**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

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**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, 2007** |
|                                                  |       |                                                                                                                       |
| **Or**                                                |
|                                                  |       |                                                                                                                       |
| **o**                                                 | ** ** | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934 (NO FEE REQUIRED)** |

 

**Forthe transition period from                  to                ..**

 

**Commissionfile number 0-08962**

 

**KENILWORTHSYSTEMS CORPORATION**

(Exact name ofregistrant as specified in its charter)

 
| **NEW  YORK**                             |   | **84-1641415**                     |
|-------------------------------------------|--------|------------------------------------|
| (State of  incorporation)                 |   | (IRS Employer  Identification No.) |
|                                      |   |                               |
| **185  WILLIS AVENUE,**                   |   | ** **                         |
| **MINEOLA,  NEW YORK**                    |   | **11501**                          |
| (Address of  principal executive offices) |   | (zip code)                         |
|                                      |   |                               |

**(516)741-1352**

(Registrant’stelephone number, including area code)

 

SECURITIESREGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

 

**NONE**

 

SECURITIESREGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:

 

**(TITLEOF CLASS)**

Common Stock, parvalue $.01 per share

 

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

 

                Indicate by check mark if theregistrant is not required to file reports pursuant to Section 13 or Section15(d) of the Act.  Yes x No o

 

                Indicate by check mark whetherthe registrant: (1) has filed all reports required to be filed by Section 13 or15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (orfor 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 xNo o

 

                Indicate by check mark if disclosure of delinquentfilers pursuant to Item 405 of Regulation S-K (Section 229.405of this chapter) is not contained herein, and will not be contained, to thebest of the registrant’s knowledge, in definitive proxy or informationstatements incorporated by reference in Part III of this Form 10-K orany amendment to this Form 10-K. o

 

                Indicate by check mark whetherthe registrant is a large accelerated filer, an accelerated filer, anonaccelerated filer, or a smaller reporting company. See definitions of‘‘large accelerated filer,’’ ‘‘accelerated filer,’’ and ‘‘smaller reportingcompany’’ in Rule 12b-2 of the Exchange Act. (Check one):

 
| Large  accelerated filer o |   | Accelerated  filer o |   | Non-accelerated  filer o   |   | Smaller  reporting company  x |
|----------------------------|--------|----------------------|--------|----------------------------|--------|------------------------------------|
|                       |   |                 |   | (Do not check if a smaller |   |                               |
|                       |   |                 |   | reporting  company)        |   |                               |

 

The aggregate marketvalue of the registrant’s Common Stock held by non-affiliates of theregistration based on the closing price as reported on the Pink Sheet Market onMarch 14, 2008 was $3,000,064.

 

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As of December 31,2007, 327,741,562 Shares of the Registrant’s Common Stock, $0.01 par value,were outstanding.

 

Portions of theRegistrant’s Proxy Statement for its 2007 Annual Meeting of Stockholders to befiled are incorporated by reference into Part III of this Form 10-K.

 

At the Annual Meeting ofShareholders held on July 17, 2002 the Shareholders approved the issuanceof 20,000,000 Shares of restricted Common Stock to Herbert Lindo, Chairman ofthe Board of Directors and the President of the Company for having assigned tothe Company the Patent that was granted on June 10, 2003.  Titled“SYSTEM AND METHOD FOR REMOTE ROULETTE AND OTHER GAME PLAY USING GAME TABLE ATA CASINO”.  Upon Mr. Lindo’s request, the Shares were not issueduntil January 11, 2006, as restricted securities.  (See Part IIIItem 12 Beneficial Ownership (1).)

 

At the regular meeting ofthe Board of Directors of the Company held on December 1, 2004 at whichall six (6) members of the Board of Directors were present, the Directors(with Herbert Lindo, the Chairman and President abstaining) unanimously votedto issue 25,000,000 shares of restricted Common Stock to Herbert Lindo forhaving assigned in October 2003 to the Company, the Patent titled “METHODAND SYSTEM FOR SUPPLYING FUNDS TO A TERMINAL FOR REMOTE WAGERING” (lotteryterminals).  Upon Mr. Lindo’s request, the shares were not issueduntil January 11, 2006, as restricted securities (see Part IIIItem 12 Beneficial Ownership (1)).

 

On November 27, 2006Herbert Lindo, the Chairman and Chief Executive Officer exercised a fivemillion (5,000,000) share option for seven hundred fifty thousand dollars($750,000) at fifteen cents ($0.15) per share pursuant to the Company’sPerformance and Equity Plan.  The price per share was the price for theOption which would have expired on the following date.  Mr. Lindodoes not own any other Options pursuant to the Plan.  The average marketprice 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 Lindoborrowed the seven hundred fifty thousand dollars ($750,000) from the Companyand pledged the five million (5,000,000) and other shares he owns totalingfifty million (50,000,000) shares, as collateral for the loan.  The fivemillion (5,000,000) shares have been issued and are included ascollateral.  All of Mr. Lindo’sKenilworth shares are legended “Restricted Securities”.

 

 

 

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**TABLEOF CONTENTS**

 
| **PART I**   |   |                                                                                                           |   | 5      |
|-------------------|--------|----------------------------------------------------------------------------------------------------------------|--------|--------|
|              |   |                                                                                                           |   |   |
| ITEM 1            | — | Description of  Business                                                                                       |   | 5      |
| ITEM 2            | — | Properties                                                                                                     |   | 17     |
| ITEM 3            | — | Legal Proceedings                                                                                              |   | 17     |
| ITEM 4            | — | Submission of  Matters to a Vote of Security Holders                                                           |   | 17     |
|              |   |                                                                                                           |   |   |
| **PART II**  |   |                                                                                                           |   | 18     |
|              |   |                                                                                                           |   |   |
| ITEM 5            | — | Market Prices  of the Company’s Common Stock and Related Stock Holder Matters                             |   | 18     |
| ITEM 6            | — | Selected Financial  Data                                                                                       |   | 19     |
| ITEM 7            | — | Management  Discussions and Analysis of Financial Condition and Results of Operations  (Contains Risk Factors) |   | 20     |
| ITEM 8            | — | Financial Statements and  Supplementary Data                                                                   |   | 23     |
| ITEM 9            | — | Changes and  Disagreements with Accountants on Accounting and Financial Disclosure                             |   | 23     |
| ITEM 9A           | — | Controls and  Procedures                                                                                       |   | 24     |
|              |   |                                                                                                           |   |   |
| **PART III** |   |                                                                                                           |   | 24     |
|              |   |                                                                                                           |   |   |
| ITEM 10           | — | Directors and  Executive Officers of the Registrant                                                            |   | 24     |
| ITEM 11           | — | Executive  Compensation                                                                                        |   | 26     |
| ITEM 12           | — | Security  Ownership of Certain Beneficial Owner and Management and Related Stockholders  Matters               |   | 27     |
| ITEM 13           | — | Certain  Relationships and Related Transactions                                                                |   | 28     |
| ITEM 14           | — | Principal  Accountant Fees and Services                                                                        |   | 28     |
|              |   |                                                                                                           |   |   |
| **PART IV**  |   |                                                                                                           |   | 28     |
|              |   |                                                                                                           |   |   |
| ITEM 15           | — | Exhibits,  Financial Statement Schedules and Reports on Form 8-K                                          |   | 28     |
|              |   | Subsequent Events                                                                                              |   | 28     |

 

**FORWARD LOOKING STATEMENTS**

 

In addition tohistorical information, this Annual Report on Form 10-K contains certainforward-looking statements and Risk Factors. We expressly disclaim anyobligations on undertaking to release publicly any updates or revisions to anyforward-looking statements contained herein to reflect any change in ourexpectations with regard thereto or to reflect any change in events, conditionsor circumstances on which any such forward-looking statement is based in wholeor in part.

 

**Readersshould amongst the other statements contained herein and future filings withthe Securities and Exchange Commission, including the Quarterly Reports on Form 10-Qto be filed, carefully review in Item 7 the following: “Cautionary Statementsfor Purposes of the “Safe Harbor” Provisions of the Private SecuritiesLitigation Reform Act of 1995 and Risk Factors”. All of the Risk Factorscontained therein should be carefully read.**

 

 

 

 

 

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INTRODUCTORY NOTE TOPART IV

 

The Amendment No. 1on FORM 10-K filed to restate certain amounts which changed as the resultsof having been ordered by the Securities and Exchange Commission to file theCompany’s Financials as a “Development Stage Company” from the period beginningNovember 24, 1998 to the present at December 31, 2007, theelimination of $4,256,926, which was the amount the Company disbursed on orabout 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 frombetween ten cents ($0.10) per share and twelve cents ($0.12) per share to fivecents ($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 327,741,562 Common Shares.  All of therestricted shares may have the restrictions lifted pursuant to new Rule 144D within six (6) months which will substantially depress the trading priceof the Company’s Common Stock.

 

***Remainder of page intentionally left blank***

 

 

 

 

 

 

 

 

 

 

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PART I

 

ITEM 1 — DESCRIPTIONOF BUSINESS

 

THE COMPANY

 

Kenilworth SystemsCorporation hereinafter referred to as “Kenilworth”, the “Company” or “we”, wasincorporated on April 25, 1968 under the laws of the State of NewYork.  Kenilworth has been a publicly traded Company since August 1968formerly on the National NASDAQ Market, presently on the OTC Pink Sheet Marketsince emerging from Bankruptcy Proceedings in September 1998. Kenilworth is now being presented as a Development Stage Company.

 

GENERAL

 

Since early in the year2000 we have been solely engaged in developing patents, markets andinvestigating how best to obtain Governmental approvals, by engaging lobbyistsand consultants that would allow television satellite and cable subscribers andother casino gamblers throughout the industrialized world to play and wageralong from remote locations with live, in-progress casino table games(Roulette, Craps, Baccarat and more) from strictly regulated casinos located inthe United States and other locations around the world.

 

Employing the latestencrypted satellite, cable and Internet technology and placing televisioncameras in strategic locations above the casino table games, without disruptingthe normal game-monitoring activities, (a separate control room would directthe various camera angles), and transmitting the table games over the digitalsatellite, digital cable and Internet networks (in countries that permitInternet wagering) to television sets (“TV’s”), which become a platform forplaying along with the casino games wherever TV’s are located.

 

Kenilworth titled theoverall project “RoulabetteTM”.  There are thirty-eight million(38,000,000) satellite and seventy-three million (73,000,000) cable TVsubscribers in the United States and more than five hundred million(500,000,000) subscribers throughout the rest of the industrialized world (“TheMarket”).  On average, households in the U.S. have three (3) TV’s. (It is important since the satellite and cable companies will charge a separatefee for transmitting the table games).  Public gathering places canaccommodate (be able to network) up to one thousand (1,000) or more TV setswith a single satellite receiving dish, direct cable connections, or streamedvia the Internet.  With wagering possible in homes, hotel rooms, resortrooms, pubs, restaurants, race tracks and other public gathering places theCompany believes it will become a more than $500 billion annual **net win**Market within five (5) yearsthroughout the industrialized world (by the year ended 2013).

 

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

 

All forty-three (43)lotteries in the United States are owned and operated by County and Stateagencies.  Since the beginning of year 2007, Texas, Illinois, Indiana,Maryland, Massachusetts, Michigan, Iowa, New Jersey and California haveindicated exploring the privatization of their lotteries. This could greatlyenhance our efforts to broadcast the live casino table games to these lotterylocations and could result in having Cafés that offer terminals and TV sets toplay along.  Internet Cafés that offer wagering on various events havebeen a huge success in the Asian Market. With Internet wagering outlawed in theUnited States, our patented satellite, one-way broadcasts offer the bestpossibility to establish satellite Cafés.

 

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

 

 

 

 

 

 

 

 

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These foreign lotteriesalso have the same databases as lotteries in the United States, except mostlotteries throughout Europe pool their lotteries between countries, not unlikeMega Millions and PowerBall in the United States, which makes the distributionsimpler and very cost effective for both Kenilworth and the lotteries.

 

There are no technicalbreakthroughs required.  The equipment for the technology is readilyavailable.  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 totransmit the broadcast from one of its casinos to their residents and to Statesthat do not have any casinos, (the entire East coast of the United States), theother forty-three (43) States with lotteries will join expeditiously. Thesame will occur in foreign countries.

 

Kenilworth will share the**net win** revenue with allparticipating entities that provide RoulabetteTM gaming without **costs of any kind. **State lotteries or their privateoperators will receive a minimum of forty percent (40%) of the total **net win** from their respective jurisdictions.

 

In States and foreigncountries that designate exclusively lottery proceeds to schools and theirteachers it is a welcome contribution.  It also will help close statebudget gaps.

 

In addition, throughoutthe United States and most foreign countries there are hundreds of facilitiesthat simulcast live in-progress horse/dog races.  At most facilities thereare several large TV screens that show the races from the different tracks withgeneral theater-type seating for patrons and at private cubicles withtelevision sets outfitted with touch screens.  The cubicles rent foradditional fees.  After players open an account and select pin numbers,they can watch, in privacy, each race offered on the different tracks on the TVand place wagers on the different races.  The players may also watchsporting events, the news, the stock market reports, and in the near futureRoulabetteTM, live, in-progress casino table games.  Thesimulcast centers have their own databases to manage the cash deposit and paywinnings on the horse/dog races and will be able to manage the casino games, onthe same methods as the lotteries will manage RoulabetteTM.  Withprivate TV’s, available in simulcast centers, especially at night, when fewertracks are operating.

 

When playing along withlive table games from a highly regulated jurisdiction, players will be assuredthat the game results are exactly what they see; and, playing along with livecasino table games such as Roulette, Craps and Baccarat, we believe, willprovide interaction, fun and far more excitement than playing virtual games andvideo lottery terminals. It is the next best thing, we believe, to actuallybeing at the table in the casino.

 

To conduct actual livetest broadcasts Kenilworth believes it will require a minimum of ten milliondollars ($10,000,000) and there are no assurances we will ever be able toobtain any of such money. At present, the Company does not have the fundsreadily available but hopes to obtain same, from investors, as soon asKenilworth can obtain governmental permission and commence broadcasting from acasino in the United States or other casinos throughout the world.

 

In prior years,Kenilworth completed a prototype system that allowed casino patrons to playalong with live in-progress casino table games **only within the confines of a casino,** via closed circuittelevision. Also in 1990, we developed and delivered for the TAB (TotalizatorAgency Board) a quasy government agency of the State of Victoria, Australia, acashless slot machine system. Both systems required debit cards and centralmainframe computers to manage the wagers. By making use of the expertiseapplied in the development of the aforementioned systems we plan to develop asecond-generation system that will manage the wagers by the microprocessorinstalled in TV set-top boxes or an attachment directly connected to the TV setto receive satellite and/or Internet broadcasts. This as planned would allow aplayer 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 tomake wagers on the various games, without having to be physically present atthe casino or casino table.  There are no assurances we will be able tosuccessfully develop any system.

