KENILWORTH SYSTEMS CORP - 10-Q Quarterly Report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

ý Quarterly report pursuant to Section 13 OR 15(D) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2003

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)

New York		13-2610105
(State of incorporation)		(I.R.S. employer identification no.)

185 Willis Avenue, Mineola, New York		11501
(Address of principal executive offices)		(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 ý No o

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 August 1, 2003 was: 121,322,757

KENILWORTH SYSTEMS CORPORATION

INDEX TO FORM 10-Q

PART I.

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

KENILWORTH SYSTEMS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

	June 30 2003			December 31 2002
	(unaudited)
ASSETS

Cash	$	42,221		$	10,071
Prepaid expenses	121,107			232,544
Due from sale of Convertible Note	100,000			—
Property, Plant and Equipment, Net	16,072			13,263
	279,400			$	255,878
Patent Acquisition Cost	2,500,000			—

TOTAL ASSETS	$	2,779,400		$	255,878

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

Accrued Liabilities	$	128,440		$	93,883
Payroll Taxes Payable	5,600			13,575
Notes Payable within one year	128,196			—
Notes Payable after one year (auto)	10,065			—

TOTAL LIABILITIES	$	272,301		$	107,458

Common Stock, $.01 par value, authorized 200,000,000 shares; issued and outstanding 89,304,589 in December 31, 2002 and 121,322,757 issued or to be issued on June 30, 2003	$	1,213,227		$	893,045

Paid in capital	27,603,560			24,872,604

Deficit	(26,309,688		)	(25,617,229		)
TOTAL STOCKHOLDERS’ EQUITY	$	2,507,099		$	148,420

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	2,779,400		$	255,878

See accompanying notes.

KENILWORTH SYSTEMS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS

OF OPERATION AND DEFICIT

	Three-Months Ended June 30						Six-Months Ended June 30
	2003			2002			2003			2002
	(unaudited)			(unaudited)			(unaudited)			(unaudited)
Revenues:
Sales	0			0			0			0
Costs and Expenses:	0			0			0			0
Selling, general and administrative expenses	$	138,984		$	69,167		$	692,459		$	107,709

Total Costs and Expenses	138,984			69,167			692,459			107,709

Net income (loss) before other income and (losses)	(138,984		)	(69,167		)	(692,459		)	(107,709		)

Net income (loss)	(138,984		)	(69,167		)	(692,459		)	(107,709		)
Deficit-Beginning of period	(26,170,704		)	(24,995,482		)	(25,617,229		)	(24,956,940		)
Deficit-End of of period	(26,309,688		)	(25,064,649		)	(26,309,688		)	(25,064,649		)

Earnings (Loss) per Share of common stock (Note 4)	0			0			0			0
Average number of shares outstanding	121,322,757			75,285,048			121,322,757			75,285,048

See accompanying notes.

KENILWORTH SYSTEMS CORPORATION

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	Six-month ended June 30
	2003			2002
	(unaudited)			(unaudited)
CASH FLOWS USED IN OPERATING ACTIVITIES

Net Loss	$	(692,459	)	$	(107,709	)
Adjustments to reconcile net income to net cash used in operating activities
Depreciation	1,328			2,288
Increase in receiveables	0			3,000

Increase(Decrease) in accrued liabilities	19,826			27,553
TOTAL ADJUSTMENTS NET CASH USED IN OPERATING ACTIVITIES	(671,305		)	74,865

Cash flows from Investing Activities
Purchase of Equipment	$	(13,461	)	$	0
Purchase of Patent	(2,500,000		)

Cash flows from
Conversion of Promissory Notes	558,483			10,000

FINANCING ACTIVITIES
Increase (decrease) in due to Affiliate	2,629,220			(23,000		)
Proceeds from issuance of Convertible Promissory Note	0			120,000
Net cash provided by financing Activities	674,242			143,000
Net Increase (Decrease) in cash	32,150
CASH — BEGINNING OF PERIOD	10,071			24,739
CASH — END OF PERIOD	$	42,221		$	25,706

See accompanying notes.

KENILWORTH SYSTEMS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - BASIS OF PRESENTATION

In the opinion of management, the accompanying unaudited condensed consolidated financial statements of Kenilworth Systems Corporation and subsidiaries (“Kenilworth”) contain all adjustments (consisting of only normal accruals) necessary to present fairly the consolidated balance sheets as of June 30, 2003 (unaudited) and December 31, 2002 and the related statements of operations and for each of the three and six-month periods ended June 30, 2003 and 2002 and December 31, 2002 cash flows for the six-month periods ended June 30, 2003 and 2002.

The results of operations for the six-month periods ended June 30, 2003 are not necessarily indicative of the results for the entire year.

NOTE 2 - THE COMPANY AND NATURE OF BUSINESS

Kenilworth Systems Corporation (the “Company”) was incorporated in New York in April 1968 and now plans to be engaged in the business of developing and manufacturing terminals and design systems that permit individuals from remote locations, to play along with live in progress casino table games via TV (simulcast) satellite broadcast around the world.

