KENILWORTH SYSTEMS CORP - Quarter Report: 2009 June (Form 10-Q)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

 

KENILWORTH SYSTEMS CORPORATION

(Exact name of registrant as specified in its charter)

 

 

(516) 741-1352

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  x   No  o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o   No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes o   No  x

 

State the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practical date.

 

The number of shares of common stock, $.01 par value of the Registrant outstanding as of June 30, 2009 was 490,036,586.

 

 

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KENILWORTH SYSTEMS CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)

 

INDEX

 

Part I.	Financial Information
Item 1.	Unaudited Condensed Consolidated Financial Statements
	Condensed Consolidated Statements of Operation (and Deficit) (unaudited) - Six months ended June 30, 2009 and 2008, and the period from inception, as a Development Stage Company, to June 30, 2009
	Condensed Consolidated Balance Sheets (unaudited) — June 30, 2009 and December 31, 2008
	Condensed Consolidated Statements of Cash Flows (unaudited) - Six months ended June 30, 2009 and 2008, and the period from inception, as a Development Stage Company, to June 30, 2009
	Condensed Notes to Consolidated Financial Statements (unaudited)
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.	Quantitative and Qualitative Disclosures About Market Risk
Item 4.	Controls and Procedures
Part II.	Other Information
Item 1.	Description of Business
Item 2.	Legal Proceedings
Items 3,4,5,6
Item 7.	Exhibits
Signature

 

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FORWARD LOOKING STATEMENTS

 

The information contained in this Form 10-Q and Kenilworth’s other filings with the Securities Exchange Commission contain “forward-looking” statements within the meaning of section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and is subject to the safe harbors created thereby. Such information involves important risks and uncertainties that could significantly affect results in the future and, accordingly, such results may differ from those expressed in any forward looking statements herein. Future operating results may be adversely affected as a result of a number of factors.

 

You should not rely on forward-looking statements in this Form 10-Q. This Form 10-Q contains forward-looking statements that involved risks and uncertainties. We use words such as “anticipates”, “believes”, “plans”, “expects”, “future”, “intends” and similar expressions to identify such forward-looking statements. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this Form 10-Q. Our actual results could differ materially from those anticipated in these forward-looking statements for many reasons, including the risks faced by Kenilworth as described below and elsewhere in this Form 10-Q.

 

RISKS

 

Specific reference is made to each of the risks described in Item 7 in Part II of the Form 10-K for December 31, 2008 under the discussion “Cautionary Statement For Purposes of the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995 and Risk Factors”. Reference is also made to future filings under Forms 10-Q and Forms 10-K and filings under the Securities Exchange Act of 1934 as amended and as may be applicable under the Securities Act of 1933 as amended.

 

INTRODUCTORY NOTE

 

This Form 10-Q is being filed as a “Development Stage Company” from the period beginning November 24, 1998 to the present at March 31, 2009, including a charge in the amount of $4,256,926, which was the amount the Company disbursed on September 28, 1998 to exit from Chapter 7 Bankruptcy Proceedings.

 

d) The Company issued 31,352,000 shares of its Restricted Common Stock since December 31, 2008.  All of the shares may have the restrictions lifted pursuant to Rule 144 B after six (6) months which may substantially depress the trading price of the Company’s Stock in the future.

 

During the period ended March 31, 2007, the Company made certain adjustments to the number of shares outstanding which did not require capital changes.

 

Remainder of page intentionally left blank

 

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KENILWORTH SYSTEMS CORPORATION
(A DEVELOPMENT STAGE COMPANY)

 

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

AND DEFICIT ACCUMULATED DURING THE DEVELOPMENT STAGE

(Unaudited)

 

														Period from
														November 24,
		For the six months ended						For the three months ended						1998
		June 30,						June 30,						(Inception) to
		2009			2008			2009			2008			June 30, 2009
		*			*			*			*			Restated
Revenues
Sales		$	0		$	0		$	0		$	0
Expenses
Selling, general and administrative		$	682,684		$	859,681		$	339,212		$	680,583		$	13,867,691
Other income (expenses)
Interest income		—			—			—			—			922
Interest expense		—			—			—			—			(775,018		)
Total other income (expense)		—			—			—			—			(2,688,926		)
Net loss		$	(682,684	)	$	(859,681	)	$	(339,212	)	$	(680,583	)	$	(16,693,005	)
Basic and diluted loss per share		$	(0.001	)	$	(0.002	)	$	(0.0007	)	$	(0.002	)
Weighted average number of shares outstanding		490,063,586			404,104,486			490,036,586			404,104,486

 

* Includes a NON CASH loss of  $510,776 resulting from the sale and issuance of 62,625,002 shares of RESTRICTED Common Stock, par value $0.01 per share, for cash, consulting fees and conversion of loans at less than par value in 2008 and $162,875 for issuance of 15,503,500 shares in 2009 in the three month period ended March 31, 2009 that resulted in an increased loss of $150,035 in the period.

 

The accompanying notes are an integral part of these financial statements.