 

 

 

 

 

 

 

 

 

 

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We also propose for slotmachine manufacturers to develop “RoulabetteTM Slot Machines”.  The RoulabetteTM Slot will offer the regular slot or videolottery games and by the touch of a button, the live in-progress casino tablegames.  Slot players are offered a change of pace at the cost of a slothandle pull.  The games are transmitted to the RoulabetteTM Slot via satellite or the Internet (allbroadcasts are encrypted to prevent unauthorized use of the broadcasts).

 

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

 

Project RoulabetteTM is a concept intended to be built and therecan be no assurances that it will ever be built.  The Patentedmicroprocessors to be installed in the TV set top boxes have not been designed.

 

**SUMMARY**:

 

(1.)          Kenilworth continues to fine tune itspatented technology dubbed RoulabetteTM.  It now plans to “outsource” themanufacturing of all the components instead as formerly manufacture some of theequipment in its 26,000,000 square foot facility then located in Melville,NY.  RoulabetteTM would allow casino patrons and other playersto play along with live in-progress casino table games such as Roulette, Craps,Baccarat and more via digital satellite, digital cable television or Internetbroadcasts (simulcasts) emanating from strictly regulated casinos located inthe United States and other locations around the world, to self-sufficientcomputer terminals dubbed “RoulabetteTM Slots” and digital satellite, cable TV set topboxes or the Internet in countries that permit Internet gaming. The RoulabetteTM terminal is a proposal intended to be builtand there can be no assurances that it will ever be built.  Themicroprocessors to be installed in the TV set top boxes have not been designed.We have as at December 31, 2007, no firm agreements, customers, orproposals for any future business and there can be no assurances that we willever have same. **Reference is also made toeach of the “Risk Factors” that are set forth in Item 7.**

 

(2.)          We believe the thousand virtual casinowebsites via the Internet obtain sixty percent (60%) of their annual revenuefrom customers in the U.S.  These website have been shut down whenPresident Bush signed the Internet Enforcement Act of 2006.

 

Simulcast broadcasts ofdigital satellite and digital cable transmissions around the world must meet,and will be supervised by, the regulations by the gaming authorities of thebroadcasting casino and the jurisdiction, which receives the broadcast. We believe the supervision will not be difficult to enforce, because allsimulcast wagering is “cash only”, from regulated, supervised bettingsites.  There are no wire money transfers with banks and no credit ordebit cards permitted or used.  We believe this fact should ease anyopposition from concerned citizens and anti-gambling groups, as regulation andenforcement responsibility will be vested in each individual state (or foreignjurisdiction).

 

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

 

Kenilworth has been apublicly traded Company since 1968. Prior to commencing its endeavors into itspresent business in 1988, it also provided security systems to Nuclear ElectricGenerating Plants in the U.S. and foreign countries, as well as time/attendancesystems at a major department store chain.

 

 

 

 

 

 

 

 

 

 

 

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THE STATUS WITH PAGCOR

 

During January 2006,the Company reestablished negotiations with the Philippines Amusement andGaming Corporation (“PAGCOR”) for permission to broadcast live, in-progresscasino table games from their casinos.

 

PAGCOR is the Republic ofthe Philippines chartered government gaming monopoly.  PAGCOR partiallyowns and exclusively operates all fourteen (14) Filipino casinos, some of whichare located in exclusive resort facilities frequented by Asian patrons(tourists).

 

In March 2006,Kenilworth conducted a live, in-progress casino table game test to demonstratethe ability to broadcast the table games, for around the world viewing, withoutdisrupting the normal security monitoring and protecting the privacy of playersat adjoining table games.  The film clip of the test broadcast which wasmade at a roulette table located in the new Hyatt Hotel and Casino, Manila, isavailable for viewing on our website www.kenilworthsys.com (see Press Release:Monday, March 6, 2006).

 

In 2002, the PhilippinesGovernment permitted the establishment of two (2) Internet Cafés in theManila area and allowed the operators, for a fee to PAGCOR, to providelife-like action on virtual baccarat, accept sports bets and video broadcast ofactual in-progress cock fights with wagering on the outcome.  By year end2004, the number of Cafés operating in the Manila area increased to sixty (60)Cafés.  At the end of 2006 there are now six hundred (600) Cafés in Manilawith an additional thirty four hundred (3,400) throughout the country.

 

Kenilworth neverattempted to provide live in-progress real time casino table games to the Caféssince President Gloria Macapagal-Arroyo stated, at all times, that ourbroadcast should not expand gambling throughout the Philippines.  TheCafés now represent a huge profit base for PAGCOR which provides the incomefrom its overall operation entirely for **socio-civicendeavors**.  PAGCOR is the most profitable corporation in thePhilippines.

 

The phenomenal success bythe Internet Cafés may not require our broadcasts to improve PAGCOR’s incomestream.   Kenilworth planned to broadcast to the Pacific Rimcountries to maintain the tourist’s trade to the Philippines resorts, all ofwhich have casinos, and now have to compete with Macau.  We believe, inthe future, PAGCOR will require our broadcasts to maintain their presenttourist trade.

 

MARKETING STRATEGY/SALESPLAN

 

Our marketing strategyconsists of developing the RoulabetteTM Slot terminal and the RoulabetteTM broadcasts. We estimate at this time, that wewill need at least approximately ten million dollars ($10,000,000) forpromoting the RoulabetteTM concept. We do not have this money nor do wehave any agreements or understanding to procure this money. We may never getthis money. If we do obtain this money, it may not be sufficient. Further,should such monies be available it may not be available on termssatisfactory to Kenilworth or it may beavailable on such terms that substantially dilute the interest of existingshareholders. If we obtain this money, we will need substantial additionalfunds for the proposed marketing plan and there can be no assurances that suchfunds will ever be available to allow Kenilworth to engage in business on a profitablebasis.

 

At the present time, wedo not engage technically oriented employees who will be able to assist in thedevelopment of RoulabetteTM (we have available three [3] former technicalKenilworth employees that have indicated to rejoin Kenilworth at theappropriate time). It will be necessary for us to obtain additional personnelqualified and with the expertise to develop RoulabetteTM. We wouldrequire additional employees and several more consultants in respectivelocations and there can be no assurances of our being able to obtain anynecessary personnel. There can be no assurances of the availability of any suchemployees and consultants.

 

The Company willoutsource the development of RoulabetteTM and the microprocessors for the TV set top boxes.

 

 

 

 

 

 

 

 

 

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In the United States,Kenilworth must refrain from using the Worldwide Web (WWW) Internet to managewagers from individuals outside of the casino confines. It is against the law.In RoulabetteTM, the play-along broadcast emanates fromcasinos that are regulated by strict and comprehensive rules and state andjurisdiction regulations, enforced by gaming control regulators and everybodyplays along with the same live table game. There is a world of differencebetween playing in a virtual make believe casino compared with an actualcasino.

 

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 tomanage the wagers from individuals playing along on their PC’s and theirtelevision sets using interactive TV set top boxes that convert regulartelevision sets into minicomputers within their state or jurisdiction. Therecan be no assurances that we will be able to obtain any arrangement with any ofthese entities or that they would be on suitable terms.

 

The individuals wouldhave to pre-deposit funds into an account with the wager management company andthen place wagers with their credit balance. The wagers and running balanceswill be transmitted to the RoulabetteTM player’s PC and/or television sets withtelephone lines not crossing any state lines, similar in principle to telephoneaccounts wagering offered by the New York State Off-Track Betting Corporationand the state of Nevada casino sports book and recently with remote purchase oflottery tickets in many states within the United States.

 

After we obtainpermission to play RoulabetteTM, of which there can be noassurances, in a given state and engages a wager management organizationin order to promote digital satellite and interactive television to the state’sresidents, Kenilworth would install the eighteen (18) inch dish antenna andconverter box required to receive digital TV programming and interactive TV atits own cost, if the subscriber opens a RoulabetteTM wagering account for two hundred dollars($200). In addition, Kenilworth would pay the monthly subscription fees to viewall 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 the satellite carrier such as EchoStar andDirecTV, or cable companies.

 

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

 

To gain approval for ourRoulabetteTM-style gambling in jurisdictions that have notapproved any gambling legislation, Kenilworth proposes to engage lobbyists tointroduce, promote, and obtain legislative approval to permit RoulabetteTM-stylegambling. Our strategy is to find depressed resort areas and have theresort/hotel operators convince theirlocal politicians of the benefits to their business and the local economies andrequest them to promote legislative approval, either state-wide or limited totheir areas. Riverboat gambling started to rehabilitate decaying waterfronts.RoulabetteTM can do the samein depressed economic areas.  No assurances can be given that we canobtain any such approvals.

 

When the live casino TVbroadcasts are beamed for global viewing, Kenilworth will seek out similarorganizations, as proposed for the United States and betting shops and slotroute operators that can provide the servicing of individual accounts andplacement of RoulabetteTM terminals in hotels, clubs, pubs, racetracks,etc. In all instances, we plan to offer only profit sharing arrangements tofranchisees, which will require leasing all the equipment necessary to thefranchisee, to discourage competition.

 

In overseasinstallations, wherever permitted, Kenilworth will make use of the WWW Internetonly to manage the wagers, and only in jurisdictions that permit the datacollection of the gambler, not for the live broadcast.

 

 

 

 

 

 

 

 

 

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

 

COMPETITION

 

Many segments of thegaming industry are characterized by intense competition, with a large numberof companies offering the same type of wagering products and services. None ofthese companies, at present, are believed to offer the same or similarequipment or systems as intended by RoulabetteTM. The most likely competition will comefrom slot machine manufacturers who could relatively quickly adapt slotmachines to play along with live casino table games. We believe there are three(3) major slot machine manufacturers in the world, all of which havevastly greater capital resources and substantially more personnel than the Companyand may have under development systems that directly compete with RoulabetteTM.

 

Our present plans are tobroadcast the live casino table games from companies that own casinosthroughout the industrialized world. Other casino owners may start their ownbroadcasts and have their own terminals manufactured that compete withKenilworth after Kenilworth has done all its pioneering for play-alongwagering.

 

PATENTS, TRADEMARKS ANDINTELLECTUAL PROPERTY

 

Our most important assetsare Patents we have acquired and RoulabetteTM related trademarks and service marks. The Patent granted on June 10, 2003 titled “SYSTEM AND METHOD FOR REMOTEROULABETTE AND OTHER GAME PLAY USING GAME TABLE AT A CASINO” and PatentApplication filed October 15, 2003, entitled “METHOD AND SYSTEM FORSUPPLYING FUNDS TO A TERMINAL FOR REMOTE WAGERING”, “MULTI-USE GAMING MACHINE”trademarks ROULABETTETM, as in pre-marked cards similar tolottery cards to select number in each game, used with terminals “ROULABETTETM SWIPE CARD” to activate set-top boxes to playRoulabetteTM and “PLAY ALONGWITH ROULABETTETM, LIVE” and MULTI-USE GAMING MACHINE.

 

GOVERNMENT REGULATIONS

 

Kenilworth has nolicenses from any casino regulating authorities and may not require any casinolicenses at the present time and may never become able to obtain any licensesthat may be required in the future. Each state has its own regulations, and instates where Kenilworth does business, Kenilworth will have to comply withthese regulations and there can be no assurances that it will be able to do soor obtain the necessary license in an applicable jurisdiction. The followingdiscussion is not necessarily complete, or current regarding laws andregulations that may be applicable to us.  Any present laws are also subjectto future change, amendment or cancellation.

 

**Federal**

 

The Federal GamblingDevices Act of 1962 (the “Federal Act”) makes it unlawful for a person tomanufacture, deliver, or receive gaming machines, gaming machine type devicesand components thereof across interstate lines unless that person has firstregistered with the Attorney General of the United States.

 

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

 

**OtherRegulations**

 

The manufacture,distribution, sale, and use of slot machines are controlled by state andfederal law, which may also apply to our RoulabetteTM gaming terminals. Certain foreign countriespermit the importation, sale, or operation of slot machines. Where importationis permitted, some countries prohibit or restrict the 

 

 

 

 

 

 

10

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payout feature of thetraditional slot machine or limit the operation of slot machines to acontrolled number of casinos or casino-like locations. Certain of thesejurisdictions also require the licensing of gaming devices. Our RoulabetteTM terminals may be considered similar to slotmachines and may have to meet these regulations.

 

**GreenbergTraurig Opinion**

 

August 11, 2005

 

Kenilworth SystemsCorporation185 Willis AvenueMineola, New York 11501Attn:  Herbert Lindo, Chairman and CEO

 

Re:  Legal IssuesRelating to Roulabette(TM)

 

Dear Sir:

 

We are writing inresponse to your request for an opinion as to the legal issues relating to theimplementation of the Roulabette(TM) concept of Kenilworth Systems Corporation(“KSC”).

 

Roulabette(TM) is amethod and system for placing wagers on live, in-progress casino table gamessuch as roulette, baccarat and dice from locations remote from the actualcasino tables at which the games are taking place. The system begins at thecasino, where television cameras in strategic locations above the casino tablegames follow the games being played at the casino tables, and microphones pickup the sounds of the table play. The game play is transmitted via digitalsatellite and cable transmissions to subscribers who are able to wager by usingset top boxes which receive the broadcast of the game and record wagers andresults.

 

LEGAL ANALYSIS

 

In making use of thisopinion, Kenilworth Systems Corporation (“KSC”) should be aware that this is avery complex area of law, involving U.S. federal gambling statutes, thegambling statutes of the fifty states and the District of Columbia, and thegambling statutes of all the countries of the world where you might want tooperate a Roulabette(TM) casino or offer Roulabette(TM) wagering. The gamblinglaws of these jurisdictions vary widely, ranging from the absolute prohibitionof Utah, to the street-side betting shops of England, to the wide-open casinosof Las Vegas. Further confusing matters is the fact that there is very littlestatutory law specifically addressing remote gambling, and the few statuteswhich do exist relate to Internet gambling, which is not the same asRoulabette(TM). So, for the most part, we will be interpreting the provisionsof gambling statutes which were enacted before the digital technology of todayexisted, and did not contemplate the possibility of playing casino games fromremote locations. Similarly, the case lawrelative to remote gambling is also very sparse and,once again, concerns Internet gambling, which is different from Roulabette(TM).Finally, there are the interpretations of the law relating to remote gamblingwhich have been publicly pronounced by the U.S. Department of Justice (“DOJ”),which in our opinion are clearly erroneous. Consequently, although the opinionsexpressed below are our best assessment of the situation after years ofresearch and active involvement in numerous cases, they are to a great extent,projections of what we believe the courts would hold if the issues were everadjudicated. They are not shared by the DOJ, they do not take into account lawswhich may be enacted in the future as the countries of the world continue toaddress the issues of remote gambling, and in time they may prove to beincorrect in one respect or another.

 

In the United States, theprohibition and/or regulation of gambling is a matter of state law. Somestates, such as Nevada, permit a wide range of gambling activities throughoutthe state. Other states, such as Mississippi and New Jersey, permit a widerange of gambling activities, but only at certain geographic locations, such asriverboats and Atlantic City casinos. Finally, other states, in fact moststates, permit only very limited gambling activities, such as thoroughbredracing, jai alai, bingo, etc. Superimposed on this tangle of state laws andregulations are the federal statutes, which are designed to assist the statesin 

 

 

 

 

 

 

 

11

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combating illegalgambling operations which cross state and national borders. So, basically, theU.S. legal regime applicable to gambling is two-tiered. The individual statesdetermine the forms of gambling which are legal and illegal, and to what extentthey are banned or regulated, and the federal government assists the states indealing with illegal gambling activities which cross state or national borders.

