KENILWORTH SYSTEMS CORP - Annual Report: 2010 (Form 10-K)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-K

 

(Mark One)

 

x      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Fiscal Year Ended December 31, 2010

 

Or

 

o         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

 

For the transition period from                   to                 .

 

Commission file number 0-08962

 

KENILWORTH SYSTEMS CORPORATION

(Exact name of registrant as specified in its charter)

 

 

(516) 741-1352

(Registrant’s telephone number, including area code)

 

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:  NONE

 

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:

 

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No o

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x

 

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. 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 the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

 

The aggregate market value of the registrant’s Common Stock held by non-affiliates of the Registrant based on the closing price as reported on the Pink Sheet Market on February 28, 2011 was $4,275,504.99.

 

 

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As of December 31, 2010, 678,651,586 Shares of the Registrant’s Common Stock, $0.01 par value, were outstanding.

 

Disclaimer:

 

As stated in Kenilworth’s prior 10-Q for the period ended September 30, 2010, the Company’s management team has changed. Management is dependent on the probability that financial information contained in the Company’s previous 10-Qs and 10-Ks is correct.  The Company actively engaged in the process of hiring an accounting firm to review and audit the books of the corporation retroactively to 2005 when the last audited statements were filed in the 2004 10-K.

 

We plan to continue presentation of the financials and notes as Mr. Lindo had presented them in the 2009 10-K and subsequent 10-Qs for 2010.  If it becomes necessary (a strong possibility) we will restate them in a form acceptable by the S.E.C.

 

We shall also continue to use the format used in the previous filings to avoid confusion.

 

We believe that all material transactions have been disclosed in this 10-K, but an audit could reveal additional items.

 

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TABLE OF CONTENTS

 

PART I
ITEM 1	—	Description of Business
ITEM 2	—	Properties
ITEM 3	—	Legal Proceedings
ITEM 4	—	Submission of Matters to a Vote of Security Holders
PART II
ITEM 5	—	Market Prices of the Company’s Common Stock and Related Stock Holder Matters
ITEM 6	—	Selected Financial Data
ITEM 7	—	Management Discussions and Analysis of Financial Condition and Results of Operations (Contains Risk Factors)
ITEM 8	—	Financial Statements and Supplementary Data
ITEM 9	—	Changes and Disagreements with Accountants on Accounting and Financial Disclosure
ITEM 9A	—	Controls and Procedures
PART III
ITEM 10	—	Directors and Executive Officers of the Registrant
ITEM 11	—	Executive Compensation
ITEM 12	—	Security Ownership of Certain Beneficial Owner and Management and Related Stockholders Matters
ITEM 13	—	Certain Relationships and Related Transactions
ITEM 14	—	Principal Accountant Fees and Services
PART IV
ITEM 15	—	Exhibits, Financial Statement Schedules and Reports on Form 8-K Subsequent Events

 

FORWARD LOOKING STATEMENTS

 

In addition to historical information, this Annual Report on Form 10-K contains certain forward-looking statements and Risk Factors. We expressly disclaim any obligations on undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or to reflect any change in events, conditions or circumstances on which any such forward-looking statement is based in whole or in part.

 

Readers should amongst the other statements contained herein and future filings with the Securities and Exchange Commission, including the Quarterly Reports on Form 10-Q to be filed, carefully review in Item 7 the following: “Cautionary Statements for Purposes of the “Safe Harbor” Provisions of the Private Securities Litigation Reform Act of 1995 and Risk Factors”. All of the Risk Factors contained therein should be carefully read.

 

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INTRODUCTORY NOTE TO PART IV

 

The Amendment No. 1 on FORM 10-K filed to restate certain amounts which changed as the results of having been ordered by the Securities and Exchange Commission to file the Company’s Financials as a “Development Stage Company” from the period beginning November 24, 1998 to December 31, 2008, the elimination of $4,256,926, which was the amount the Company disbursed on or about September 28, 1998 to exit from Chapter 7 Bankruptcy Proceedings, and certain adjustments to losses sustained for the periods ended December 31, 2002, 2003 and 2004 for having discounted Convertible Promissory Notes from between ten cents ($0.10) per share and twelve cents ($0.12) per share to five cents ($0.05) per share.  The Company also added in PART II Item 5 — MARKET PRICES OF THE COMPANY’S COMMON STOCK AND RELATED STOCKHOLDER MATTERS: d) The Company has outstanding at February 28, 2011 678,651,586 Common Shares.  The Company issued no restricted Common Shares since December 31, 2010.  All of the restricted shares may have the restrictions lifted pursuant to new Rule 144 B within six (6) months which could potentially have an adverse effect on the trading price of the Company’s Common Stock.

 

The Company’s management has always objected to the SEC designation as a Development Stage Company.  The Company made a one hundred percent (100%) cash distribution to all approved creditors and paid in full all administrative fees and expenses when we exited from Bankruptcy Proceedings.

 

The Development Stage Company designation ONLY applies to Bankrupt Companies that exit from Bankruptcy Proceedings that do not pay all approved creditors in full.

 

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PART I

 

ITEM 1 — DESCRIPTION OF BUSINESS

 

THE COMPANY

 

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 emerging from Bankruptcy Proceedings in September 1998.  Kenilworth has since been presented as a Development Stage Company, a designation we still ardently object to.

 

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 Internet, television, satellite, cable subscribers and other casino gamblers throughout the industrialized world to play and wager along from remote locations with live, in-progress casino table games (Roulette, Craps, Baccarat and more) from strictly regulated casinos located in the United States and other locations around the world.

 

Pursuant to a Test Simulcast Agreement by and among: Kenilworth Systems Corporation, Caribbean Casino & Gaming Corporation, the owner/operator of the Sosua Grand Casino and the Casino Regulatory Authority of the Dominican Republic, Kenilworth broadcasted, via the Internet, live, in-progress Roulette table action around the world.  A world’s first from a licensed, government regulated casino instead of only from Studio Casinos.

 

The ability to play along from Remote Locations from government regulated casinos will permanently influence casino wagering in the future.  No longer will U.S. residents have to spend money and travel to gamble at a casino when they can play along from the privacy of their own homes.. In these difficult economic times, it is entertainment at minimal costs, with bets starting at the price of a slot machine handle pull.

 

By employing the latest technology and placing television cameras in strategic locations above the casino table games and elsewhere without disrupting the normal gaming activities and transmitting the play over the Internet (in countries that permit Internet wagering), television sets and laptops become a platform for playing along with live players in there favorite casinos.

 

Kenilworth titled the overall system “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 one billion (1,000,000,000) subscribers throughout the rest of the industrialized world (“The Market”). With wagering possible in homes, hotel rooms, resort rooms, pubs, restaurants, race tracks and other public gathering places Mr. Lindo believed it will become a more than $500 billion annual net win Market 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 lotteries in the United States are owned and operated by county and state agencies.  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; most lotteries throughout Europe also pool their lotteries between countries,

 

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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.