 

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KENILWORTH SYSTEMS CORPORATION
(A DEVELOPMENT STAGE COMPANY)

 

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

		June 30, 2009			December 31, 2008
ASSETS
CURRENT ASSETS
Cash		$	103		$	2,391
Prepaid expenses (Note 6)		40,000			80,000
Loan receivable — including from stockholders, net		22,200			21,600
Receivable from Herbert Lindo (Note 8)		770,101			767,289
TOTAL CURRENT ASSETS		$	832,404		$	871,270
PROPERTY AND EQUIPMENT — NET		0			603
SECURITY DEPOSIT		8,677			13,677
TOTAL ASSETS		$	841,081		$	885,560
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses		$	141,844		$	158,529
Payroll taxes payable (Note 7)		22,840			169,695
Loans payable — including accrued interest		21,434			20,264
TOTAL CURRENT LIABILITIES		$	186,118		$	348,488
STOCKHOLDERS’ EQUITY (DEFICIT)
Preferred Stock - par value $.01 per share; authorized 50,000,000 shares; no shares issued and outstanding
Common stock - par value $.01 per share; authorized 1,000,000,000 shares; issued and outstanding 490,036,586 and 434,597,086 shares, respectively		4,900,365			4,345,970
Additional paid-in capital		31,349,910			31,103,730
Accumulated deficit		(35,595,312		)	(34,912,628		)
TOTAL STOCKHOLDER’S EQUITY		654,693			537,072
TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY		$	841,081		$	885,560

 

The accompanying notes are an integral part of these financial statements.

 

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KENILWORTH SYSTEMS CORPORATION

(A DEVELOPMENT STAGE COMPANY)

 

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30,

(Unaudited)

 

								Period from
								November 24,
								1998
								to
		2009			2008			June 30, 2009
								Restated
Cash flows from operating activities
Net loss		$	(682,684	)	$	(859,681	)	$	(16,991,640	)
Adjustments to reconcile net loss to net cash provided by operating activities		0			2,972
Depreciation
Patent Impairment
Accretion of convertible debt discount
Beneficial conversion feature								1,182,097
Common stock issued for services		23,497,500			20,675,000			51,049,432
Common stock issued to induce debt conversion								63,276
Common stock issued for interest due on notes payable								8,501
Loss on Investment								60,000
Other								21,100
Increase (decrease) in cash attributable to changes in assets and liabilities:
Prepaid expenses		(40,000		)	(40,000		)	(20,000		)
Loan Receivable		(22,200		)
Accounts payable and accrued expenses		186,118			297,219			235,261
Payroll taxes payable		22,840			147,351			85,300
Net cash used in operating activities		(428,082		)	(525,479		)	(2,504,864		)
Cash flows from investing activities
Repayment of loans — related parties								(20,120		)
Proceeds from loan receivable		(600		)				4,000
Payment of patent costs								(73.962		)
Purchase of property and equipment		0			0			0
Security deposit		(8,677		)	(17,777		)	(17,777		)
Net cash used in investing activities		8,077			0			(220,000		)
Cash flows from financing activities								4,345,350
Proceeds from sale of common stock		$	386,000		$	220,000
Proceeds from stock subscriptions receivable								—
Net cash provided by financing activities		$	386,000		$	220,000		—
Net change in cash								—
Cash — beginning of period		2,391			9,254			—
Cash - end of period		$	103		3,984			$	—
Supplemental disclosure of non-cash activities:
Common stock issued for patent costs		$	—		$	—		$	10,000
Exchange of loans payable for convertible notes payable		$	—		$	—		$	50,000
Conversion of notes payable to common stock		$	—		$	—		$	1,388,500
Conversion of loan payable - related party to common stock		$	—		$	—		$	16,170
Cancellation of stock subscriptions receivable		$	—		$	—		$	29,000
Common stock issued for subscriptions receivable		$	—		$	—		$	71,500

 

The accompanying notes are an integral part of these financial statements.

 

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KENILWORTH SYSTEMS CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)

 

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

NOTE 1 - BASIS OF PRESENTATION

 

In the opinion of management, the accompanying unaudited condensed consolidated financial statements of Kenilworth Systems Corporation and subsidiaries (“Kenilworth”) beginning as of January 1, 2009 contain all adjustments (consisting of only normal accruals) necessary to present fairly the consolidated balance sheets as of June 30, 2009 and December 31, 2008 and the related statements of operations and cash flows for the six (6) month periods ended June 30, 2009 and 2008  These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on FORM 10-K for the fiscal year ended December 31, 2008

 

The results of operations for the six (6) month period ended June 30, 2009 are not necessarily indicative of the results for the entire year ending December 31, 2009.

 

NOTE 2 - THE COMPANY AND NATURE OF BUSINESS

 

Kenilworth Systems Corporation (the “Company”) was incorporated in New York in April 1968 and since exiting from bankruptcy proceedings now plans to be engaged in the business of developing and having terminals and other equipment manufactured and design systems that permit individuals from remote locations, to play along with live, in-progress casino table games via TV (simulcast) Satellite, Internet and Cable Broadcasts around the world.

 

The Company was in bankruptcy proceedings under Chapter 7 and 11 of the Bankruptcy Code for the period from August 28, 1982 through September 28, 1998. The Company ceased all operations, between February 2, 1991 through September 28, 1998.

 

NOTE 3 - PRINCIPLES OF CONSOLIDATION

 

The consolidated financial statements include the accounts of Kenilworth Systems Corporation and its wholly owned subsidiaries: Video Wagering Systems Corporation, Roulabette Nevada Corporation, Kenilworth Systems Nevada Corporation, Kenilworth Systems (UK) Limited, Kenilworth Satellite Broadcasting Corporation (a Delaware Corporation) and Satellite Gaming Consultants, Inc. (a Delaware Corporation). None of these subsidiaries has any assets or liabilities, except Satellite Gaming Consultants, Inc; their activities are consolidated herein.

