KENILWORTH SYSTEMS CORP - Quarter Report: 2010 March (Form 10-Q)
UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
x Quarterly report pursuant to Section 13 OR 15(D) of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2010
OR
o Transition report pursuant to Section 13 or 15(D) of the Securities Exchange Act of 1934
For the transition period from to
Commission File Number: 0-08962
KENILWORTH SYSTEMS CORPORATION
(Exact name of registrant as specified in its charter)
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New York |
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84-1641415 |
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(State of incorporation) |
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(I.R.S. employer identification no.) |
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185 Willis Avenue, Mineola, New York |
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11501 |
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(Address of principal executive offices) |
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(Zip Code) |
(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):
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Large accelerated filer o |
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Accelerated filer o |
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Non-accelerated filer o |
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Smaller reporting company x |
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(Do not check if a smaller reporting company) |
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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 March 31, 2010 was 617,201,586.
KENILWORTH SYSTEMS CORPORATION AND SUBSIDIARIES
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Part I. |
Financial Information |
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Item 1. |
Unaudited Condensed Consolidated Financial Statements |
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Condensed Consolidated Balance Sheets (unaudited) — March 31, 2010 and December 31, 2009 |
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Condensed Notes to Consolidated Financial Statements (unaudited) |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
Quantitative and Qualitative Disclosures About Market Risk |
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Item 4. |
Controls and Procedures |
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Part II. |
Other Information |
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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, 2009 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
The Company’s management has always been objectionable 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.
Remainder of page intentionally left blank
KENILWORTH SYSTEMS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
AND DEFICIT
(Unaudited)
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For the three months ended |
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March 31, |
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2010 |
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2009 |
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* |
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Revenues |
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Sales |
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$ |
0 |
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$ |
0 |
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Expenses |
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Selling, general and administrative |
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$ |
91,611 |
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193,437 |
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Other income (expenses) |
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— |
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— |
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Interest income |
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Interest expense |
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5,210 |
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— |
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Total other income (expense) |
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5,210 |
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— |
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Net loss * |
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$ |
(86,401 |
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(193,437 |
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Basic and diluted loss per share |
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$ |
(0.0004 |
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(0.0004 |
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Weighted average number of shares outstanding |
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617,201,586 |
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458,986,086 |
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* 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 $0.01 per share, for cash at less than par value during the period from January 1, 2009 and March 31, 2009 with the loss charged to paid-in capital.
The accompanying notes are an integral part of these financial statements.
KENILWORTH SYSTEMS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
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March 31, |
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December 31, |
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ASSETS |
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CURRENT ASSETS |
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Cash |
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$ |
30,541 |
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$ |
123,633 |
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Prepaid expenses (Note 6) |
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60,000 |
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80,000 |
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Loan receivable — from vendors including accrued interest |
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52,400 |
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58,600 |
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Receivable from Herbert Lindo (Note 8) |
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776,800 |
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775,725 |
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TOTAL CURRENT ASSETS |
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$ |
919,741 |
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1,037,958 |
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PROPERTY AND EQUIPMENT — NET |
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1,001 |
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1,156 |
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SECURITY DEPOSIT |
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13,677 |
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13,677 |
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TOTAL ASSETS |
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$ |
934,419 |
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$ |
1,052,791 |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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CURRENT LIABILITIES |
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Accounts payable and accrued expenses |
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85,386 |
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165,349 |
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Payroll taxes payable (Note 7) |
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18,108 |
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Loans payable — including accrued interest |
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21,101 |
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25,101 |
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TOTAL CURRENT LIABILITIES |
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$ |
994,419 |
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$ |
208,558 |
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STOCKHOLDERS’ EQUITY (DEFICIT) |
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Preferred Stock - par value $.01 per share; authorized 50,000,000 shares; no shares issued and outstanding |
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Common stock - par value $.01 per share; authorized 1,000,000,000 shares; issued and outstanding 617,201,586 and 587,691,586 shares, respectively |
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6,172,015 |
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5,876,915 |
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Additional paid-in capital |
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32,077,588 |
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32,010,088 |
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Accumulated deficit |
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(32,329,191 |
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(32,242,790 |
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TOTAL STOCKHOLDER’S EQUITY |
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60,000 |
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844,233 |
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TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY |
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$ |
934,419 |
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1,052,791 |
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The accompanying notes are an integral part of these financial statements.