 

Kenilworth expects to share the net win revenue with all participating entities that provide Roulabette gaming.  State lotteries or their private operators will receive a proposed minimum of forty percent (40%) of the total net win from their respective jurisdictions.  In states and foreign countries that designate exclusively lottery proceeds to schools and their teachers it is a welcome contribution and will help close these 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 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.  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, with the same methods as the lotteries will manage Roulabette.

 

When playing along with live table games from a highly regulated jurisdiction, players will be assured that the game results are exactly what they see.  Playing along with live casino table games such as Roulette, Craps and Baccarat will provide personal interaction, fun and entertainment far more excitement than playing virtual games… the next best thing to actually being at the table in the casino.

 

Where authorized, Kenilworth products may allow hotels, resorts, clubs and other public gathering places the ability to offer casino table game action in their establishments without incurring the costs to operate a casino.

 

COMPETITION

 

Many segments of the gaming industry are characterized by intense competition, with a large number of companies offering wagering products and services. None of these companies, at present, are believed to offer the same or similar equipment or systems as intended by Kenilworth. 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 plan would be to partner or license under our protective patents rather than compete with these and other entities

 

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.

 

GOVERNMENT REGULATIONS

 

Kenilworth has no licenses from any casino regulating authorities and may not acquire 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.

 

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Federal

 

The Federal Gambling Devices Act of 1962 (the “Federal Act”) makes it unlawful for a person to manufacture, deliver, or receive gaming machines, gaming machine type devices and components thereof across interstate lines unless that person has first registered with the Attorney General of the United States.

 

In addition, various record keeping and equipment identification requirements are imposed by the Federal Act. Violations of the Federal Act may result in seizure or forfeiture of equipment, as well as other penalties.

 

Other Regulations

 

The manufacture, distribution, sale, and use of slot machines are controlled by state and federal law, which may also apply to our Roulabette gaming terminals. Certain foreign countries permit the importation, sale, or operation of slot machines. Where importation is permitted, some countries prohibit or restrict the payout feature of the traditional slot machine or limit the operation of slot machines to a controlled number of casinos or casino-like locations. Certain of these jurisdictions also require the licensing of gaming devices. Our Roulabette terminals may be considered similar to slot machines and may have to meet these regulations.

 

EMPLOYEES

 

Kenilworth, at present, has three (3) full time employees to perform administrative work and software development work related to the ongoing casino wagering from the Dominican Republic and marketing around the world, in addition to the officers that manage the affairs of the Company. The Company will engage consultants to assist us in the United States, Europe and Asian markets and that may manage the proposed INTERNET transmission programs, and others that may assist in the marketing of Roulabette broadcasts throughout the industrialized world.

 

Kenilworth maintains medical insurance for the two (2) office employees, who do not contribute to the costs of the Plan.

 

BACKLOG

 

We do not have any backlog.

 

ITEM 2 — PROPERTIES

 

Kenilworth leases two thousand seven hundred plus (2,700+) square feet in an office building paying three thousand seven hundred dollars ($3,700) per month rent plus fuel and electric cost adjustments from the date of the lease, renewed for a five (5) year term to end in March 2015.

 

ITEM 3 — LEGAL PROCEEDINGS

 

Since exiting from Chapter 7 Bankruptcy Proceedings on September 23, 1998, Kenilworth has not been involved in any significant legal proceedings.

 

ITEM 4 — SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

 

Not applicable.

 

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EXECUTIVE OFFICERS OF THE REGISTRANT

 

The names, ages and positions held by each of Kenilworth’s directors and executive officers are as follows:

 

NAME		AGE		OFFICES AND POSITIONS HELD		FIRST ELECTED OFFICER OF KENILWORTH
DAN W. SNYDER		59		CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF EXECUTIVE OFFICER		2010
JOYCE CLARK		75		TREASURER AND CHIEF FINANCIAL OFFICER		1999
KIT WONG		80		SECRETARY		1999

 

All of the above Executive Officers and Directors have been elected to serve until the next Annual Meeting of Shareholders or until their respective successors are elected and qualified. The Board presently anticipates that the next Shareholders Meeting will be held during the third quarter period of 2011.

 

PART II

 

ITEM 5 — MARKET PRICES OF THE COMPANY’S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

 

(a)          Kenilworth exited from Bankruptcy Proceedings in September of 1998, its Common Stock which had been trading on the NASDAQ National Market, is now trading on the OTC Pink Sheets under the old trading symbol “KENS”. The following table sets forth high and low closing sales prices for our Common Stock, as reported on the OTC Pink Sheets.

 

		LOW			HIGH
2009
January 1, 2009 Through March 31, 2009		$	0.006		$	0.02
April 1, 2009 Through June 30, 2009		$	0.006		$	0.01
July 1, 2009 Through September 30, 2009		$	0.009		$	0.01
October 1, 2009 Through December 31, 2009		$	0.01		$	0.025
2010
January 1, 2010 Through March 30, 2010		$	0.009		$	0.03
April 1, 2010 Through June 30, 2010		$	0.0031		$	0.02
July 1, 2010 Through September 30, 2010		$	0.004		$	0.012
October 1, 2010 Through December 31, 2010		$	0.0055		$	0.008
2011
January 1, 2011 Through February 28, 2011		$	0.006		$	0.01

 

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(b)         Holders. There were approximately 2,600 registered holders of record of Common Stock plus an undetermined number of beneficial holders (in banks and brokerages) of Kenilworth as of March 5, 2011.

 

(c)          Dividends. Kenilworth has not paid any dividends on its Common Stock. We plan to apply any earnings it achieves to expansion of the business and do not expect to pay any dividends in the foreseeable future.

 

(d)         No underwriters were involved in the sale of the unregistered Convertible Promissory Notes and Stock Purchase and Option Agreements.  Exemption from registration is claimed under Section 4(2) of the SEC Act of 1933 as amended.  The proceeds from the sale of all unregistered securities have all been used for working capital.

 

The Company has outstanding 678,651,586 Common Shares.  All of the restricted shares may have the restriction lifted pursuant to new SEC Rule 144 B within six (6) months of acquisition which may substantially depress the trading price of the Company’s stock.

 

ITEM 6 — SELECTED FINANCIAL DATA

 

The following table summarizes certain selected financial data and is qualified by reference to, and should be read in conjunction with, the Consolidated Financial Statements and related Notes thereto and with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere herein.

