has an agreement with S&E Network, Inc. ("S&E") that requires the purchase of television time for a minimum of 910 hours at the rate of $725 (effective February 1997) per hour, adjusted annually by CPI, or at the rate of $900 per hour, also subject to CPI adjustments, if television time after 7:00 PM is needed. The contract is non-cancelable by either party during the initial term, which expires on December 2006. The term is automatically extended for successive 5 year periods by request of ECMC. During this extended term, the contract can be canceled by S&E, upon payment of liquidating damages of $2 million plus CPI after January 1997. On August 1, 2001, El Comandante entered into a five (5) year contract with Satelites Mexicanos, S.A. de C.V. ("Satmex"), to provide 18MHz of Ku Band satellite time for the broadcast of its live racing program and potential resale. The contract also provided for the payment of overtime charges of $287,364, including interest, incurred in the previous C Band contract. As of September 30, 2002 El Comandante has failed to pay a total $723,937, including interest due under the contract. If it is deemed that El Comandante has terminated the contract, El Comandante is also liable for a termination fee of $1,063,740. At this time neither El Comandante nor the Company has the resources to pay the ongoing service charges or the termination fee. CONTRIBUTIONS In connection with the termination of the lease agreement of El Comandante, ECMC assumed certain commitments made by ECOC to make contributions (subject to availability of funds) to several charitable and educational institutions during a four-year period ending in 2001. These obligations are included in accounts payable and, at September 30, 2001 amounted to $290,000. Due to the lack of available funds no contributions were made in 2001, and there being no further obligation, the balance was written off at December 31, 2001. OTHER CONTINGENCIES During 1999 and 2000, Equus Comuneros, received transfers from the Company amounting to $1,307,000. According to Colombian law there are certain limitations on transfers of foreign currency into Colombian entities. There is the possibility that a regulatory investigation will result in fines and/or penalties to Equus Comuneros. Equus Comuneros legal counsel is in process of correcting any violations under Colombian law resulting from these transfers. 3. FIRST MORTGAGE NOTES: On December 15, 1993, pursuant to a private offering, (i) El Comandante Capital Corp. ("ECCC"), a single-purpose wholly owned subsidiary of HDA, issued first mortgage notes in the aggregate principal amount of $68 million (the "First Mortgage Notes") under an indenture (the "Indenture") between ECCC, HDA and Banco Popular de Puerto Rico, as trustee (the "Trustee"), and (ii) HDAMC issued Warrants to purchase 68,000 shares of Class A Common Stock of HDAMC. In March 1995, the Warrants automatically became exercisable to purchase an aggregate of 1,205,232 units of the Company from 20 HDAMC (see Note 4). Upon issuance of the Warrants, HDA recorded note discount of $2,040,000 equal to the fair value of the Warrants. Such note discount is being amortized using the interest method over the term of the First Mortgage Notes. The First Mortgage Notes mature on December 15, 2003 and bear interest at 11.75% payable semiannually. Payment of the First Mortgage Notes is guaranteed by HDA. The First Mortgage Notes are secured by a first mortgage on El Comandante and by certain other collateral which together encompass a lien on (i) the fee interests of HDA in the land and fixtures comprising El Comandante, (ii) all related equipment, structures, machinery and other property, including intangible property, ancillary to the operations of El Comandante, and (iii) substantially all of the other assets and property of HDA, including the capital stock of ECCC owned by HDA. During the past years HDA has made early redemptions of First Mortgage Notes in connection with certain transactions. HDA has also purchased in the open market First Mortgage Notes which the Company intends to hold until maturity in cancellation of required partial redemptions in 2000 and 2001, as explained below. Following is a summary of these transactions:

ECCC is required to partially redeem First Mortgage Notes commencing on December 15, 2000. The stated future maturities of the First Mortgage Notes, reduced by prior redemptions, are as follows (in thousands): DUE DURING THE YEAR GROSS PURCHASED IN NET ENDING DECEMBER 31, AMOUNT OPEN MARKET AMOUNT ------------------- -------- ------------- -------- 2001 10,200 6,746 3,454 2002 10,200 - 10,200 2003 40,800 - 40,800 61,200 6,746 54,454 Less - discount (264) 54 (318) $60,936 $ 6,800 $54,136 ======== ============= ======== 21 HDA may also redeem First Mortgage Notes at the following redemption prices (expressed as percentages of principal amount), in each case together with accrued and unpaid interest: DURING THE 12 MONTH PERIOD BEGINNING ON DECEMBER 15, ------------------------- 2000 101.00% 2001 100.00% On December 15, 2001 and June 15, 2002 the ECG failed to pay interest of $7.2 million and principal of $10.2 million on the First Mortgage Notes. This constitutes a default under the Indenture. In addition, defaults have occurred in the performance or breach, of covenants and/or warranties of HDA and/or ECCC. There have been discussions with representatives of the Government Bank for Puerto Rico and other government officials to explore ways to obtain funding to bring the interest and principal current on the Notes. It is not expected that the ECG will be able to meet the mandatory maturity dates of the First Mortgage Notes as set forth above without obtaining additional financing from lending institutions or investors. Although the ECG has had discussions with possible lenders and investors, it has received no commitment or other form of assurance that such financing will be forthcoming. Absent such financing, the ECG will not be able to meet its long-term commitments. The Trustee of the First Mortgage Notes has advised the Company's legal counsel that the bondholders will demand payment in full of the First Mortgage Notes, as provided by the Indenture. HDA is required to purchase First Mortgage Notes, at face value, to the extent that HDA has accumulated excess cash flow, asset sales with net proceeds in excess of $5 million (to the extent these proceeds are not invested in HDA's racing business within a year), or a total taking or casualty, or in the event of a change of control of HDA. The Indenture contains certain covenants, one of which restricts the amount of distributions by HDA to its partners, including the Company. Permitted distributions are limited to approximately 48% of HDA's consolidated net earnings. In connection with certain approvals required from note holders, HDA agreed to temporarily reduce these distributions by 17%. HDA is permitted to make additional cash distributions to partners and other Restricted Payments, as defined under the Indenture, equal to 44.25% of the excess of HDA's cumulative consolidated net income after December 31, 1993 over the cumulative amount of the 48% Distributions, provided that HDA meets a certain minimum debt coverage ratio. HDA has not met this debt coverage ratio. As of June 30, 2001, HDA had advanced to the Company approximately $3.8 million against its allowable future distributions of profits, which was not in conformity with the terms of the Indenture. Management repaid these advances with the proceeds of a private placement offering of Equus Entertainment preferred stock on July 13, 2001. See Note 6, "Related Party Transactions". 