KENILWORTH SYSTEMS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31,
(Unaudited)
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2010 |
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2009 |
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Cash flows from operating activities |
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Net loss |
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$ |
(86,401 |
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(193,437 |
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Increase (decrease) in cash attributable to changes in assets and liabilities: |
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Prepaid expenses |
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60,000 |
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60,000 |
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Loan Receivable |
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52,400 |
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21,600 |
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Accounts payable and accrued expenses |
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(91,611 |
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(47,531 |
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Payroll taxes payable |
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(143,000 |
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(23,180 |
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Net cash used in operating activities |
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(13,851 |
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(201,365 |
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Security deposit |
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(13,677 |
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(13,677 |
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Net cash used in investing activities |
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— |
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— |
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Cash flows from financing activities |
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Proceeds from Paid in Capital |
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Proceeds from convertible notes payable |
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Proceeds from sale of common stock |
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675,500 |
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175,000 |
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Proceeds from stock subscriptions receivable |
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— |
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— |
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Net cash provided by financing activities |
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675,500 |
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175,000 |
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Net change in cash |
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Cash — beginning of period |
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3,274 |
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21,401 |
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Cash - end of period |
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$ |
30,541 |
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$ |
3,274 |
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The accompanying notes are an integral part of these financial statements.
KENILWORTH SYSTEMS CORPORATION AND SUBSIDIARIES
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, 20010 contain all adjustments (consisting of only normal accruals) necessary to present fairly the consolidated balance sheets as of March 31, 2010 and December 31, 2009 and the related statements of operations and cash flows for the three (3) month periods ended March 31, 2010 and 2009 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, 2009.
The results of operations for the three (3) month period ended March 31, 2010 are not necessarily indicative of the results for the entire year ending December 31, 2010.
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.
NOTE 5 - CONVERTIBLE PROMISSORY NOTES AND STOCK PURCHASE AND OPTION AGREEMENTS
During the quarters ended March 31, 2010 and March 31, 2009 respectively, the Company sold to various private investors $675,500 and $175,000 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 March 31, 2010 and March 31, 2009 were converted into a total of 675,500 and 24,389,000 restricted common shares, respectively.
STOCK OPTIONS
From its inception in April 2008 through May 2009, the Company granted Stock Options for 115,709,000 restricted Common Shares, par value $0.01 per share at an average price of $0.011 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:
NONE
2008:
The Company issued 20,675,000 shares as compensation for services rendered during the quarter 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 $168,695 in past due payroll taxes, including all penalties and interest accrued during the years 2008 and the three (3) month period ended March 31, 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 March 31, 2009 the Company was delinquent in approximately $23,180 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 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 $17,289 through March 31, 2009. Mr. Lindo provides his services to the company without any remuneration.
NOTE 9 - SUBSEQUENT EVENTS
Subsequent to March 31, 2010, the Company sold $81,400 in Stock Purchase and Option Agreements.
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 three-months ended March 31, 2009 we sustained a loss amounting to $193,437 which include NON-CASH loss of $48,778. 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 was formerly 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 and management formerly dropped the Development Stage Company designation in the third quarter period of 2009.
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 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.
Employing the latest encrypted satellite, cable and 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 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 within five (5) years throughout the industrialized world (by the year ended 2014).
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. On May 6, 2009 Congressman Barney Frank introduced legislation that may, in the not too distant future, legalize internet gambling in the United States.
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 entire East coast of the United States), 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%) inuring to the Company and thirty percent (30%) to the strictly regulated casinos.
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 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 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 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 to receive satellite and/or 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 the 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 have not been designed.