 

Given the fact thatRoulabette(TM) would be most successful if distributed on a national orinternational level, the federal issues must be addressed first to determinewhether it is legally feasible to distribute the product across state andnational borders. If there is no federal prohibition, casino locations must beselected and the state and local laws of the jurisdiction where the casino islocated must be analyzed to determine if it is legal and feasible to broadcastfrom the chosen locations. In view of the fact that casinos can be chosen fromanywhere in the world, there is little doubt that locations can be identifiedfrom which to originate the broadcasts. It is only a matter of identifying thebest casino or casinos from a legal and business perspective. Finally, severalU.S. and foreign courts have concluded that remote gambling takes place bothwhere the server is located (or in this case, the casino), and where the playeris located. So, once one or more casinos are identified, another analysis willbe necessary to determine the markets where it would be legal to offer thegames being played. It is not a question of whether there are legal markets forone or more games, but a matter of the number of markets available and thetypes of games which can be offered in each market.

 

There are four federalstatutes which are most applicable to remote gambling.(1) They are:

 

----

| (1)    |   | There are also  additional statutes, such as conspiracy (18 U.S.C. section 371),  money laundering (18 U.S.C. section 1956 and racketeering  (18 U.S.C. section 1962) statutes which could apply if the gambling  statutes are violated. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                   |
|   |   | —                                                                                                                                                                                                                                                                 | The Wire Act, which  prohibits the use of interstate or foreign communications facilities to  transmit wagering information on sporting events or contests; (2) |

 

----

| (2)    |   | 18 U.S.C. section 1084. |
|--------|--------|-------------------------|
|   |   |                    |
|   |   | —                  | The Illegal Gambling  Businesses statute, which prohibits the operation of a gambling business in  violation of the laws of the state where it is conducted; (3) |

 

----

| (3)    |   | 18 U.S.C. section 1955. |
|--------|--------|-------------------------|
|   |   |                    |
|   |   | —                  | The Travel Act, which  prohibits the use of interstate or foreign travel and the use of the mail or  any facility in interstate or foreign commerce (such as the Internet or  digital satellite services) to facilitate illegal activities, including  illegal gambling; (4) and |

 

----

| (4)    |   | 18 U.S.C. section 1952. |
|--------|--------|-------------------------|
|   |   |                    |
|   |   | —                  | The Interstate  Transportation of Wagering Paraphernalia statute, which prohibits  transporting gambling-related items in interstate or foreign commerce. (5) |

 

----

| (5)    |   | 18 U.S.C. section 1953. |
|--------|--------|-------------------------|
|   |   |                    |
|   |   | 1.                      | The Wire Act |

 

This statute prohibitsgambling businesses from using interstate or international telephone facilitiesto transmit gambling-related information, and states:

 

 

 

 

 

12

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Whoever being engaged inthe business of betting or wagering knowingly uses a wired communicationfacility for the transmission in interstate or foreign commerce of bets orwagers or information assisting in the placing of bets or wagers on anysporting event or contest, or for the transmission of a wire communicationwhich entitles the recipient to receive money or credit as a result of bets orwagers, or for information assisting in the placing of bets or wagers, shall befined under this title or imprisoned not more than two years, or both.(6)

 

----

| (6) |   | 18 U.S.C. section  1084(a). |
|-----|--------|-----------------------------|

 

The Wire Act has been aformidable tool for the DOJ in the prosecution of operators of Internet gamingsites. The DOJ merely has to establish that a bet was transmitted or receivedover the Internet and it can obtain a conviction, without ever having toaddress such issues as the actual location of the betting (i.e., where thebettor is or where the bookmaker is), or the fact that the operator waslicensed by a sovereign nation to provide gambling services over the Internet.

 

In the Spring of 1998,when the United States Justice Department proclaimed its opinion that the WireAct prohibits Internet gambling, U.S. Attorney General Janet Reno announcedcharges against numerous off-shore Internet gambling operators, stating:

 

The Internet is not anelectronic sanctuary for illegal betting.  If a state outlaws solicitingor accepting bets, you can’t evade those requirements by going online. It’s afederal crime to use the Internet to conduct betting operations. And toInternet betting operators everywhere we have a simple message; you can’t hideonline and you can’t hide off-shore.

 

This assertion appears tobe correct. “Wire communication facility” is broadly defined as an instrumentalityor service “used or useful in the transmission of writings, signs, pictures andsounds of all kinds by aid of wire, cable or other like connection.”(7) Thecourts have ruled that even with satellite transmissions, there is still a wireconnecting the gamblers computer to the Internet.(8) So, even thoughRoulabette(TM) utilizes satellite transmissions, it is likely that there willbe a wire of some sort used for the transmission somewhere along the line, mostlikely at the casino or at the player’s TV and set-top box. However, regardlessof whether a wire was used in the transmissions, the Wire Act still would notapply for two reasons.

 

----

| (7)    |   | 18 U.S.C. section 1081.                                                                                                                                                                                                                                |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                   |
| (8)    |   | World Interactive  Gaming, 1999 WL 591995, 6-8 (N.Y. S.Ct.)  (“Like a prohibited telephone  call from a gambling facility, the Internet is accessed by using a telephone  wire”); United States v. Cohen, 260 F.3rd 68 (2nd Cir. 2001). |

 

First, although the DOJtakes the position that the Wire Act applies to all Internet gambling, sportsand non-sports alike, the courts have held otherwise. The DOJ reasons that theword “sports” in the phrase “sports events or contests” modifies only the word“events” thereby leading to a reading that the statute covers betting on sportsevents and betting on [other] contests. However, the courts and virtually alllegal scholars and attorneys experienced in the field are of the opinion thatit only applies to sports betting.

 

The Supreme Court hasestablished the rules of statutory construction, and if the statutorylanguage is clear and unambiguous, then you look no further and follow thelanguage of the statute. The Wire Act makes it a crime to send or receivewagers on sporting events and contests. Sporting events and contests arefootball, baseball, basketball, hockey, golf, tennis prize fighting orwhatever, but not poker, bingo and similar games. Although a card game or apoker tournament, may be a contest, is not as sporting contest.

 

If there is some doubt asto the meaning of the statute, the courts turn to case law and the legislativeintent of Congress. There have been cases addressing the question of whetherthe Wire Act applies to non-sports gambling and the case law is consistent — itdoes not. The most recent case dealing with the issue was In re: MasterCardInternational, a civil RICO case, which hinged on the applicability of the WireAct to non-

 

 

 

13

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sports Internet gambling.(9) Indeciding the issue, the court stated that the wording of the Act, the case lawand the legislative intent all lead to the conclusion that the Wire Act onlycovers sports gambling. The case was upheld on appeal by the Fifth CircuitCourt of Appeals, which stated: “we agree with the district court’s statutory interpretation,its reading of the relevant case law, its summary of the relevant legislativehistory, and its conclusion.”(10)

 

----

| (9)    |   | 2001 WL 197834  (E.D.LA.).                                        |
|--------|--------|-------------------------------------------------------------------|
|   |   |                                                              |
| (10)   |   | In Re: MasterCard  Int’l., 313 F.3d 257, 262 5th Cir. 2002). |

 

It should be noted thatalthough the DOJ loudly proclaims that the Wire Act applies to all Internetgambling, it is apparently concerned that its interpretation may be wrong, andhas never attempted to use the statute against non-sports gambling business inthe ten years that Internet gaming has existed. In our opinion, the Wire Actdoes not cover non-sports gambling, such as Roulabette(TM) — that is the law,as enacted by Congress and interpreted by the courts, the desires and opinionof the DOJ notwithstanding.

 

Second, there is anexemption to the Act, which provides that it is not illegal to transmit“information assisting in the placing of bets or wagers on a sporting event orcontest from a place where such betting is legal to another place where suchbetting is legal.”(11) The Roulabette(TM) broadcast would constitute“information assisting in the placing of bets or wagers” within the meaning ofthe statute, and it would be broadcast from a casino in a jurisdiction wheresuch gaming activity is legal to a jurisdiction where the actual wageringactivities would take place and where such wagering would be legal.Consequently, even if one accepts, or accedes to, the expansive view of theU.S. Department of Justice, with which most people do not agree, that the WireAct is not limited to sports betting but extends to other forms of wageringactivities, Roulabette(TM) would be exempted from the statute.

 

----

| (11) |   | 18 U.S.C. section  1084(b); United States v. Ross; Martin v. United States, 389 F.2d 895, 898  (5th Cir. 1968); See also e.g. United States v. Miller, 22 F.3d 1075 (11th  Cir. 1994) (affirming conviction under Section 1084 “for aiding and  abetting the telephonic transmission of wagering information between Georgia  and Nevada”); United States v. Scavo, 593 F.2d 837 (8th Cir. 1978) (affirming  conviction of defendant who when living in Nevada provided gambling point  spread information to a Minnesota bookmaking business); United States v.  Cohen, 260 F.3rd 68 (2nd Cir. 2001) (cert. denied, 2002). |
|------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

2. The Illegal GamblingBusinesses Statute(12)

 

----

| (12) |   | This statue is also  knows s the Organized Crime Control Act or OCCA, because it was included as  part of that omnibus crime bill. |
|------|--------|------------------------------------------------------------------------------------------------------------------------------------|

 

Thisstatute prohibits persons from operating an illegal gambling business, andstates:

 
| (a)    |   | Whoever conducts,  finances, manages, supervises, directs, or owns all or part of an illegal  gambling business shall be fined under this title or imprisoned not more than  five years or both.                                                                                                                                                                                                                                                                                                                |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| (b)    |   | As used in this section  — “illegal gambling business” means a gambling business which (i) is a  violation of the law of a State or political subdivision in which it is  conducted; (ii) involves five or more persons who conduct, finance,  manage, supervise, direct, or own all or part of suchbusiness; and (iii) has been or  remains in substantially continuous operation for a period in excess of  thirty days or has a gross revenue of $2,000 in any single day.(13) |

 

----

| (13) |   | 18 U.S.C. section 1955. |
|------|--------|-------------------------|

 

 

 

 

 

 

 

 

14

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The statute applies toall forms of gambling, sports and non-sports alike, and makes it a federaloffense to conduct, finance, manage, supervise, direct or own all or part of an“illegal gambling business.” An illegal gambling business is defined as a gamblingbusiness, which “is a violation of the law of a State or political subdivisionin which it is conducted.” The application of this statute to Roulabette(TM) isobvious, because it applies to sports and non-sports gambling alike, andRoulabette(TM) would be operated, managed, financed or owned by at least fivepeople. Despite the language appearing to limit the statute to persons whoconduct, finance, manage, etc., numerous cases have recognized that the statuteproscribes any degree of participation in an illegal gambling business exceptparticipation as a bettor.(14) As one court recently put it, “conducts extendsto those on lower echelons, but with a function at their level necessary to theillegal gambling operation.”(15)

 

----

| (14)   |   | Sanabria v. United  States, 437 U.S. 54, 70-1 n.26 (1978).      |
|--------|--------|-----------------------------------------------------------------|
|   |   |                                                            |
| (15)   |   | United States v.  O’Brien, 131 F.3d 1428 (10th Cir. 1997). |

 

However, unlike the WireAct, under this statute, the location of the actual activity is of criticalsignificance, because it must be a violation of the law of the state orpolitical subdivision in which it is conducted. This should not be an issue forRoulabette(TM), because it intends to broadcast from a casino in a jurisdictionwhere it would be legal. If it was not legal under the laws of the jurisdictionwhere the casino is located, and the casino is in the United States, then therewould be a violation not only of state law, but of this federal statute aswell.

 

The statute could alsoapply if the player is located in a state where the gambling would be inviolation of state law. I think there is little question that offering servicesto players in a particular state would constitute doing business in that state.So, it will be essential that the service not be offered to players located instates where such gambling would be illegal. Otherwise there would be aviolation of this federal statute, as well as the laws of the player’s state.

 

3. The Travel Act

 

This statute prohibitsthe use of interstate or foreign travel, and the use of the mail or anyfacility in interstate or foreign commerce, to distribute the proceeds ofillegal gambling, or otherwise promote, manage or facilitate any illegalactivity, including gambling, in violation of federal or state law.(16)

 

----

| (16) |   | 18 U.S.C. section 1952. |
|------|--------|-------------------------|

 

Once again, the statutewill not present a problem so long as Roulabette(TM) is legal in the statewhere the casino is located and the states where any U.S. players are located.

 

4. The Transportation ofWagering Paraphernalia Statute.

 

This statute prohibitspersons from carrying or sending gambling paraphernalia in interstate orforeign commerce, and states:

 

Whoever.... knowingly carries or sends in interstate or foreign commerce any record,paraphernalia, ticket, certificate, bills, slip, token, paper, writing, orother device used, or to be used, or adapted, devised, or designed for use in (a) bookmaking;or (b) wagering pools with respect to a sporting event; or (c) in anumbers, policy, bolita, or similar game shall be fined under this title or imprisonedfor not more than 5 years or both.(17)

 

----

 
| (17) |   | 18 U.S.C. section 1953 |
|------|--------|------------------------|

 

A New York state courtdeclared that an Internet gambling web site located in Antigua violated the lawby sending records of gambling activity into the State of New York.(18)Moreover, the court also held that the 

 

 

 

 

15

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defendant Internetgambling operator further violated the statute by sending computers to Antigua,which computers would ultimately be used for conducting gambling businessbetween the United States and Antigua.(19) More on point, a California courthas held that a computer disk containing a program for recording and analyzingbets on sporting events is gambling paraphernalia.(20) So, it is quite possiblethat the Roulabette(TM) data could be deemed to be paraphernalia. However, thisstatute should not apply because the data is not “used, or to be used, oradapted, devised, or designed for use in (a) bookmaking; or (b) wageringpools with respect to a sporting event; or (c) in a numbers, policy,bolita, or similar game.” It is to be used in casino games, which are notcovered by the statute.

 

----

| (18)   |   | People v. World Gaming,  714 N.Y.S.2d 844, 852 (N.Y.S.C. 1999). |
|--------|--------|-----------------------------------------------------------------|
|   |   |                                                            |
| (19)   |   | Id. at 853.                                                     |
|   |   |                                                            |
| (20)   |   | United States v.  Mendelsohn, 896 F.2d 1183 (9th Cir. 1990).    |

 

OPINION AND SUMMARY

 

Based on the analysisabove, in our opinion Roulabette(TM) would be entirely legal under U.S. federallaw, so long as: (1) it is legal under the laws of the state where thecasino is located if the casino is in fact located in the United States, and (2) theservice is not offered to any player in the United States in violation of thelaws of the state where the player is located.

