www2.marketwatch.com
Management`s Discussions: 10-Q, KENILWORTH SYSTEMS CORP 1 of 2
MONDAY, OCTOBER 23, 2000 4:03:00 PM EST
(Edgar Online via COMTEX)
Company Name: KENILWORTH SYSTEMS CORP
KENSE
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Between February 5, 1991, when the Trustee for the Estate of Kenilworth
Systems Corporation was appointed, and September 23, 1998, when the
Trustee of the Estate of Kenilworth paid, in cash, one hundred (100%) percent
of all approved creditors claims and administration fees and expenses out of the
$4,424,056 proceeds from the sale of substantially all of the assets of the
Kenilworth Estate and recoveries of receivables and interest income, the
Company did not conduct any business and operations.
The Company filed all reports required by the Securities and Exchange
Commission since September 23, 1998, except that the December 31, 1998
annual report on Form 10-K, included financials, which were not audited. The
statement could not be audited since less than one year expired after the Trustee
issued checks to all creditors. All checks were cashed. No one filed objections
to the distribution of the Estate's funds. The Company included the 1998 audited
financials with the 1999 annual report on Form 10-K and is now current in its
reporting requirements.
Because of the Company's failure to include audited financials in its December
31, 1998 10-K report, on January 19, 2000 the Company's Common Shares
were removed from the National Association of Securities Dealers Automated
Quotation System (NASDAQ) Bulletin Board. The shares now trade in the
electronic Pink Sheets with the same ticker symbol "KENS".
Before entering bankruptcy proceedings the Company was engaged in the
development, manufacturing and marketing of cashless casino wagering systems.
The Company and three casino operators, Golden Nugget, Inc. (formerly
"Mirage"), Del Web, Inc. and Elsinore Corporation, sponsored legislation to
permit cashless wagering in the state of Nevada. The legislation, in the form of an
amendment to existing casino control statutes, now permits the use of account
cards (debit cards), in Nevada casinos, and was signed into law by Governor
Richard H. Bryan on June 13, 1985. The account cards are now used in every
casino throughout the United States in player tracking systems and pre-paid slot
machine wagering.
In April 1988, the Company entered into a contract with the Totalizator Agency
Board (the "TAB"), a statutory agency of the State of Victoria, Australia, to
design and install computer hardware and software and supply plastic wagering
cards for high-tech cashless wagering facilities, called "Tabarets", to be operated
by the TAB within the State of Victoria. The first Tabaret opened on November
27, 1990, with 124 Player Activated Terminals ("PATs") which are similar to slot
machines except they are played with debit cards instead of coins or tokens. The
PAT's offer variable denomination play and selection of five different games.
There are now 13,000 PATs in play at 127 locations throughout the State of
Victoria.
In 1990, the Company had entered into contracts with three (3) Atlantic City,
New Jersey casino operators to test market the Company's cashless wagering
system for a minimum of six months. Each installation on the casino floor was to
have a minimum of 100 PAT's and 50 slot machines, converted by the Company
to be played both with cash and cashless. The combination of cash and cashless
on existing slot machines was attractive to the casino operators, as it permitted a
gradual transition from cash to cashless play.
The Company was to furnish, without expense to the casino, all the necessary
equipment, including the central computer and communications hardware. The
casino operators would provide for the installation of cables required to
interconnect the equipment, as well as provide free accommodations for the
Company's personnel necessary to operate the system during the test. Each of
the operators committed a substantial budget for the promotion of the systems.
After the first system was to be in operation for a period of three (3) months, and
which operated profitably, the New Jersey casino regulatory agency agreed to
commence examining the system for their approval process. The Company
expected this process to take at least three (3) months. When the Company had
obtained approval from the regulatory agencies for its system, the operators
would then purchase the system in quantities, for prices stated in the contract, or
ask the Company to remove the system.
Just prior to the start of the first test, the Company ceased all operations. Thus,
none of the tests were conducted. The Company sold and installed only one
cashless slot system, which was to the Australian agency which continues to
operate the system with 13,000 PAT's in 127 locations. The Company receives
no revenue from that operation.
Present plans are by making use of the expertise applied in the development of
the cashless PATs for the TAB in Australia and an operational cashless
prototype system, developed in 1990 for closed circuit TV in house casino play
along with table game terminals, to develop a second generation of terminals, that
allows a player in an interactive manner, at a remote location (outside the casino
confines), to experience the actual play and excitement at the casino table of
Roulette, Baccarat, Craps, Blackjack, and other casino table games, and is able
to make wagers on the various games, without having to be physically present at
the casino table.
