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 MARCH 31, 2000, OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________TO___________
Commission file number 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.)
650 Munoz Rivera Avenue
Doral Building, 7th Floor
Hato Rey, PR 00918
_____________________________________________________
(Address of Principal Executive Offices and Zip Code)
(787) 753-0676
____________________________________________________
(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 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. 8,389,824 Class A Units
1
<PAGE>
EQUUS GAMING COMPANY L.P.
FORM 10 Q
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Statements of Operations for the Three Months
Ended March 31, 2000 and 1999 (Unaudited) 3
Consolidated Statements of Comprehensive Income (Loss) for the
Three Months Ended March 31, 2000 and 1999 (Unaudited) 5
Consolidated Balance Sheets at March 31, 2000 (Unaudited)
and December 31, 1999 (Audited) 6
Consolidated Statement of Changes in Partners' Deficit for the
Three Months Ended March 31, 2000 (Unaudited) 8
Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 2000 and 1999 (Unaudited) 9
Notes to Consolidated Financial Statements 11
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations 21
Liquidity and Capital Resources 23
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 26
Item 2. Material Modifications of Rights of Registrant's Securities 26
Item 3. Default upon Senior Securities 26
Item 4. Submission of Matters to a Vote of Security Holders 26
Item 5. Other Information 26
Item 6. Exhibits and Reports on Form 8-K 26
Signatures 27
</TABLE>
2
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<TABLE>
<CAPTION>
EQUUS GAMING COMPANY L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31,
(UNAUDITED)
2000 1999
------------ ------------
<S> <C> <C>
REVENUES:
Commissions on wagering $16,516,211 $17,309,401
Net revenues from lottery services 107,887 142,493
Other revenues 998,647 1,533,792
------------ ------------
17,622,745 18,985,686
------------ ------------
EXPENSES:
Payments to horseowners 7,969,867 8,393,069
Salaries, wages and employee benefits 2,448,527 2,912,790
Operating expenses 2,382,863 2,163,432
General and administrative 1,001,775 778,473
Marketing, television and satellite costs 1,128,685 930,040
Financial expenses 2,445,834 2,073,955
Depreciation and amortization 955,083 875,944
------------ ------------
18,332,634 18,127,703
------------ ------------
(LOSSES) EARNINGS BEFORE
INCOME TAXES AND MINORITY (709,889) 857,983
PROVISION FOR INCOME TAXES 155,689 338,487
------------ ------------
(LOSSES) EARNINGS
BEFORE MINORITY INTEREST (865,578) 519,496
MINORITY INTEREST IN (LOSSES) EARNINGS (258,294) (60,462)
------------ ------------
NET (LOSSES) EARNINGS $ (607,284) $ 579,958
============ ============
</TABLE>
(continues)
3
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<TABLE>
<CAPTION>
EQUUS GAMING COMPANY L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31,
(UNAUDITED)
(CONTINUED)
2000 1999
----------- ----------
ALLOCATION OF NET (LOSSES) EARNINGS:
<S> <C> <C>
General partners $ (6,073) $ 5,800
Limited partners (601,212) 574,158
----------- ----------
$ (607,285) $ 579,958
----------- ----------
BASIC AND DILUTED PER UNIT AMOUNTS: $ (0.07) $ 0.10
=========== ==========
WEIGHTED AVERAGE UNITS OUTSTANDING 8,389,824 5,868,648
=========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
4
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<TABLE>
<CAPTION>
EQUUS GAMING COMPANY L.P.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
FOR THE THREE MONTHS ENDED MARCH 31,
(UNAUDITED)
2000 1999
---------- --------
<S> <C> <C>
NET (LOSSES) EARNINGS $(607,285) $579,958
OTHER COMPREHENSIVE (LOSSES) INCOME:
Currency translation adjustments (115,962) 65,522
COMPREHENSIVE (LOSSES) INCOME $(723,247) $645,480
---------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated
statements.
5
<PAGE>
<TABLE>
<CAPTION>
EQUUS GAMING COMPANY L.P.
CONSOLIDATED BALANCE SHEETS
ASSETS
MARCH 31, DECEMBER 31,
2000 1999
---- ----
(UNAUDITED) (AUDITED)
CASH AND CASH EQUIVALENTS:
<S> <C> <C>
Unrestricted $ 348,121 $ 1,888,995
Restricted 946,415 418,938
------------- -------------
1,294,536 2,307,933
------------- -------------
PROPERTY AND EQUIPMENT:
Land 7,760,682 7,786,980
Building and improvements 56,784,429 56,512,072
Equipment 14,239,377 13,967,887
------------- -------------
78,784,488 78,266,939
Accumulated depreciation (19,297,783) (18,409,886)
------------- -------------
59,486,705 59,857,053
------------- -------------
DEFERRED COSTS, NET:
Financing 2,708,245 2,510,487
Costs of Panama contract 1,952,500 1,980,000
Other 720,659 501,505
------------- -------------
5,381,404 4,991,992
------------- -------------
OTHER ASSETS:
Accounts receivable, net 1,584,394 1,577,634
Notes receivable 1,520,065 1,506,599
Prepayments and other assets 1,184,998 701,362
------------- -------------
4,289,457 3,785,595
------------- -------------
$ 70,452,102 $ 70,942,573
============= =============
</TABLE>
(continues)
6
<PAGE>
<TABLE>
<CAPTION>
EQUUS GAMING COMPANY L.P.