4. HDAMC WARRANTS Under the Warrant Agreement, the Company was not a "qualified public company" and therefore HDA, as guarantor of the obligation, made the offer to purchase 68,000 outstanding Warrants for cash, at a repurchase price of $15.49 per Warrant. The repurchase offer expired on December 15, 1998 when 48,127 Warrants were tendered for a total purchase price of $745,487. This payment, together with transaction costs, was charged to partners' deficit. Of the remaining Warrants, 15,216 were exercised in exchange for 269,688 Units of the Company and, 4,657 Warrants, neither tendered nor exercised, expired. Therefore, 935,557 of the Units previously held by HDAMC were distributed to the Company and are currently held in treasury. 22 5. BONDS AND NOTES PAYABLE AND CAPITAL LEASES: The Company's outstanding notes payable consist of the following:

At September 30, 2002 and December 31, 2001, the prime rate (P) was 4.75%. (a) Management is in the process of renegotiating the terms of these financial obligations. Interest rates range from 7% to 14.01% over Colombia Fixed Term Deposit (FTD) rate. FTD at September 30, 2002 was 7.91%. (b) In August 2000 the Company obtained a $2.5 million unsecured loan at 3% over prime due December 29, 2004. Effective April 1, 2002, the Company and United Tote amended and restated the prior promissory note dated August 11, 2000, for $2,500,000, due December 29, 2004, as follows: 1. The principal balance was revised to $3,431,955 which includes all sums remaining due under the prior note, installation costs incurred by United Tote and totalisator fees due from Comuneros. 2. Interest on the unpaid principal balance at the rate of "prime" interest plus three (3) percent. 3. The note shall become due and payable on July 1, 2003. 4. If the Company obtains substantial financing for video gaming activity at its racetrack in Puerto Rico, then the terms of the note will be renegotiated to include an amortization schedule mutually agreed upon by both parties. 23 (c) On March 21, 2001, the Company received $100,000 from El Monte Properties, an entity controlled by the Wilson family who also owns a controlling interest in the Company under an unsecured promissory note payable on demand with interest accruing at 1% over prime. The proceeds were used to purchase El Comandante receivables from non-Puerto Rico affiliates and working capital. (d) On March 21, 2001, the Company received $50,000 from Santa Maria Associates, an entity controlled by the Wilson family who also owns a controlling interest in the Company under an unsecured promissory note payable on demand with interest accruing at 1% over prime. The proceeds were used to purchase El Comandante receivables due from non-Puerto Rico affiliates and working capital. (e) On April 6, 2001, the Company received $120,000 from El Monte Properties, an entity controlled by the Wilson family who also owns a controlling interest in the Company, under an unsecured promissory note payable on demand with interest accruing at 1% over prime, payable on demand by El Monte Properties, controlled by the Wilson family which also owns a controlling interest in the Company. The proceeds were used to purchase El Comandante receivables due from non-Puerto Rico affiliates and working capital. (f) On April 26, 2001, the Company received $250,025 from Insular Properties, an entity controlled by the Wilson family who also owns a controlling interest in the Company, under an unsecured promissory note payable on demand with interest accruing at 1% over prime. The proceeds were used to purchase El Comandante receivables due from non-Puerto Rico affiliates and working capital. (g) On April 30, 2001, the Company received $300,000 from Insular Properties, an entity controlled by the Wilson family who also owns a controlling interest in the Company, under an unsecured promissory note payable on demand with interest accruing at 1% over prime. The proceeds were used to purchase El Comandante receivables due from non-Puerto Rico affiliates and working capital. (h) On May 11, 2001, the Company received $205,000 from Insular Properties, an entity controlled by the Wilson family who also owns a controlling interest in the Company under an unsecured promissory note payable on demand with interest accruing at 1% over prime. The proceeds were used to purchase El Comandante receivables due from non-Puerto Rico affiliates and working capital. (i) On June 14, 2001, the Company received $1,300,000 from El Monte Properties, an entity controlled by the Wilson family who also owns a controlling interest in the Company, under an unsecured promissory note payable on demand with interest accruing at 1% over prime. The proceeds were used to purchase El Comandante receivables due from non-Puerto Rico affiliates and working capital. (j) On July 20, 2001, Satellites Services International, Inc. received $53,750 from Santa Maria Associates, an entity controlled by the Wilson family who also owns a controlling interest in the company, under an unsecured promissory note, payable on demand with interest accruing at 1% over prime. The proceeds were used for working capital. (k) On September 21, 2001, the ECG received $523,429 from Santa Maria Associates, an entity controlled by the Wilson family who also owns a controlling interest in the Company, under a unsecured promissory note, payable on demand with interest accruing at 1% over prime. The proceeds were used to purchase El Comandante receivables due fro non-Puerto Rico affiliates and working capital. (l) On September 21, 2001 Equus-Comuneros received $40,000 from Santa Maria Associates, an entity controlled by the Wilson family who also owns a controlling interest in the Company under a promissory note, payable on demand with interest accruing at 1% over prime. The proceeds were used for working capital. 