 

If KSC will select one ormore casinos from which it intends to broadcast the games, we will research thejurisdiction where each such casino is located to determine if there are anylegal impediments to Roulabette(TM). I would suggest selecting a NativeAmerican casino operated by a tribe which is receptive to the Roulabette(TM)concept, and located in a state which would be amenable to amending its compactwith the tribe if research indicates that an amendment is necessary. I wouldalso suggest selecting a casino in a foreign jurisdiction, which might be receptiveto the Roulabette(TM) concept. A casino in a smaller country, perhaps in theCaribbean would probably be a good selection.

 

I hope this analysis isuseful to KSC. If you have any questions or wish to discuss the issues further,please do not hesitate to contact me on my direct line at (954)768-8221.

 

Sincerely yours,Greenberg Traurig, LLP

 

By:  Patrick T.O’Brien

 

 

 

 

FABRICATION/ASSEMBLYOPERATION

 

When we start to marketthe RoulabetteTM Wagering System, of which there can be no assurances, we planto engage sub-contractors to assemble/manufacture the terminals from standardor specially manufactured (to our specifications) electronic, TV, and othercomponents purchased from vendors or manufactured by subcontractors.

 

EMPLOYEES

 

Kenilworth, at present,has three (3) full time employees to perform administrative work andresearch related to casino wagering and marketing around the world, in additionto the officers that manage the affairs of the Company. The Company has engagedconsultants to assist us in the United States, Europe and Asian markets andthat may manage the proposed satellite transmission programs, and others thatmay assist in the marketing of RoulabetteTM broadcasts throughout theindustrialized world.

 

 

 

 

 

16

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Kenilworth maintains medicalinsurance for its employees, who do not contribute to the costs of the Plan.

 

BACKLOG

 

We do not have anybacklog.

 

ITEM 2 — PROPERTIES

 

Kenilworth leases twothousand three hundred (2,300) square feet in an office building paying twothousand eight hundred dollars ($2,800) per month rent, fuel and electric costadjustments from the date of the lease, renewed for a three (3) year termto end in June 2009.

 

ITEM 3 — LEGALPROCEEDINGS

 

Since exiting fromChapter 7 Bankruptcy Proceedings on September 23, 1998, Kenilworth has notbeen involved in any significant legal proceedings.

 

ITEM 4 — SUBMISSIONOF MATTERS TO A VOTE OF SECURITY HOLDERS

 

Not applicable.

 

EXECUTIVE OFFICERSOF THE REGISTRANT

 

The names, ages andpositions held by each of Kenilworth’s directors and executive officers are asfollows:

 
| **NAME**      | ** ** | **AGE** | ** ** | **OFFICES  AND  POSITIONS HELD**                                                          | ** ** | **FIRST  ELECTED  OFFICER OF  KENILWORTH** |
|---------------|------------|---------|------------|-------------------------------------------------------------------------------------------|------------|-------------------------------------------------|
| HERBERT LINDO |       | 82      |       | PRESIDENT,CHAIRMAN OF  THE BOARD,

CHIEF EXECUTIVE OFFICER  AND CHIEF 

FINANCIAL OFFICER |       | 1972                                            |
| KIT WONG      |       | 76      |       | SECRETARY                                                                                 |       | 1999                                            |

 

All of the aboveExecutive Officers and Directors have been elected to serve until the nextAnnual Meeting of Shareholders or until their respective successors are electedand qualified. The Board presently anticipates that the next ShareholdersMeeting will be held during the third quarter period of 2008.

 

***Remainder of page intentionally left blank***

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

17

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PART II

 

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

 

(a)          Kenilworth exited from Bankruptcy Proceedings in September of1998, its Common Stock which had been trading on the NASDAQ National Market, isnow trading on the OTC Pink Sheets under the old trading symbol “KENS”. Thefollowing table sets forth high and low closing sales prices for our CommonStock, as reported on the OTC Pink Sheets.

 
| ** **                                             | ** ** | **LOW** | ** ** | **HIGH** |
|--------------------------------------------------------|------------|---------|------------|----------|
| **2006**                                               |       |    |       |     |
|                                                   |       |    |       |     |
| January 1,  2006

Through  March 31, 2006    |       | $       | 0.04       |     | $ | 0.10 |
|                                                   |       |    |       |     |
| April 1,  2006

Through  June 30, 2006       |       | $       | 0.05       |     | $ | 0.10 |
|                                                   |       |    |       |     |
| July 1,  2006

Through  September 30, 2006   |       | $       | 0.02       |     | $ | 0.08 |
|                                                   |       |    |       |     |
| October 1,  2006

Through  December 31, 2006 |       | $       | 0.02       |     | $ | 0.05 |
|                                                   |       |    |       |     |   |   |
| **2007**                                               |       |    |       |     |
|                                                   |       |    |       |     |
| January 1,  2007

Through  March 30, 2007    |       | $       | 0.02       |     | $ | 0.05 |
|                                                   |       |    |       |     |
| April 1,  2007

Through  June 30, 200        |       | $       | 0.02       |     | $ | 0.04 |
|                                                   |       |    |       |     |
| July 1,  2007

Through  September 30, 2007   |       | $       | 0.02       |     | $ | 0.007 |
|                                                   |       |    |       |     |
| October 1,  2007

Through  December 31, 2007 |       | $       | 0.01       |     | $ | 0.03 |
|                                                   |       |    |       |     |   |   |
| **2008**                                               |       |    |       |     |
|                                                   |       |    |       |     |
| January 1,  2008

Through  March 15, 2008    |       | $       | 0.01       |     | $ | 0.02 |

 

(b)         Holders. There were approximately seven thousand(7,000) holders of record of Common Stock of Kenilworth as of June 30,2007.

 

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

 

(d)         No underwriters were involved in the sale of theunregistered Convertible Promissory Notes.  Exemption from registration isclaimed under Section 4(2) of the SEC Act of 1933 as amended. The proceeds from the sale of all unregistered securities have all been usedfor working capital.

 

 

 

 

 

 

 

18

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The Company hasoutstanding 327,741,562 Common Shares. All of the restricted shares may have the restriction lifted pursuant tonew SEC Rule 144 D within six (6) months which may substantiallydepress the trading price of the Company’s stock.

 

(e)          Equity Compensation Plan Information

 

The following tablesummarizes the equity compensation plans under which Kenilworth SystemsCorporation common stock may be issued as of December 31, 2005.

 
| ** **                                              | ** ** | **(a)  Number of securities  to be issued upon  exercise of outstanding  options** | ** ** | **(b)  Weighted-average  exercise price of  outstanding options,  warrants and rights** | ** ** | **(c)  Number of securities  remaining available  for future issuance  under equity  compensation plans  (excluding securities  reflected in column (a))** |
|---------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **Plan Category**                                       |       |                                                                                                                  |       |                                                                                                             |       |                                                                                                                                                                                                              |
|                                                    |       |                                                                                                                  |       |                                                                                                             |       |                                                                                                                                                                                                              |
| Equity  compensation plans approved by security holders |       | 0                                                                                                                     |       | $                                                                                                                | 0          |                                                                                                                                                                                                              | 9,500,000 |
|                                                    |       |                                                                                                                  |       |                                                                                                             |       |                                                                                                                                                                                                              |   |
|                                                         |            |                                                                                                                       |            |                                                                                                                  |            |                                                                                                                                                                                                                   |  |  |

 

ITEM 6 — SELECTEDFINANCIAL DATA

 

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

 

Selected Financial Datafor the five (5) years ended December 31, 2007, are as Follows:

 

SUMMARY OFOPERATIONS

 
| ** **                                         | ** ** | **2007**   | ** ** | **2006**     | ** ** | **2005**     | ** ** | **2004**     | ** ** | **2003**     | ** ** | **PERIOD FROM  NOVEMBER 24,  1998 TO  DECEMBER 31,  2007** |
|----------------------------------------------------|------------|------------|------------|--------------|------------|--------------|------------|--------------|------------|--------------|------------|--------------------------------------------------------------------------------|
| ** **                                         | ** ** | ** ** | ** ** | **Restated** | ** ** | **Restated** | ** ** | **Restated** | ** ** | **Restated** | ** ** | **Restated**                                                                   |
| Net  sales from operations                         |       | $          | —     |         | $          | —       |       | $            | —     |         | $          | —                                                                         |   | $ | — |   | $ | — |
| Other  income                                      |       | $          | —     |         | $          | —       |       | $            | —     |         | $          | —                                                                         |   | $ | — |   | $ | — |
| Net  loss accumulated during the development stage |       | $          | 1,093,538  |         | $          | 850,079      |       | $            | 3,815,302  |         | $          | 1,860,296                                                                      |   | $ | 768,229 |   | $ | 3,559,947 |
| Loss  per common share                             |       | $          | 0.003      |         | $          | 0.003        |       | $            | 0.02       |         | $          | 0.010                                                                          |   | $ | 0.010 |   | $ | 0.040 |
| Loss  per common share — diluted              |       | $          | 0.003      |         | $          | 0.003        |       | $            | 0.02       |         | $          | 0.010                                                                          |   | $ | 0.010 |   | $ | 0.040 |
| Consolidated  balance sheet data:                  |       |       |       |         |       |         |       |         |       |         |       |                                                                           |
| Total  liabilities                                 |       | $          | 303,187    |         | $          | 486,895      |       | $            | 217,540    |         | $          | 313,414                                                                        |   | $ | 328,916 |   | $ | 873,359 |
| Stockholders’  Equity (deficit)               |       | $          | 576,710    |         | $          | 459,400      |       | $            | 75,450     |         | $          | (109,783                                                                       |   | $ | (263,624 | ) | $ | 581,919 |

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

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

 

(A) RESULTS OFOPERATIONS

 

Since we exited frombankruptcy proceedings on September 28, 1998, we have had no revenues fromoperations, and therefore sustained losses from general administration expensesamounting to $1,093,538 in 2007, $850,079 in 2006 and $3,815,302 in 2005. Kenilworth has had no revenues from operations since exiting from BankruptcyProceedings in September 1998.

 

(B) LIQUIDITY ANDCAPITAL RESOURCES

 

Kenilworth has notconducted any new business operations since 1991. At December 31, 2007,2006 and 2005 we had a deficiency in working capital of $301,957, $436,910 and$239,745 respectively. In Kenilworth’s present state of operation to continue aviable business plan, Kenilworth requires little funding. We have beendependant upon the resources of its Chairman and Chief Executive Officer, whoreceives no compensation, and funds received from private investors, totaling$832,500 in 2007, $765,400 in 2006 and $776,250 in 2005.  In addition theCompany issued restricted Common Stock for services totaling $306,400 for10,240,000 shares in 2007, $1,829,000 for 58,116,044 shares in 2006 and$1,723,000 for 15,885,000 shares in 2005.

 

Our present plans are tocontinue to develop a wagering system titled “RoulabetteTM” that would allowpatrons all over the industrialized world to view and wager on live casinotable games on terminals placed in hotels, resorts, bars and other publicgathering places and in homes and offices on personal computers (PC’s) ortelevision sets connected to set top boxes for Interactive TV via digitalsatellite and digital cable broadcasts emanating from strictly regulatedcasinos.  At present we do not have sufficient liquidity and capitalresources to develop our business or to remain in business and we may neverhave such resources.

 

CAUTIONARY STATEMENT FORPURPOSES OF THE “SAFE HARBOR” PROVISIONS OF THE PRIVATE SECURITIES LITIGATIONREFORM ACT OF 1995 AND RISK FACTORS

 

The information containedin this Form 10-K and Kenilworth’s other filings with the SecuritiesExchange Commission contain “forward-looking” statements within the meaning ofsection 27A of the SecuritiesAct of 1933, as amended, and Section 21E of theSecurities Exchange Act of 1934, as amended, and is subject to the safe harborscreated thereby. Such information involves important risks and uncertainties.

 

Forward-LookingStatements

 

The Private SecuritiesLitigation Reform Act of 1995 provides a “safe harbor” for forward-lookingstatements. Certain information included in this Annual Report on this Form 10-Kcontainsstatements that are forward-looking, including, but not limited to, statementsrelating to our business strategy and development activities as well as othercapital spending, financing sources, the effects of regulation (includinggaming and tax regulations), expectations concerning future operations,margins, profitability and competition. Any statements contained in this Form 10-Kthat are not statements of historical fact may be deemed to be forward-lookingstatements. 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 orother comparable terminology. Such forward-looking information involvesimportant risks and uncertainties that could significantly affect anticipatedresults in the future and, accordingly, such results may differ from thoseexpressed in any forward-looking statements made by us. These risks anduncertainties include, but are not limited to, our lack of recent operatinghistory, our dependence on Herbert Lindo, our Chairman and Chief ExecutiveOfficer who is eighty-two (82) years old and existing management, generaldomestic or international economic conditions, pending or future legal 

 

 

 

 

 

 

 

 

 

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proceedings, changes infederal or state tax laws or the administration of such laws, changes in gaminglaws or regulations (including the legalization of gaming in certainjurisdictions), applications for licenses and approvals under applicablejurisdictional laws and regulations (including gaming laws and regulations). You should not place undue reliance on any forward-looking statements, whichare based only on information currently available to us. We undertake noobligation to publicly release any revisions to such forward-looking statementsto reflect events or circumstances after the date of this 10-K report for theyear ended December 31, 2007.

 

**RISKFACTORS**

 

**NOOPERATING HISTORY**

 

We have had no newrevenues from operations since 1991. We exited from bankruptcy proceedings in1998 without assets and liabilities. We have had no revenues from operationssince then and we may never have any revenues from operations in the future, **which may result in the termination of our business**.

 

**WE HAVENO WORKING CAPITAL**

 

As of December 31,2007 the working capital deficiency of Kenilworth was $301,957. This will notenable Kenilworth to achieve any of its planned operations. There can be noassurances that Kenilworth will again have sufficient working capital to engagein its planned operations.  Although we have been able to obtain workingcapital from investors that purchase Convertible Promissory Notes and byissuing restricted Common Shares for services rendered.

 

**OURBUSINESS IS ONLY IN THE PLANNING STAGE**

 

Kenilworth’s businessexcept for the completion of the $9,000,000 contract with the TotalizatorAgency Board of Victoria, Australia, and the revenue from providing encodedaccess cards to United States and foreign Nuclear Electric Generating Plants,remains in the planning stage. We plan to engage in the development,manufacturing by subcontractors, and marketing of an operation entitledRoulabetteTM. RoulabetteTM would allow casino patrons and other players to playalong from remote locations with live in-progress casino table games such asRoulette, Craps, Baccarat and more via digital satellite and digital cabletelevision broadcasts (simulcasts) emanating from strictly regulated casinoslocated in the United States or via the Internet in other locations around theworld, to self-sufficient computer terminals dubbed “RoulabetteTM” and digitalsatellite and cable TV set top boxes. The RoulabetteTM terminal is a proposalintended to be built and there can be no assurances that it will ever bebuilt.  The microprocessors to be installed in the TV set top boxes or attachedto TVs have not been designed. We have, as atDecember 31, 2007, no specific agreements,customers or proposals for any future business and there can be no assurancesthat we will ever have same.