 

NOTE 4 - GOING CONCERN UNCERTAINTY

 

As indicated in Note 2, the Company exited from Chapter 7 in September 1998 and has not yet commenced revenue producing operations. These factors create uncertainty as to the Company’s ability to operate as a going-concern and continue in business. Management plans to develop a wagering system that allows casino patrons and individuals outside the casino to play along remotely with live in-progress casino table games. The Company continues to obtain the necessary funding by offering its Common Stock, Senior Cumulative Convertible Preferred Shares, and sell Convertible Promissory Notes and/or Stock Purchase and Option Agreements in private placements. There can be no assurances the Company can be successful in continuing to obtain such financing.

 

The accompanying financial statements have been prepared assuming the Company is a going-concern and do not reflect adjustments, if any that would be necessary if the Company were not a going-concern.

 

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NOTE 5 - CONVERTIBLE PROMISSORY NOTES AND STOCK PURCHASE AND OPTION AGREEMENTS

 

During the quarters ended June 30, 2009 and June 30, 2008 respectively, the Company sold to various private investors $63,000 and $220,000 principal amount of Convertible Promissory Notes, made loans to the Company and issued Stock Purchase and Option Agreements bearing interest at rates ranging from 4.00% to 12.00% per annum.  The Notes had a six-month and one-year term and were immediately convertible at the option of the noteholder into shares of restricted common stock based on conversion prices ranging from $.005 to $0.10 per share and purchase prices at $0.008 per share.  All Notes issued and shares sold in the quarters ended June 30, 2009 and June 30, 2008 were converted into a total of 16,700,500 and 62,625,002 restricted common shares, respectively.

 

STOCK OPTIONS

 

From its inception in April 2008 through June 2009, the Company granted Stock Options for 132,409,500 restricted Common Shares, par value $0.01 per share at an average price of $0.01 per share in connection with the private sale to accredited investors of Stock Purchase and Option Agreements.  The Option grant is for a period of two (2) years from the date of the Stock Purchase and Option Agreements.

 

NOTE 6 - NON CASH TRANSACTIONS

 

Common shares issued for services

 

2009:

 

The Company issued 23,179,000 shares as compensation rendered during the period ended June 30, 2009. The services were valued at $347,686.

 

2008:

 

The Company issued 20,675,000 shares as compensation for services rendered during the period ended December 31, 2008.  The services were valued at $418,500.

 

PREPAID EXPENSES

 

Prepaid expenses consist of the unamortized value of stock issued to directors for the twelve month period ending September 30, 2009.  The balance will be amortized on a straight-line basis over the remaining term.  The directors receive no other compensation.

 

NOTE 7 — PAYROLL TAXES PAYABLE

 

The Company has made arrangements with the Internal Revenue Service (IRS) and the New York State Department of Taxation to pay approximately $22,840 in past due payroll taxes, including all penalties and interest accrued during the years 2008 and the three (3) month period ended June 30, 2009 in monthly installments, by the end of the calendar year 2009.  The agreements provide that the Company must pay all present taxes, when due, and payments must remain current in 2009.  At June 30, 2009 the Company was delinquent in approximately $22,840 in payments to the IRS and will attempt to negotiate new payment schedules covering the delinquent payments.

 

NOTE 8 - RECEIVABLE FROM HERBERT LINDO

 

On November 27, 2006 Herbert Lindo, the Chairman and Chief Executive Officer exercised a five million (5,000,000) share option for seven hundred fifty thousand dollars ($750,000) at fifteen cents ($0.15) per share pursuant to the Company’s Performance and Equity Plan. The price per share was the price for the Option which would have expired on the following date. Mr. Lindo does not own any other Options pursuant to the Plan. The average market price of the Common Stock for the thirty (30) days prior to

 

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November 27, 2006 was high: $0.05, low: $0.03. As provided in the Plan, Herbert Lindo borrowed the seven hundred fifty thousand dollars ($750,000) from the Company and pledged the five million (5,000,000) and other shares he owns, as collateral for the loan. The five million (5,000,000) shares have been issued as restricted shares.

 

At a regular meeting of the Board of Directors in July 2008, the Board unanimously approved (with Mr. Lindo abstaining) to extend the $750,000 loan until December 31, 2009, provided Mr. Lindo pays a nominal one and one-half percent (1.5%) interest from November 2006.  Mr. Lindo agreed to pay the interest which totaled $20,101 through June 30, 2009. Mr. Lindo provides his services to the company without any remuneration.

 

NOTE 9 - SUBSEQUENT EVENTS

 

Subsequent to June 30, 2008, the Company obtained two (2) $10,000 loans due September 23, 2008 at an interest rate of twelve percent (12%) per annum from two (2) present investors.  The loans have been extended to October 23, 2008 with only the addition of agreed interest to October 2008.  The loans were converted into Stock Purchase and Option Agreements in the first quarter of 2009.

 

ITEM 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

RESULTS OF OPERATIONS

 

Since we exited from bankruptcy proceedings on September 23, 1998 we have had no revenues from operations. We sustained substantial losses from general administrative expenses amounting to $34,912,625 through December 31, 2008 and for the six-months ended June 30, 2009 we sustained a loss amounting to $682,684 which includes NON-CASH loss of $162,875. Kenilworth has had no revenues from operations during the past sixteen (16) years and there can be no assurances that it will ever have revenues from present planned operations.

 

LIQUIDITY AND CAPITAL RESOURCES

 

Our present plans are to develop a wagering system dubbed “Roulabette” that would allow patrons in the industrialized world to play and wager on live in-progress simulcast casino table games on TV’s placed in hotels, resorts, bars and other public gathering places and in homes and offices on personal computers (PC’s) or television sets connected to set top boxes for Interactive TV via digital satellite, digital cable and Internet broadcasts emanating from strictly regulated casinos.