 

Selected Financial Data for the five (5) years ended December 31, 2010, are as follows:

 

SUMMARY OF OPERATIONS

 

		2010			2009			2008			2007			2006
Net sales from operations		$	—		$	—		$	—		$	—		$	—
Other income		$	—		$	—		$	—		$	—		$	—
Net loss accumulated		$	2,942,174		$	2,330,162		$	1,074,193		$	1,093,538		$	850,079
Loss per common share		$	0.004		$	0.004		$	0.002		$	0.003		$	0.003
Loss per common share — diluted		$	0.004		$	0.004		$	0.002		$	0.003		$	0.003
Consolidated balance sheet data:
Total current liabilities		$	298,123		$	280,558		$	318,488		$	303,187		$	486,895
Stockholders’ Equity (deficit)		$	893,732		$	35,967,224		$	34,912,628		$	576,710		$	459,400

 

ITEM 7 — MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The discussion following should be read in conjunction with, and is qualified in its entirety by, the consolidated financial statements and the notes thereto included elsewhere in this Annual Report on Form 10-K.

 

(A) RESULTS OF OPERATIONS

 

Since we exited from bankruptcy proceedings on September 28, 1998, we have had no revenues from operations, and therefore sustained losses from general administration expenses amounting to $612,012 in

 

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2010, $1,054,596 in 2009 and $1,074,193 in 2008.  Kenilworth has had no revenues from operations since exiting from Bankruptcy Proceedings in September 1998.

 

(B) LIQUIDITY AND CAPITAL RESOURCES

 

Kenilworth has not conducted any new business operations since 1991. At December 31, 2010, 2009 and 2008 we had a deficiency in working capital of $365,022, $318,796 and $302,138 respectively. In Kenilworth’s present state of operation to continue a viable business plan, Kenilworth requires little funding. We have been dependant upon the resources of its Chairman and Chief Executive Officer, who receives no compensation, and funds received from private investors, totaling $421,900 in 2010, $1,036,000 in 2009 and $511,000 in 2008.  In addition the Company issued restricted Common Stock for services totaling $10,000 for 1,250,000 shares in 2010, $345,000 for 11,500,000 shares in 2009 and $523,565 for 52,355,522 shares in 2008.

 

Our present plans are to continue to develop a wagering system titled “Roulabette” that would allow patrons all over the industrialized world to view and wager on live casino table games on terminals 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 and laptop computers Interactive TV via digital satellite and digital cable broadcasts emanating from strictly regulated casinos.  At present we do not have sufficient liquidity and capital resources to develop our business or to remain in business and we may never have such resources.

 

CAUTIONARY STATEMENT FOR PURPOSES OF THE “SAFE HARBOR” PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 AND RISK FACTORS

 

The information contained in this Form 10-K 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.

 

Forward-Looking Statements

 

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements. Certain information included in this Annual Report on this Form 10-K contains statements that are forward-looking, including, but not limited to, statements relating to our business strategy and development activities as well as other capital spending, financing sources, the effects of regulation (including gaming and tax regulations), expectations concerning future operations, margins, profitability and competition. Any statements contained in this Form 10-K that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the generality of the foregoing, in some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “would,” “could,” “believe,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” “continue” or the negative of these terms or other comparable terminology. Such forward-looking information involves important risks and uncertainties that could significantly affect anticipated results in the future and, accordingly, such results may differ from those expressed in any forward-looking statements made by us. These risks and uncertainties include, but are not limited to, our lack of recent operating history, existing management, general domestic or international economic conditions, pending or future legal proceedings, changes in federal or state tax laws or the administration of such laws, changes in gaming laws or regulations (including the legalization of gaming in certain jurisdictions), applications for licenses and approvals under applicable jurisdictional laws and regulations (including gaming laws and regulations).  You should not place undue reliance on any forward-looking statements, which are based only on information currently available to us. We undertake no obligation to publicly release any revisions to such forward-looking statements to reflect events or circumstances after the date of this 10-K report for the year ended December 31, 2010, and subsequent events reported in this FORM 10-K.

 

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RISK FACTORS

 

NO OPERATING HISTORY

 

We have had no new revenues from operations since 1991. We exited from bankruptcy proceedings in 1998 without assets and liabilities. We have had no revenues from operations since then and we may never have any revenues from operations in the future, which may result in the termination of our business.

 

WE HAVE NO WORKING CAPITAL

 

As of December 31, 2010 the working capital deficiency of Kenilworth was $365,022. This will not enable Kenilworth to achieve any of its planned operations. There can be no assurances that Kenilworth will again have sufficient working capital to engage in its planned operations.  Although we have been able to obtain working capital from investors that purchase Convertible Promissory Notes, Stock Purchase and Options Agreements and by issuing restricted Common Shares for services rendered.

 

OUR BUSINESS IS ONLY IN THE PLANNING STAGE

 

Kenilworth’s business except for the completion of the $9,000,000 contract with the Totalizator Agency Board of Victoria, Australia, and the revenue from providing encoded access cards to United States and foreign Nuclear Electric Generating Plants, remains in the planning stage. The Company does not receive any income from the live, in-progress Roulette table game from the new Sosua Grand Casino in the Dominican Republic. We plan to engage in the development, manufacturing by subcontractors, and marketing of an operation entitled Roulabette. Roulabette would allow casino patrons and other players to play along from remote locations with live in-progress casino table games such as Roulette, Craps, Baccarat and more via digital satellite and digital cable television and Internet broadcasts (simulcasts) emanating from strictly regulated casinos located in the United States or via the Internet in other locations around the world, to self-sufficient computer terminals dubbed “Roulabette” and digital satellite and cable TV set top boxes, and other computer devices. The Roulabette terminals are 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 top boxes or attached to TVs have not been designed. We have, as at December 31, 2010, no specific agreements, customers or proposals for any future business and there can be no assurances that we will ever have same.

 

RAPID CHANGES IN TECHNOLOGY

 

The technology and Roulabette in general is subject to rapid change. Kenilworth will need to maintain an ongoing research and development effort of which there can be no assurances of success or availability of funds.  Additionally, there can be no assurances that the development of technologies and products by competitors will not render the Kenilworth’s products or technologies non-competitive or obsolete.

 

WE ARE ENGAGED IN A HIGHLY COMPETITIVE INDUSTRY

 

Our business is subject to significant competition. Competition exists from larger companies that possess substantially greater technical, financial, sales and marketing resources that Kenilworth presently possesses. Such competition is expected to increase. Such increased competition may have a material adverse effect on Kenilworth’s ability to successfully market its products.