24 (m) On September 27, 2001, the Company received $330,000 from Santa Maria Associates, an entity controlled by the Wilson family, who also owns a controlling interest in the company, under an unsecured promissory note, payable on demand with interest accruing at 1% over prime. The proceeds were used to purchase El Comandante receivables due from non-Puerto Rico affiliates and working capital. (n) Throughout the period ended September 30, 2002, the Company received a net of $70,000 from Interstate Business Corporation, an entity controlled by the Wilson family, who also owns a controlling interest in the company, under an unsecured promissory note, payable on demand with interest accruing at 1% over prime. The proceeds were used to purchase El Comandante receivables due from non-Puerto Rico affiliates and working capital. (o) On November 2, 2001, the Company received $70,000 from Santa Maria Associates, an entity controlled by the Wilson family, who also owns a controlling interest in the company, under an unsecured promissory note, payable on demand with interest accruing at 1% over prime. The proceeds were used to purchase El Comandante receivables due from non-Puerto Rico affiliates and working capital. The Company also guaranteed a $250,000 loan by the operator of the restaurant at Presidente Remon. The proceeds of this loan were used by Equus-Panama to finance improvements to the restaurant. On October 9, 2001, the Company entered into a stock purchase agreement whereby in exchange for release from all liabilities related to the operation of Equus Entertainment de Panama, the Company gave to its minority partner, Wall Street Securities, its 204,000 shares of common stock which represented 51% of the total issued and outstanding shares of Equus Entertainment de Panama. At the same time, the Company was released from any further liability under this loan guarantee. On October 1998, Equus-Panama issued $4 million in unsecured bonds pursuant to a public offering. Interest is payable quarterly at the rate of 11% per annum. The bonds may be redeemed by Equus-Panama prior to June 30, 2001 at a redemption price of 102% of the principal amount and thereafter at par. Under the loan documents there are certain restrictions that limit the capacity of Equus-Panama to incur indebtedness and pay dividends to shareholders. On October 9, 2001, the Company entered into a stock purchase agreement whereby in exchange for release from all liabilities related to the operation of Equus Entertainment de Panama, the Company gave to its minority partner, Wall Street Securities, its 204,000 shares of common stock which represented 51% of the total issued and outstanding shares of Equus Entertainment de Panama. At the same time, the Company was released from any further liability under this Bond Indenture. 25 The following table summarizes future minimum payments on capital leases and notes payable of the Company and its consolidated subsidiaries: DUE DURING THE YEAR CAPITAL NOTES ENDING SEPTEMBER 30, LEASES PAYABLE -------------------- ---------- ----------- 2003 $ 229,167 $3,697,302 2004 463,798 25,556 2005 266,501 3,446,042 2006 13,099 - 972,565 7,168,900 Imputed interest (107,204) (171,198) $ 865,361 $6,997,702 ========== =========== 6. RELATED PARTY TRANSACTIONS: SERVICES AMONG RELATED PARTIES The following represents a summary of amounts accrued for services rendered by or from certain related parties, namely, EMC, IBC, American Community Properties Trust ("ACPT") and Interstate General Company L.P. ("IGC") during the nine months and three months ended September 30, 2002, 2001.

Throughout 2001 The Company received $3,412,204 from entities controlled by the Wilson Family who also owns a controlling in the Company. See Note 5. On July 13, 2001, Kempt Corporation, a Puerto Rico corporation wholly owned by Wilson Securities Corporation, an entity controlled by the Wilson family, purchased seven (7) million shares of Equus Entertainment Class A, 12% cumulative preferred stock, $1.00 par value. Equus Entertainment then applied $3.8 million to offset the advances against dividends made to the Company. Equus Entertainment reimbursed the El Comandante Group (consisting of Housing Development Associates S.E., El Comandante Capital Corporation and El Comandante Management Company LLC) for all advances made by the El Comandante Group to affiliate companies. Equus Entertainment also purchased the inter-company receivables of the El Comandante Group that were due from affiliate companies. The Net proceeds of $6,882,037 were used to pay the following: 1. The June 14, 2001 interest payment on the First Mortgage Notes of $3,595,500 plus $32,408 of penalty interest for the period June 15, 2001 through July 13, 2001. 26 2. Payoff of $2,604,747 HDA Note payable to FirstBank together with interest accrued through July 13, 2001, of $14,370. 3. Payoff of $500,000 HDA line of credit with FirstBank together with interest accrued through July 13, 2001, of $2,903. 4. Advances to consolidated affiliates of $132,108 to cover operational expenses. 7. FAIR VALUE OF FINANCIAL INSTRUMENTS: Based on quoted market prices, the fair value of the First Mortgage Notes as of September 30, 2002 was approximately $34,033,750 (as compared with a carrying value of $54,136,221). The carrying value of notes payable, capital leases and notes receivable approximates fair value. These obligations provide for variable rate interest. The carrying value of accounts receivable and accounts payable approximates fair value due to their short maturities. 8. SEGMENT INFORMATION: The Company has identified three reportable segments, based on geographical considerations: Puerto Rico, Dominican Republic and Colombia. The accounting policies of the segments are the same as those described in the summary of accounting policies. The Company evaluates performance based on profit or loss before income taxes, not including nonrecurring gains and losses and foreign exchange gains and losses. The following presents the segment information for the nine months ended September 30, 2002 and 2001 (in thousands). 27

9. LEGAL PROCEEDINGS: The Company had a case in arbitration at the American Arbitration Association in defense of and against Autotote, involving all the racetracks in which Equus has an ownership interest. Autotote filed a claim against El Comandante for unpaid service fees of $186,415 plus interest. El Comandante agreed to pay this amount but filed a counterclaim against Autotote. On July 27, 2001 and November 21, 2001 American Arbitration Association rendered its award decision. The following is a summary of the awards by racetrack: EL COMANDANTE, PUERTO RICO 1. El Comandante is to pay Autotote the principal amount of $355,496 in unpaid service fees together with interest of $32,051, accrued through April 1, 2001. 2. El Comandante shall reimburse Autotote for costs incurred of $132,500. 3. As of September 30, 2002, the outstanding principal balance was $826,159 and accrued interest was $2,150. 28 EQUUS - COMUNEROS 1. Comuneros owes the principal amount of $716,762 as of July 20,2002, plus interest of $365,485, for a total of $1,082,247; 2. Provided that all payments due Autotote are made in accordance with the Agreement dated July 20, 2002, the amount of $1,082,247 will be settled for $450,000, together with simple interest of 8% per annum from July 20, 2002, until paid in full; 3. $50,000 paid upon execution of the Agreement, July 20, 2002; 4. $100,000 payable within 120 days following the execution of the Agreement; 5. Payment on a weekly basis by Comuneros and/or ABN of two (2) percent, one (1) percent of the handle from electronic lottery sales in Colombia, and one (1) percent of pari-mutuel sports wagering handle; 6. Payments pursuant to the Agreement are guaranteed by ABN, SSI, Equus Entertainment Corp., Affiliates of Comuneros and by Interstate Business Corporation, which is beneficially owed and controlled by the Wilson Family who also owns a controlling interest in the Company. GALAPAGOS 1. Galapagos owes Autotote the principal amount of $230,578 as of April 23, 2001, together with interest of $120,308 through November 21, 2001, the date of the award. 