 

PART II

 

ITEM 1—DESCRIPTION OF BUSINESS

 

Kenilworth Systems Corporation hereinafter referred to as “Kenilworth”, the “Company” or “we”, was incorporated on April 25, 1968 under the laws of the State of New York.  Kenilworth has been a publicly traded Company since August 1968 formerly on the National NASDAQ Market, presently on the OTC Pink Sheet Market since exiting from bankruptcy proceedings in September 1998.  Kenilworth is now being presented as a Development Stage Company.  The Company believes this designation is incorrect.  The Company exited from Chapter 7 Proceedings having made a 100% cash distribution to all approved creditors for their entire claims and paid, in full, all administrative fees and expenses.  The designation is hindering the Company in its operations.

 

GENERAL

 

Since early in the year 2000 we have been solely engaged in developing patents, markets and investigating how best to obtain Governmental approvals, by engaging lobbyists and consultants that would allow television satellite, cable subscribers and internet network throughout the industrialized world to play and

 

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wager along from remote locations with live, in-progress casino table games (Roulette, Craps and Baccarat) from strictly regulated casinos located in the United States and other locations around the world.

 

Employing the latest encrypted satellite, cable and on line Internet technology and placing television cameras in strategic locations above the casino table games, without disrupting the normal game-monitoring activities, (a separate control room would direct the various camera angles), and transmitting the table games over the digital satellite, digital cable and Internet networks (in countries that permit Internet wagering) to television sets (“TV’s”), which become a platform for playing along with the casino games wherever TV’s are located.

 

Kenilworth titled the overall project “Roulabette”.  There are thirty-eight million (38,000,000) satellite and seventy-three million (73,000,000) cable TV subscribers in the United States and more than five hundred million (500,000,000) subscribers throughout the rest of the industrialized world (“The Market”).

 

On average, households in the U.S. have three (3) TV’s.  (It is important since the satellite and cable companies will charge a separate fee for transmitting the table games to` TVs and laptops).  Public gathering places can accommodate (be able to network) up to one thousand (1,000) or more TV sets  video lottery terminals (VLTs) with a single satellite receiving dish, direct cable connections, or streamed via the Internet.  With wagering possible in homes, hotel rooms, resort rooms, pubs, restaurants, race tracks and other public gathering places, the Company believes it will become a more than $500 billion net win Market in the near future throughout the industrialized world.

 

To best market the casino games, the Company is selecting lotteries throughout the world to manage and operate the distribution and cash handling (deposits to play and paying winnings) using the lotteries’ existing databases for the sale of lottery tickets, and paying winnings at regular lottery licensed terminal locations.

 

All forty-six (46) lotteries in the United States are owned and operated by County and State agencies. This could greatly enhance our efforts to broadcast the live casino table games to these lottery locations and could result in having Cafés that offer terminals and TV sets to play along.  Internet Cafés that offer wagering on various events have been a huge success in the Asian Market.

 

Throughout the rest of the world, lotteries are owned by government agencies or non profit charitable agencies that distribute the net earnings to benefit social and charitable programs, or by private entities that pay a percentage of their net win to designated government agencies.

 

These foreign lotteries also have the same databases as lotteries in the United States, except most lotteries throughout Europe pool their lotteries between countries, not unlike Mega Millions and PowerBall in the United States, which makes the distribution simpler and very cost effective for both Kenilworth and the lotteries.

 

There are no technical breakthroughs required.  The equipment for the technology is readily available.  What is needed is to get through the maze of local, county, state and federal regulations in each U.S. State and foreign countries.  When the first state in the United States grants the Company permission to transmit the broadcast from one of its casinos to their residents and to States that do not have any casinos, the other forty-six (46) States with lotteries will join expeditiously. The same will occur in foreign countries.

 

Kenilworth will share the net win revenue with all participating entities that provide Roulabette gaming without costs of any kind.  State lotteries or their private operators will receive a minimum of forty percent (40%) of the total net win from their respective jurisdictions.  With thirty percent (30%) to the strictly regulated casinos and broadcast couriers and thirty percent (30%) inuring to the Company

 

In states and foreign countries that designate exclusively lottery proceeds to schools and their teachers it is a welcome contribution.  It also will help close state and other budget gaps.

 

In addition, throughout the United States and most foreign countries there are hundreds of facilities that simulcast live in-progress horse/dog races.  At most facilities there are several large TV screens that show

 

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the races from the different tracks with general theater-type seating for patrons and at private cubicles with television sets outfitted with touch screens.  The cubicles rent for additional fees.  After players open an account and select pin numbers, they can watch, in privacy, each race offered on the different tracks on the TV and place wagers on the different races by simply changing channels.  The players may also watch sporting events, the news, the stock market reports, and in the near future Roulabette, live, in-progress casino table games.  The simulcast centers have their own databases to manage the cash deposit and pay winnings on the horse/dog races and will be able to manage the casino games, on the same methods as the lotteries will manage Roulabette.  With private TV’s, available in simulcast centers, especially at night, when fewer tracks are operating.

 

When playing along with live casino table games from a highly regulated jurisdiction, players will be assured that the game results are exactly what they see; and, playing along with live casino table games such as Roulette, Craps and Baccarat, we believe, will provide interaction, fun and far more excitement than playing make believe animated (virtual) games. It is the next best thing, we believe, to actually being at the table in the casino.

 

To conduct permanent broadcasts from government regulated casinos Kenilworth believes it will require a minimum of ten million dollars ($10,000,000) and there are no assurances we will ever be able to obtain any of such money. At present, the Company does not have the funds readily available but hopes to obtain same, from investors, as soon as Kenilworth can commence broadcasting from a casino in the United States or other casinos throughout the world.