 

WE WERE GRANTED A PATENT FOR THE VARIOUS ASPECTS OF SIMULCAST WAGERING

 

On June 10, 2003, the U.S. Patent for the various aspects of wagering on live in-progress casino table games was granted by the U.S. Patent Office to Herbert Lindo, the Inventor and which Patent was assigned by Herbert Lindo to the Company in August 2000.  We filed the Patent for approval in fifty-one (51) countries in the industrialized world including Russia and China. There can be no assurances that foreign patents will be issued and the challenges will not be instituted against the validity or enforceability of our

 

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patent.  Herbert Lindo also filed two (2) Patents in the U.S. Patent Offices in September and October 2004 which Patents have been published to use lottery terminals to accept deposits for wagers placed with the TV set top boxes and the use of Play Cards similar to lottery tickets, which have also been assigned to the Company by Herbert Lindo.  A Patent Application for Multi-Use Gaming Machines invented by Herbert Lindo and Gordon Coplein, Esq. was published on February 1, 2007 and assigned, by the inventors, to Kenilworth.

 

OUR ROULABETTE TERMINALS ARE SUBJECT TO VARIOUS FEDERAL, STATE, LOCAL AND FOREIGN JURISDICTION LAWS AND REGULATIONS

 

The use of the Roulabette System may be subject to various federal, state and local laws and regulations both in the United States and foreign countries. There can be no assurances that we will ever be able to obtain licenses or permits necessary to conduct our business or that we will be able to comply with these applicable laws and regulations.

 

The Roulabette System is planned to allow casino patrons and other players to play along with live, in-progress casino table games such as Roulette, Craps, Baccarat and more via digital satellite television and digital cable programming emanating from regulated casinos, via the Internet to countries that permit Internet streaming.

 

OUR OFFICERS AND DIRECTORS WILL HAVE SIGNIFICANT CONTROL OVER US AND MAY APPROVE OR REJECT MATTERS CONTRARY TO A VOTE OF OUR SHAREHOLDERS

 

Our executive officers and directors together with their affiliates beneficially own a significant percentage of our outstanding common stock. These stockholders, if acting together, will be able to significantly influence all matters requiring approval by our stockholders including the election of directors and the approval of mergers or similar transactions even if the stockholders disagree.

 

SHARES ELIGIBLE FOR FUTURE SALE COULD CAUSE OUR STOCK PRICE TO FALL

 

If our stockholders sell substantial amounts of our common stock in the public market, the market price of our common stock would most likely fall. As of December 31, 2010 we had added an additional 90,960,000 of restricted shares of Common Stock outstanding, which are eligible for sale by our Shareholders under new SEC Rule 144 B of the Securities Act of 1933 as amended which reduces the holding period to six (6) months or are otherwise registered for sale.

 

WE DO NOT INTEND TO PAY DIVIDENDS

 

We are not able to pay any dividends because we have no funds available to do so. Even if we had funds available, we do not intend or declare to pay any dividends on our common stock in the near future.

 

ITEM 8 — FINANCIAL STATEMENTS

 

The financial statements, the accompanying notes are filed as part of this Report annexed at the end of this report.  See ITEM 15.

 

ITEM 9 — CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

The Company has not had the funds to engage an independent auditor since 2004.  Therefore, all financials are currently unaudited and open to amendment (see “Disclaimer”).

 

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ITEM 9A — CONTROLS AND PROCEDURES

 

a.)            Disclosure Controls and Procedures

 

The Company has evaluated, under the supervision and with the participation of the Company’s management including the Company’s Chairman, Chief Executive Officer who is also its Financial Officer.  The effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15 (e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of the end of the period covered by this Report.  Because of the inherent limitations in all control systems, evaluation of controls can provide only reasonable assurance that all control issues and instances of fraud, if any, within the Company have been detected.  However, based on that evaluation, the Company’s Chairman and Chief Executive Officer who is also the Company’s Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this Report at a reasonable assurance level.

 

b.)           Changes in Internal Control over Financial Reporting

 

There was no change in the Company’s internal control over financial reporting that occurred during the annual period ending December 31, 2010, that has materially affected, or is reasonably likely to materially affect the Company’s internal control over financial reporting.

 

PART III

 

ITEM 10 — DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

 

Name		Age		Position
Dan W. Snyder		59		Director, Chairman of the Board, President and Chief Executive Officer
Joyce Clark		75		Director, Treasurer and Chief Financial Officer
Kit Wong		80		Director, Secretary
Patrick J. Mc Devitt		69		Director

 

Dan W. Snyder is Chairman, President and CEO of Kenilworth since August 1, 2010. Dan Snyder is the fourth generation of a Chicago family of Engineers, Builders and Developers.  Mr. Snyder operated his own commercial real estate brokerage and development business in downtown Chicago for 20 years before retiring in the mid-90s.  He was very active in the Chicago Political Civic and Business Communities over the years.  He consulted with Herbert Lindo for many years as he was accumulating Kenilworth stock and is now a substantial stock holder. Mr. Snyder at the behest of the Board of Directors moved to New York on four days notice to maintain continuity after the unexpected death of Herbert Lindo.  Mr. Snyder devotes a majority of his time to the business of Kenilworth.

 

Kit Y. Wong has served as a Director of Kenilworth since 1999, since December 2005 he also serves as Secretary of the Company. He is part owner and operator of several Chinese restaurants in the New York metropolitan area.  Mr. Wong devotes only a portion of his time to the business of Kenilworth.

 

Patrick J. Mc Devitt has been a licensed representative for Securities firms for the past ten (10) years. He retired in 2003 from the Securities business and joined his wife in the CPA business.  Mr. Mc Devitt devotes only a portion of his time to the business of Kenilworth.

 

Joyce D. Clark has served as a Director of Kenilworth since 1998. Before her retirement, she served as Controller of several Long Island manufacturing companies. She is currently a Master Tax Advisor (with a national tax preparation firm) and is a director in a non-profit organization in Maryland. Joyce D. Clark is

 

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the ex-wife of Herbert Lindo, they divorced in 1980.   Mrs. Clark devotes only a portion of her time to the business of Kenilworth.

 

DIRECTORS IN OTHER PUBLIC COMPANIES

 

Kit Wong, a Director of the Company, serves as a Director of a private plastic extrusion company.

 

CRIMINAL/BANKRUPTCY/SEC VIOLATIONS WITHIN THE LAST FIVE (5) YEARS

 

NONE

 

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

 

Section 16(a) of the Securities Exchange Act of 1934 requires Kenilworth’s Executive Officers and Directors, and persons who beneficially own more than ten percent (10%) of our Common Stock, to file initial reports of ownership and reports of changes in ownership with the Securities and Exchange Commission. Executive Officers, Directors and greater than ten percent (10%) beneficial owners are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file. Through December 31, 2009 only Herbert Lindo, Chairman and Chief Executive Officer owned beneficially more than ten percent (10%) of our Common Stock.  As of December 31, 2010 and through this filing date, no one owns more than ten percent (10%) of the common stock.

 

AUDIT COMMITTEE AND CHARTER

 

The following Charter has been adopted with respect to an Audit Committee.  We have not, however, at this time appointed an Audit Committee.