The proposed terminal consists of a personal computer (PC) with two (2)
monitors, one of which is outfitted with a touch screen, a variable denomination
bill acceptor and a bar code ticket dispenser, all housed within an attractive
enclosure, about the size of a typical slot machine. Each terminal is self-sufficient,
manages wagers from $.25 to $100 or the equivalent in most any currency and
receives the table game play via satellite TV broadcasts.
The terminals are legal wherever in the world slot machines are played (there are
more than 10 million slot machines played throughout the world). In the United
States, the terminals are legal in thirty-seven (37) states that permit charitable
"Nevada/Casino Nights".
Terminals played in casinos will allow players to wager at table games in
progress, only a few feet away, with much lower minimum wagers. They can also
experiment and learn the games before graduating to table play.
In addition to developing the stand alone terminals, the Company will also
develop systems that allow individuals at homes, offices, clubs, hotels and other
public gathering places in the industrialized world, to play along with the live
casino games in progress, using personal computers or modalities such as a TV
set connected to the internet, with set top boxes as offered by WEBTV,
AT&T TV, and AOLTV. The computers can either be stationary or the lap
top version, which can communicate wireless.
For this form of "play along", the Company will promote to state lotteries, and
other state regulated entities, the ability to operate websites that will manage the
wagers. This program will require state legislative approval, permitting casino
play along in lottery, and/or On and Off Track Betting (OTB) legislation.
There are powerful arguments for state legislatures to amend their Lottery Acts
and include "play along with casino games". Lottery revenue is gradually
decreasing in every state and most are on their way out. Thirty-two (32) states
and the District of Columbia are pooling their lottery prizes with the "Power Ball"
and "Big Game" national lotteries. In most of those states, the state lottery finds it
difficult to obtain sufficient numbers of players to make up a minimum weekly
lottery prize of $1.0 million. In most states, the revenue from lottery playing
benefits education. States need something more attractive to restore revenue. It is
not "Power Ball" or "Big Game". The only excitement derived from lottery play is
when a player looks at the newspaper, listens to the radio or views TV
broadcasts to see or hear if he or she has won. With "play along casino games",
there is interaction, excitement and fun. All at much better odds than offered by
the lotteries.
To open an account with the lottery to "play along with casino games", a player
must have a credit card. Those that can least afford it usually do not have a valid
credit card. They are in debt and their credit lines are exhausted. They purchase
lottery tickets to live from day to day, hoping to get lucky and win. A family with
an annual income in excess of $75,000.00 does not play the lottery,
proportionately, in dollar amounts or as often as a family that earns less than
$30,000.00.
TV broadcasts of sporting events is beneficial to illegal bookmaking, with no tax
benefit to the state governments. The same applies to offshore virtual casinos.
Roulette and Baccarat play are associated with the rich and famous. It is the
"elite" gambling sport. Like horse-racing is the sport of kings, it is for people that
can afford the risks without diminishing their lifestyle.
The lotteries can establish maximum wagers, daily, weekly and monthly limits.
The lotteries can identify problem gamblers and can address the issue. Casinos
cannot. Before the average casino player drives to a casino, he or she has to
spend $25.00 for tolls, parking and gasoline. For the same $25.00, "play along
with casino games" offers an enjoyable, exciting night of gambling at home.
Once play along in homes and other public gathering places has started, the
Company will introduce casino games such as "limited tournament play." For
$25.00, players can sign up with their respective website operators and make up
to 30 wagers on any table game. The individual that wins the most money during
a specific tournament game period, will win a million dollars, in addition to their
game play win. As more interactive play along with casino games develop, the
prizes will be increased and multiplied. This is how to become a millionaire by
adding skill to the luck needed to win the lottery, while enjoying oneself. The
limited tournament play games can be scheduled more than once a day, during
specific hours of the day, on specific days or nights of the week or once or twice
a month. Actual live experience will determine scheduling.
Casino gambling has spread throughout the nation. Now, even in California,
constituents, who live within driving distance of Nevada, have approved casinos
on Indian Reservations. Indian tribes have announced that they have backers and
operators for three (3) multi-million dollar casinos.
Other Indian tribes in other states may wish to earn income from casino
wagering. But, many casinos will be located in areas that cannot be supported by
the surrounding population. "Play along with casino games" is the perfect solution
for such areas. Not only on Indian Tribe land, but also to rehabilitate
economically depressed resorts areas, in the same manner that river boats have
started to rehabilitate decaying waterfronts.