 

In prior years, Kenilworth completed a prototype system that allowed casino patrons to play along with live in-progress casino table games only within the confines of a casino, via closed circuit television. Also in 1990, we developed and delivered for the TAB (Totalizator Agency Board) a quasy government agency of the State of Victoria, Australia, a cashless slot machine system. Both systems required debit cards and central mainframe computers to manage the wagers. By making use of the expertise applied in the development of the aforementioned systems we plan to develop a second-generation system that will manage the wagers by the microprocessor installed in TV set-top boxes or an attachment directly connected to the TV set and lap top computers to receive satellite and/or on line Internet broadcasts. This as planned would allow 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 game and to make wagers on the various games, without having to be physically present at the casino or casino table.  There are no assurances we will be able to successfully develop any system.

 

We also propose for slot machine manufacturers to develop “Roulabette Slot Machines”.  The Roulabette Slot will offer the regular slot or video lottery games and by the touch of a button, the live in-progress casino table games.  Slot players are offered a change of pace at the cost of a slot handle pull.  The games are transmitted to the Roulabette Slot via satellite or on line Internet (all broadcasts are encrypted to prevent unauthorized use of the broadcasts).

 

Where authorized, hotels, resorts, clubs and other public gathering places will be able to offer casino table game action in their establishments without incurring the costs to operate a casino. There are now believed to be more than ten million (10,000,000) slot machines played throughout the world, outside of casino confines.

 

Roulabette is a concept intended to be built and there can be no assurances that it will ever be built.  The patented microprocessors to be installed in the TV set top boxes and laptop computers have not been designed.  With advanced technology available in the not too distant future, the microprocessor may NOT BE REQUIRED.

 

PROPOSED ON LINE INTERNET GAMBLING IN THE UNITED STATES

 

On May 6, 2009 Congressman Barney Frank (D., Mass) Chairman of the House Financial Services Committee introduced legislation titled Internet Gambling, Consumer Protection and Enforcement Act (H.R. 2267) that will, if passed by Congress, overturn President George W. Bush’s Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA).

 

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H.R. 2267, if passed by Congress, legally sanctions on line Internet gaming in the U.S., the world’s largest gambling market.  The primary incentive for passage of this legislation is the potential tax benefit to local, state and federal jurisdictions and the creation of jobs.  Price WaterhouseCoopers and others recently estimated that Internet gambling in the U.S. could raise nearly $52-$65 billion in taxable revenue over the next decade (starting early in 2010).

 

If H.R. 2267 is not passed before December 1, 2009 then the Federal financial regulations will require companies that issue credit cards, banks and other payment systems to block any money transfer to gambling businesses who engage in unlawful internet gambling.  Many financial institutions already have implemented such policies voluntarily by refusing to honor credit card transactions that violate UIGEA.  Both UIGEA and H.R. 2267 leave it up to each state’s discretion how they wish to implement on line Internet gambling.

 

Kenilworth owns patents in the US and fifty-one other countries including China, Japan and Russia which presently offer gaming in more than 2,000 licensed regulated casinos.  The patents cover systems and methods to allow players from remote locations to wager on games such as roulette, craps and baccarat, as if they are actually participating in the live in-progress games at the casino table of their choosing, from a selection of casinos anywhere in the world.

 

When state operated lotteries become involved, a prime motive will be to ensure responsible gambling by managing the wagering with data systems which can identify problem gamblers and limit or shut down players with identifiable patterns of compulsive gambling.  A further requirement for any system sanctioned by states will be the prevention of underage participation.  Lotteries will also limit the amount that may be deposited or held on deposit at specified intervals of days, weeks or months. The ability of Kenilworth’s patented system to support all of these anticipated requirements is considered to be a significant competitive advantage in the emerging market.

 

TEST SIMULCAST AGREEMENT

 

On June 10, 2009 Kenilworth entered into a six (6) month on line Test Simulcast Broadcast Agreement with Caribbean Casino and Gaming Corporation (“Caribbean”). Caribbean is a gaming and entertainment company that operates the Sousa Grand Casino at Sousa Bay Resort in Puerto Plata, Dominican Republic. The test program that is expected to commence in September 2009 will ready Kenilworth for global remote live on line Internet casino gaming.

 

As part of the Test Agreement, Kenilworth will pay Caribbean one half of one percent (.5%) of the next earning derived from our patents and technology for a period of ten (10) years.

 

Kenilworth expects to be able to commence the test program by mid September and will be able to demonstrate and market Roulabette, starting November 1, 2009, the live, in-progress casino table games, via on line Internet transmission, to viewers in the United States and the rest of the world.

 

We believe that, as has already happened in the field of horse racing, simulcasts of remote casino games to homes, cell phones, racetracks, hotels, resorts, restaurants and bars will become a major trend in gaming. Since the development of the Internet, millions of people have chosen to gamble online and today Internet gambling is offered in many different countries under a variety of licensing and regulatory regimes. It appears there will be a potential annual global market of as much as $500 billion in total Internet wagering in the near future.

 

Denmark, Sweden, Poland, Switzerland, France, Spain and Norway have either passed or are preparing to pass legislation to open the market for remote live games from casinos within their own borders.  The legislation is also intended to protect gamblers from manipulation by discouraging virtual wagering and betting on number generated games from studios in the U.K and other Channel Isles.   These are likely to be the first sanctioned Internet gaming activities to yield significant tax revenues.  The Caribbean test is intended to support wagering for such live casino table game broadcasts.  Our intent is to aggressively

 

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market this gaming technology and pursue licensing arrangements with casino operators in all nations where we enjoy patent protection.