2. For breach of good faith and fair dealings, Autotote owes Galapagos $800,000, plus interest at the rate of seven (7) percent per annum from November 21, 2001 to the date of payment. 3. The parties have no further obligations to one another with respect to lottery operations in the Dominican Republic. 4. The parties shall bear equally the costs of arbitration which amount to $44,903 each. Any excess funds on deposit shall be reimbursed to the paying parties in equal amounts. 5. Autotote shall pay Galapagos $150,000 in reimbursement of fees incurred in the proceedings. 6. Awards will be offset and the net amount owed to Galapagos of approximately $600,000 will accrue interest at seven (7) percent until paid. As of May 1, 2002, a Settlement Agreement (the "Agreement") was executed between Autotote Systems, Inc ("Autotote") and El Comandante Management Company LLC ("ECMC") whereby the obligations for each party were settled as follows: 1. Galapagos assigned its rights to receive funds under the net award in Galapagos' favor. 2. In consideration for ECMC extending their agreement with Autotote for a ten (10) year period commencing May 1, 2002, and terminating March 31, 2012, Autotote will write off $55,100 each year of the net amount due Autotote of $550,688. 29 If for any reason ECMC defaults under this Agreement, or Autotote does not have the benefit of the license extension then the entire amount owed Autotote, including interest, less the amounts credited above, shall be reinstated retroactive to May 1, 2002. Each entity involved in the arbitration sustains individually the consequences of the arbiters' final award and there are no performance guarantees by any other entity including Equus Gaming Company L.P., the parent company. Costs incurred by the Company in pursuing the Arbitration with Autotote to date total $574,042 and have been allocated to each participating entity in the same proportion that the arbiters awarded the costs incurred by Autotote to each entity. On August 18, 2001, ECMC executed a Closing Agreement (the "Agreement") with the Municipality of Canovanas whereby ECMC settled its longstanding dispute over the payment of the Volume of Business Tax assessed by the municipality. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Company's operations consist principally of its interests in thoroughbred horse race tracks in four countries, each of which is owned and/or operated by a subsidiary: (i) El Comandante in Puerto Rico, owned by Housing Development Associates S.E. ("HDA") and operated since January 1, 1998 by El Comandante Management Company, LLC ("ECMC"), (ii) V Centenario in the Dominican Republic, operated since April 1995 by Galapagos S.A., ("Galapagos"), and (iii) Los Comuneros in Medellin, Colombia, owned and operated since early 1999 by Equus Comuneros, S.A. ("Equus-Comuneros"). The following discussion compares the results of operations of the Company for the three and nine months ended September 30, 2002, with the results for the three and nine months ended September 30,2001. RESULTS OF OPERATIONS QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO QUARTER AND NINE ------------------------------------------------------------------------------ MONTHS ENDED SEPTEMBER 30, 2001 ------------------------------- REVENUES Consolidated Revenues increased in the third quarter of 2002 by $80,000 or 0.6%, as compared to the same quarter in 2001. Consolidate revenues increased by, $ 608,000 or (1.5%) for the nine months ended September 30, 2002 to $41,407,000 as compared to $40,799,000 for the nine months ended September 30, 2001. COMMISSIONS ON WAGERING Commissions on wagering decreased by aproximately $ 252,000 or (2.1%) to $11,555,000 for the third quarter ended September 30, 2002 as compared to $11,807,000 in the third quarter of 2001. Commissions on wagering decreased by aproximately $ 733,000 or (1.9%) for the nine months ended 30 September 30, 2002 to $37,849,000 as compared to $38,582,000 for the nine months ended September 30, 2001. The decrease in commissions was attributable to the following operations: El Comandante ($597,000), Dominican Republic ($40,000), and Colombia ($96,000). During contract negotiations in January 2000, the Puerto Rico horse owners cancelled their prior approval of simulcast of live races from Puerto Rico to the Dominican Republic. In February this action was reversed by the Racing Board. This cancellation had an adverse economic impact on commissions on wagering in the Dominican Republic and Puerto Rico. In July 2000 the Puerto Rico Horse owners' Association reached an agreement with El Comandante Management Company on a new 10-year contract providing for simulcasting of races. PUERTO RICO. Commissions on wagering at El Comandante decreased $ 75,000,(0.7%), to $10,574,000 in the third quarter of 2002 as compared to $10,649,000 in the third quarter of 2001. Commissions on wagering at El Comandante decreased $ 597,000, (1.7%) from $34,726,000 for the nine months ended September 30, 2001 to $ 34,129,000 for the nine months ended September 30, 2002. Commissions on wagering are directly related to the racetrack handle, which has been in decline and hence a decline in the racetracks' commissions. El Comandante experienced declines in betting handle as a result of the poor racing program due to lack of proper scheduling of races by the Government Racing Authorities. DOMINICAN REPUBLIC. Commissions on wagering at V Centenario ("Galapagos") decreased $46,000, (6.6%), to $646,000 in the third quarter of 2002 as compared to $692,000 in the third quarter of 2001.Commissions on wagering at V Centenario decreased by $ 40,000, (1.6%) from $2,448,000 for the nine months ended September 30, 2001 to $ 2,408,000 for the nine months ended September 30, 2002. COLOMBIA. Commissions on wagering at Comuneros S.A. decreased by $131,000,(28.1%), to $335,000 in the third quarter of 2002 as compared to $466,000 in the third quarter of 2001. Commissions on wagering at Comuneros S.A. decreased by $96,000,(6.8%) from $1,408,000 for the nine months ended September 30, 2001 to $1,312,000 for the nine months ended September 30, 2002. NET REVENUES FROM LOTTERY SERVICES Since June 30, 2000, Autotote has provided services directly to the Lottery Operations [Dominican International Electronic Lottery, Inc. (LEIDSA)] and refused to pay Galapagos service fees under its service contract. See Note 9, "Legal Proceedings". OTHER REVENUES Other revenues during the three and the nine months ended September 30, 2002 increased by $332,000 and $185,000, respectively, as compared to the same period in 2001. EXPENSES For the reasons set forth below, total expenses during the three and nine months ended September 30, 2002 decreased by $771,000, (4.4%) and $6,155,000, (11.1%), respectively, as compared to the same period in 2001. The majority of this decrease was due to the sale of the Company's investment in Panama and the corresponding deconsolidation for the year 2001. Some of these expenses were non-recurring and are reported below under appropriate categories. 