CONSOLIDATED BALANCE SHEETS
(continued)
LIABILITIES AND PARTNERS' DEFICIT
MARCH 31 DECEMBER 31
2000 1999
------------- -------------
(UNAUDITED) (AUDITED)
FIRST MORTGAGE NOTES:
Principal, net of note discount of
<S> <C> <C>
$835,766 and $885,446 $ 53,618,234 $ 53,568,554
Accrued interest 1,865,486 265,900
------------- -------------
55,483,720 53,834,454
------------- -------------
OTHER LIABILITIES:
Accounts payable and accrued liabilities 10,112,715 11,660,824
Outstanding winning tickets and refunds 1,632,376 1,130,389
Notes payable 6,035,513 6,226,082
Bonds payable 4,000,000 4,000,000
Capital lease obligations 2,957,318 3,235,507
------------- -------------
24,737,922 26,252,802
------------- -------------
DEFERRED INCOME TAXES 3,522,483 3,165,800
------------- -------------
MINORITY INTEREST 2,216,516 2,474,810
------------- -------------
COMMITMENTS AND CONTINGENCIES, SEE NOTE 2
PARTNERS' DEFICIT
General Partner (789,112) (781,879)
Limited Partners - 10,383,617 units authorized:
8,389,824 units issued and outstanding in
2000 and 1999, respectively (14,719,427) (14,003,414)
------------- -------------
(15,508,539) (14,785,293)
------------- -------------
$ 70,452,102 $ 70,942,573
============= =============
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
EQUUS GAMING COMPANY L.P.
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' DEFICIT
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(UNAUDITED)
GENERAL LIMITED
PARTNERS PARTNERS TOTAL
---------- ------------- -------------
<S> <C> <C> <C>
BALANCES, DECEMBER 31, 1999 $(781,879) $(14,003,414) $(14,785,293)
Net losses for the three months ended March 31, 2000 (6,073) (601,212) (607,285)
Currency translation adjustments (1,160) (114,801) (115,961)
BALANCES, MARCH 31, 2000 $(789,112) $(14,719,427) $(15,508,539)
========== ============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
8
<PAGE>
<TABLE>
<CAPTION>
EQUUS GAMING COMPANY L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31,
(UNAUDITED)
<S> <C> <C>
2000 1999
----------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (losses) earnings $ (640,304) $ 579,958
----------- ------------
Adjustments to reconcile net (losses) earnings to
net cash provided by operating activities-
Depreciation and amortization 1,080,853 1,056,821
Deferred income tax provision 157,200 338,487
Minority interest (258,294) (60,462)
Currency translation adjustments (137,666) 65,522
Decrease (increase) in assets-
Accounts receivable (561,825) (1,134,470)
Prepayments and other assets (251,692) 204,944
Increase (decrease) in liabilities-
Accounts payable and accrued liabilities 170,513 1,111,681
Outstanding winning tickets and refunds 691,476 870,856
Total adjustments 890,565 2,453,379
----------- ------------
Net cash provided by operating activities 250,261 3,033,337
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (690,819) (2,459,331)
Deferred costs (29,189) (44,504)
(Increase) decrease in notes receivable, net (13,466) 570,767
----------- ------------
Net cash used in investing activities (733,474) (1,933,068)
----------- ------------
</TABLE>
9
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<TABLE>
<CAPTION>
EQUUS GAMING COMPANY L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31,
(UNAUDITED)
(continued)
2000 1999
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
<S> <C> <C>
Redemption of First Mortgage Notes $ - $(2,882,000)
Payments to affiliates - (200,000)
Loan proceeds from financial institutions 570,000 775,000
Payments on notes payable and capital
lease obligations (1,100,185) (1,010,642)
Contributions by minority partners - 40,158
Issuance of units - 2,970,000
Cash distributions to minority partners of HDA - (9,756)
------------ ------------
Net cash used in financing activities (530,185) (317,240)
------------ ------------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (1,013,397) 783,027
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 2,307,933 6,637,267
CASH AND CASH EQUIVALENTS, END OF YEAR $ 1,294,536 $ 7,420,294
============ ============
SUPPLEMENTAL INFORMATION:
Interest paid $ 324,127 $ 299,631
Income taxes paid - -
NON-CASH TRANSACTIONS:
Equipment acquired through capital leases 48,000 81,290
Contribution of non-cash assets, net of liabilities
by Los Comuneros S.A. (see Note 1) - 1,959,842
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
10
<PAGE>
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, Central and South America. Through its subsidiaries, the Company
operates four 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"), the owner of El Comandante Race Track ("El Comandante"), the only
licensed thoroughbred racing facility in Puerto Rico. El Comandante has been
operated since January 1, 1998 by the wholly owned subsidiary of HDA, El
Comandante Management Company, LLC ("ECMC"). HDA has recently organized two
wholly-owned subsidiaries: Satellites Services International, Inc. ("SSI") and
Agency Betting Network, Inc. ("ABN"). 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 for Los
Comuneros Race Track in Medellin, Colombia ("Los Comuneros").