 

The Audit Committee of the Board of Directors (the “Audit Committee”) shall have the responsibility to assist the Board of Directors in fulfilling its fiduciary and other obligations with respect to accounting and financial matters. Specifically, and without limiting the generality of the foregoing, the Audit Committee shall:

 

The Audit Committee will be comprised of at least three (3) Independent Directors.

 

1.)		Review the adequacy and effectiveness of the Company’s system of internal financial controls and accounting practices to achieve reliability and integrity in the Company’s financial statements, and initiate such examinations of such controls and practices as the Audit Committee deems advisable.
2.)		Review the qualification, performance and independence of the Company’s independent auditors and recommend independent auditors for appointment annually by the Board of Directors.
3.)		Prior to the commencement of the Company’s annual external audit, review with the Company’s independent auditors the scope of their audit function and estimated audit fees.
4.)		Subsequent to the completion of the Company’s annual external audit, review the report and recommendations of the independent auditors with the independent auditors and the Company’s management.
5.)		Review the annual and quarterly consolidated financial statements of the company and other financial disclosures of the Company and the accounting principles being applied in such statements and disclosures.
6.)		Review the authority and duties of the Company’s chief financial officer and chief accounting officer and the performance by each of them of their respective duties.
7.)		Review the insurance programs for the Company including professional malpractice, general

 

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		liability, director and officer liability and property insurance, and the insurers carrying the Company’s insurance.
8.)		Oversee the establishment and thereafter periodically review a corporate code of conduct and the Company’s policies on ethical business practices.
9.)		Prior to public release, review with management and the Independent Accountants, the financial results for the prior year including the Company’s annual report on Form 10-K/A.
10.)		Review the committee’s charter annually and revise as appropriate.
11.)		Meet with the Chief Financial Officer and the Independent Accountants, in separate executive sessions, to discuss any matters that the committee or these groups believe should be considered privately.
12.)		Take such other actions concerning the Company’s accounting and financial functions as the Committee deems appropriate with respect to the matters described above.

 

Code of Ethics

 

The Registrant has not yet adopted a written formal Code of Ethics. However, the Registrant’s Officers intend to comply with all honest and ethical requirements including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; full, fair, accurate, timely and understandable disclosure in reports and documents that the Registrant files with or submits to the Securities and Exchange Commission and in other public communications made by the Registrant; compliance with applicable governmental laws, rules and regulations; prompt internal reporting of any violations of the foregoing to an appropriate person and accountability for adherence of the foregoing. A formal Code of Ethics is expected to be adopted shortly and will be filed with the Securities and Exchange Commission.

 

ITEM 11 — EXECUTIVE COMPENSATION

 

a.)           There was no exercise of options and SARs during the fiscal year ended December 31, 2010.

 

Aggregated Option/SAR Exercises in Last Fiscal Year
And FY-End Option/SAR Values

NONE

 

b.)   The Registrant has no employment agreements with any of its Executive Officers or Directors.

 

c.)           The Registrant has no compensation committee at this time.

 

d.)          Stock Performance Graph is not applicable.

 

TOTAL RETURN TO SHAREHOLDER’S
(DIVIDENDS REINVESTED MONTHLY)

 

Kenilworth has not declared a dividend since its inception in 1968.

 

e.)           The following table sets forth the total compensation of the President and each Executive Officer of Kenilworth whose total salary and bonus exceeds $100,000.

 

No Executive Officer received any compensation in excess of $100,000 during the past three (3) fiscal years.

 

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ITEM 12 — SECURITY OWNERSHIP OF CETAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

The following table sets forth as of March 1, 2011 the ownership with respect to each Executive Officer and Director and each person known to own beneficially more than five percent (5%) of the Company’s Common Stock.

 

The information provided in the table is based on Kenilworth’s records, information filed with the Securities and Exchange Commission and information provided to Kenilworth, except where otherwise noted.

 

The number of shares beneficially owned by each person, Director or Executive Officer is determined under rules of the Securities and Exchange Commission, and the information is not necessarily indicative of beneficial ownership for any other purpose.  Unless otherwise indicated, each person has sole voting and investment power (or shares such powers with his spouse) with respect to the shares set forth in the following table:

 

BENEFICIAL OWNERSHIP TABLE

 

				AMOUNT AND
				NATURE OF		PERCENT
NAME AND ADDRESS OF				BENEFICIAL		OF
BENEFICIAL OWNER		TITLE OF CLASS		OWNERSHIP (1)		CLASS (1)
Herbert Lindo (1) (Estate of) 185 Willis Avenue Mineola, NY 11501		Common Stock $ 0.01 par value		50,000,000		7.4	%
The total number of shares beneficially owned by all Directors and Executive Officers		Common Stock $ 0.01 par value		60,181,465		8.9	%
				110,181,465		16.3	%

 

The percent of class has been determined with 678,651,586 shares issued and outstanding on December 31, 2010.

 

ITEM 13 — CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

 

NONE

 

ITEM 14 — PRINCIPAL ACCOUNTING FEES AND SERVICES

 

NONE

 

ITEM 15 — EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

 

31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
32.1	Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

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KENILWORTH SYSTEMS CORPORATION AND SUBSIDIARIES

 

CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, (Unaudited)

 

		2010			2009
ASSETS
CURRENT ASSETS
Cash		$	4,647		$	123,633
Prepaid expenses (Note 4)		30,000			80,000
Loan receivable		58,600			58,600
Receivable from the Estate of Herbert Lindo		785,821			775,725
Total current assets		$	879,068		$	1,037,958
SOFTWARE DEVELOPMENT AGREEMENT — NET		0			$	3,299,960
PROPERTY AND EQUIPMENT — NET		$	987		$	1,156
SECURITY DEPOSIT		$	13,677		13,677
TOTAL ASSETS		$	893,732		$	4,352,751
LIABILITIES AND STOCKHOLDERS’ DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued expenses		$	95,802		$	165,349
Payroll taxes payable		180,720			18,108
Loans payable — including accrued interest		21,601			25,101
Total Current Liabilities		298,123			208,558
LONG TERM DEBT		0			3,500,000
		$	298,123		$	3,708,538
COMMITMENTS AND CONTINGENCY — see notes
STOCKHOLDERS’ EQUITY (DEFICIT)
Preferred Stock — par value $.01 per share; authorized 50,000,000 shares; no shares issued and outstanding		0			0
Common stock — par value $.01 per share; authorized 1,000,000,000 shares; issued and outstanding 678,651,586 and 587,691,586 shares, respectively		6,786,516			5,876,915
Additional paid-in capital		32,431,988			32,010,088
Accumulated deficit		(38,920,381		)	(37,242,790		)
TOTAL STOCKHOLDER’S EQUITY		595,609			644,213
TOTAL STOCKHOLDER’S LIABILITIES AND EQUITY		$	893,732		$	4,352,751

 

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

 

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KENILWORTH SYSTEMS CORPORATION AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF OPERATIONS

 

		YEARS ENDED			YEARS ENDED			YEARS ENDED
		DECEMBER 31,			DECEMBER 31,			DECEMBER 31,
		2010 **			2009 *			2008
Expenses
Selling, general and administrative		$	2,741,601		$	1,054,596		$	1,074,193
Other (expenses)		—			1,276,566
Interest income		—			—			—
Interest expense		—			—			—
Total other (expense)		0			2,330,162			0
NET LOSS***		$	2,741,601		$	2,130,162		$	1,074,193
Basic and diluted loss per share		$	(0.004	)	$	(0.004	)	$	(0.002	)
Weighted average number of shares outstanding		678,651,586			587,691,586			464,597,086

 

** Includes a NON CASH loss of $83,970 resulting from the sale and issuance of 42,987,500 shares of RESTRICTED Common Stock, par value $0.01 per share, for cash at less than par value during the period from January 1, 2010 and December 31, 2010 with the loss charged to paid-in-capital.