31 PAYMENTS TO HORSE OWNERS Payments of purses to horse owners during the three and nine months ended September 30, 2002 decreased by $281,000, (4.4)% and $853,000, (4.1%), respectively, as compared to the same period in 2001: Increase 2002 2001 (decrease) ----------- ----------- ----------- ECMC (a) $18,123,000 $18,668,000 $ (545,000) Dominican Republic 1,204,000 1,185,000 19,000 Colombia 592,000 919,000 (327,000) ----------- ----------- ----------- $19,919,000 $20,772,000 $ (853,000) =========== =========== =========== (a) Summary of new horse owners contract provision for ECMC The new Puerto Rico horse owners contract, signed in July 2000, provides for a non-recurring cash payment of approximately $1 million. Approximately $600,000 was accrued in 1999. The remaining $400,000 was charged to operating expenses in 2000. Under the El Comandante contract, the horse owners are guaranteed minimum earnings of $25,032,000 for 2000 and 2001. ECMC is obligated among other items to pay the horse owners $90,000 annually for administrative costs and 50% of the principal and interest owed on an outstanding horse owners loan with a principal balance due of $526,000, plus accrued interest. ECMC must also invest $3,000,000 in improvements to the racetrack during the 10-year term of the contract, as well as provide $2,000,000 of financing for the purchase of horses. On March 16, 2001 an "Addendum to Contract" was executed by the Horse Owners Confederation and the Company, whereby the parties jointly agreed to: (i) Increase the number of simulcast races each live race day from three (3) to six (6). (ii) Place three (3) of the simulcast races before the first live race and place three (3) after the fifth live race;. (iii) Include simulcasting of nine (9) to twelve (12) races on Thursday. Currently a dark day. (iv) In consideration for the above items, ECMC will pay an additional $1,000,000 to the Horse Owners Confederation when and if the additional simulcasting is approved by the Racing Board. As of June 28, 2001, The Puerto Rico Racing Board had granted ECMC the right to increase the number of simulcast races from three (3) to six (6) per live race day. The order allowed a three (3) month probationary period commencing July 1, 2001 to place three(3) simulcast races before the first live race and three (3) after the fifth live race. The Racing Board declined the simulcasting of races during the probationary period on Thursday's, a day that currently holds no live races. 32 The additional $1,000,000 to be paid by ECMC to the Horse Owners Confederation will be deferred until approval is received from the Racing Board for simulcasting as outlined above. On October 16, 2001, the Racing Board suspended, effective October 22, 2001, simulcasting permitted during the probationary period but not otherwise. Simulcasting of special events such as the Breeders' Cup, Kentucky Derby and the Preakness as well as the Caribbean Classic and the Confraternity Classic is still permitted. However, ECMC will perform a cost/benefit analysis to determine if the limited simulcasting is economically viable per event. FINANCIAL EXPENSES Financial expenses for the three and nine months ended September 30, 2002 increased by $552,000, 28.0% and decreased by $601,000, (8.3%), respectively, as compared to the same period in 2001. The increase for the three months ended September 30, 2002 was due to additional financing costs of the United Tote loan. The decrease for the nine months ended September 30, 2002 was due to penalties and interest on the unpaid excise taxes in 2001. DEPRECIATION AND AMORTIZATION Depreciation and amortization expenses for the three and nine months ended September 30, 2002 increased by $150,000, 14.7% and decreased by $77,000, (2.6%), respectively, as compared to the same period in 2001. OTHER EXPENSES Other expenses for the three and nine months ended September 30, 2002 decreased by $1,192,000, (14.5%) and by $4,624,000, (19.0%), respectively, as compared to the same period in 2001. This decrease is primarily attributable to the deconsolidation of Panama for 2001. 33

PROVISION FOR INCOME TAXES The provision for income tax is primarily related to deferred Puerto Rico income taxes on the Company's income and losses related to its interests in Puerto Rico, without taking into account results of operations of Galapagos or Equus-Comuneros. Due to accumulated losses, none of these foreign subsidiaries require a provision for income taxes. MINORITY INTEREST The Company's minority interest is attributed to the income and losses allocable to the minority partners of HDA, Galapagos and Equus-Comuneros. Since the accumulated losses of Galapagos allocable to minority partners exceeded their investment, for the nine months ended September 30, 2002, the Company did not recognize minority interest in losses of Galapagos. If Galapagos generates profits in 2002, no minority interest will be recognized by the Company in profits up to $2,573,700. 34 LIQUIDITY AND CAPITAL RESOURCES OVERVIEW The Company is the owner of Housing Development Associates S.E. ("HDA") and its consolidated subsidiary, El Comandante Management Company LLC ("ECMC"), as well as the owner of Agency Betting Network, Inc. ("ABN"), Satellites Services International, Inc. ("SSI") and foreign subsidiaries (Equus Comuneros S.A., Equus Entertainment de Panama, S.A. and Galapagos, S.A.). The principal source of cash of Equus Gaming Company L.P. (the "Company" or, when referring to the individual entity, "Equus") is related to its ownership interest in HDA, the owner and operator (through its wholly owned subsidiary ECMC) of El Comandante Race Track in Puerto Rico. Due to certain restrictions under HDA's indenture for the issuance of its 11.75% First Mortgage Notes due 2003 (the "Indenture"), cash held by HDA or its consolidated subsidiaries (including ECMC) is restricted to ensure payment of interest and certain obligations on the First Mortgage Notes. The following is a discussion of the liquidity and capital resources of the Company, including HDA and its subsidiary ECMC, as well as the Company's other subsidiaries ABN and SSI. Net cash flow from foreign subsidiaries of the Company (Equus Comuneros, S.A., and Galapagos, S.A) did not materially affect the consolidated cash flow of the Company for the nine months ended September 30, 2002 and these activities are not discussed herein. LIQUIDITY AND CAPITAL RESOURCES OF THE COMPANY (AND ITS CONSOLIDATED SUBSIDIARIES) The Company recognizes its current inability to generate sufficient cash to support its operations. To overcome its financial problems, the Company must look to additional revenue including investment or cost savings from: (i) Requesting license approval in Colombia and Dominican Republic for casino and/or sports book operations that could generate an additional $7 million in revenues annually. (ii) Implementing cost reductions at all properties. (iii) Requesting designation of the El Comandante facility as a tourist zone to allow the addition of slot machines and authorization for low interest bonds or notes. (iv) Receive permission from the Government of Puerto Rico to allow video lottery terminals at the OTB Agencies. (v) Expanding simulcasting in Colombia and Dominican Republic as well as expanding pool races. (vi) Obtain new bank financing or financing by the Wilson family. There can be no assurance that any of the above will be achieved, or if achieved, the results will be sufficient to enable the Company to continue to operate. Cash and cash equivalents of the Company, HDA and its consolidated subsidiaries decreased by approximately $272,000 for the nine months ended September 30, 2002. The Company has historically met its liquidity needs from cash flow generated by (i) the operations of El Comandante racetrack, (ii) short-term loans and capital leases for acquisition of new equipment, and (iii) investment by the Wilson family. 