 

**WE NEEDAT LEAST TEN MILLION DOLLARS ($10,000,000)**

 

In order to commence todevelop the RoulabetteTM terminal and the RoulabetteTM broadcasts, we estimate atthis time, that we will need at least approximately ten million dollars($10,000,000). We do not have this money nor do we have any agreements orunderstanding to procure this money. We may never get this money. If we doobtain this money, it may not be sufficient. Further, should such monies beavailable it may not be available on terms satisfactory to Kenilworth or it maybe available on such terms that substantially dilute the interest of existingshareholders. If we obtain this money, we will need substantial additionalfunds for the proposed marketing plan and there can be no assurances that suchfunds will ever be available to allow Kenilworth to engage in business on aprofitable basis.

 

**OURBUSINESS IS SUBJECT TO OUR ABILITY TO OBTAIN AND RETAIN KEY PERSONNEL**

 

At the present time, wedo not have any employees who will be able to develop RoulabetteTM. It will benecessary for us to obtain personnel qualified and with the expertise todevelop RoulabetteTM. We believe at this time we would require additionalemployees and several more consultants. There can be no assurances of theavailability of any such employees and consultants.  The Company expects tooutsource 

 

 

 

 

 

 

21

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the development ofRoulabetteTM and the microprocessors for the TVs or set top boxes.  Noassurances can be given that the Company will be able to do this successfully.

 

**WE AREDEPENDANT UPON HERBERT LINDO**

 

Kenilworth has beendependant upon the services of its Chairman and Chief Executive Officer HerbertLindo who is eighty-two (82) years old. Herbert Lindo has performed hisservices during the past seventeen (17) years without compensation. ShouldKenilworth procure working capital, there can be no assurances that he willcontinue to work without receiving compensation. There also can be noassurances of Herbert Lindo’s continued availability.  We believe withoutassurances that present management is capable to continue our present plans inthe event that Herbert Lindo is not available.

 

**RAPIDCHANGES IN TECHNOLOGY**

 

The technology andRoulabetteTM in general is subject to rapid change. Kenilworth will need tomaintain an ongoing research and development effort of which there can be noassurances of success or availability of funds.  Additionally, there canbe no assurances that the development of technologies and products bycompetitors will not render the Kenilworth’s products or technologies non-competitiveor obsolete.

 

**WE AREENGAGED IN A HIGHLY COMPETITIVE INDUSTRY**

 

Our business is subjectto significant competition. Competition exists from larger companies thatpossess substantially greater technical, financial, sales and marketingresources that Kenilworth presently possesses. Such competition is expected toincrease. Such increased competition may have a material adverse effect onKenilworth’s ability to successfully market its products.

 

**WE WEREGRANTED 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 casinotable games was granted by the U.S. Patent Office to Herbert Lindo, theInventor and which Patent was assigned by Herbert Lindo to the Company in August 2000. We filed the Patent for approval in forty-nine (49) countries in theindustrialized world including Russia and China. There can be no assurancesthat foreign patents will be issued and the challenges will not be institutedagainst the validity or enforceability of our patent.  Herbert Lindo alsofiled two (2) Patents in the U.S. Patent Offices in September and October 2004which Patents have been published to use lottery terminals to accept depositsfor wagers placed with the TV set top boxes and the use of Play Cards similarto lottery tickets, which have also been assigned to theCompany by Herbert Lindo.  A PatentApplication for Multi-Use Gaming Machines invented by Herbert Lindo and GordonCoplein, Esq. was published on February 1, 2007 and assigned, by theinventors, to Kenilworth.

 

**OURROULABETTETM TERMINALS ARE SUBJECT TO VARIOUS FEDERAL, STATE, LOCAL AND FOREIGNJURISDICTION LAWS AND REGULATIONS**

 

The use of RoulabetteTMmay be subject to various federal, state and local laws and regulations both inthe United States and foreign countries. There can be no assurances that wewill ever be able to obtain licenses or permits necessary to conduct ourbusiness or that we will be able to comply with these applicable laws andregulations.

 

The RoulabetteTM system isplanned to allow casino patrons and other players to play along with live,in-progress casino table games such as Roulette, Craps, Baccarat and more viadigital satellite television and digital cable programming emanating fromregulated casinos.

 

***Remainder of page intentionally left blank***

 

 

 

 

 

 

 

 

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**OUROFFICERS AND DIRECTORS WILL HAVE SIGNIFICANT CONTROL OVER US AND MAY APPROVEOR REJECT MATTERS CONTRARY TO A VOTE OF OUR SHAREHOLDERS**

 

Our executive officersand directors together with their affiliates beneficially own a significantpercentage of our outstanding common stock. These stockholders, if actingtogether, will be able to significantly influence all matters requiringapproval by our stockholders including the election of directors and theapproval of mergers or similar transactions even if the stockholders disagree.

 

**SHARESELIGIBLE FOR FUTURE SALE COULD CAUSE OUR STOCK PRICE TO FALL**

 

If our stockholders sellsubstantial amounts of our common stock in the public market, the market priceof our common stock could fall. As of December 31, 2007 we added49,733,259 restricted shares of Common Stock outstanding, which are eligiblefor sale by our Shareholders under new SEC Rule 144 D of the SecuritiesAct of 1933 as amended which reduces the holding period to six (6) monthsor are otherwise registered for sale.

 

**WE DONOT INTEND TO PAY DIVIDENDS**

 

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

 

ITEM 8 — FINANCIALSTATEMENTS

 

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

 

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

 

On October 2, 2006,Demetrius & Company, L.L.C. (“Demetrius”) resigned as independentregistered public accountants of Kenilworth Systems Corporation (the“Company”).  The Company’s Board of Directors accepted the resignation ofDemetrius.

 

The report of Demetriuson the Company’s financial statements as of December 31, 2004 and for theyear then ended neither contains an adverse opinion or a disclaimer of opinionnor is modified as to uncertainty, audit scope or accounting principles, exceptthat the opinion includes an explanatory paragraph that the Company hasincurred operating losses since its inception as a development stage companyfor the period beginning September 24, 1998, which raises substantialdoubt about the Company’s ability to continue as a going concern. Demetrius did not issue a report on the Company’s financial statements as of December 31,2005 or for the years then ended.

 

During the fiscal yearsended December 31, 2004 and 2005 and the period from January 1, 2006to October 2, 2006, there were no disagreements with Demetrius on anymatter of accounting principles or practices, financial statement disclosure,or auditing scope or procedure, which, if not resolved to the satisfaction ofDemetrius, would have caused it to make reference to the subject matter of thedisagreement in connection with its report.

 

Effective February 5,2007, the Company engaged KGS, LLP as its independent certified publicaccountants with respect to the fiscal years ended December 31, 2005, 2006and 2007.  The Company’s Board of Directors approved the engagement ofKGS, LLP.  KGS, LLP. has not yet auditedany of the Company’s financials from the time Demetrius ended their auditengagement.  The delay was not caused byKGS, LLP.

 

***Remainder of page intentionally left blank***

 

 

 

 

 

 

 

 

 

 

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ITEM 9A — CONTROLSAND PROCEDURES

 

a.)    Disclosure Controls and Procedures

 

The Company hasevaluated, under the supervision and with the participation of the Company’smanagement including the Company’s Chairman, Chief Executive Officer who isalso its Financial Officer.  The effectiveness of the Company’s disclosurecontrols and procedures (as defined in Rules 13a-15(e) and 15d-15 (e) underthe Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of theend of the period covered by this Report.  Because of the inherentlimitations in all control systems evaluation of controls can provide onlyreasonable 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’sChief Financial Officer have concluded that the Company’s disclosure controlsand procedures were effective as of the end of the period covered by thisReport at a reasonable assurance level.

 

b.)   Changes in Internal Control over FinancialReporting

 

There was no change inthe Company’s internal control over financial reporting that occurred duringthe annual period ending December 31, 2007, that has materially affected,or is reasonably likely to materially affect the Company’s internal controlover financial reporting.

 

PART III

 

ITEM 10 — DIRECTORS ANDEXECUTIVE OFFICERS OF THE REGISTRANT

 
| **Name**             | ** ** | **Age** | ** ** | **Position**                                                                                                 |
|----------------------|------------|---------|------------|--------------------------------------------------------------------------------------------------------------|
|                 |       |    |       |                                                                                                         |
| Herbert Lindo        |       | 82      |       | Director, Chairman of  the Board, President, Treasurer, Chief Executive  Officer and Chief Financial Officer |
|                 |       |    |       |                                                                                                         |
| Joyce Clark          |       | 72      |       | Director                                                                                                     |
|                 |       |    |       |                                                                                                         |
| Kit Wong             |       | 76      |       | Director                                                                                                     |
|                 |       |    |       |                                                                                                         |
| Patrick J. Mc Devitt |       | 66      |       | Director                                                                                                     |
|                 |       |    |       |                                                                                                         |
| Edward Vietmeier     |       | 46      |       | Director                                                                                                     |

 

Herbert Lindo has beenPresident, Treasurer and Chief Financial Officer of Kenilworth since 1972.Since Kenilworth’s emergence from bankruptcy, he has also served as ChiefExecutive Officer until July 17, 2002 when Gino Scotto was elected to thatoffice.   When Mr. Scotto resigned in November 2005, Mr. Lindoresumed the position of Chief Executive Officer.  Mr. Lindo devoteshis full time to the business of Kenilworth.

 

Kit Y. Wong has served asa Director of Kenilworth since 1999, since December 2005 he also serves asSecretary of the Company. He is part owner and operator of several Chineserestaurants in the New York metropolitan area.  Mr. Wong devotes onlya portion of his time to the business of Kenilworth.

 

Patrick J. Mc Devitt hasbeen a licensed representative for Securities firms for the past eight (8) years.He retired in 2003 from the Securities business and joined his wife in the CPAbusiness.  Mr. Mc Devitt devotes only a portion of his time to thebusiness of Kenilworth.

 

Joyce D. Clark has servedas a Director of Kenilworth since 1998. Since 1991 she has served as controllerof Long Island Wholesalers Inc., a wholesale door manufacturer and recentlystarted her own tax filing 

 

 

 

 

 

 

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entity. She is also thesister of Betty S. Svandrlik, the former Corporate Secretary, who is engaged inbusiness as a medical transcriber. Joyce D. Clark is the ex-wife of HerbertLindo, they divorced in 1980.   Mrs. Clark devotes only aportion of her time to the business of Kenilworth.

 

Edward Vietmeier is aprofessional golfer and participates in major golf tournaments throughout theUnited States.  He is also the operatorof a public golf course in Pennsylvania.  The immediate members of hisfamily are shareholders of our Company’s stock. Mr. Vietmeier devotes onlya portion of his time to the business of Kenilworth.

 

DIRECTORS IN OTHER PUBLICCOMPANIES

 

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

 

CRIMINAL/BANKRUPTCY/SECVIOLATIONS WITHIN THE LAST FIVE (5) YEARS

 

NONE

 

SECTION 16(a) BENEFICIALOWNERSHIP REPORTING COMPLIANCE

 

Section 16(a) ofthe Securities Exchange Act of 1934 requires Kenilworth’s Executive Officersand Directors, and persons who beneficially own more than ten percent (10%) ofour Common Stock, to file initial reports of ownership and reports of changesin ownership with the Securities and Exchange Commission. Executive Officers,Directors and greater than ten percent (10%) beneficial owners are required bySEC regulations to furnish us with copies of all Section 16(a) formsthey file. Through December 31, 2007 only Herbert Lindo, Chairman andChief Executive Officer owns beneficially more than ten percent (10%) of ourCommon Stock.  The Company is presentlyreviewing the compliance for the foregoing.

 

AUDIT COMMITTEE ANDCHARTER

 

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

 

The Audit Committee ofthe Board of Directors (the “Audit Committee”) shall have the responsibility toassist the Board of Directors in fulfilling its fiduciary and other obligationswith respect to accounting and financial matters. Specifically, and withoutlimiting the generality of the foregoing, the Audit Committee shall:

 

The Audit Committee willbe 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.                                                                                                    |

 

 

 

 

 

 

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| 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  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 ofEthics**

 

The Registrant has notyet adopted a written formal Code of Ethics. However, the Registrant’s Officersintend to comply with all honest and ethical requirements including the ethicalhandling of actual or apparent conflicts of interest between personal andprofessional relationships; full, fair, accurate, timely and understandabledisclosure in reports and documents that the Registrant files with or submitsto the Securities and Exchange Commission and in other public communicationsmade by the Registrant; compliance with applicable governmental laws, rules andregulations; prompt internal reporting of any violations of the foregoing to anappropriate person and accountability for adherence of the foregoing. A formalCode of Ethics is expected to be adopted shortly and will be filed with theSecurities and Exchange Commission.

 

ITEM 11 —EXECUTIVE COMPENSATION

 

a.)           The following table sets forth the exercise of optionsand SARs during the fiscal year ended December 31, 2007.

 

AggregatedOption/SAR Exercises in Last Fiscal YearAnd FY-End Option/SAR Values

 
| ** **     | ** ** | ** **                    | ** ** | ** **                 | ** ** | ** **                                                  | ** ** | ** **                            |
|----------------|------------|-------------------------------|------------|----------------------------|------------|-------------------------------------------------------------|------------|---------------------------------------|
| ** **     | ** ** | ** **                    | ** ** | ** **                 | ** ** | **Number of**                                          | ** ** | **Value of unexercised**    |
| ** **     | ** ** | ** **                    | ** ** | ** **                 | ** ** | **securities underlying    unexercised options/** | ** ** | **in- the-  money options** |
| ** **     | ** ** | ** **                    | ** ** | ** **                 | ** ** | **SARS at FY-end (#)**                       | ** ** | **SARS at FY-end($)**       |
| ** **     | ** ** | **Shares acquired**      | ** ** | ** **                 | ** ** | **exercisable /**                                      | ** ** | **exercisable /**                |
| **Name**       | ** ** | **on exercise (#)** | ** ** | **Value realized($)** | ** ** | **unexercisable**                                           | ** ** | **unexercisable**                     |
| Herbert  Lindo |       | 5,000,000                     |       | $                          | 20,000     |                                                        | 0          |                                  | 0 |
|           |       |                          |       |                       |       |                                                        |       |                                  |   |

 

No options or SARs weregranted during the year ended December 31, 2007.  Herbert Lindoexercised his five million (5,000,000) share Option on November 27, 2006.

 

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

 

c.)           The Registrant has no compensation committee at thistime.

 

d.)          Stock Performance Graph is not applicable.

 

 

 

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**TOTALRETURN TO SHAREHOLDER’S(DIVIDENDS REINVESTED MONTHLY)**

 

Kenilworth has notdeclared a dividend since its inception in 1968.