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") and a 51% interest in Equus Entertainment de Panama,
S.A. ("Equus-Panama"), the operator since January 1, 1998 of the Presidente
Remon Race Track in the Republic of Panama ("Presidente Remon"). Both
racetracks are government-owned and operated by the Company's subsidiaries under
long-term contracts.
The Company also has since 1999 a controlling 50% interest in Equus
Comuneros S.A. ("Equus-Comuneros"), the owner and operator of Los Comuneros 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 horseowners and certain financial
obligations with various maturities through 2004.
CONSOLIDATION AND PRESENTATION
The consolidated financial statements as of March 31, 2000 and for the
three months ended March 31, 2000 and 1999 are unaudited but include all
adjustments (consisting of normal recurring adjustments) which management
considers necessary for a fair presentation of the results of operations of the
interim periods. The operating results for the three months ended March 31,
2000 are not necessary indicative of the results that may be expected for the
year. Net earnings (losses) per unit are calculated based on weighted average
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.
11
<PAGE>
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, 1999.
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
inter-company 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, Equus-Panama and
Equus-Comuneros. Therefore, the Company recorded minority interest based on the
earnings and (losses) of these consolidated subsidiaries that are attributable
to the minority partners, as follows:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,
------------------------------------
2000 1999
---- ----
(UNAUDITED) (UNAUDITED)
SUBSIDIARY:
<S> <C> <C>
HDA $ 1,500 $ 10,350
Galapagos - -
Equus-Panama 25,741 29,150
Equus-Comuneros (285,535) (99,962)
------------ ------------
$ (258,294) $ (60,462)
------------ ------------
</TABLE>
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 three months ended March 31, 2000 and 1999 the Company did not recognize
minority interest in Galapagos' losses amounting to $134,440 and $27,870
respectively, because the minority partners have no legal obligation to fund
such losses in excess of their investment. As of March 31, 2000 the accumulated
losses not allocated to the minority partners amounts to $1,221,507.
Equus-Panama minority partners own a 49% interest. Equus-Comuneros minority
partners own a 50% interest.
CURRENCIES
The Company consolidates its accounts with Galapagos and Equus-Comuneros
whose functional currency are the Dominican Republic peso and the Colombian
peso, respectively. The United States dollars ("US$") are also a recording
currency in these countries. US$ are exchanged into these 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 three months ended March 31, 2000 and 1999, net exchange losses
resulting from re - measurement of accounts, together with losses from foreign
currency transactions, amounted to $75,879 and $37,597, respectively, which
amounts are included as operating expenses. Accumulated net losses from
changes in exchange rates due to the translation of assets and liabilities of
the foreign subsidiaries are included in partners' deficit and at March 31, 2000
and 1999 amounted to $115,962 and $52,242 respectively.
12
<PAGE>
The current exchange rates in Dominican Republic as of March 31, 2000 and
1999 were US$1.00 to FC$16.30 and US$1.00 to FC$16.00, respectively. The
average exchange rates in Dominican Republic prevailing during the three months
ended March 31, 2000 and 1999, were US$1.00 to FC$16.27, US$1.00 to FC$16.00 ,
respectively. The current exchange rate in Colombia as of March 31, 2000 and
1999 were US$1.00 to FC$1,952 and $US1.00 to FC$1,500. The average exchange
rate in Colombia prevailing during the three months ended in March 31, 2000 and
1999 were US$1.00 to FC$1,950 and US$1.00 to FC$1,500. The Company also
consolidates its accounts with Equus-Panama whose functional currencies are the
Panama Balboas and the US$. Because these currencies are of equivalent value,
there is no effect attributed to foreign currency transactions of Equus-Panama.
2. COMMITMENTS AND CONTINGENCIES:
HORSEOWNERS' AGREEMENTS
The Company has separate agreements with the horseowners association of
each country that establishes the amount payable to horseowners as purses in
exchange for the availability of thoroughbred horses for races. Payments to
horseowners are, in general, based on a percentage of wagering.
The Panama contract expires in December 2007. It provides for minimum
guaranteed payments to horseowners in 1999 and 1998 of $4.1 million and $3.8
million, respectively (including loans of $200,000 each year). The Dominican
Republic contract expires in December 2005. The Colombia contract expires on
December 31, 2009. It provides for certain minimum guaranteed payments to
horseowners during the first three years ($1.2 million in 2000, increased in
2001 and 2002 in accordance with an inflation factor).
The Puerto Rico contract expired in April 1998. However, the Puerto Rico
Racing Board has extended the contract as an interim measure until the Company
and the horseowners reach a new agreement. The contract is under negotiation at
the present time.
13
<PAGE>
WAGERING SERVICES AGREEMENTS
The Company has separate agreements with Autotote Systems, Inc.