As a first step to bringing live casino table game play in an interactive manner to
remote sites from the actual casino table, while still having a view of and
experiencing the live casino action and excitement while the games are being
played, the Company must obtain an agreement, preferably with a well
recognized casino operator, to permit the telecasting of live in-progress table
games around the world.
The Company will first install a number of its terminals in the casino, from which
the world wide TV broadcast will emanate, using a closed circuit, in house,
broadcast of the table games to bring the action to the terminals. The Company
and the sponsoring casino will require the approval of the state casino control
commission for a three month test of the system. Later, the approval of the
terminal as a viable gaming device will be necessary. The Company believes it
can complete this phase within 12 months.
While the test is in progress, the Company and the sponsoring casino operator
will apply to the State Legislature for a permit allowing the Company to use the
closed circuit television play being broadcast within the casino for simulcast, via a
satellite broadcaster as content for a TV channel, similar to the HBO, Disney,
Horseracing, etc. channels. Eventually, worldwide distribution will occur, as more
TV satellites operate worldwide.
In order to conduct testing, the Company will require approximately $5,000,000
to: (a) purchase computers, digital television broadcast equipment and table
games and (b) defray facility costs and hire twenty (20)employees, including
former Company employees, who are specialists in software design, TV
broadcasts and mechanical design and, from time to time, consultants to the
design team.
Unless the Company is able to obtain these funds, none of the tests and initial
development work can commence.
The company plans to obtain the necessary funding by offering in a Private
Placement, Common Shares, or Cumulative Convertible Preferred Shares,
and/or by the sale of limited joint venture participations in future play along with
casino franchises.
In connection with the initial funding of $5,000,000.00, the Company has been
advised by a finder who, in prior years, has obtained capital for the Company,
that his investors are prepared to make additional investments after the Company
obtains permission from a well established casino operator to conduct the test for
in house play along. There can be no assurances that even if the Company
obtains the permission to conduct the first test that the finder will be able to
provide working capital to meet the Company's initial requirements.
When the tests are complete and the company has obtained a license from the
gaming control regulators for the use of the terminals in the sponsoring casino, the
Company will obtain production financing from regular banking sources. This will
allow it to finance the manufacturing of the terminals and supporting equipment,
which will be leased to franchisees on a revenue sharing arrangement.
The Company has filed a patent application for the system that includes the
terminals, games and for copyright protection for its associated software. There
are no assurances that the Company will be issued any patents and if they are
issued that they will deter competition and/or benefit the Company financially.
The Company's best protection against competition is to be the first to broadcast
from one of the best known names in the casino industry, and its ability to obtain
from traditional sources the substantial amounts of money necessary to implement
the worldwide wagering systems.
The casino operator will receive an annual license fee and royalty payment from
the worldwide net win of all play along wagers. Net win is the difference between
the amount the lotteries or other franchisee's collect in wagers and the amount
they pay for winnings.
The lotteries will earn commissions on each wager and the franchisees will retain
their agreed upon share. The Company retains the balance. The Company will be
responsible for furnishing websites or other monitoring systems at its own
expense. It will only make available stand alone self-sufficient "play along with
casino games" terminals on a lease and revenue sharing arrangement.
The Company will market the stand alone terminals to slot route operators,
betting shops in Europe and Asia, racetrack, hotel and resort operators.
As an inducement to play along with casino games, the Company proposes
offering to install, free of charge, the satellite dish required to receive satellite
broadcasts, and the TV set top box, which converts the TV set into an interactive
mini computer and allows individuals sitting in their living room to "play along with
the casino games", with a wireless remote control, when an individual first opens
an account with the lottery or other franchisee for $300.00, or the equivalent in
any foreign currency. The Company will also pay the monthly subscription fee to
view all digital TV programming offered and the internet service (ISP) fee if the
customer wagers at least $150.00 each month, win, loose or draw.
The Company plans to offer to every hotel operator in the industrialized world,
the installation of TV set top boxes on their guest room television sets, allowing
their guests to play along with the live casino games broadcast via satellite. As an
alternative the Company will install a cash management system, as used with the
PAT's in Australia's Tabarets, on a revenue sharing basis. Hotels then can also
offer free play as a bonus to promote room rentals and not be responsible to the
website management operator.
The Company believes that as viewers throughout the world will play along with
the same games emanating from a single, well-recognized casino with strict
government regulations, a sense of common interest will develop, which offers the
opportunity to establish a website to market goods and services unrelated to
"play along" with casino games.