35 During 2002 principal uses of cash by the Company, HDA and its consolidated subsidiaries for financing and investing activities were: (i) Weekly payment of delinquent excise taxes pursuant to agreement. (ii) Weekly payment of delinquent volume of business taxes pursuant to agreement. (iii) Principal payments on existing capital leases. (iv) Capital expenditures, as needed and/or required for the various racing operations. For remainder 2002 projected principal uses of cash, other than for operating activities at El Comandante, are: (i) Weekly payment of delinquent excise taxes pursuant to agreement. (ii) Weekly payment of delinquent volume of business taxes pursuant to agreement. (iii) Principal payments on existing capital leases. (iv) Capital expenditures, as needed and/or required for the various racing operations. LONG-TERM COMMITMENTS. In addition to capital leases, long-term cash commitments of the Company (excluding foreign subsidiaries) are a $2.5 million unsecured note and the First Mortgage Notes. Effective April 1, 2002, the Company and United Tote amended and restated the prior promissory note dated August 11, 2000, for $2,500,000, due December 29, 2004, as follows: 1. The principal balance was revised to $3,431,956 which includes all sums remaining due under the prior note, installation costs incurred by United Tote and totalisator fees due from Comuneros. 2. Interest on the unpaid principal balance at the rate of "prime" interest plus three (3) percent. 3. The note shall become due and payable on July 1, 2003. 4. If the Company obtains substantial financing for video gaming activity at its racetrack in Puerto Rico, then the terms of the note will be renegotiated to include an amortization schedule mutually agreed upon by both parties. HDA's First Mortgage Notes bear interest at 11.75%, payable semiannually on June 15th and December 15th, and are secured by El Comandante assets. The First Mortgage Notes are redeemable, at the option of HDA, in 2001 and thereafter at 100% of the principal amount, together with accrued and unpaid interest. The maturity dates of First Mortgage Notes, reduced by prior redemptions and by the Notes purchased by ECMC, are as follows (in thousands): 36 YEAR ENDING NET AMOUNT DECEMBER 31, (FACE VALUE) ------------- ------------ 2001 $ 3,454 2002 10,200 2003 40,800 ------------- 54,454 ============= As of June 30, 2001, HDA had advanced to Equus approximately $3.7 million against its allowable future distributions of profits, which is not in conformity with the terms of the Indenture. Management repaid these advances with the proceeds of a private placement offering of Equus Entertainment preferred stock on July 13, 2001. See Note 6, "Related Party Transactions". On December 15, 2001 and June 15, 2002 the ECG failed to pay interest of $7.2 million and principal of $10.2 million on the first Mortgage Notes (See Note 5). This constitutes a default under the Indenture. In addition, defaults have occurred in the performance or breach, of covenants and/or warranties of HDA and/or ECC. There have been discussions with representatives of the Governmental Development Bank for Puerto Rico and other government officials to explore ways to obtain funding to bring the interest and principal current on the Notes. It is not expected that the ECG will be able to meet the mandatory maturity dates of the First Mortgage Notes set forth above without obtaining permission from the Government to allow slot machines at the race track and video lottery terminals (VLT's) at the OTB agencies. Although EGC has had discussions with the Government regarding the slot machines and VLT's, there have been no commitments or other forms of assurances from the Government that the required approval is forth coming. Absent such approvals, the EGC will not be able to meet its long-term commitments. GOVERNMENT MATTERS. El Comandante's horse racing and pari-mutuel wagering operations are subject to substantial government regulation. Pursuant to the Puerto Rico Horse Racing Industry and Sport Act (the "Racing Act"), the Racing Board and the Puerto Rico Racing Administrator (the "Racing Administrator") exercises regulatory control over El Commandant's racing and wagering operations. For example, the Racing Administrator determines the monthly racing program for El Comandante and approves the number of annual race days in excess of the statutory minimum of 180. The Racing Act also apportions payments of monies wagered that would be available as commissions to ECMC. The Racing Board consists of three persons appointed for four-year terms by the Governor of Puerto Rico. The Governor also appoints the Racing Administrator for a four-year term. El Comandante is required to pay the Government of Puerto Rico various taxes on wagering placed on thoroughbred horse races held at or simulcasted by El Comandante (Puerto Rico). The taxes on the wagering are required to be remitted to the Department of the Treasury of Puerto Rico within two (2) days of the date wagers are placed. El Comandante failed to remit tax payments totaling $9,949,182 from October 16, 2000 to February 7, 2001. Neither ECMC nor the Company has the financial resources to pay the overdue taxes. 37 On May 24, 2001, ECMC executed a "Closing Agreement" (the Agreement") with the Secretary of the Treasury of Puerto Rico (the "Secretary") whereby ECMC will settle its assessed debt of unpaid excise taxes and commissions for the period October, 2000 through February, 2001 in the amount of $11,172,450 (including interest and late charges), plus an additional assessment of $60,141 (including interest) for unpaid commissions for the period February 2, 2001 through February 7, 2001, as follows: 1. Upon execution of the Agreement, ECMC delivered a check to the Secretary for $60,141 in full payment of the February, 2001 assessment. 2. For a six-month period commencing June 1, 2001 and ending November 30,2001, ECMC shall pay $50,000 per week against the October, 2000 through January, 2001 assessment. After the six month period, the Secretary will reevaluate the financial condition of ECMC and may, upon reasonable grounds, continue, modify or revoke the Agreement. 3. ECMC is obligated to pay on a timely basis the current excise taxes and commissions due under Puerto Rico law. 4. ECMC is obligated to provide and maintain a bond in favor of the Secretary in the amount of $500,000. 