("Autotote") for providing wagering services, software and equipment to each
racetrack, necessary for the operation of the off-track betting system.
Payments under these contracts are summarized as follows:
<TABLE>
<CAPTION>
PRESIDENTE
EL COMANDANTE V CENTENARIO REMON LOS COMUNEROS
--------------- ---------------- --------------- -------------
<S> <C> <C> <C> <C>
Expiration date March 2005 March 2005 January 2008 (d)
Cost of services, as a
percentage of wagering 0.65% 0.65% (a) 1.00% 1.20%
Minimum amount per year $ 800,800 $ 200,000 (b) $ 330,000 (c) $ -
</TABLE>
(a) Galapagos also receives services for the distribution system of the
electronic lottery. Fees to Autotote are 2% of gross sales at lottery
agencies and 1% of gross sales at OTB agencies.
(b) During 2000, management expects to renegotiate for a fixed fee over the
handle instead of a guarantee minimum payment.
(c) Based on a minimum monthly payment of $27,500 for 2000, increased each
subsequent year, up to $36,000 in 2007. For years 1999 the minimum
annual payment was $300,000. During 2000, management expects to
renegotiate for a fixed fee over the handle instead of a guaranteed
minimum payment.
(d) This contract is currently being renegotiated.
OTHER LONG-TERM AGREEMENTS
The Company 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 years 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.
14
<PAGE>
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) Housing
Development Associates Management Company ("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 HDAMC. Upon issuance of the Warrants, HDA recorded note
discount of $2,040,000 equal to the fair value of the Warrants. Such note
discount was 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 three years HDA has made early redemptions of First
Mortgage Notes in connection with certain transactions. The Company 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:
<TABLE>
<CAPTION>
HELD BY THE
FACE COMPANY AT (PREMIUM)
TYPE OF TRANSACTION DATE VALUE 31-MAR-2000 DISCOUNT
- ------------------------------ -------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
Redemption Mar-1997 $ 737,000 $ - $ -
Redemption Sep-1997 2,500,000 - (250,000)
Purchase in open market Dec-1998 7,500,000 7,500,000 1,000,000
Redemption, reduced by amount Jan-1999
of notes held by the Company 2,620,000 (380,000) (262,000) (a)
Purchase in open market May-1999 189,000 189,000 22,680
----------- -------------
$13,546,000 $ 7,309,000
----------- -------------
<FN>
(a) Recorded as an expense by the Company in 1998
</TABLE>
In connection with these transactions, the Company wrote-off a portion of
the note discount and deferred financing costs.
15
<PAGE>
ECCC is required to partially redeem First Mortgage Notes commencing on
December 15, 2000. The stated maturities of the First Mortgage Notes, reduced
by prior redemptions, are as follows (in thousands):
<TABLE>
<CAPTION>
DUE DURING THE TWELVE GROSS PURCHASED IN NET
MONTHS ENDING MARCH 31, AMOUNT OPEN MARKET AMOUNT
- ----------------------- -------- -------------- --------
<S> <C> <C> <C>
2001 $ 563 $ 563 $ -
2002 10,200 6,746 3,454
2003 10,200 - 10,200
2004 40,800 - 40,800
61,763 7,309 54,454
Less - discount (877) (41) (836)
$60,886 $ 7,268 $53,618
-------- -------------- --------
</TABLE>
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 101.50%
2001 100.00%
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 approval required from noteholders , 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 March 31, 2000 HDA
advanced to the Company approximately $1.4 million against its allowable future
distributions of profits, which, technically, is not in conformity with the
terms of the Indenture. HDA intends to cure this default with the declaration
of future permitted distributions.
16
<PAGE>
4. BONDS AND NOTES PAYABLE AND CAPITAL LEASES:
The Company's outstanding notes payable consist of the following:
<TABLE>
<CAPTION>
BALANCE AT
MATURITY INTEREST MARCH 31, DECEMBER 31,
BORROWER DESCRIPTION DATE RATE 2000 1999
- --------------- -------------- ---------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
HDA/ECMC Note payable (a) 15-Dec-01 P+1.00% $4,875,000 $ 5,500,000
HDA Line of credit (b) 15-Dec-01 P+1.00% 500,000 -
Equus-Panama Term loan (c) 25-Apr-00 10.75% 14,091 56,364
Equus-Panama Line of credit (d) various 10.75% 217,136 204,955
Equus-Comuneros Term loans (e) various variable 429,286 464,763
---------- ------------
$6,035,513 $ 6,226,082
---------- ------------
</TABLE>
At March 31, 2000 and December 31, 1999, the prime rate (P) was 9.00% and
8.50%, respectively.
(a) Considered Refinancing Indebtedness under the terms of the Indenture.
Secured by the First Mortgage Notes purchased in the open market (see
Note 3). Payable in quarterly installments commencing on March 31, 2000.
(b) Revolving line of credit secured by the First Mortgage Notes purchased
in the open market ( See Note 3). HDA has a $500,000 revolving line of
credit available until December 15, 2001 for its operational needs.