 

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

 

**SUMMARYCOMPENSATION TABLE**

 
| ** **                  | ** ** | ** ** | ** ** | **Annual Compensation** | ** ** | **Long term compensation** |
|-----------------------------|------------|------------|------------|------------------------------|------------|--------------------------------------|
| ** **                  | ** ** | ** ** | ** ** | ** **                   | ** ** | ** **                           | ** ** | ** ** | ** ** | **Awards** | ** ** | **Payout** |
| ** **                  | ** ** | ** ** | ** ** | ** **                   | ** ** | ** **                           | ** ** | **Other** | ** ** | **Restricted** | ** ** | **Securities** | ** ** | **LTIP** | ** ** | **All** |
| **Name and**           | ** ** | ** ** | ** ** | ** **                   | ** ** | ** **                           | ** ** | **annual** | ** ** | **stock** | ** ** | **underlying** | ** ** | **payouts** | ** ** | **other** |
| **principal position** | ** ** | **Year**   | ** ** | **Salary ($)**          | ** ** | **Bonus ($)**                   | ** ** | **compensation($)** | ** ** | **award(s)($)** | ** ** | **options/SARS (#)** | ** ** | **($)** | ** ** | **compensation($)** |
| Herbert Lindo               |       | 2007       |       | 0                            |       | 0                                    |   | 0 |   | 0 |   | 0 |   | 0 |   | 0 |
|                        |       | 2006       |       | 0                            |       | 0                                    |   | 0 |   | 0 |   | 0 |   | 0 |   | 0 |
|                        |       | 2005       |       | 0                            |       | 0                                    |   | 0 |   | 0 |   | 0 |   | 0 |   | 0 |
|                        |       | 2004       |       | 0                            |       | 0                                    |   | 0 |   | 0 |   | 0 |   | 0 |   | 0 |
|                             |            |            |            |                              |            |                                      |  |  |  |  |  |  |  |  |  |  |  |

 

Herbert Lindo received nocompensation during the past four (4) years and no Executive Officerreceived any compensation in excess of $100,000 during the past three (3) fiscalyears.

 

ITEM 12 — SECURITYOWNERSHIP OF CETAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERMATTERS

 

The following table setsforth as of March 14, 2007 the ownership with respect to each ExecutiveOfficer and Director and each person known to own beneficially more than fivepercent (5%) of the Company’s Common Stock.

 

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

 

The number of sharesbeneficially owned by each person, Director or Executive Officer is determinedunder rules of the Securities and Exchange Commission, and the informationis not necessarily indicative of beneficial ownership for any otherpurpose.  Under such rules, beneficial ownership includes any shares as towhich the individual has the right to acquire as of May 31, 2006 throughthe exercise of any stock option or other right.  Unless otherwiseindicated, each person has sole voting and investment power (or shares suchpowers with his spouse) with respect to the shares set forth in the followingtable:

 

**BENEFICIALOWNERSHIP TABLE**

 
|                                                                                     | ** ** | ** **                   | ** **     | **AMOUNT AND**    | ** ** | ** **          | ** ** |
|------------------------------------------------------------------------------------------|------------|------------------------------|----------------|------------------------|------------|---------------------|------------|
| ** **                                                                               | ** ** | ** **                   | ** **     | **NATURE OF**     | ** ** | ** **          | ** ** |
| **NAME AND ADDRESS OF**                                                   | ** ** | ** **                   | ** **     | **BENEFICIAL**         | ** ** | **PERCENT OF** | ** ** |
| **BENEFICIAL OWNER**                                                                | ** ** | **TITLE OF CLASS** | ** **     | **OWNERSHIP (1)** | ** ** | **CLASS (1)**  | ** ** |
| Herbert  Lindo (1)                                                                       |       | Common Stock                 |           | 50,000,000             |       | 15.2                | %          |
| 185  Willis Avenue                                                                       |       | $                            | 0.01 par value |                   |       |                |       |   |
| Mineola,  NY 11501                                                                       |       |                         |           |                   |       |                |       |
|                                                                                     |       |                         |           |                   |       |                |       |
| The  total number of shares beneficially owned by all   Directors and Executive Officers |       | Common Stock                 |           |                   |       |                |       |
|                                                                                     |       | $                            | 0.01 par value |                   | 16,866,465 |                | 4.8        | % |
|                                                                                     |       |                         |           | 66,866,465             |       | 20.4                | %          |

 

The percent of class hasbeen determined with 327,741,465 shares issued and outstanding on December 31,2007.

 

 

 

 

27

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ITEM 13 — CERTAINRELATIONSHIPS AND RELATED TRANSACTIONS

 

NONE

 

ITEM 14 —PRINCIPAL ACCOUNTANT FEES AND SERVICES

 

The Company has appointedKGS, LLP. as Independent Auditor’s for the fiscal year ending December 31,2005, 2006 and 2007 and to restate the Company’s financials as A DevelopmentStage Company as directed by the SEC.  Representatives of KGS, LLP. areexpected to be present at the annual meeting and will have the opportunity tomake a statement if they desire to do so and are expected to be available torespond to appropriate questions.  KGS,LLP. has not commenced the audit for the respective years.  The Company’s back office accountants, whichwere not timely compensated during some of their work, halted the financialpreparation for the audit.  The Companybelieves that after recent payments, the accounting will resume and finish2005, 2006 and 2007.

 

**FeesIncurred by Kenilworth**

 

Fees for professionalservices provided by the Company’s Independent Auditor KGS, LLP. are estimated:

 
| ** **  | ** ** | **2007**   | ** ** | **2006**   | ** ** | **2005**   | ** ** |
|-------------|------------|------------|------------|------------|------------|------------|------------|
| ** **  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Audit  Fees |       | $          | 75,000     |       | $          | 75,000     |       | $ | 75,000 |   |
|        |       |       |       |       |       |       |       |   |   |   |

 

Audit fees are forprofessional services rendered in connection with the audit of the Company’sannual financial statements, the review of its quarterly financial statementsand the restatements of the years 2003 and 2004 as A Development Stage Company.No other services were provided by Demetrius & Company, LLC. and KGS,LLP.

 

The Company has no AuditCommittee.

 

PART IV

 

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

 

(a)  (1) FinancialStatements

 

Consolidated balancesheets as of December 31, 2007 and 2006

 

Consolidated statement ofoperations and deficit for the periods ended December 31, 2007, 2006 and2005

 

Consolidated statement ofcash flows for the periods ended December 31, 2007, 2006 and 2005

 

Consolidated statement ofchanges in stockholders equity the years ended December 31, 2007, 2006

 

and 2005

 

Notes to consolidatedfinancial statements

 

(b)  On July 12, 2002 Kenilworth filed an 8-K in which the Companyreported the following event:

 

Herbert Lindo, Chairmanand Chief Executive Officer of Kenilworth Systems Corporation (“Kenilworth”)since 1972, advised the Company’s Board of Directors that on June 26, 2002the Sheriff of Nassau County (the “Sheriff”) sold at a purported Public AuctionSale (the “Sale”) 10,333,450 restricted common shares of Kenilworth SystemsCorporation (the “Shares”) that he had owned and which represented control (14%of the outstanding shares) of Kenilworth, for one thousand dollars ($1,000) or$0.000095 per share.  The Shares were sold to Tappan Zee Capital Corp.(“Tappan Zee”).  On the date of 

 

 

 

 

28

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the Sale the Shares had amarket value of nine hundred thirty thousand ten dollars and fifty cents($930,010.50).  The Sheriff seized and sold the Shares on behalf of TappanZee, as a result of a claim by Tappan Zee in a disputed civil suit brought inthe New York Supreme Court for $128,062.  Tappan Zee was both theforeclosing party and the purchaser.  Herbert Lindo owned real estate atthe time valued in excess of $128,062 which the Sheriff could have seizedinstead of the Kenilworth Shares.

 

Kenilworth claims thatthe Sheriff’s Auction Sale was conducted in a fraudulent manner by (1) failingto comply with the rules and regulations set forth under the Securitiesand Exchange Commission Act of 1933 and 1934, as amended (The “Acts”) the NewYork State Securities Laws, and (2) by failing to properly advertise theSale, failing to notify any or all Kenilworth shareholder’s (numberingapproximately 5,500), and (3) failing to register the Restricted Shareswith the Securities and Exchange Commission before conducting the Sale or inthe absence of registering the Shares, obtain a No-Action letter from theCommission permitting the Public Sale, and (4) by making an immediatedistribution of the Restricted Shares, and (5) by concluding the auctionsale despite only one (1) bidder that appeared and bid only one thousanddollars ($1,000) for all the shares when the market value of the10,333,450 shares was nine hundred thirty thousand ten dollars and fifty cents($930,010.50).  He should have adjourned the auction and then advertisethe auction sale in appropriate newspapers that quoted Kenilworth SystemsCorporation shares which has traded since 1968 under the trading symbol “KENS”on organized exchanges NASDAQ and OTC, and (6) by failing to file requirednotices of 13 D-G as provided under the Acts.  Tappan Zee and its Counseland the Sheriff’s department were advised in court documents and correspondencethat their acts violated Federal and State Securities Laws and of the existenceof the Real Property, prior to the Sale.

 

By the attorneys forTappan Zee’s failure to seize the Real Property owned by Herbert Lindo raisesthe question of complicity to take control of Kenilworth instead of satisfyinga disputed claim for $128,062.

 

Kenilworth or HerbertLindo, as an individual will seek in Federal or State Courts to cancel the10,333,450 shares, which were subject of the Sheriff Auctions Sale, and seektriple damages under RICO on behalf of the shareholders of Kenilworth, thedamaged parties.  Herbert Lindo and Kenilworth have not commenced anyproceedings against the Sheriff’s Office of Nassau County and Tappan Zee andthe attorney’s representations Tappan Zee since we believe that the Statue forSecurity Fraud does not expire until June 26, 2009.

 

At the this time, theCompany does not wish to spend the substantial funds required to commence theaction nor does Mr. Lindo have the time, at present, to assist in any lawsuit Kenilworth may institute on behalf of its Shareholders.

 

Kenilworth willdistribute the proceeds, if any, from any settlement or court award to theShareholders that owned Kenilworth Common Stock on or before June 26,2002.

 

In June 2003, theMadison Bank of Blue Bell, Pennsylvania returned two million (2,000,000) of thewrong fully distributed shares by Tappan Zee for cancellation to American StockTransfer and Trust Company, Kenilworth’s Stock Transfer Agents.  Since theMadison Bank was complacent with Tappan Zee in the fraudulent seizure andauction of the shares, neither Herbert Lindo nor Kenilworth issued generalreleases to the Madison Bank, although the subsequent Madison Bank andKenilworth Agreement provided for the releases.  The Company was desirousof having the two million (2,000,000) shares returned, reducing the claimagainst the Nassau County Sheriff’s Department and for future free distributionto Kenilworth’s shareholders on record on June 26, 2002 which were notmade aware by the Sheriff of the Auction Sale.

 

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

 
| 3.1    | Certificate of Incorporation  and prior Amendments thereto are incorporated by reference to Exhibit 3.1. |
|--------|---------------------------------------------------------------------------------------------------------------|
|   |                                                                                                          |
| 3.2    | Certificate of  Amendment to the Certificate of Incorporation dated May 25, 2004 Annexed  hereto.        |
|   |                                                                                                          |

 

 

 

 

 

 

 

 

 

29

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| 3.3    | The Bylaws are Annexed  in Exhibit 3 (2) to the Registrant’s Annual Report on FORM 10-K  for the fiscal year ended December 31, 2001.                                                                                                                                                                                                    |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                              |
| 10.1   | Sample Convertible  Promissory Note                                                                                                                                                                                                                                                                                                                               |
|   |                                                                                                                                                                                                                                                                                                                                                              |
| 10.2   | Kenilworth Systems  Corporation Performance and Equity Incentive Plan incorporated by reference  to the exhibit 10.2 to the Registrant’s Annual Report on form 10-K for the  fiscal year ended December 31, 2001.                                                                                                                                       |
|   |                                                                                                                                                                                                                                                                                                                                                              |
| 10.3   | Three (3) year  lease with Police Benevolent Association (PBA) of Nassau County for office  space at 185 Willis Avenue, Mineola, NY 11501 renewed to June 30, 2009  for approximately two thousand three hundred (2,300) square feet for two  thousand six hundred dollars ($2,600) per month, plus adjustments for  electricity and real estate taxes. |
|   |                                                                                                                                                                                                                                                                                                                                                              |
| 21.1   | Subsidiaries of the  Registrant                                                                                                                                                                                                                                                                                                                                   |
|   |                                                                                                                                                                                                                                                                                                                                                              |
| 23.1   | Consent of KGS, LLP.  Independent Auditor, when provided.                                                                                                                                                                                                                                                                                                         |
|   |                                                                                                                                                                                                                                                                                                                                                              |
| 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. |

 

REPORT ON FORM 8-K

 

None

 

ITEM 8.01   OTHER EVENTS

 

None

 

**On September 13,2005 the Company reported on FORM 8-K:**

 

ITEM 5.02 (d)    DEPARTURE OF DIRECTORS OR PRINCIPAL OFFICERS; ELECTION OF DIRECTORS; APPOINTMENTOF PRINCIPAL OFFICERS.

 

At the Annual Meeting ofshareholders of Kenilworth Systems Corporation held on September 13, 2005and the submission to shareholders of a proxy statement filed, Herbert Lindo,Gino Scotto, Maureen Plovnick, Patrick Mc Devitt, Joyce Clark, Kit Wong andPaul Nusbaum were elected directors of the company.  Thereafter, the Boardof Directors, as authorized by Article 2, Section 2 of the Company’sBy-Laws, approved an increase in the Board of Directors from seven (7) tonine (9) directors.  Pursuant then to 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

30

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Article 2, Section 6of the Company’s By-Laws, the Board of Directors then elected Alfred J. Lucianiand David Satterfield to fill the two (2) new seats.

 

In addition thereto, eachof the two (2) new directors will be issued one million (1,000,000) sharesof the Company’s unregistered (restricted) stock.  Alfred J. Luciani, anattorney, entered into a Consulting Agreement with Kenilworth on July 1,2005 pursuant to which he is to be compensated at the rate of $5,000 per month,with an additional $5,000 per month accrued and issued one million (1,000,000)shares of the Company’s unregistered (restricted) stock every six (6) months.

 

**On November 22,2005 the Company reported on FORM 8-K:**

 
| ITEM 5.02 |   | DEPARTURE OF DIRECTORS  OR PRINCIPAL OFFICERS; ELECTION OF DIRECTORS; APPOINTMENT OF PRINCIPAL  OFFICERS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|-----------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|      |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| (b)       |   | On November 21,  2005 Kenilworth Systems Corporation received a notice of resignation  dated November 20, 2005 from Gino Scotto, Chief Executive Officer and a  Director pursuant to which he resigned any and all positions held by him with  Kenilworth Systems Corporation.  On November 21, 2005 Andrew Hirko  resigned as Senior Vice President.                                                                                                                                                                                                                                                                         |
|      |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| (c)       |   | Herbert Lindo on November 21,  2005, assumed the position of Chief Executive Officer.  Herbert Lindo  also holds the position of President, Chairman, Chief Financial Officer and  Treasurer of Kenilworth Systems Corporation.  He has served as an  Officer, Director and President of the Company since 1972 during which period  he has devoted his full time to the affairs of the Company.  The  appointment still requires the approval of the Board of Directors.   Herbert Lindo was previously married to Joyce Clark, a Director of the  Company.  Mr. Lindo has no written agreements with the Company. |

 

At the Company’s AnnualShareholder’s Meeting held on September 13, 2005, the Shareholdersratified the issuance of 25,000,000 shares of the Company’s Common Stock toHerbert Lindo, the Inventor of two (2) additional patents assigned toKenilworth.