The Company was granted a U.S. Patent # U.S. 6,575,834 on June 10, 2003 for “System and Method for Remote Roulette and Other Game Play Using Game Table at a Casino”. The Patent grant places the Company in a singularly prominent position. It has been filed for approval in 33 countries including Russia and China. It protects the Company’s broadcast of live in-progress casino table game play for wagering throughout the industrialized world for the next seventeen (17) years.

The Company was in bankruptcy proceedings under Chapter 7 and 11 of the Bankruptcy Code for the period from August 28, 1982 through September 23, 1998. The Company ceased all operations, between February 2, 1991 through September 23, 1998.

The Company emerged from Chapter 7 bankruptcy on September 23, 1998 and plans to be engaged in the development, manufacturing, marketing and operation of a system that allows casino patrons to play along with live table games in-progress via TV satellite broadcasts on TV sets and terminals located outside the casino confines.

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 and Kenilworth Systems (UK) Limited. None of these subsidiaries has any assets or liabilities.

NOTE 4 - EARNINGS PER SHARE

The Company computes and presents earnings (loss) per share in accordance with the requirements of Statement of Financial Accounting Standards (“SFAS”) No. 128 “Earnings Per Share”.

Basic loss per share is based on the weighted-average number of shares of common stock outstanding for the periods, which were ($.00), ($.00), and ($.00) for the year ended December 31, 2002, and the periods June 30, 2003 and 2002.

Diluted earnings per share have not been presented in the accompanying financial statements because the effect of conversion of convertible promissory notes was anti-dilutive.

NOTE 5 - INCOME TAXES

The Company uses the liability method to account for income taxes in accordance with requirements of SFAS No. 109.

The Company is a “C” Corporation for tax purposes.

The Company estimates that it has available approximately ten million dollars ($10,000,000) in net operating loss carry-forwards, which expire at various dates through 2020. Utilization of the NOL carry-forward may be limited under various sections of the Internal Revenue Code depending on the nature of the Company’s operations.

The Company has a deferred tax asset of approximately two million eight hundred thousand dollars ($2,800,000) arising from its net operating loss carry- forwards. The deferred tax asset has been fully reserved due to the uncertainty of future realization.

NOTE 6 - USE OF ESTIMATES IN THE FINANCIAL STATEMENTS

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

NOTE 7 - FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company’s financial statements include cash, receivables and accounts payable. Due to the short-term nature of these instruments, the fair value of these instruments approximates their recorded values.

NOTE 8 - PROPERTY AND EQUIPMENT

Property and Equipment are stated at cost. For financial reporting purposes, property and equipment are depreciated utilizing the Straight-Line Method over the estimated useful lives of the related assets as follows:

		YEARS
Office Equipment		5
Vehicles		5

Property and Equipment consist of the following as of June 30, 2003 and June 30, 2002:

	Six-month ended June 30
	2003		2002
Office Equipment	$	3,939	$	2,939
Vehicles	13,461		8,500
	$	17,400	$	11,439
Less-Accumulated Amortization	1,328		4,576
Total Property and Equipment, Net	$	16,072	$	6,863

Depreciation expense for the periods ended June 30, 2003 and 2002 was $1,328 and $4,576 respectively due to the theft of vehicle and insurance reimbursement.

NOTE 9 - CONVERTIBLE PROMISSORY NOTES

During the year 2002 Convertible Promissory Notes totaling five hundred twenty thousand dollars ($520,000) issued in 2002 where converted into 11,520,605 shares of Common Stock. During the quarter period ended March 31, 2003, Notes totaling two hundred fifty thousand dollars ($250,000) were sold and converted into 4,166,666 shares during the quarter period ended June 30, 2003 Notes totaling one hundred twenty thousand dollars ($120,000) were sold and converted into 2,671,812 shares of restricted Common Stock. On a one hundred thousand dollar ($100,000) Note, the Company agreed to extend to September 2003 a balance payable of fifty thousand dollars ($50,000). Subsequent to June 30, 2003 all Notes receivable were paid and are reflected in these financials.

NOTE 10 - PRO-FORMA PRESENTATION AS AT MARCH 31, 2003

On February 24, 2003, the United States Patent and Trade Mark Offices gave notice of intent to approve the Company’s patent titled “System and Method for Remote Roulette and Other Game Play Using Game Table at a Casino” which was assigned by Herbert Lindo, the inventor, in August 2000, to the Company.

The Board of Directors (with Mr. Lindo abstaining) voted to issue to Mr. Lindo 20,000,000 shares of the Company’s Common Stock in lieu of a payment $2,50,000 which the Board considered fair consideration for the invention. The transaction was subject to shareholder’s approval at the annual meeting of shareholders to held on May 28, 2003.

The Board of Directors directed all shareholders to vote in favor of the proposal in the Company’s Proxy Statement for the shareholder’s meeting.