Interest is calculated on balances outstanding at a rate equivalent to one
point over prime rate. Principal is due upon maturity on December 15,
2001.
(c) The loan was paid off on April 25, 2000.
(d) Maximum outstanding balance is $250,000. Available to finance loans to
Panama horseowners for the acquisition of horses. Payable in equal monthly
installments, principal and interest, with various maturity dates from
April 25, 2000 to December 26, 2000.
(e) Secured by a certificate of deposit for $140,000, which is included in
the accompanying balance sheet as of December 31, 1999 as restricted cash.
Management is in the process of renegotiating the terms of these financial
obligations. Interest rates range from 7% to 14.01% over Colombia's Fixed
Term Deposit (FTD) rate. FTD at March 31, 2000 was 10.98%.
The Company also guarantees a $250,000 loan of the operator of the
restaurant at Presidente Remon. The proceeds of this loan were used by
Equus-Panama to finance improvements to the restaurant.
In October 1998, Equus-Panama issued $4 million in unsecured bonds pursuant
to a public offering. Interest is payable at 11% rate per annum on a quarterly
basis. 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. There
are certain restrictions that limit the capacity of Equus-Panama to incur
indebtedness and pay dividends to shareholders.
17
<PAGE>
The following table summarizes future minimum payments on capital leases,
notes payable and bonds of the Company and its consolidated subsidiaries:
<TABLE>
<CAPTION>
DUE DURING THE TWELVE CAPITAL NOTES BONDS
MONTHS ENDING MARCH 31, LEASES PAYABLE PAYABLE
- ----------------------- ----------- ----------- ----------
<S> <C> <C> <C>
2001 $1,387,699 $2,547,718 $ -
2002 821,070 3,612,109 600,000
2003 640,187 44,741 1,000,000
2004 497,845 38,852 1,200,000
2005 194,106 21,140 1,200,000
----------- ----------- ----------
3,540,907 6,264,560 4,000,000
Imputed interest (583,589) (229,047) -
----------- ----------- ----------
$2,957,318 $6,035,513 $4,000,000
----------- ----------- ----------
</TABLE>
5. 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, American Community Properties
Trust ("ACPT") and Interstate General Company L.P. ("IGC") during the three
months ended March 31, 2000 and 1999:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,
ENTITY NATURE OF SERVICE 2000 1999
- ------------ --------------------------- ----------------- -----------------
Rendered by:
<S> <C> <C> <C>
ACPT Support agreement $ 8,100 $ 8,100
ACPT Rent office space 10,500 10,500
EMC Director fees 25,500 22,750
IGC Services of James J. Wilson 33,750 33,750
----------------- -----------------
$ 77,850 $ 75,100
================= =================
</TABLE>
6. LEGAL PROCEEDINGS:
Certain of the Company's subsidiaries are presently named as defendants in
various lawsuits and might be subject to certain other claims arising out of its
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.
18
<PAGE>
7. FAIR VALUE OF FINANCIAL INSTRUMENTS:
As of March 31, 2000 the fair value of the First Mortgage Notes was
approximately $47,920,000 (as compared with its carrying value of $53,618,234)
based on the market price quoted by a brokerage firm that trades the First
Mortgage Notes. The carrying value of notes payable, capital leases and notes
receivable approximates fair value because these obligations bear interest at
variable rates. The carrying value of accounts receivable and accounts payable
approximates fair value due to the short-term maturity thereof.
8. SEGMENT INFORMATION:
The Company has identified four reportable segments, based on geographical
considerations: Puerto Rico, Dominican Republic, Colombia and Panama. 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 three months ended March 31, 2000, 1999 and 1998 (in
thousands):
<TABLE>
<CAPTION>
PUERTO DOMINICAN
2000: RICO REPUBLIC COLOMBIA PANAMA TOTAL
------- ---------- ---------- ------- --------
<S> <C> <C> <C> <C> <C>
Commissions on wagering $13,130 $ 785 $ 365 $ 2,236 $16,516
Total revenues 13,896 999 413 2,315 17,623
Financial expenses 2,205 8 81 152 2,446
Depreciation and amortization 660 79 62 154 955
Earnings (Loss) before income -
taxes and minority interest 100 (299) (564) 53 (710)
Capital improvements 575 35 38 43 691
Total assets 54,286 1,781 5,188 9,197 70,452
1999:
Commissions on wagering $13,563 $ 1,079 $ 237 $ 2,430 $17,309
Total revenues 14,213 1,551 709 2,513 18,986
Financial expenses 1,857 16 63 138 2,074
Depreciation and amortization 572 101 66 137 876
Earnings (Loss) before income
taxes and minority interest 1,060 (62) (200) 60 858
Capital improvements 1,695 10 623 131 2,459
Total assets 53,766 2,020 5,916 8,726 70,428
</TABLE>
Effective January 1, 1998 EEC, which is based in Puerto Rico, provides
management services to the foreign countries in connection with the operation of
the racetracks and the off-track betting system. Fees for these services
represent an intersegment revenue. For the three months ended March 31, 2000
Puerto Rico recognized revenue of $36,875 attributable to Dominican Republic and
$78,891 attributable to Panama.