 

SUMMARY OF PROPOSED BRIDGE LOAN/UNDERWRITING THAT EARNS $50 MILLIION IN A SECURED INVESTMENT

 

Kenilworth Systems Corporation (“Kenilworth” or the “Company”) is soliciting a $230,000,000 bridge loan that requires only $30,000,000 in actual cash that will be repaid in an underwriting projected to take place in September/October 2009.

 

The $30,000,000 will be deposited in an escrow account controlled and administered by the bridge loan lender.  The incentive for the lender is a $50,000,000 profit by purchasing 200,000,000 shares of Kenilworth Common Stock, par value $0.01 per share at $0.05 per share ($10,000,000) directly from the Company that is not required to be evidenced or deposited in escrow, and the purchase of 200,000,000 Common Shares in a proposed Dutch Auction, conducted on behalf of the bridge lenders, at a maximum offering price of $0.15 per share that requires the $30 million. The lenders profits are earned by acquiring 400,000,000 Common Shares that are sold in the underwriting at $35.00 per share for a net profit of $50,000,000. The other $200,000,000 required for the bridge loan are deferred and cancelled when the proceeds from the underwriting are disbursed.

 

As part of the underwriting Kenilworth’s Common Stock will be reverse split 100-1 with 8,900,036 Common Shares outstanding when the underwriting is completed.  The underwriters are expected to sell 6,571,428 Common Shares at $35.00 per share.

 

After adjusting for the purchase of 400,000,000 shares pre-reverse split by the bridge loan lenders, the cancellation of the additional non-issued funding of $200,000,000 and the $10,000,000 for the purchase of the 200,000,000 shares of Common Stock directly from the Company, Kenilworth will receive, net of all expenses, including underwriters, legal fees and printing costs, $152,400,000.  On a pro forma balance sheet basis, Kenilworth will have a book value of $16.85 per share with 8,900,036 shares outstanding (after the 100-1 reverse split) plus $35,000,000 tax carry forward loss per share of $3.93 totaling = $20.78 with cash of $152,400,000. With the potential future business it supports a proposed stock offering price of $35.00 per share. ($0.35 before the reverse split).

 

The bridge loan documents will contain a clause similar to a Material-Adverse-Change-Clause that will permit the cancellation of the bridge loan.  Kenilworth will pay the twelve percent (12%) interest on the loan from the date the escrow deposit is made for the Dutch Auction in the event the Company fails to obtain a firm underwriting commitment or is unable to receive a sufficient buyers in a best effort commitment.

 

The fees payable to the escrow agent will be paid by Kenilworth.

 

PROPOSAL TO SWAP SECURITIES WITH CHINA’S WEALTH FUND

 

In April 2008, Kenilworth’s management decided that, as an American publicly traded Company for more than forty years, it wanted to position itself to swap Preferred Stock paying a five percent (5%) annual dividend with U.S. Treasuries owned by China thereby becoming a surrogate for Chinese investments in the U.S.

 

Kenilworth is authorized to issue 50 million Series of Convertible Preferred Stock; none is presently issued and outstanding.

 

China’s Sovereign Wealth Fund, the China Investment Corporation (CIC), was established on September 29, 2007 and financed with $200 billion in initial capital. The CIC was created to improve the rate of return on China’s $1.5 trillion in foreign exchange reserves. One of CIC’s first investments was $3 billion in a non-voting stake (approximately 9.3%) in Blackstone Group, L.P., public offering in 2007 at $28.00 per share that opened trading at $38.00 per share in the public offering. Blackstone Group, L.P. is

 

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one of the largest independent alternative asset managers in the world.  Shortly thereafter, the CIC invested $5 billion in Morgan Stanley, and made other unprofitable investments in Fannie Mae and Freddie Mac.

 

The continuing U.S. spending to revive the economy does not provide any encouragement for China to get their investment back soon.  Their purchases of additional U.S. Bonds are protecting their huge investments in the U.S. dollar. Congress would reject any purchases of more than ten percent (10%) by the CIC of any of our prime industrial firms.  For example, Congress rejected China’s bid to acquire all of Conoco’s foreign oil companies and their oil reserves.

 

We believe we can temper Congress’ objections with our plan.  With the swapped U.S. treasuries, we will borrow from the Fed window U.S. dollars to make investments that will be recommended and controlled by managers such as Blackstone Group, L.P.  For instance: provide capital for Citibank to repay its TARP money, bring Lehman Brothers out of bankruptcy and restore it to its old self and purchase some of the soft assets from other banks.  Collectively, it will expedite the U.S. recovery and get the U.S. out of running our auto and other TARP companies that the government has no expertise to operate.

 

Our first step has to be to move Kenilworth from a penny stock to a $35.00 per share stock.  That is the very reason we are embarking on the bridge loan, underwriting and reverse splitting our Common Stock.  With our gambling patent ownership we should be able to prevail.

 

Kenilworth is the only publicly traded manufacturing company in the United States that exited from 16 years in Chapter 11 and 7 bankruptcy proceedings having paid one hundred percent (100%) cash distribution to the creditors and paid in full all administration fees and expenses after securing $4.5 million in debt owed to the Company.

 

It parallels our position as one of the only companies best suited to swap our Preferred Stock for China’s U.S. bonds. The same scenario applies to Middle East oil producing Sovereign Wealth Funds.