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 and more via digital satellite, digital cable television or 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” and digital satellite, cable TV set top boxes 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 top boxes have not been designed. We have as at March 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, 2009.
(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. These website have been shut down when President Bush signed the Internet Enforcement Act of 2006. Since then the U.S. Congress has indicated it may lift Federal Internet Wagering in 2009 to increase Federal and State revenue to benefit education.
Simulcast broadcasts of digital satellite and digital cable 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.
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.
Kenilworth has been a publicly traded Company since 1968. Prior to commencing its endeavors into its present business in 1988, it also provided security systems to Nuclear Electric Generating Plants in the U.S. and foreign countries, as well as time/attendance systems at a major department store chain.
MARKETING STRATEGY/SALES PLAN
Our marketing strategy consists of developing the Roulabette Slot terminal and the Roulabette 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.
In the United States, Kenilworth must 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.
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.
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.
EXCLUSIVE SOFTWARE DEVELOPMENT AGREEMENT
This Agreement made as of the 17th day of November 2008 by and between Kenilworth Systems Corporation, with principal offices located at 185 Willis Avenue, Suite # 4, Mineola, New York 11501 (hereinafter “Kenilworth” or the “Company) and Paul Terrell, Mike Sportelli and Gregory Sapon hereinafter collectively called “Developers” located at 2554 Lincoln Boulevard, Suite # 738, Marina Del Rey, California 90292. Collectively, Kenilworth and Developers shall be referred to as the Parties (the “Parties”) to the Agreement.
RECITAL
Developers have expertise in software development for remote casino table game wagering having operated a similar system licensed to foreign operators in Europe through 2008.
Developers will work exclusively for a minimum period of five (5) years to promote, install and design Kenilworth’s products, including installation of wagering systems for casinos throughout the industrialized world for remote casino table game wagering. Developers agree not to disclose to others the intricate workings of the Kenilworth system dubbed “Roulabette”. Roulabette is a system for playing games such as roulette, craps and baccarat in an interactive manner at sites remote from the actual casino table at which the live game is being played. The system allows remote players to wager as if they are actually participating in the live game at the casino.
In consideration for Developer’s exclusively joining Kenilworth’s working operation (signup bonus), Kenilworth will issue six million (6,000,000) restricted Common Stock, par value $0.01 per share, for investment only, to the members Developers and deliver a $3,500,000 Promissory Note payable, without interest, through June 17th, 2010. Thereafter on the unpaid remaining principal, if any, will accrue interest at four percent (4%) per annum, credited quarter annually. The Note shall be due and payable within ten (10) days in any event that Kenilworth will have available a minimum of $10,000,000 from net income or underwriting proceeds excluding loan proceeds, But inclusive from lump sum payments totaling $10,000,000.00.
Developers also acknowledges it had the opportunity to ask questions and receive answers concerning the terms and conditions of the issuance of Common Stock of the Company to it and has had the opportunity to obtain any additional information which the Company possesses or can acquire without unreasonable efforts and expenses, that is necessary to verify the accuracy of the information furnished to Developers. Developers have reviewed the Business Plans and other information provided on its website at www.kenilworthsys.com.
Developers represent to Kenilworth that the Common Stock being acquired is being acquired for investment and for their own accounts and they have no present intention of reselling or distributing the Common Stock to others, except to members of their regular staff.
Developers agree that none of the Common Stock will be transferred or distributed without having presented to Kenilworth either (i) a written legal opinion of legal counsel, satisfactory to Kenilworth, in form and substance satisfactory to Kenilworth’s counsel indicating that the proposed transfer will not be in violation of any of the provisions of the Securities Act of 1933 and 1934 as amended (the “Securities Act”) and the rules and regulations promulgated thereunder or (ii) an effective Registration Statement.
Developers represent that they each have adequate means of providing for their current living expenses and contingencies and that they each have no need for liquidity of this investment. Developers represent that they can each afford the risk of loss of the entire investment.