19
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company's results of operations are principally attributed to 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., (iii)
Presidente Remon in Panama, operated since January 1, 1998 by Equus
Entertainment de Panama, S.A. ("Equus-Panama") and (iv) 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 months ended March 31, 2000 with the results for the three
months ended March 31, 1999.
THE COMPANY'S RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO MARCH 31, 1999
- ----------------------------------------------------------------------
REVENUES
Consolidated Revenues decreased in the first quarter of 2000 by
$1,363,000, or 7.2%, compared to the same quarter in 1999. This reduction was
primarily attributed to temporary interruptions in simulcast of live races from
Puerto Rico to Dominican Republic and agency operations.
COMMISSIONS ON WAGERING
Commissions on wagering decreased by $793,000 (4.6%) for the three months
ended March 31, 2000 to $16,516,000 as compared to $17,309,000 for the three
months ended March 31, 1999. The decrease in commissions was attributable to
the following operations: El Comandante ($433,000), Galapagos ($294,000) and
Panama ($194,000). However, the Colombia operations reflect an increase of
$128,000.
In January 2000, the Puerto Rico horseowners unilaterally decided to cancel
the approval of simulcast of live races from Puerto Rico to the Dominican
Republic in order to put pressure on recent contract negotiations. It was not
until the middle of February that this action was reversed by the Racing Board.
This suspension had an adverse economic impact in the commissions on wagering
for the Dominican Republic and Puerto Rico. This resulted in a reduction in
commissions on wagering of approximately $300,000.
PUERTO RICO. Commissions on wagering at El Comandante decreased $433,000
from $13,563,000 for the three months ended March 31, 1999 to $13,130,000 for
the three months ended March 31, 2000. The decrease in commissions was
attributable to interruptions in simulcast of races to Dominican Republic and
agency operations.
PANAMA. Commissions on wagering at Presidente Remon decreased by $194, 000
from $2,430,000 for the three months ended March 31, 1999 to $2,236,000 for the
three months ended March 31, 2000. An improved simulcast racing program and
expansion of the OTB agency network will correct this temporary reduction in
future quarters.
20
<PAGE>
DOMINICAN REPUBLIC. Commissions on wagering at V Centenario decreased by
$294,000 from
$ 1, 079, 000 for the three months ended March 31, 1999 to $785,000 for the
three months ended March 31, 2000. This decrease was primarily attributable to a
temporary interruption of the simulcast races from Puerto Rico and its impact on
the racing program in the Dominican Republic.
NET REVENUES FROM LOTTERY SERVICES
For the three months ended March 31, 2000 net revenues from lottery
services by Galapagos in the Dominican Republic decreased by $34,000 as compared
to the same period in 1999. The decrease in revenues was due to a reduction in
the amount billed to the lottery operator as reimbursement for telephone line
costs, pursuant to an amendment to the contract effective in late 1998.
OTHER REVENUES
For the three months ended March 31, 2000 other revenues decreased by
$535,000 as compared to the same period in 1999. This shortfall is net of
increases from Puerto Rico and Panama of $94,000 and $19,000, respectively.
Colombia experienced a reduction of $424,000 and Dominican Republic a reduction
of $224,000. The decrease for Colombia is primarily attributable to a
reclassification of Other Revenues - Barn Rental to a recovery against the
expense reported as Payments to Horseowners. The decrease for Dominican
Republic is primarily attributable to a reduction in tax relief revenues
derived from the simulcast races, which were interrupted during the first two
months of the quarter ended March 31, 2000.
EXPENSES
Expenses increased in the first quarter of 2000 by $205,000 (1%) when
compared to the same period for 1999.
PAYMENTS TO HORSEOWNERS
Payments of purses to horseowners decreased $423,000 (5%) in the first
quarter of 2000 when compared to the same period in 1999.
El Comandante contract with horseowners expired in April 1998. However,
the Puerto Rico Racing Board has extended the contract as an interim measure
until the Company and the horseowners reach a new agreement. The Company is
currently negotiating a new contract with the horseowners.
FINANCIAL EXPENSES
Financial expenses increased by $372,000 (18%) in the first quarter of 2000
when compared to the same period in 1999. This increase is primarily
attributable to line of credit facilities.
DEPRECIATION AND AMORTIZATION
Depreciation and Amortization increase in the first quarter of 2000 by
$79,000 (9%) as compared to the same period in 1999 due to additions in capital
improvements to the facilities during 1999.
21
<PAGE>
OTHER EXPENSES
Other expenses increased by $177,000 on a consolidated basis for the first
quarter of 2000 as compared to the same period in 1999. This increase is
primarily attributable to new operations, including a cost reduction and
restructuring plan implemented by management during the first quarter of 2000.