5. In the event ECMC defaults during the term of this Agreement, the Secretary may accelerate the balance due plus any additional amounts due resulting from the default, including waived penalties of $167 thousand. As of November 1, 2002, all terms and conditions of the Agreement have been met by ECMC, including payment aggregating $3,500,000 through September 30, 2002. On April 2, 2001, the House of Representatives of the Commonwealth of Puerto Rico presented a resolution ordering an investigation of the operations of ECMC with emphasis on the fiscal and financial administration of El Comandante and its tax delinquency. As of October 22, 2001, all requested information had been submitted by ECMC. The investigation has been completed, but as of this date the House of Representatives has not issued their report or otherwise disclosed their findings. As of September 30, 2002, Equus Comuneros, S.A. owed the Colombian Tax and National Customs Administration approximately $1,066,502, including interest, for withholding at source tax. Management has recently met with the Government to settle the amount outstanding. The plan proposed to the government is as follows: 1. Five (5) year amortization of 10%, 15%, 20%, 25% and 30%, respectively. 2. The Government is requesting a down payment, which is currently being negotiated. By means of Resolution 213 of October 31, 2001, of the Colombian Superintendency of Societies, Equus Comuneros was accepted for government supervised restructuring under the provisions of Colombian Law 550 of 1999. Presently, negotiations with the Comuneros creditors are in process and will result in one of the following two situations: 1. The creditors believe that Comuneros is a viable operation and will settle all claims, or 2. The creditors believe that Comuneros is not viable causing an end to claim negotiations and thereby forcing the government to commence liquidation pursuant to Colombian law. 38 Equus Comuneros has not considered it necessary to make any adjustments to the financial statements with respect to it not being able to continue operating. FORWARD-LOOKING STATEMENT Certain matters discussed and statements made within this Form 10-Q are forward-looking statements within the meaning of the Private Litigation Reform Act of 1995 and as such may involve known and unknown risks, uncertainties, and other factors that may cause the actual results, performance or achievements of the Company to be different from any future results, performance or achievements expressed or implied by such forward-looking statements. Although the Company believes the expectations reflected in such forward-looking statements are based on reasonable assumptions, it can give no assurance that its expectations will be attained. These risks are detailed from time to time in the Company's filing within the Securities and Exchange Commission or other public statements. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS: The Company had a case in arbitration at the American Arbitration Association in defense of and against Autotote, involving all the racetracks in which Equus has an ownership interest. Autotote filed a claim against El Comandante for unpaid service fees of $186,415 plus interest. El Comandante agreed to pay this amount but filed a counterclaim against Autotote. On July 27, 2001 and November 21, 2001 American Arbitration Association rendered its award decision. The following is a summary of the awards by racetrack: GALAPAGOS 1. Galapagos owes Autotote the principal amount of $230,578 as of April 23, 2001, together with interest of $120,308 through November 21, 2001, the date of the award. 2. For breach of good faith and fair dealings, Autotote owes Galapagos $800,000, plus interest at the rate of seven (7) percent per annum from November 21, 2001 to the date of payment. 3. The parties have no further obligations to one another with respect to lottery operations in the Dominican Republic. 4. The parties shall bear equally the costs of arbitration which amount to $44,903 each. Any excess funds on deposit shall be reimbursed to the paying parties in equal amounts. 5. Autotote shall pay Galapagos $150,000 in reimbursement fees incurred in the proceedings. 6. Awards will be offset and the net amount owed to Galapagos of approximately $600,000 will accrue interest at seven (7) percent until paid. 39 EL COMANDANTE, PUERTO RICO 1. El Comandante is to pay Autotote the principal amount of $355,496 in unpaid service fees together with interest of $32,051, accrued through April 1, 2001. 2. El Comandante shall reimburse Autotote for costs incurred of $132,500. 3. As of September 30, 2002, the outstanding principal balance was $826,159 and accrued interest was $2,150. EQUUS - COMUNEROS 1. Equus-Comuneros is to pay Autotote the principal amount of $584,262 in unpaid service fees as of April 23, 2001, together with interest of $218,059 accrued through September 30, 2001. 2. Equus-Comuneros shall reimburse Autotote costs incurred of $132,500. As of May 1, 2002, a Settlement Agreement (the "Agreement") was executed between Autotote Systems, Inc ("Autotote") and El Comandante Management Company LLC ("ECMC") whereby the obligations for each party were settled as follows: 1. Galapagos assigned its rights to receive funds under the net award in Galapagos' favor. 2. In consideration for ECMC extending their agreement with Autotote for a ten (10) year period commencing May 1, 2002, and terminating June 30, 2021, Autotote will write off $55,100 each year or the net amount due Autotote of $550,688. If for any reason ECMC defaults under this Agreement, or Autotote does not have the benefit of the license extension then the entire amount owed Autotote, including interest, less the amounts credited above, shall be reinstated retroactive to May 1, 2002. Each entity involved in the arbitration sustains individually the consequences of the arbiters' final award and there are no performance guarantees by any other entity including Equus Gaming Company L.P., the parent company. Costs incurred by the Company in pursuing the Arbitration with Autotote to date total $574,042 and have been allocated to each participating entity in the same proportion that the arbiters awarded the costs incurred by Autotote to each entity. By means of Resolution 213 of October 31, 2001, of the Colombian Superintendency of Societies, Equus Comuneros was accepted for government supervised restructuring under the provisions of Colombian Law 550 of 1999. Presently, negotiations with the Comuneros creditors are in process and will resulting one of the following two situations: 1. The creditors believe that Comuneros is a viable operation and will settle all claims, or 2. The creditors believe that Comuneros is not viable causing an end to claim negotiations and thereby forcing the government to commence liquidation pursuant to Colombian law. 40 Equus Comuneros has not considered it necessary to make any adjustments to the financial statements with respect to it not being able to continue operating. On August 18, 2001, ECMC executed a Closing Agreement (the "Agreement") with the Municipality of Canovanas whereby ECMC settled a longstanding dispute over the payment of the Volume of Business Tax assessed by the municipality. The following schedule lists the deficiencies by fiscal year with the corresponding interest and surcharges: FISCAL INTEREST TAX TAX AND YEAR DEFICIENCY SURCHARGES TOTAL ------- ----------- ----------- -------- 93/94 $ 74,087 $ 67,913 $142,000 96/97 120,397 68,224 188,621 97/98 126,666 59,110 185,776 98/99 123,366 45,233 168,599 99/00 93,367 24,897 118,264 00/01 116,735 19,455 136,190 ----------- ----------- -------- Totals $ 654,618 $ 284,832 $939,450 =========== =========== ======== Prior to settlement, the Company as of June 30, 2001 had accrued a total liability of $838,396 due for municipal taxes and other charges. On June 30, 2001, the Company recorded additional penalties and interest of $101,054. The terms of the Agreement are as follows: 1. For the period August 1, 2001 through January 31, 2003, ECMC will pay the Municipality of Canovanas $5,000 per week. 2. At the end of this eighteen (18) month period, the Municipality can request full payment of the remaining balance, $559,450, or renegotiate a final twelve (12) month payoff of the balance. 