 

* Includes a NON CASH loss of $48,778 resulting from the sale and issuance of 24,389,000 shares of RESTRICTED Common Stock, par value $0.01 per share, for cash at less than par value during the period from January 1, 2009 and September 30, 2009 with the loss charged to paid-in-capital.

 

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

 

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KENILWORTH SYSTEMS CORPORATION AND SUBSIDIARIES

 

STATEMENTS OF CASH FLOWS

 

		YEARS ENDED			YEARS ENDED			YEARS ENDED
		DECEMBER 31,			DECEMBER 31,			DECEMBER 31,
		2010			2009			2008
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss		$	(612,012	)	$	(2,330,162	)	$	(1,074,193	)
Adjustments to reconcile net loss to net cash provided by operating activities
Depreciation		987						15,265
Amortization of patent (Note 6)		0			200,040			—
Accretion of convertible debt discount					—			—
Beneficial conversion feature
Common stock issued for services		10,000			11,500,000			370,500
Common stock issued to induce debt conversion					—			—
Common stock issued for interest due on notes payable		—			—			—
Accrued interest transferred to capital		—			—			—
Other		—			—			—
Increase (decrease) in cash attributable to changes in assets and liabilities:
Prepaid expenses		(30,000		)	(80,000		)	(80,000		)
Accounts payable and accrued expenses		95,803			3,690,430			128,529
Payroll taxes payable		170,200			18,108			169,695
Net cash used in operating activities		365,022			1,036,000			470,209
CASH FLOWS FROM INVESTING ACTIVITIES
Payment of loan receivable — stockholder		0			(58,600		)	—
Proceeds from loan receivable — stockholder
Purchase of property and equipment		0			3,500,000			1,000
Security deposit		0			13,677			13,677
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from loans payable—stockholders
Repayment of loans payable — stockholders					—			—
Proceeds from loans payable — related parties
Repayment of loans payable — related parties
Proceeds from convertible notes								511,000
Proceeds from sale of common stock		421,900			1,036,000
Proceeds from stock subscriptions receivable					—			—
Net cash provided by financing activities		421,900			1,036,000			511,000
Net change in cash					—			—
Cash — beginning of year		$	123,633		$	2,391		$	1,232
Cash — end of year		$	4,647		$	123,633		$	2,391
Supplemental disclosure of non-cash activities:
Common stock issued for patent costs		$	0		$	0		$	0
Exchange of loans payable for convertible notes payable		$	—		$	—		$	—
Conversion of notes payable to common stock		$	—		$			$	312,801
Cancellation of stock subscriptions receivable		$	—		$	—		$	—
Common stock issued for subscriptions receivable		$	—		$	—		$	—

 

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

 

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KENILWORTH SYSTEMS CORPORATION AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS

OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

 

		COMMON STOCK				ADDITIONAL
		SHARES		PAR VALUE		PAID-IN CAPITAL
Balances December 31, 2007		327,741,562		3,277,415		$	31,137
Common Stock issued for services		52,355,522		523,565		0
Sale of Common Stock		54,500,000		545,000		(34,000		)
Balances December 31, 2008		434,597,086		4345,970		$	31,103,730
Common stock issued for services		23,452,500		231,525		1,166,778
Common stock issued in connection with Stock Purchase and Option Agreements		129,642,000		1,296,420		(260,420		)
Balances December 31, 2009		587,691,586		5,876,915		$	32,010,088
Common stock issued for services
Common stock issued in connection with Stock Purchase and Option Agreements		90,960,000		9,096,000
Balances December 31, 2010		678,651,586		6,786,516		$	32,431,944

 

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

 

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KENILWORTH SYSTEMS CORPORATION AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 — THE COMPANY AND NATURE OF BUSINESS

 

Kenilworth Systems Corporation (the “Company”) was incorporated in New York in April 1968 and completed an S-1 Registration in August 1968.  The Company is currently engaged in the development and eventual by outsourcing the manufacture the terminals that will permit individuals to play along with live in-progress casino table games at locations inside and outside the casino confines (remote locations).  Games will be available via TV simulcast of digital satellite and digital cable broadcasts to individuals at homes, offices and public gathering places and wherever television sets are located around the world.  The Company’s business remains in continuous development stage although it completed a nine million dollar ($9,000,000) contract with the Totalizator Agency Board (“TAB”), a state government agency of Victoria, Australia, while being in voluntary bankruptcy reorganization under Chapter 11, of the United States Bankruptcy Code. Successful execution of its business plan is dependent up such factors as: the ability to raise substantial capital and assemble a skilled and experienced management team, obtaining regulatory approval from gaming authorities and other governmental bodies, customer acceptance of a new experience in casino gaming, and technological feasibility.

 

These challenges create uncertainty as to the Company’s ability to operate as a going concern and could result in the termination of its business.  Management continues to develop a wagering system that allows casino patrons and individuals inside and outside the casino to play and wager along with live casino table games. The first step in the plan is to conduct testing. Unless the Company is able to obtain sufficient funds, none of the tests and initial development work can commence. The Company will attempt to obtain the necessary funding by offering its Common Stock or Preferred Stock to private investors.

 

If initial testing is successful, the second step is to obtain, if required, the appropriate licenses from gaming control regulators in the various venues the Company intends to offer its system. Upon successful testing, the Company intends to seek financing from banking sources for the manufacture of a microprocessor that will be installed in digital set top boxes, digital cable boxes, or as attachments to TVs when necessary.  These appliances will then be able to convert an ordinary television set into a computer terminal using the TV set as the monitor for remote casino game play and wagering. This technology is protected by the Company’s recently issued patents (see Note 6).

 

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.