<TABLE>
<CAPTION>
OTHER EXPENSES BY COUNTRY
INCREASE (DECREASE) WHEN COMPARED TO FIRST QUARTER OF 1999
Salaries, wages Operating General and Marketing , TV Net (decrease)
Country and benefits expenses administrative and satellite increase
- -------------- ----------------- ----------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
Puerto Rico $ (342,000) $ 543,000 $ 262,000 $ 251,000 $ 714,000
Dominican Rep. (48,000) (70,000) (45,000) (70,000) (233,000)
Panama (38,000) (161,000) 15,000 (30,000) (214,000)
Colombia (36,000) (92,000) (9,000) 47,000 (90,000)
$ (464,000) $ 220,000 $ 223,000 $ 198,000 $ 177,000
================= =========== ================ ================ ===============
</TABLE>
OPERATING AND SATELLITE EXPENSES - The increase in operating expenses and
marketing/satellite expenses for the first quarter of 2000 as compared to the
same period in 1999 primarily relate to the additional expenses for the
planning, engineering and startup expenses on the wagering system and leased
satellite time. The Company was not able to recover these additional operating
expenses since the new equipment is not yet in service and the fixed monthly
lease cost for the satellite time has not been utilized and recovered in
revenues.
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 interest in El
Comandante, without taking into account results of operations of Galapagos,
Equus-Panama or Equus-Comuneros. Due to accumulated losses, none of these
foreign subsidiaries requires 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, Equus-Panama and
Equus-Comuneros. Because accumulated losses of Galapagos allocable to minority
partners had exceeded their investment, during 2000 and 1999, the Company did
not recognize minority interest in losses of Galapagos of $134,437 and $27,870,
respectively. During 2000: (i) if and while Galapagos continues generating
losses, no minority interest in Galapagos' net losses will be recognized by the
Company, and (ii) if Galapagos generates profits, no minority interest in
Galapagos' net income will be recognized by the Company up to $1,221,504.
22
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
OVERVIEW
The Company is the owner of HDA and its consolidated subsidiaries. The
principal source of cash of Equus Gaming Company L.P. (the "Company" or, when
referred to the individual entity, "Equus") is related to its ownership interest
in Housing Development Associates S.E. ("HDA"), the owner and operator (through
its wholly owned subsidiary, El Comandante Management Company LLC, "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 such
First Mortgage Notes.
The following is a discussion of the liquidity and capital resources of the
Company, including HDA and its consolidated subsidiaries, ECMC, Agency Betting
Network, Inc. ("ABN"), and Satellites Services International, Inc. ("SSI").
The net cash flows from the other foreign subsidiaries of the Company (Equus
Comuneros, S.A., Equus Entertainment de Panama, S.A. and Galapagos, S.A) did not
materially affect the consolidated cash flows of the Company for the three
months ended March 31, 2000.
LIQUIDITY AND CAPITAL RESOURCES OF THE COMPANY (AND ITS CONSOLIDATED
SUBSIDIARIES)
Cash and cash equivalents of the Company and its consolidated subsidiaries
decreased by approximately $1 million during the first quarter of 2000. The
Company has historically met its liquidity requirements principally from cash
flow generated by (i) the operations of El Comandante Race Track in Puerto Rico
and (ii) short-term loans and capital leases for acquisition of new equipment.
During the first quarter of 2000 the principal uses of cash of the Company
and its consolidated subsidiaries for its financing and investing activities
were as follows:
(i) Capital improvements and acquisition of equipment for El Comandante for
approximately $574,000, for the Dominican Republic for $35,000, for Panama
and Colombia for $44,000 and $38,000, respectively.
(ii) Payments on capital leases for equipment used in El Comandante operations.
(iii) The Company continues to invest in Colombia through ABN, wholly-owned
subsidiary of HDA. For the three months ended March 31, 2000 the Company
has invested $781,583.
In addition to cash available to the Company at the beginning of the year and
cash flows from operations during 2000, the Company obtained additional funds
for its financing and investing transactions (as described above) principally
from the following sources:
(i) $500,000 in advances taken under a line of credit.
(ii) Capital leases to purchase equipment for El Comandante operations and
certain equipment for the operations of SSI, consisting of an up-link
earth station located in Panama, necessary to carry races via satellite
in simulcast operations.
23
<PAGE>
For the remainder of the year 2000 the projected principal uses of cash of the
Company's activities, other than operating activities of El Comandante, are:
(i) Capital improvements to El Comandante race track and principal payments
on existing capital leases.
(ii) Principal payments amounting to $1,875,000 million on the $5.5 million
term loan.
(iii) Additional investments in ABN for its Colombian operations and reduction
of certain financial obligations assumed from Equus-Comuneros of
approximately $1.2 million.
(iv) Additional investments in SSI, principally for the acquisition of the VSAT
equipment and system for the agencies within the Company's OTB system and
the payment of satellite time contracted from a third party.
In addition to cash flow from operating activities of El Comandante, the
Company expects to obtain funds for its other transactions from credit
facilities with certain financial institutions. Also, the Company is currently
negotiating a $2 million credit facility with a financial institution in
Colombia so that HDA and the Company are able to properly fund the development
and operations of the off-track betting for ABN and meet the expected level of
increased wagering from this operation.