 

**On December 9, 2005 theCompany reported on FORM 8-K:**

 
| ITEM 5.02 |   | DEPARTURE OF DIRECTORS  OR PRINCIPAL OFFICERS; ELECTION OF DIRECTORS; APPOINTMENT OF PRINCIPAL  OFFICERS                                                                                                                                                                                                                                                                                                                                             |
|-----------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|      |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| (b)       |   | On December 9, 2005,  Mrs. Maureen Plovnick, a Director of the Company and Corporate Secretary  of Kenilworth and all of its wholly owned subsidiaries has resigned pursuant  to Mrs. Plovnick’s letter of resignation which she discussed with Mr. Lindo,  Chairman, for several days before submitting same.  Mrs. Plovnick  continues her employ with the Company as Mr. Lindo’s personal secretary. |

 

**On December 27,2005 the Company reported on FORM 8-K:**

 
| ITEM 5.02 |   | DEPARTURE OF DIRECTORS  OR PRINCIPAL OFFICERS; ELECTION OF DIRECTORS; APPOINTMENT OF PRINCIPAL  OFFICERS                                                                                                                                                              |
|-----------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|      |   |                                                                                                                                                                                                                                                                  |
| (b)       |   | On Monday, December 19,  2005, via email, Alfred J. Luciani, Esq. notified Kenilworth Systems  Corporation (“Kenilworth” or the “Company”) that he wishes to resign from the  Board of Directors for the reason he stated in his email. |

 

On December 21,2005, the Company, via Certified Mail — Return Receipt Requested, responded to Mr. Luciani’semail by accepting his resignation and advising Mr. Luciani, in a LetterAgreement, which based on the reason for his resignation, the Company mustterminate his consideration payable for his consulting services,proportionately, as at December 19, 2005.

 

On December 27,2005, the Company received the Company’s Letter Agreement in which Mr. Lucianiagreed to terminate his consulting services with the Company.

 

 

 

31

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Mr. EdwardVietmeier, a professional golfer who owns 1,583,097 Common Shares ofKenilworth, has agreed to replace Mr. Luciani on the Board ofDirectors.  At the scheduled BoardMeeting held on January 10, 2006, a majority of the Board Members presentelected Mr. Vietmeier to serve on the Board of Directors until the nextBoard of Directors elections.

 

The By-Laws ofKenilworth, a New York Corporation, requires a minimum of three (3) and amaximum of fifteen (15) Directors.  With the election of Mr. Vietmeier,the Company has seven (7) Directors. Mr. Vietmeier was elected pursuant to the Company’s By-Laws whichempowers the Board of Directors to elect new members to the Board until thenext shareholder’s meeting.

 

**On September 20,2006 the Company reported on FORM 8-K:**

 
| ITEM 5.02       |   | DEPARTURE OF DIRECTORS  OR PRINCIPAL OFFICERS; ELECTION OF DIRECTORS; APPOINTMENT OF PRINCIPAL  OFFICERS                                                                                                                                                                                                                                                                                                                                                                                                                |
|-----------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| (b)             |   | Between September 1  and 6, 2006 Kenilworth Systems Corporation received notices from Paul Nusbaum  and David Satterfield that they wished to resign as Directors of the Company  as of August 28, 2006, when the Company did not renew the annual  Director’s Insurance.  During the week ending September 25, 2006 we  polled our remaining five (5) Directors who agreed to continue to serve  the Company and approved the resignations of Mr. Nusbaum and Mr. Satterfield. |
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| ITEM  9.01 |   | FINANCIAL STATEMENTS  AND EXHIBITS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| (c)             |   | Exhibits                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|            |   | The following exhibits  are annexed hereto:                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|            |   | 17.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | Letters of Resignation  from Paul Nusbaum dated September 1, 2006 and David Satterfield dated September 6,  2006 |

 

**On November 27,2006 the Company reported on FORM 8-K:**

 
| ITEM 5.01 |   | OTHER EVENTS AND  REGULATIONS: |
|-----------|--------|--------------------------------|

 

Herbert Lindo, Chairmanand Chief Executive Officer today exercised his Incentive Stock Options grantedon November 27, 2001 and acquired five million (5,000,000) shares at theexercise price of $0.15 per share.

 

Mr. Lindo borrowedthe $750,000 to exercise the Options from the Company, as provided in the Planand pledged the five million (5,000,000) shares and forty-five million(45,000,000) other Kenilworth shares he owns as collateral for the loan.

 

Mr. Lindo hasperformed his services during the past seventeen (17) years withoutcompensation and with the acquisition of the five million (5,000,000) shares,he now owns fifty million (50,000,000) shares of the Company’s Common Stock,par value one cent ($0.01) per share, which represents fifteen and two-tenths ofone percent (15.2%) of the presently 327,741,465 shares issued and outstandingas at December 31, 2007.  Mr. Lindo is believed to be thelargest individual shareholder of Kenilworth stock.

 

***Remainder of page intentionally left blank***

 

 

 

 

 

 

 

 

 

 

 

 

32

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To the Board of DirectorsofKenilworth Systems Corporation:

 

Effective February 5,2007 the Company engaged KGS, LLP. as its independent Certified PublicAccountants to Audit the Company’s financials for the years ended December 31,2005, 2006 and 2007.

 

The Company has completedthe financials but the Audit is not, as yet, completed.  After filing anautomatic extension on March 27, 2007, we feel obligated to ourshareholders to file the 2005, 2006 and 2007 Financials absent of the Auditor’sOpinion.

 

When the Audit iscompleted, which we expect to be within ninety (90) days, the Company will filea FORM 10K/A, explicitly pointing out any significant changes in ourunaudited financials, if any, for ease of review.

 

Respectfully submitted,Herbert Lindo, Chairman and CEOMarch 14, 2008

 

The Independent Auditor’sReport will appear on this page when the Company will file the Amended FORM 10-K/A.

 

***Remainder of page intentionally left blank***

 

 

 

 

 

 

 

 

 

33

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**KENILWORTHSYSTEMS CORPORATION AND SUBSIDIARIES(A DEVELOPMENT STAGE COMPANY)**

 

**CONSOLIDATEDBALANCE SHEETSAS OF DECEMBER 31,****(Unaudited)**

 
| ** **                                                                                                                                                    | ** ** | **2007**    | ** ** | **2006**    | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------|------------|-------------|------------|
| ** **                                                                                                                                                    | ** ** | ** **  | ** ** | ** **  | ** ** |
| ASSETS                                                                                                                                                        |       |        |       |        |       |
| CURRENT  ASSETS                                                                                                                                               |       |        |       |        |       |
| Cash                                                                                                                                                          |       | $           | 1,232      |        | $          | 49,995 |   |
| Prepaid  expenses                                                                                                                                             |       | 80,000      |       | 75,000      |       |
| Loan  receivable                                                                                                                                              |       | 20,120      |       | 30,000      |       |
| Receivable  from Herbert Lindo                                                                                                                                |       | 750,000     |       | 750,000     |       |
| Total  current assets                                                                                                                                         |       | 851,352     |       | 904,995     |       |
|                                                                                                                                                          |       |        |       |        |       |
| PROPERTY  AND EQUIPMENT — NET                                                                                                                            |       | 14,868      |       | 31,878      |       |
|                                                                                                                                                          |       |        |       |        |       |
| PATENT  COSTS — NET (Note 6)                                                                                                                             |       |        |       | 0           |       |
|                                                                                                                                                          |       |        |       |        |       |
| SECURITY  DEPOSIT                                                                                                                                             |       | 13,677      |       | 9,422       |       |
| TOTAL  ASSETS                                                                                                                                                 |       | $           | 879,897    |        | $          | 946,295 |   |
|                                                                                                                                                          |       |        |       |        |       |
| LIABILITIES AND  STOCKHOLDERS’ DEFICIT                                                                                                                   |       |        |       |        |       |
| CURRENT  LIABILITIES                                                                                                                                          |       |        |       |        |       |
| Accounts  payable and accrued expenses                                                                                                                        |       | $           | 210,717    |        | $          | 311,358 |   |
| Payroll  taxes payable                                                                                                                                        |       | 73,341      |       | 141,000     |       |
| Loans  payable — including accrued interest                                                                                                              |       | 19,129      |       | 33,787      |       |
| Loans  payable — automobile                                                                                                                              |       | 0           |       | 750         |       |
| Total  current liabilities                                                                                                                                    |       | 303,187     |       | 486,895     |       |
|                                                                                                                                                          |       |        |       |        |       |
| COMMITMENTS  AND CONTINGENCY — see notes                                                                                                                 |       |        |       |        |       |
|                                                                                                                                                          |       |        |       |        |       |
| STOCKHOLDERS’  EQUITY (DEFICIT)                                                                                                                          |       |        |       |        |       |
| Preferred  Stock — par value $.01 per share; authorized 2,000,000 shares; no shares  issued and outstanding                                              |       |        |       |        |       |
| Common  stock — par value $.01 per share; authorized 500,000,000 shares; issued and  outstanding 327,741,562 and   278,508,293 shares, respectively |       | 3,277,415   |       | 2,785,082   |       |
| Additional  paid-in capital                                                                                                                                   |       | 31,137,730  |       | 30,419,215  |       |
| Accumulated  deficit                                                                                                                                          |       | (33,838,435 |       | (32,744,897 | )          |
| TOTAL  STOCKHOLDER’S EQUITY                                                                                                                              |       | 576,710     |       | 459,400     |       |
| TOTAL  STOCKHOLDER’S LIABILITIES AND EQUITY                                                                                                              |       | $           | 879,897    |        | $          | 946,295 |   |

 

The accompanyingnotes are an integral part of these consolidated financial statements.

 

 

 

 

 

 

34

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**KENILWORTHSYSTEMS CORPORATION AND SUBSIDIARIES(A DEVELOPMENT STAGE COMPANY)**

 

**CONSOLIDATEDSTATEMENTS OF OPERATIONS**

 
| ** **                                     | ** ** | ** **            | ** ** | ** **            | ** ** | ** **            | ** ** | **PERIOD FROM**            | ** ** |
|------------------------------------------------|------------|-----------------------|------------|-----------------------|------------|-----------------------|------------|---------------------------------|------------|
| ** **                                     | ** ** | ** **            | ** ** | ** **            | ** ** | ** **            | ** ** | **NOVEMBER 24, 1998** | ** ** |
| ** **                                     | ** ** | **YEARS ENDED**  | ** ** | **YEARS ENDED**  | ** ** | **YEARS ENDED**  | ** ** | **TO**                          | ** ** |
| ** **                                     | ** ** | **DECEMBER 31,** | ** ** | **DECEMBER 31,** | ** ** | **DECEMBER 31,** | ** ** | **DECEMBER 31,**           | ** ** |
| ** **                                     | ** ** | **2007**              | ** ** | **2006**              | ** ** | **2005**              | ** ** | **2007**                        | ** ** |
| ** **                                     | ** ** | ** **            | ** ** | **Restated**          | ** ** | **Restated**          | ** ** | ** **                      | ** ** |
| Expenses                                       |       |                  |       |                  |       |                  |       |                            |       |
| Selling,  general and administrative           |       | $                     | 1,093,538  |                  | $          | 850,079               |       | $                               | 3,815,302  |   | $ | 5,778,211 |   |
|                                           |       |                  |       |                  |       |                  |       |                            |       |
| Other  income (expenses)                       |       |                  |       |                  |       |                  |       |                            |       |
| Interest  income                               |       | —                |       | —                |       | —                |       | 922                             |       |
| Interest  expense                              |       | —                |       | —                |       | —                |       | (757,250                        | )          |
| Total  other income (expense)                  |       | 0                     |       | 0                     |       | 0                     |       | (756,328                        | )          |
| Net  loss                                 |       | $                     | 1,093,538  |                  | $          | (850,079              | )          | $                               | (3,815,302 | ) | $ | (9,453,316 | ) |
| Basic  and diluted loss per share              |       | $                     | (0.003     | )                     | $          | (0.003                | )          | $                               | (0.02      | ) | $ | (0.04 | ) |
| Weighted  average number of shares outstanding |       | 327,741,562           |       | 278,508,293           |       | 200,036,246           |       |                            |       |

 

The accompanyingnotes are an integral part of these consolidated financial statements.

 

***Remainder of page intentionally left blank***

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

35

----

 

**KENILWORTHSYSTEMS CORPORATION AND SUBSIDIARIES(A DEVELOPMENT STAGE COMPANY)**

 