 

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

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 (U.K) Limited., Kenilworth Satellite Broadcasting Corporation (a Delaware Corporation) and Satellite Gaming Consultants, Inc. (a Delaware Corporation), KenSysCo, Inc. (Nevada), KenSysCo International, Ltd. and Convergent Networks (Nevada). Activities of theses wholly owned subsidiaries are consolidated herein.

 

Use of estimates

 

Management uses estimates and assumptions in preparing these financial statements in accordance with generally accepted accounting principles.  Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenue and expenses. Actual results could vary from the estimates that were used.

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)

 

Cash and cash equivalents

 

The Company considers all highly liquid debt instruments with an original maturity of three months or less when purchased to be cash equivalents.  There were cash equivalents at December 31, 2008 and 2007.

 

Property and equipment

 

Property and equipment are stated at cost.  Equipment is depreciated over the estimated useful lives of the respective assets, ranging from five to seven (5-7) years.  Leasehold improvements are amortized over the shorter of either the asset’s useful life or the related lease term.  Depreciation is computed on the straight-line method for financial reporting purposes.

 

Impairment of long-lived Assets

 

The Company regularly reviews long-lived assets for indicators of impairment.  Management’s judgments regarding the existence of impairment indicators are based on performance.  Future events could cause management to conclude that impairment indicators exist and that the value of long-lived assets is impaired.  When events or circumstances indicate that the carrying amount of an asset may not be recoverable, the fair value of the asset is compared to its carrying value.  Impairment losses are measured as the amount by which the carrying value of an asset exceeds its estimated fair value.

 

Advertising costs

 

Advertising costs are expensed as incurred.  There were no advertising costs for any period presented.

 

Income taxes

 

Income taxes are accounted for under the asset and liability method specified by SFAS No. 109, “Accounting for Income Taxes.”  Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities, and their respective tax bases and operating loss and tax credit carry forwards.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which those temporary differences are expected to be recovered or settled.

 

Fair value of financial instruments

 

Financial instruments reported in the balance sheet consist of accounts payable and loans payable, the carrying value of which approximated fair value at December 31, 2008 and 2007.  The fair value of the financial instruments disclosed are not necessarily representative of the amount that could be realized or settled nor does the fair value amount consider the tax consequences of realization or settlement.

 

Stock-based compensation

 

The Company has adopted SFAS No. 123 “Accounting for Stock Based Compensation” which requires it to recognize stock awards granted to employees and non-employees as compensation expense based on the fair market value of the stock award or fair market value of the goods or services received, whichever is more reliably measurable.

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)

 

Loss per share

 

Basic loss per share is calculated by dividing net loss by the weighted-average number of common shares outstanding during the period. Diluted loss per share is calculated by dividing net loss by the weighted-average number of common shares outstanding, plus the weighted average number of net shares that would be issued upon the exercise or conversion of dilutive securities, such as stock options and warrants, and convertible debt.  There were no dilutive securities outstanding as of December 31, 2009, 2008 and 2007.  Accordingly, diluted loss per share for 2010, 2009 and 2008 is the same as basic loss per share.

 

New Authoritative Accounting Pronouncements

 

The Company does not anticipate the adoption of recently issued accounting pronouncements will have a significant impact on its results of operations, financial position or cash flows.

 

NOTE 3 — BANKRUPTCY PROCEEDINGS

 

Throughout the 1980’s the Company experienced working capital shortages that resulted in the Company filing a voluntary petition for reorganization under Chapter 11 of the United States bankruptcy Code. From August 28, 1982 to June 7, 1985 the Company operated during reorganization proceedings. On June 7, 1985, a United States Bankruptcy Judge confirmed the Company’s Plan of Reorganization. On April 27, 1988, the Bankruptcy Court entered a final decree in the case. On October 27, 1988, the case was re-opened on grounds the Debtor failed to consummate its plan of reorganization and on February 25, 1991 the case was converted to a case under Chapter 7 of the Bankruptcy Code. By order of the Court dated June 19, 1991 the Chapter 7 was reconverted to a case under Chapter 11 of the Bankruptcy Code. A second plan of reorganization was approved and a second order of confirmation was entered in connection with the Chapter 11 case on October 2, 1991. However, the Debtor was unable to consummate its second plan of reorganization, and by order dated November 25, 1991, the case was reconverted to a case under Chapter 7 of the Bankruptcy Code.

 

From February 1991 through September 1998, the Company was inactive. In September 1998 a United States Bankruptcy Judge in the Eastern District of New York approved the Final Report and Accounts submitted by the Chapter 7 Trustee of the Estate of Kenilworth and after obtaining approval from the U.S. Trustee, Kenilworth made a one hundred percent (100%) cash distribution to the creditors and paid in full all administrative fees and expenses. The Company exited from Bankruptcy on September 28 1998 with no assets and no liabilities. For the period September 29, 1998 through November 23, 1998 the Company was in the process of monitoring the payments by check to the creditors. No other activity occurred during that period.  Effective, November 24, 1998, the Company commenced its present plans.

 

NOTE 4 — PREPAID EXPENSES

 

Prepaid expenses consist of the unamortized value of stock issued to directors for the twelve-month service period ending September 30, 2010.  The balance will be amortized on a straight-line basis over the remaining term.  The Company issued one million (1,000,000) restricted Common Shares to each of the members of the Board of Directors: Dan W. Snyder, Joyce Clark, Kit Wong and Patrick Mc Devitt for the one (1) year period ended December 31, 2010.  The Directors receive no other compensation for their services.  The Company does not provide for Director’s Liability Insurance.

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)

 

NOTE 5 — PROPERTY AND EQUIPMENT

 

Property and equipment consist of the following:

 

		2010			2009
Office equipment		$	20,790		$	20,790
Leasehold improvements		21,000			21,000
Furniture and fixtures, automobile		35,620			35,620
Total		77,410			77,410
Less: Accumulated depreciation and amortization		76,423			76,254
Total property and equipment, net		$	987		$	1,156

 

NOTE 6 — PATENT

 

The Company owns a patent and has pending, three (3) additional patents for technology that will enable it to provide real-time transmission of roulette and other game play from live tables at a casino facility.  Prior to December 31, 2006, the costs incurred in connection with the submission and approval of the patent applications has been capitalized.  A U.S. patent was awarded in June 2003.  The Company previously amortized patent costs.  On December 31, 2006, the Company elected to write-off all patent costs to meet generally accepted accounting principles (GAAP).  The $81,604 of accrued costs was charged against capital.

 

NOTE 7 — ACCOUNTS PAYABLE AND ACCRUED EXPENSES

 

		2010			2009
Legal and other professional fees, including accrued payables		$	0		$	0
Payroll Taxes (approximately, including penalties)		180,720			18,108
Other		0			0
Total		$	180,720		$	18,108

 

NOTE 8 — LOANS PAYABLE

 

During the year 2009, the Company borrowed from two (2) shareholders, $10,000 each with annual interest payments of twelve percent (12%).  Each loan was converted into Stock Purchase and Option Agreements totaling 1,337,500 shares and an option to acquire an additional 1,337,500 shares at $0.0096 per share for a period of two (2) years.