 

SUMMARY:

 

(1.)               Kenilworth continues to fine tune its patented technology dubbed Roulabette.  It now plans to “outsource” the manufacturing of all the components instead as formerly manufacture some of the equipment in its 26,000 square foot facility located in Melville, NY.  Roulabette would allow casino patrons and other players to play along with live in-progress casino table games such as Roulette, Craps and Baccarat via digital satellite, digital cable television or on line Internet broadcasts (simulcasts) emanating from strictly regulated casinos located in the United States and other locations around the world, to self-sufficient computer terminals dubbed “Roulabette Slots” digital satellite, cable TV set top boxes, lap top computers, cell phones or the Internet in countries that permit Internet gaming. The Roulabette terminal is a proposal intended to be built and there can be no assurances that it will ever be built.  The microprocessors to be installed in the TV set and lap top computers have not been designed. We have as at June 30, 2009, no firm agreements, customers, or proposals for any future business and there can be no assurances that we will ever have same. Reference is also made to each of the “Risk Factors” that are set forth in Item 7 of FORM 10-K for the year ended December 31, 2008.

 

(2.)               We believe the thousand virtual casino websites via the Internet obtain sixty percent (60%) of their annual revenue from customers in the U.S.

 

Simulcast broadcasts of digital satellite, digital cable and on line Internet transmissions around the world must meet, and will be supervised by, the regulations by the gaming authorities of the broadcasting casino and the jurisdiction, which receives the broadcast.  We believe the supervision will not be difficult to enforce, because all simulcast wagering is “cash only”, from regulated, supervised betting sites.  There are no wire money transfers with banks and no credit or debit cards permitted.  We believe this fact should ease any opposition from concerned citizens and anti-gambling groups, as regulation and enforcement responsibility will be vested in each individual state or foreign jurisdiction.

 

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Kenilworth was the first to use color personal computers (PC’s) to replace electromechanical slot machines in 1988.  We provided the software for the first Tabaret located at the Menzie at the Rialto in Melbourne, Australia, which opened in November 1990.  This consisted of cashless, variable denomination and multiple games, virtual PAT’s (“Player Activated Terminals”).  Prior thereto Kenilworth sponsored, with the assistance of three (3) Nevada casino operators, legislation to permit cashless wagering in the state of Nevada.  The legislation, which is in the form of an amendment to existing casino control statutes, permits the use of account cards (debit cards) and was signed into law by Governor Richard H. Bryan on June 13, 1985.

 

The Board of Directors of Kenilworth have taken all necessary corporate actions and approved the stated plans with flexibility to permit changes on “the best terms” available.

 

On January 7, 2009 the shareholders approved amending the Certificate of Incorporation to increase the authority to issue the number of shares of the Common Stock and Series of Convertible Preferred Stock to meet the Company’s plans, as described herein.

 

MARKETING STRATEGY/SALES PLAN

 

Our marketing strategy consists of developing the Roulabette Slot terminal and the Roulabette simulcast broadcasts. We estimate at this time, that we will need at least approximately ten million dollars ($10,000,000) for promoting the Roulabette concept. We do not have this money nor do we have any agreements or understanding to procure this money. We may never get this money. If we do obtain this money, it may not be sufficient. Further, should such monies be available it may not be available on terms satisfactory to Kenilworth or it may be available on such terms that substantially dilute the interest of existing shareholders. If we obtain this money, we will need substantial additional funds for the proposed marketing plan and there can be no assurances that such funds will ever be available to allow Kenilworth to engage in business on a profitable basis.

 

At the present time, we do not engage technically oriented employees who will be able to assist in the development of Roulabette (we have available three [3] former technical Kenilworth employees that have indicated to rejoin Kenilworth at the appropriate time). It will be necessary for us to obtain additional personnel qualified and with the expertise to develop Roulabette. We would require additional employees and several more consultants and there can be no assurances of our being able to obtain any necessary personnel. There can be no assurances of the availability of any such employees and consultants.

 

The Company will outsource the development of Roulabette and the microprocessors for the TV set top boxes and lap top computers.

 

In the United States, Kenilworth must presently refrain from using the Worldwide Web (WWW) Internet to manage wagers from individuals outside of the casino confines. It is presently against the law. In Roulabette, the play-along broadcast emanates from casinos that are regulated by strict and comprehensive rules and state and jurisdiction regulations, enforced by gaming control regulators and everybody plays along with the same live table game. There is a world of difference between playing in a virtual make believe casino compared with an actual casino.

 

For the reasons stated, Kenilworth will ask state lotteries, Off-Track Betting (OTB) corporations, pari-mutuel race tracks, and other state and federal regulated agencies to manage the wagers from individuals playing along on their PC’s and their television sets using interactive TV set top boxes that convert regular television sets into minicomputers within their state or jurisdiction. There can be no assurances that we will be able to obtain any arrangement with any of these entities or that they would be on suitable terms.

 

The individuals would have to pre-deposit funds into an account with the wager management company and then place wagers with their credit balance. The wagers and running balances will be transmitted to the Roulabette player’s PC and/or television sets with telephone lines not crossing any state lines, similar in principle to telephone accounts wagering offered by the New York State Off-Track Betting Corporation and the state of Nevada casino sports book and recently with remote purchase of lottery tickets in many states within the United States.

 

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After we obtain permission to play Roulabette, of which there can be no assurances, in a given state and engage a wager management organization in order to promote digital satellite and interactive television to the state’s residents, Kenilworth would install the eighteen (18) inch dish antenna and converter box required to receive digital TV programming and interactive TV at its own cost, if the subscriber opens a Roulabette wagering account for two hundred dollars ($200). In addition, Kenilworth would pay the monthly subscription fees to view all digital TV programming offered and the Internet service provider (ISP) subscription fee if the customer wagers at least one hundred twenty dollars ($120) each month — win, lose, or draw — makes no difference.  In the U.S. the contracts would be financed by satellite carriers such as EchoStar and DirecTV.  If the internet legislation introduced on May 6, 2009 passes both Houses of Congress, the need for dish antennas would no longer be required.