In order for shareholders to evaluate the proposal, the Company presented in these the quarter annual financials for the period ending March 31, 2003 interposing the effect of issuing 20,000,000 shares in lieu of $2,500,000 payment on a Pro-Forma basis.

At the Annual Meeting of Stock Holder’s held on May 28, 2003 sixty-six percent (66%) of the Shareholder’s were present or represented by proxies. All the nominated Directors were elected for one (1) year terms and the issuance of twenty million (20,000,000) shares of Common Stock of the Company, for investment, to Herbert Lindo, the inventor of the Company’s Patent, was approved. The Company placed a value of two million five hundred thousand dollars ($2,500,000) on the Patent based on the shares issued to Herbert Lindo.

NOTE 11 - GOING CONCERN UNCERTAINTY

As indicated in Note 2, the Company emerged from Chapter 7 in September 1998 and has not yet commenced manufacturing operations. These factors create uncertainty as to the Company’s ability to operate as a going-concern. Management plans to develop a wagering system that allows casino patrons and individuals outside the casino to play along with live casino table games. Among the first steps in the plan is to conduct testing. Unless the Company is able to obtain a casino site to conduct the test and sufficient funds, none of the tests and initial development work can commence. The Company plans to obtain the necessary funding by offering its common stock, or Senior Cumulative Convertible Preferred Shares in private placements, or selling limited joint venture participations in future “play along with casino game” franchises. There can be no assurances the Company can be successful in obtaining 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 12 - COMMITMENTS AND CONTINGENCIES

OUTSTANDING PAYROLL TAXES

During the year 2000, the Internal Revenue Service contended that the Company owes payroll taxes including interest and penalties totaling almost $400,000 for various periods from 1985-1991. The Company commenced negotiations with the IRS to resolve these issues. In management’s opinion, no accruals are necessary since it believes that these assessments are incorrect and were discharged in its bankruptcy proceedings. Similar contentions were made by the New York State Income Tax Authorities, which have been officially cancelled by the New York State Taxing Authorities on July 1, 2002.

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

RESULTS OF OPERATIONS

Since we emerged from bankruptcy proceedings on September 23, 1998 we have had no revenues from operations. We sustained substantial losses from general administrative expenses amounting of $660,289 in year 2002 and for the six-months ended June 30, 2003 we sustained losses from general administrative expenses amounting to $692,459 compared to a loss of $107,704. Kenilworth has had no revenues from operations during the past twelve (12) 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 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 for Interactive TV via digital satellite broadcasts emanating from strictly regulated casinos.

A first step will be to conduct a one (1) month test of the system at a casino site to prove the viability of broadcasting live in-progress table games around the world.

To conduct the tests Kenilworth believes it will require initially five million dollars ($5,000,000) to (a) purchase computers, digital television broadcast equipment and table games; and, (b) defray the cost of the facility and pay the salaries of six (6) employees who are specialists in software design, TV broadcasts, and mechanical design, for a period of eighteen (18) months, and from time to time, consultants who will assist the design team. In order to market Roulabette™ while the development of the terminals proceeds we will require an additional five million dollars ($5,000,000) to hire management and marketing people to secure future orders for the system.

Unless we are able to obtain these funds, of which there are no assurances, none of the tests and initial development work can begin; and we will not be able to commence our planned business.

Kenilworth plans to obtain the necessary funding by offering in Private Placements, Common Shares, Cumulative Convertible Preferred Shares and/or by the sale of limited joint venture participations in future Roulabette™ franchises. There can be no assurances that the Company will be able to secure any of these funds.

When the tests are completed and we have obtained all required licenses from the gaming control regulators and state legislatures or foreign jurisdictions to broadcast the live in-progress casino table games and has contracts with franchisees to place terminals around the world and franchise television

broadcasters, we expect to commence normal business. Kenilworth will also seek to obtain production financing from regular banking sources to finance the manufacturing of the Roulabette™ terminals. There can be no assurances that any such financing and approvals will be available to us.

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-Q and Kenilworth’s other filings with the Securities Exchange Commission may 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 of the Form 10-K for December 31, 2002 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.

PART II.

OTHER INFORMATION

Item 1.	LEGAL PROCEEDINGS:

	None of any consequences

Item 2.	CHANGE IN SECURITIES:

	None

Item 3.	DEFAULT UPON SENIOR SECURITIES:

	None

Item 4.	SUBMISSION OF A MATTER TO A VOTE OF SECURITIES HOLDERS:

	None

Item 5.	OTHER INFORMATION:

The Company plans to hold its Annual Meeting of Shareholders in May 2004 with proxy materials mailed to shareholders of record in April 1, 2004 prior to the proposed meeting dates.

Item 6.	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.

	Form 8-K filed July 15, 2003

SIGNATURE

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

	KENILWORTH SYSTEMS CORPORATION

By:	/s/ Herbert Lindo
	Herbert Lindo, President and Chief Financial Officer
	August 14, 2003