 

During the year 2005, the Company borrowed from a private Shareholder fifty thousand dollars ($50,000) which now has a balance due including accrued interest at eight percent (8%) annually at December 31, 2010 $25,101.  As part of the number of extension of the loan, the Company issued during 2008, one million (1,000,000) shares if its Common Stock to the lender.

 

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NOTE 9 — CONVERTIBLE PROMISSORY NOTES

 

During 2008, 2007 and 2006, respectively, the Company sold to various private investors $511,000, $832,500, $765,400 principal amount of Convertible Promissory Notes bearing interest at rates ranging from 4.00% to 10.00% per annum and Stock Purchase and Option Agreements.  The Notes had a one (1) year term and were immediately convertible at the option of the note holder into shares of restricted common stock based on conversion prices ranging from $0.025 and $0.05 per share.  All Notes and shares sold in 2008, 2007 and 2006 were converted into a total of 54,500,002, 49,733,259 and 20,356,000 common shares, respectively.  The issuance of the Notes gave rise to a beneficial conversion feature (BCF) in the amount of: none in 2006, $368,640 in 2005 and $188,191 in 2004, reflecting the benefit of conversion prices that were below the market price of the Company’s common stock.  The BCF was charged in full to operations on the respective issuance dates of the Notes with an offsetting credit to additional paid-in capital.  The Company accounts for BCF under the recognition and measurement principles of Emerging Issues Task Force (EITF) 98-5, “Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios to Certain Convertible Instruments” and EITF-00-27, “Application of EITF Issue 98-5.

 

During 2009, the Company sold to various private investors $1,036,000 principle amount of Stock Purchase and Option Agreements.

 

NOTE 10 — INCOME TAXES

 

The provision for income taxes consists of the following:

 

		Years ended December 31,
		2010			2009			2008
Current:
Federal		$	—		$	—		$	—
State		—			—			—
		—			—			—
Deferred:
Federal		—			—			—
State		—			—			—
		—			—			—
Provision for income taxes		$	—		$	—		$	—

 

The Company has had no revenues from operations since exiting Bankruptcy Proceedings in September 1998.

 

The effective income tax rate differed from the U. S. federal statutory rate as follows:

 

 

		Years ended December 31,
		2010			2009			2008
Federal income tax benefit at statutory rate		$	N/A		$	N/A		$	N/A
State income taxes, net of federal benefit		N/A			N/A			N/A
Increase in valuation allowance		N/A			N/A			N/A
		$	—		$	—		$	—

 

The Company did not have any income.

 

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The difference between the U. S. federal tax rate and the Company’s effective tax rate in 2010, 2009 and 2008 is due primarily to changes in the valuation allowance related to the net deferred tax asset, offset by certain nondeductible expenses.

 

The major sources of temporary differences and their deferred tax effect are as follows:

 

Deferred tax assets:

 

		2010			2009
Net operating losses		$	2,942,174		$	2,330,162
Less: Valuation allowance		—			—
Net deferred tax assets		$	2,942,174		$	2,330,162

 

The benefits of net operating losses will not be recognized until management determines that realization is more likely than not to occur.  Accordingly, management has established a valuation allowance to offset the tax benefits of net operating losses for all periods presented.  At December 31, 2008, the Company had net operating loss carry-forwards of $34,912,625 expiring through 2024 and approximately $12,000,000 equipment loss when the Bankruptcy Trustee closed the only leased manufacturing facility of the Company and the equipment was destroyed by the landlord. Utilization of NOL carry-forwards may be limited under various sections of the Internal Revenue Code depending on the nature of the Company’s operations.

 

NOTE 11 — COMMITMENT

 

Operating lease

 

The Company rents approximately 2,700 square feet of office space in Mineola, NY under a lease expiring in May 2015.  Annual rent is approximately $45,600, payable monthly.  The lease also requires the Company to pay its share of increases in real estate taxes, operating costs and repairs over the base year amounts.  Following is a schedule of minimum lease payments required under the lease.

 

Year ending May 2015
2010		$	45,600
2011		45,600
2012		45,600
2013		45,600
2014		45,600
Total		$	228,000

 

NOTE 12 — RELATED PARTY TRANSACTIONS

 

On July 25, 2010 Mr. Lindo passed away without having paid the loan described below.  The Company will look to the Estate of Herbert Lindo for repayment.

 

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.  The average market price of the Common Stock for the thirty (30) days prior to November 27, 2006 was high: $0.05, low: $0.03.

 

As provided in the Plan, Herbert Lindo borrowed the seven hundred fifty thousand ($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.

 

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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 (1½%) interest from November 2006.  Mr. Lindo agreed to pay the interest which totaled $25,725 thorough December 31, 2010.  Mr. Lindo provided his services to the Company without any remuneration.

 

NOTE 13 — STOCKHOLDERS’ DEFICIT

 

Authorized shares

 

The Company is authorized to issue up to 1,000,000,000 shares of Common Stock and up to 50,000,000 shares of Preferred Stock.  Both classes have a par value of $.01 per share.  The rights and preferences of the preferred shares will be designated by the Board of Directors.

 

Sales of unregistered common stock

 

In fiscal 2009, the Company obtained $1,036,000 from the sale of 129,642,000 shares of common stock to a group of accredited private investors at an average price of $0.007 per share.

 

Loan receivable

 

At December 31, 2010 the Company was owed $58,600 on loans to consultants, including accrued interest.

 

Common shares issued for services

 

2010: The Company issued 1,250,000 restricted shares to consultants for services rendered or to be rendered with a stated value of $10,000.

 

2009: The Company issued 11,500,000 restricted shares to consultants for services rendered or to be rendered with a stated value of $345,000.

 

2008: The Company issued 18,525,001 restricted shares to consultants for services rendered or to be rendered with a stated value of $370,500.

 

Conversion of Notes, Stock Purchase and Option Agreements and related transactions.

 

During 2010, 2009 and 2008, the Company issued 42,987,500, 129,642,000 and 54,500,002 shares, respectively, upon sales of the Convertible Notes and Stock Purchase and Option Agreements.

 

Equity plan

 

In December 2000, the Company adopted a stockholders approved the Performance and Equity Incentive Plan (the Plan).  The Plan expired on November 28, 2006.  The present members of the Board of Directors of the Company have indicated that until the Company has substantial earnings to refrain from asking the Company’s Shareholder’s to approve a new Plan.

 

NOTE 14 — SUBSEQUENT EVENTS

 

The Company, through March 15, 2011 has authorized the issuance of 9,754,251 restricted shares pursuant to the exercising of Stock Purchase and Option Agreements totaling $59,000.

 

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