 

In states with approved lottery and/or other gambling legislation, we plan to introduce Roulabette Slot terminals to hotels, clubs (similar to card clubs in California) and resorts, to provide upscale gathering places for tourists and local residents. Charitable organizations that are permitted to conduct “Nevada Nights” and Bingo games may wish to offer Roulabette gaming on a more permanent basis. To receive the broadcast signal, all that would be required is an eighteen (18) inch dish TV antenna and distribution equipment. The Roulabette terminals are intended to be self-sufficient and accept dollar bills (or script, to control the amount an individual is allowed to wager in one day or other time period). We plan to lease all the equipment necessary to participants for a share of the profits.

 

To gain approval for our Roulabette-style gambling in jurisdictions that have not approved any gambling legislation, Kenilworth proposes to engage lobbyists to introduce, promote, and obtain legislative approval to permit Roulabette-style gambling. Our strategy is to find depressed resort areas and have the resort/hotel operators convince their local politicians of the benefits to their business and the local economies and request them to promote legislative approval, either state-wide or limited to their areas. Riverboat gambling started to rehabilitate decaying waterfronts. Roulabette can do the same in depressed economic areas.  No assurances can be given that we can obtain any such approvals.

 

When the live casino TV broadcasts are beamed for global viewing, Kenilworth will seek out similar organizations, as proposed for the United States and betting shops and slot route operators that can provide the servicing of individual accounts and placement of Roulabette terminals in hotels, clubs, pubs, racetracks, etc. In all instances, we plan to offer only profit sharing arrangements to franchisees, which will require leasing all the equipment necessary to the franchisee, to discourage competition.

 

In overseas installations, wherever permitted, Kenilworth will make use of the WWW Internet only to manage the wagers, and only in jurisdictions that permit the data collection of the gambler, not for the live broadcast.

 

In the event a substantial amount is won by a player, Kenilworth will make the payment to the winner, via money wire transfer, to the establishment which managed the wager, within twenty-four (24) hours.  Kenilworth will establish a worldwide cage for winning payments; or, a guarantee payment by a well-recognized international bank.

 

COMPETITION

 

Many segments of the gaming industry are characterized by intense competition, with a large number of companies offering the same type of wagering products and services. None of these companies, at present, are believed to offer the same or similar equipment or systems as intended by Roulabette. The most likely competition will come from slot machine manufacturers who could relatively quickly adapt slot machines to play along with live casino table games. We believe there are three (3) major slot machine manufacturers in the world, all of which have vastly greater capital resources and substantially more personnel than the Company and may have under development systems that directly compete with Roulabette.

 

Our present plans are to broadcast the live casino table games from companies that own casinos throughout the industrialized world. Other casino owners may start their own broadcasts and have their own terminals manufactured that compete with Kenilworth after Kenilworth has done all its pioneering for play-along wagering.

 

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PATENTS, TRADEMARKS AND INTELLECTUAL PROPERTY

 

Our most important assets are Patents we have acquired.  The Patent granted on June 10, 2003 titled “SYSTEM AND METHOD FOR REMOTE ROULABETTE AND OTHER GAME PLAY USING GAME TABLE AT A CASINO” and Patent Application filed October 15, 2003, entitled “METHOD AND SYSTEM FOR SUPPLYING FUNDS TO A TERMINAL FOR REMOTE WAGERING”, “MULTI-USE GAMING MACHINE” trademarks.

 

ROULABETTE, as in pre-marked cards similar to lottery cards to select number in each game, used with terminals “ROULABETTE SWIPE CARD” to activate set-top boxes to play Roulabette and “PLAY ALONG WITH ROULABETTE, LIVE” and MULTI-USE GAMING MACHINE.  Our patents are filed in fifty-one (51) industrialized countries of the world and are approved, both in Russia and recently in China and Japan, after a seven (7) year delay.

 

GOVERNMENT REGULATIONS

 

Kenilworth has no licenses from any casino regulating authorities and may not require any casino licenses at the present time and may never become able to obtain any licenses that may be required in the future. Each state has its own regulations, and in states where Kenilworth does business, Kenilworth will have to comply with these regulations and there can be no assurances that it will be able to do so or obtain the necessary license in an applicable jurisdiction. The following discussion is not necessarily complete, or current regarding laws and regulations that may be applicable to us.  Any present laws are also subject to future change, amendment or cancellation.

 

Item 2.	LEGAL PROCEEDINGS:
	None
Item 3.	CHANGE IN SECURITIES:
	None
Item 4.	DEFAULT UPON SENIOR SECURITIES:
	None
Item 5.	SUBMISSION OF A MATTER TO A VOTE OF SECURITIES HOLDERS:
	None
Item 6.	OTHER INFORMATION:
The Company plans to hold its next Annual Meeting of Shareholders in January 2010 or any adjournment thereof with proxy materials mailed to shareholders of record in twenty (20) days prior to the proposed meeting dates.
Item 7.	EXHIBITS AND REPORTS ON FORM 8-K:
	Ex 31.1 Certification of Chief Financial Officer of the Company Required by Rule 13a-14(a) or Rule 15d-14(c) of the Exchange Act
	Ex 32.1 Certification of Chairman and Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2007.
	Ex 99.1 Test Simulcast Agreement

 

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SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed in its behalf by the undersigned thereunto duly authorized.

 

		KENILWORTH SYSTEMS CORPORATION
	By:	/s/ HERBERT LINDO
		Herbert Lindo,
		Chairman, Chief Executive Officer and Chief Financial Officer
		August 11, 2009

 

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