INVESTMENTS IN TELECOMMUNICATIONS EQUIPMENT AND MARKET EXPANSION
The Company's top management has developed and recently implemented
strategic financial plans designed to improve capital resources, liquidity and
capital investments in the Company's distribution network and core assets.
As a result, the Company is in the process of securing credit facilities
with a financial institution to (1) finance the acquisition and installation of
high-technology video and data transmission system (VSAT) with a communications
center or HUB that will be cheaper, more efficient and reliable than
conventional phone lines and television air time, and (2) to finance the
purchase of outstanding notes (over $54 million) in order to allow the Company
to make the necessary capital investments to increase the level of wagering
through a combination of increase in the number of off-track betting agencies
and improved racing program, including simulcast of live races from many
jurisdictions to our network.
The Company's operational plans call for the installation over the next 12
to 18 months of more than 2,000 VSAT (video and data communication) units for
the OTB agencies in all of its operations, including Puerto Rico, Dominican
Republic, Panama and Colombia with a communications up-link satellite control
center based in Puerto Rico. Satellite Services International, Inc. (SSI), a
wholly-owned subsidiary of HDA (HUB) and the Company, will be the service
provider for all telecommunications and satellite usage time, and will charge
each of its affiliated companies a fee for the equipment and satellite time
usage for transmissions (simulcast) of races from several countries.
As a result of these capital investments in high-technology and extensive
high-tech distribution network, improved cash flow from better financing, and
market expansion efforts, the Company plans to increase consolidated wagering
commissions during 2000 and future years.
24
<PAGE>
LONG-TERM COMMITMENTS. In addition to capital leases, long-term cash
commitments of the Company (excluding foreign subsidiaries) are a $5.5 million
term loan and the First Mortgage Notes.
In December 1999 HDA obtained a $5.5 million term loan, considered
Refinancing Indebtedness under the terms of the indenture. The loan is secured
by the First Mortgage Notes purchased by the Company in the open market.
Interest is payable monthly at a rate equivalent to one point over prime rate.
Principal is payable in quarterly installments commencing on March 31, 2000
until maturity on December 15, 2001. A principal payment of $625,000 on this
term loan was made on March 31, 2000. The remaining maturity dates of this term
loan are as follows (in thousands):
YEAR ENDING
DECEMBER 31, AMOUNT
-------------- -------
2000 $1,875
2001 3,000
---------
$4,875
=========
HDA's First Mortgage Notes bear interest at 11.75%, payable semiannually on
June 15 and December 15, and are secured by El Comandante assets. The First
Mortgage Notes are redeemable, at the option of HDA, at redemption prices
(expressed as percentages of principal amount): if redeemed during the 12-month
period beginning December 15 of years 1999 at 102.75%, 2000 at 101.5%, and 2001
and thereafter at 100% of principal amount, in each case together with accrued
and unpaid interest. The stated maturity dates of First Mortgage Notes, as
reduced by prior redemptions made by HDA and by the Notes purchased by ECMC in
the open market, are as follows (in thousands):
YEAR ENDING NET AMOUNT
DECEMBER 31, (FACE VALUE)
-------------- -------------
2001 $ 3,454
2002 10,200
2003 40,800
----------
$ 54,454
==========
To the extent First Mortgage Notes are not acquired in the open market or
redeemed, Management expects to refinance this obligation not later than
December 2002.
As of March 31, 2000, HDA has advanced to Equus approximately $1.4 million
against its allowable future distributions of profits, which technically is not
in conformity with the terms of the Indenture.
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 Comandante'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 to four-year terms by the Governor of Puerto
Rico. The Governor also appoints the Racing Administrator for a four-year term.
25
<PAGE>
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
ITEMS 1 - 6 NONE
26
<PAGE>
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.
/b Equus Gaming Cpmany L.P.
--------------------------------
(Registrant)
By: Equus Management Company
Managing General Partner
May 11, 2000 b\ Thomas Wilson
- -------------- ------------------
Co-Chairman, President,
Chief Executive Officer and Director
May 11, 2000 b\ Hernan G. Welch
- -------------- ---- --------------
Executive Vice President and
Chief Financial
27
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 1295 <F1>
<SECURITIES> 0
<RECEIVABLES> 3104 <F2>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1185
<PP&E> 78632
<DEPRECIATION> (19298)
<TOTAL-ASSETS> 70452
<CURRENT-LIABILITIES> 0
<BONDS> 55484 <F3>
0
0
<COMMON> 0
<OTHER-SE> (15509)
<TOTAL-LIABILITY-AND-EQUITY> 70452
<SALES> 0
<TOTAL-REVENUES> 17623
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 15887 <F4>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2446
<INCOME-PRETAX> 0
<INCOME-TAX> 156 <F5>
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (607)
<EPS-BASIC> (.07)
<EPS-DILUTED> 0
<FN>
<F1> Includes restricted cash $946,000.
<F2> Includes notes receivable of $1,520,000.
<F3> Net of a bond discount of $836,000.
<F4> Represent total expenses including depreciation of $955,000, excluding
financial expenses disclosed below.
<F5> Represents a provision for income tax from a deferred tax liabiliabity.
</TABLE>