3. Should ECMC default at any time on the agreed payment terms, the Municipality may declare the entire remaining balance due. 4. To guarantee the timely payments of the amounts due, ECMC has provided to the Municipality two (2) payments bonds in the amount of $503,732 and $94,886, respectively. As of November 1, 2002, ECMC was in compliance with the provisions of the agreement. El Comandante is required to pay the Government of Puerto Rico various taxes on the wagering placed on thoroughbred horse races held at or simulcasted by El Comandante (Puerto Rico). The taxes on the wagering are required to be remitted to the Department of the Treasury of Puerto Rico within two (2) days of the wagers being placed. El Comandante failed to remit tax payments totaling $9,949,182 from October 16, 2000 to February 7, 2001, to the Department of the Treasury of Puerto Rico. Neither ECMC nor the Company has the financial resources to currently pay the overdue taxes in full. 41 On May 24, 2001, ECMC executed a "Closing Agreement" (the "Agreement") with the Secretary of the Treasury of Puerto Rico (the "Secretary"), whereby ECMC will settle its assessed debt of unpaid excise taxes and commissions for the period October, 2000 through February, 2001, in the amount of $11,172,450 (including interest and late charge), plus an additional assessment of $60,141 (including interest) for unpaid commissions for the period February 2, 2001 through February 7, 2001, as follows: 1. Upon execution of the Agreement, ECMC delivered a check to the Secretary for $60,141 in full payment of the February, 2001 assessment. 2. For a six-month period commencing June 1, 2001 and ending November 30, 2001, ECMC is obligated to pay $50,000 per week against the October, 2000 through January, 2001 assessment. After the six-month period, the Secretary will reevaluate the financial condition of ECMC and may, upon reasonable grounds, continue, modify or revoke the Agreement. 3. ECMC is obligated to continue to pay on a timely basis the current excise taxes and commissions due under Puerto Rico law. 4. ECMC is obligated to provide and maintain a bond to the Secretary in the amount of $500,000. 5. In the event ECMC defaults during the term of this Agreement, the Secretary may accelerate the balance due plus any additional amounts due resulting from the default, including waived penalties of $167 thousand. As of November 1, 2002 all terms and conditions of the Agreement have been met by ECMC. Certain of the Company's subsidiaries are presently named as defendants in various lawsuits and might be subject to other claims arising out of their normal business operations. Management, based in part upon advice from legal counsel, believes that the results of such actions will not have a material adverse impact on the Company's financial position or results of operations. ITEMS 2-6 NONE 42 SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Equus Gaming Company L.P. ----------------------------------- (Registrant) By: Equus Management Company Managing General Partner November 14, 2002 /s/ Thomas B. Wilson ------------------- ----------------------------------- President, Chief Executive Officer, Director and Acting Chief Financial Officer November 14, 2002 /s/ James J. Wilson ------------------- ----------------------------------- Co-Chairman CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Equus Gaming Company L.P. (the "Company") on Form 10Q for the quarter ending September 30, 2002, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I Thomas B. Wilson, the Chief Executive Officer and Acting Chief Financial Officer of the Company, certify, pursuant to and for purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sabarnes-Oxley Act of 2002, that: (1) The report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. November 14, 2002 /s/ Thomas B. Wilson --------------------------------- Thomas B. Wilson Chief Executive Officer and Acting Chief Financial Officer Equus Gaming Company L.P. anticipates replacing Arthur Andersen LLP within the next sixty (60) days. 43 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Equus Gaming Company L.P. (the "Company") on Form 10Q for the quarter ending September 30, 2002, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I Thomas B. Wilson, the Chief Executive Officer and Acting Chief Financial Officer of the Company, certify, pursuant to and for purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sabarnes-Oxley Act of 2002, that: - the report has been reviewed; - based on my knowledge, the report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by the report; - based on my knowledge, the financial statements and other financial information included in the report fairly present in all material respects the financial condition, results of operations and cash flows of the company, as of and for the period presented in the report; - I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act rules) for the company and I have designed such disclosure control and procedures to ensure that material information relating to the company, including its consolidated subsidiaries is made known to me by others within those entities particularly during the period in which the report is being prepared; - I evaluated the effectiveness of the company's disclosure controls and procedures as of a date within 90 days prior to the filing date of the report (the "Evaluation Date") and - I presented in the report my conclusions about the effectiveness of the disclosure controls and procedures based on my evaluation as of the Evaluation Date; - I have disclosed, based on my most recent evaluation to the company's auditors and evaluation and audit committee all significant deficiencies in the design or operation of internal controls which could adversely affect the company's ability to record, process summarize and report financial data, and have identified for the company's auditors any material weakness in internal control; and any fraud whether or not material, that involves management or other employees who have a significant role in the company's internal control, and - I have indicated in the report whether there were significant changes in internal control or in other factors that could significantly affect internal controls subsequent to the date of my most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. November 14, 2002 /s/ Thomas B. Wilson --------------------------------- Thomas B. Wilson Chief Executive Officer and Acting Chief Financial Officer 44

EQUUS GAMING CO LP 10-Q