Now that the Company has completed the filing for patent and copyright
protection for its new generation terminals, the ability to have individuals at
homes, offices, clubs hotels and other public gathering places in the industrialized
world using computers or other modalities such as TV sets connected to the
internet, with set top boxes for play along with casino games in progress, the
Company has started to seek out a casino operator. In connection therewith, the
Company has presented a proposal to the operator, of who the Company
believes to be, the best recognized name in the domestic and international casino
industry, for preliminary discussions to explore the feasibility of broadcasting
worldwide, live casino table games in progress, via satellite and cable television.
The proposal includes the test of the system in one of the operators casinos and
the granting of an option, for the Company to acquire an exclusive license, with
the right to sublicense, to send the closed circuit in house TV broadcast, for
distribution as content to satellite and cable television providers for inter-active
"play along with casino games".
Discussions, which have started more than three (3) months ago, are continuing
with no definitive results. Until now, the Company refrained from offering
proposals to other suitable casino operators in the United States. Most of their
names are not as recognizable outside of the domestic market, as with the casino
operator we are presently engaged in discussions. One of the time consuming
aspects is the broad legality aspect of our proposal.
The Company has embarked to acquire a suitable casino broadcast site in
Europe for the European market, where placing wagers (bets), using the
worldwide web (WWW), are permitted. There is no assurance that an
acceptable agreement can be reached with any casino operator.
(a) Liquidity and Capital Resources
Results of Operation
Since the Company emerged from bankruptcy proceedings on September 23,
1998, the Company had no revenue from operations, and therefore sustained
losses from general administration expenses amounting to $91, 648 during the
nine (9) month period ending on September 30,2000 and $9, 799 in 1999. The
losses will continue until the Company has revenue from profitable operations.
Inflation
Inflation has not had in the past, nor does the Company expect it in the future a
significant impact on the Company's business.
Forward Looking and Cautionary Statements
This report contains "forward looking statements", including without limitations:
(a) statements of proposed financing; (b) assumptions that casino operators in the
United States or Europe will participate in tests of the play along systems; (c)
obtaining the licenses from the casino regulatory agencies permitting the use of the
gaming systems, (d) proposed broadcasting of live casino games; (e) obtaining
permission from state and foreign governmental agencies allowing their residents
to watch on television and wager along with the live casino broadcast; (f) the
feasibility to profitably operate such play along casino games, (g) changes in the
competitive environment, and (h)general economic factors in markets where the
Company's products and systems are proposed to be offered, franchised and
leased.
Item 4. Submission of Matters to a vote of Securities Holders:
The Company has not held a meeting of shareholders since 1988 as the cost of
soliciting proxies and holding a meeting for the large number of shareholders
(approximately 11,000) is excessively costly, as it relates to its income. The
directors and officers continue to serve under provisions of the By-Laws which
allow them to continue in office until their successors are elected and take office.
At the next Annual Meeting of Shareholders the shareholders of the Company
will be asked to ratify the following: (a) To approve an amendment to the
Company's Certificate of Incorporation that increased the authorized number of
Common Shares from 61,000,000 shares to 100,000,000 shares, an increase to
200,000,000 shares and to permit the Company's Board of Directors, without
further action by the shareholders, to issue from time to time up to 10,000,000
authorized but unissued shares of Preference Stock, and to fix and determine the
terms, limitations, relative rights and preferences of the Preferred Stock, in order
to obtain financing, capital and/or acquire other businesses that can improve the
performance or growth of the Company. When any shares of Preferred Stock
are issued, certain rights of their holders may affect the rights of the holders of
Common Stock. In addition to any other powers conferred on the Preferred
Stock, holders of the Preferred Stock would have, under New York General
Corporation Law, the right to vote as a separate class on any increase, decrease
or change in the rights of the Preferred Stock. The affirmative vote of a majority
of the outstanding shares of Preferred Stock would be required for approval of
any such increase, decrease, or change. The authority of the Board of Directors
to issue shares of Preferred Stock with characteristics it determines (such as
preferential voting, conversion redemption and liquidation rights) may have a
deterrent effect on persons who might wish to make a takeover bid to purchase
shares of the Company at a price which might be attractive to its shareholders.
However, the Board of Directors must fulfill its fiduciary obligation to the
Company and its shareholders in evaluating any takeover bid; and (b) The
creation of a stock option and stock award plan (the "Plan") which will authorize
the grant of options to purchase common shares of the Company to key
employees (including directors who are employees), which may be "incentive
stock options" (ISO's) |