Developers fully understand that in connection with the issuance of the Common Stock that Kenilworth is relying to a material degree on the representations, warranties and covenants contained herein. Developers realize that sales of Common Stock by anyone individually may be deemed evidence by each present intention and thus tend to bring into question the truth of the representations made by each in this agreement.
Developers agree that a legend reading substantially as follows or such other legend as may be utilized by Kenilworth transfer agent, American Stock Transfer & Trust Company, may be placed on the Common Stock:
“THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THE SHARES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THESE SHARES UNDER THE SECURITIES ACT OF 1933 OR AN OPINION OF THE COMPANY’S COUNSEL THAT REGISTRATION IS NOT REQUIRED UNDER THE SAID ACT.”
Kenilworth represents the restrictive legends on the stock certificates may be removed by an exemption available in SEC Regulation 144 B, after each Developer’s ownership of the shares for the minimum period of six (6) months.
For providing the heretofore described services, Developer is hereby granted collectively, no Option to acquire six million (6,000,000) additional shares, at the average trading price per share as quoted on the Pink Sheet Market, for the thirty (30) days prior to the date any of the optioned shares are exercised and funds for the shares are received by Kenilworth.
Entire Agreement. This agreement supersedes any and all other agreements, either oral or in writing, between the parties hereto with respect to the engagement of Developers by Kenilworth, and contains all the covenants and agreements between the parties with respect to such engagement in any manner whatsoever. Any modification of this agreement will be effective only if it is in writing and signed by all parties.
Severability. The provisions of this agreement are agreed to be severable; i.e., if any provision of this agreement or the application thereof is held to be invalid or
unenforceable, that invalidity or unenforceability shall not be construed to affect any other provisions or application.
Captions. The captions in this Agreement are for convenience only and are not to be considered in construing this agreement.
Governing Law. The validity, interpretation and performance of this agreement shall be controlled by and construed under the laws of the State of New York. The parties consent to the jurisdiction of the Nassau County, New York courts in the event any dispute arises in conjunction herewith.
Successors and Assigns. This agreement is binding on the successors of the parties herein.
Waiver. No delay or omission by either of the Parties in exercising any right shall operate as a waiver of such right or any other right. No waiver by any party of any breach hereunder shall be deemed a waiver of any other or subsequent breach.
Binding Effect. Upon execution by both Parties, this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, executors, administrators, successors and permitted assigns.
Executing Agreement. By each member of Developers signing below they also agree that this Agreement may be executed in subparts at different times by the Parties, or
and may be executed through facsimile transmittal of signature pages, with such copies being given the same weight for legal sufficiency as if the Agreement had been executed with original signatures simultaneously by the Parties, providing signatures from both Parties appear on the executed document.
The parties agree that the promissory note recited herein is an integral part of the within agreement.
IN WITNESS WHEREOF, the parties have executed this agreement on the day and year first above written.
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DEVELOPERS |
KENILWORTH SYSTEMS CORPORATION |
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/s/ Paul Terrell |
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By: |
/s/ Herbert Lindo |
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Paul Terrell |
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Herbert Lindo, Chairman and CEO |
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By: |
/s/ Mike Sportelli |
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Mike Sportelli |
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By: |
/s/ Gregory Sapon |
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Gregory Sapon |
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Based upon the exclusive five (5) year of the within Agreement, Kenilworth previously is reducing the value of the $3,500,000 Note payable to zero.
None
None
Item 4. DEFAULT UPON SENIOR SECURITIES:
None
Item 5. SUBMISSION OF A MATTER TO A VOTE OF SECURITIES HOLDERS:
None
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.
SUBSEQUENT EVENTS:
The Company issued 4,375,000 shares of restricted Common Shares through May 7, 2009 in connection with the sale of Stock Purchase and Option Agreements for $37,000.
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.
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KENILWORTH SYSTEMS CORPORATION |
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By: |
/s/ HERBERT LINDO |
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Herbert Lindo, |
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Chairman, Chief Executive Officer and Chief Financial Officer |
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June 9, 2010 |