**STATEMENTSOF CASH FLOWS**

 
| ** **                                                                      | ** ** | ** **            | ** **   | ** **            | ** ** | ** **            | ** ** | **PERIOD FROM**            | ** ** |
|---------------------------------------------------------------------------------|------------|-----------------------|--------------|-----------------------|------------|-----------------------|------------|---------------------------------|------------|
| ** **                                                                      | ** ** | ** **            | ** **   | ** **            | ** ** | ** **            | ** ** | **NOVEMBER 24, 1998** | ** ** |
| ** **                                                                      | ** ** | **YEARS ENDED**  | ** **   | **YEARS ENDED**  | ** ** | **YEARS ENDED**  | ** ** | **TO**                          | ** ** |
| ** **                                                                      | ** ** | **DECEMBER 31,** | ** **   | **DECEMBER 31,** | ** ** | **DECEMBER 31,** | ** ** | **DECEMBER 31,**           | ** ** |
| ** **                                                                      | ** ** | **2007**              | ** **   | **2006**              | ** ** | ** 2005**        | ** ** | **2007**                        | ** ** |
| ** **                                                                      | ** ** | ** **            | ** **   | **Restated**          | ** ** | **Restated**          | ** ** | ** **                      | ** ** |
| CASH FLOWS FROM OPERATING ACTIVITIES                                            |       |                  |         |                  |       |                  |       |                            |       |
| Net loss                                                                        |       | $                     | (1,093,538   | )                     | $          | (850,079              | )          | $                               | (3,815,302 | ) | $ | (5,780,380 | ) |
| Adjustments to reconcile net loss to net cash  provided by operating activities |       |                  |         |                  |       |                  |       |                            |       |
| Depreciation                                                                    |       | 17,010                |         | 17,132                |       | 13,205                |       | 29,809                          |       |
| Amortization of patent (Note 6)                                                 |       | —                |         | —                |       | 7,552                 |       | 22,980                          |       |
| Accretion of convertible debt discount                                          |       | —                |         | —                |       | —                |       | 72,656                          |       |
| Beneficial conversion feature                                                   |       |                  |         |                  |       | 556,653               |       | 1,113,484                       |       |
| Common stock issued for services                                                |       | 204,800               |         | 1,024,205             |       | 1,723,000             |       | 2,920,564                       |       |
| Common stock issued to induce debt conversion                                   |       |                  |         | —                |       | 776,250               |       | 839,526                         |       |
| Common stock issued for interest due on notes  payable                          |       |                  |         | —                |       | —                |       | 8,501                           |       |
| Accrued interest transferred to capital                                         |       |                  |         | —                |       | —                |       | 4,209                           |       |
| Other                                                                           |       |                  |         | —                |       | —-               |       | 21,100                          |       |
| Increase (decrease) in cash attributable to changes  in assets and liabilities: |       |                  |         |                  |       |                  |       |                            |       |
| Prepaid expenses                                                                |       | (80,000               | )            | (75,000               | )          | (280,000              | )          | (280,000                        | )          |
| Accounts payable and accrued expenses                                           |       | 229,846               |         | 345,895               |       | 271,540               |       | 218,772                         |       |
| Payroll taxes payable                                                           |       | 73,341                |         | 141,000               |       | 43,878                |       | 59,522                          |       |
| Net cash used in operating activities                                           |       | 648,541               |         | 603,153               |       | (703,224              | )          | (1,368,520                      | )          |
|                                                                            |       |                  |         |                  |       |                  |       |                            |       |
| CASH FLOWS FROM INVESTING ACTIVITIES                                            |       |                  |         |                  |       |                  |       |                            |       |
| Payment of loan receivable — stockholder                                   |       |                  |         | —                |       | —                |       | (4,000                          | )          |
| Proceeds from loan receivable — stockholder                                |       |                  |         |                  |       | 20,000                |       | 4,000                           |       |
| Payment of patent costs (Note 6)                                                |       |                  |         |                  |       | (8,000                | )          | (66,639                         | )          |
| Purchase of property and equipment                                              |       |                  |         |                  |       | (12,147               | )          | (58,567                         | )          |
| Security deposit                                                                |       | 13,677                |         | 9,422                 |       | (9,422                | )          | (9,422                          | )          |
| Net cash used in investing activities                                           |       |                  |         |                  |       | (9,569                | )          | (129,456                        | )          |
|                                                                            |       |                  |         |                  |       |                  |       |                            |       |
| CASH FLOWS FROM FINANCING ACTIVITIES                                            |       |                  |         |                  |       |                  |       |                            |       |
| Proceeds from loans payable—stockholders                                   |       |                  |         | (3,700                | )     | —                |       | 60,000                          |       |
| Repayment of loans payable — stockholders                                  |       |                  |         | —                |       | —                |       | (10,000                         | )          |
| Proceeds from loans payable — related parties                              |       |                  |         | 16,000                |       | —                |       | 141,137                         |       |
| Repayment of loans payable — related parties                               |       |                  |         | 17,787                |       | —                |       | (116,017                        | )          |
| Proceeds from convertible notes                                                 |       | 832,500               |         | 623,000               |       | 922,500               |       | 1,275,361                       |       |
| Proceeds from sale of common stock                                              |       |                  |         | 10,000                |       | —                |       | 122,500                         |       |
| Proceeds from stock subscriptions receivable                                    |       |                  |         | —                |       | —                |       | 25,000                          |       |
| Net cash provided by financing activities                                       |       | 832,500               |         | 663,087               |       | 423,554               |       | 1,497,981                       |       |
| Net loss during Development Stage Enterprise                                    |       |                  |         |                  |       |                  |       | 9,453,316                  |       |
| Net change in cash                                                              |       |                  |         | —                |       | —                |       | 5                               |       |
| Cash — beginning of year                                                   |       | 49,995                |         | 44,500                |       | 5                     |       | —                          |       |
| Cash — end of year                                                         |       | $                     | 1,232        |                  | $          | 49,995                |       | $                               | 5,495      |   | $ | 5,495 |   |
| Supplemental disclosure of non-cash activities:                                 |       |                  |         |                  |       |                  |       |                            |       |
| Common stock issued for patent costs                                            |       | $                     | 0            |                  | $          | 0                     |       | $                               | —     |   | $ | 10,000 |   |
| Exchange of loans payable for convertible notes payable                         |       | $                     | —       |                  | $          | 18,000                |       | $                               | —     |   | $ | 50,000 |   |
| Conversion of notes payable to common stock                                     |       | $                     | 987,500      |                  | $          | 623,000               |       | $                               | 1,723,000  |   | $ | 2,986,500 |   |
| Cancellation of stock subscriptions receivable                                  |       | $                     | —  |                  | $          | —                |       | $                               | 29,000     |   | $ | 29,000 |   |
| Common stock issued for subscriptions receivable                                |       | $                     | —  |                  | $          | —                |       | $                               | —     |   | $ | 9,453,316 |   |

 

The accompanyingnotes are an integral part of these consolidated financial statements.

 

 

36

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** **

**KENILWORTHSYSTEMS CORPORATION AND SUBSIDIARIES****(A DEVELOPMENT STAGE COMPANY)**

 

**CONSOLIDATEDSTATEMENTSOF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)**

 
| ** **                                                 | ** ** | ** **                  | ** ** | ** **                            | ** ** | ** **                                | ** ** | ** ** | ** ** | ** **                                                 | ** **  |
|------------------------------------------------------------|------------|-----------------------------|------------|---------------------------------------|------------|-------------------------------------------|------------|------------|------------|------------------------------------------------------------|-------------|
| ** **                                                 | ** ** | ** **                  | ** ** | ** **                            | ** ** | ** **                                | ** ** | ** ** | ** ** | ** **                                                 | ** **  |
| ** **                                                 | ** ** | ** **                  | ** ** | ** **                            | ** ** | ** **                                | ** ** | ** ** | ** ** | **DEFICIT  ACCUMULATED DURING THE DEVELOPMENT STAGE** | ** **  | ** ** | ** ** |
| ** **                                                 | ** ** | **COMMON STOCK ** | ** ** | **ADDITIONAL   PAID-IN CAPITAL** | ** ** | **STOCK   SUBSCRIPTIONS RECEIVABLE** | ** ** | ** ** | ** ** | ** **                                                 |
| ** **                                                 | ** ** | ** **                  | ** ** | ** **                            | ** ** | **STOCKHOLDERS’  DEFICIT**           | ** ** |
| ** **                                                 | ** ** | **SHARES**                  | ** ** | **PAR  VALUE**                        | ** ** | ** **                                | ** ** | ** ** | ** ** |
|                                                       |       |                        |       |                                  |       |                                      |       |       |       |                                                       |        |   |   |
| Balances

December 31, 2004                           |       | 137,551,245                 |       | $                                     | 1,375,512  |                                      | $          | 26,468,771 |       | $                                                          | (15,000     | ) | $ | (27,939,066 | ) | $ | (109,783 | ) |
|                                                       |       |                        |       |                                  |       |                                      |       |       |       |                                                       |        |   |   |
| Common stock issued 

for services                         |       | 45,885,000                  |       | 458,850                               |       | 2,808,825                                 |       |       |       |                                                       |        |   |   |
|                                                       |       |                        |       |                                  |       |                                      |       |       |       |                                                       |        |   |   |
| Common stock issued 

in connection with convertible notes |       | 15,428,000                  |       | 154,280                               |       | 539,980                                   |       | 694,260    |       |                                                       |        |   |   |
|                                                       |       |                        |       |                                  |       |                                      |       |       |       |                                                       |        |   |   |
| Sale of common stock                                       |       | 1,172,001                   |       | 11,720                                |       | 41,880                                    |       | 52,724     |       |                                                       |        |   |   |
|                                                       |       |                        |       |                                  |       |                                      |       |       |       |                                                       |        |   |   |
| Write-Off                                                  |       |                        |       |                                  |       |                                      |       |       |       | (140,450                                                   | )           | (140,450 | ) |
|                                                       |       |                        |       |                                  |       |                                      |       |       |       |                                                       |        |   |   |
| Net loss accumulated during the 

development stage        |       |                        |       |                                  |       |                                      |       |       |       | (3,815,302                                                 | )           | (3,815,302 | ) |
|                                                       |       |                        |       |                                  |       |                                      |       |       |       |                                                       |        |   |   |
| Balances

December 31, 2005                           |       | 200,036,246                 |       | $                                     | 2,000,362  |                                      | $          | 29,859,456 |       | $                                                          | (15,000     | ) | $ | (31,894,818 | ) | $ | (31,894,818 | ) |
|                                                       |       |                        |       |                                  |       |                                      |       |       |       |                                                       |        |   |   |
| Common stock issued for services                           |       | 60,426,047                  |       | 604,426                               |       | 419,779                                   |       |       |       |                                                       |        |   |   |
| Common stock issued in connection with convertible  notes  |       | 17,646,000                  |       | 176,646                               |       | 139,940                                   |       |       |       |                                                       |        |   |   |
|                                                       |       |                        |       |                                  |       |                                      |       |       |       |                                                       |        |   |   |
| Sale of common stock                                       |       | 400,000                     |       | 400                                   |       | 40                                        |       |       |       |                                                       |        |   |   |
|                                                       |       |                        |       |                                  |       |                                      |       |       |       |                                                       |        |   |   |
| Net loss accumulated during the development stage          |       |                        |       |                                  |       |                                      |       |       |       | (850,079                                                   | )           | (850,079 | ) |
|                                                       |       |                        |       |                                  |       |                                      |       |       |       |                                                       |        |   |   |
| Balances

December 31, 2006                           |       | 278,508,293                 |       | 2,785,082                             |       | $                                         | 30,419,215 |       | 0          |                                                       | (32,744,897 | ) | (32,744,897 | ) |
|                                                            |            |                             |            |                                       |            |                                           |            |            |            |                                                            |             |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

 
| Common stock issued for services                          |   | 10,240,000  |   | 102,400   |   | 204,000    |   |   |   |      |   |       |   |
|-----------------------------------------------------------|--------|-------------|--------|-----------|--------|------------|--------|--------|--------|-----------|--------|------------|--------|
|                                                      |   |        |   |      |   |       |   |   |   |      |   |       |   |
| Common stock issued in connection with convertible  notes |   | 38,993,269  |   | 389,932   |   | 513,715    |   |   |   |      |   |       |   |
|                                                      |   |        |   |      |   |       |   |   |   |      |   |       |   |
| Sale of common stock                                      |   |        |   |      |   |       |   |   |   |      |   |       |   |
|                                                      |   |        |   |      |   |       |   |   |   |      |   |       |   |
| Net loss accumulated during the development stage         |   |        |   |      |   |       |   |   |   | 9,453,316 |   | 1,094,000  |   |
|                                                      |   |        |   |      |   |       |   |   |   |      |   |       |   |
| Balances

December 31, 2007                          |   | 327,741,562 |   | 3,277,415 |   | 31,137,730 |   | 0      |   | 8,453,316 |   | 33,838,897 |   |

 

The accompanyingnotes are an integral part of these consolidated financial statements. 

 

 

 

 

37

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**KENILWORTHSYSTEMS CORPORATION AND SUBSIDIARIES****(A DEVELOPMENT STAGE COMPANY)**

 

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS**

 

NOTE 1 — THE COMPANY AND NATURE OF BUSINESS

 

Kenilworth SystemsCorporation (the “Company”) was incorporated in New York in April 1968 andcompleted an S-1 Registration in August 1968.  The Company is currently engaged in thedevelopment and eventual by outsourcing the manufacture the terminals that willpermit individuals to play along with live in-progress casino table games atlocations inside and outside the casino confines (remote locations). Games will be available via TV simulcast of digital satellite and digital cablebroadcasts to individuals at homes, offices and public gathering places andwherever television sets are located around the world.  The Company’sbusiness remains in continuous development stage although it completed a ninemillion dollar ($9,000,000) contract with the Totalizator Agency Board (“TAB”),a state government agency of Victoria, Australia, while being in voluntarybankruptcy reorganization under Chapter 11, of the United States BankruptcyCode. Successful execution of its business plan is dependent up such factorsas: the ability to raise substantial capital and assemble a skilled andexperienced management team, obtaining regulatory approval from gamingauthorities and other governmental bodies, customer acceptance of a newexperience in casino gaming, and technological feasibility.

 

These challenges createuncertainty as to the Company’s ability to operate as a going concern and couldresult in the termination of its business.  Management continues to developa wagering system that allows casino patrons and individuals inside and outsidethe casino to play and wager along with live casino table games. The first stepin the plan is to conduct testing. Unless the Company is able to obtainsufficient funds, none of the tests and initial development work can commence.The Company will attempt to obtain the necessary funding by offering its CommonStock or Preferred Stock to private investors**.**

 

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

 

The accompanyingfinancial statements have been prepared assuming the Company is a going concernand do not reflect adjustments, if any that would be necessary if the Companywere not a going concern.

 

NOTE2 — SUMMARY OFSIGNIFICANT ACCOUNTING POLICIES

 

Principles ofconsolidation

 

The consolidatedfinancial statements include the accounts of Kenilworth Systems Corporation andits wholly owned subsidiaries: Video Wagering Systems Corporation, RoulabetteTMNevada Corporation, Kenilworth Systems Nevada Corporation, Kenilworth U.K.Ltd., Kenilworth Satellite Broadcasting Corporation and Satellite GamingConsultants, Inc., both Delaware Corporations. None of the subsidiarieshas any significant assets or liabilities except Satellite Gaming Consultantswhich acts primarily as depository and disburses payments of expenses payableby Kenilworth.

 

Use of estimates

 

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

 

 

 

 

38

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**KENILWORTHSYSTEMS CORPORATION AND SUBSIDIARIES****(A DEVELOPMENT STAGE COMPANY)**

 

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)**

 

Cash and cash equivalents

 

The Company considers allhighly liquid debt instruments with an original maturity of three months orless when purchased to be cash equivalents.  There were cash equivalentsat December 31, 2007 and 2006.

 

Property and equipment

 

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

 

Impairment of long-livedAssets

 

The Company regularlyreviews long-lived assets for indicators of impairment.  Management’sjudgments regarding the existence of impairment indicators are based onperformance.  Future events could cause management to conclude thatimpairment indicators exist and that the value of long-lived assets isimpaired.  When events or circumstances indicate that the carrying amountof an asset may not be recoverable, the fair value of the asset is compared toits carrying value.  Impairment losses are measured as the amount by whichthe carrying value of an asset exceeds its estimated fair value.

 

Advertising costs

 

Advertising costs areexpensed as incurred.  There were no advertising costs for any periodpresented.

 

Income taxes

 

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

 

Fair value of financialinstruments

 

Financial instrumentsreported in the balance sheet consist of accounts payable and loans payable,the carrying value of which approximated fair value at December 31, 2007and 2006.  The fair value of the financial instruments disclosed are notnecessarily representative of the amount that could be realized or settled nordoes the fair value amount consider the tax consequences of realization orsettlement.

 

Stock-based compensation

 

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

 

 

 

 

39

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**KENILWORTHSYSTEMS CORPORATION AND SUBSIDIARIES****(A DEVELOPMENT STAGE COMPANY)**

 

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)**

 

Loss per share

 

Basic loss per share iscalculated by dividing net loss by the weighted-average number of common sharesoutstanding during the period. Diluted loss per share is calculated by dividingnet loss by the weighted-average number of common shares outstanding, plus theweighted average number of net shares that would be issued upon the exercise orconversion of dilutive securities, such as stock options and warrants, andconvertible debt.  There were no dilutive securities outstanding as of December 31,2007, 2006 and 2005.  Accordingly, diluted loss per share for 2007, 2006and 2005 is the same as basic loss per share.

 

New AuthoritativeAccounting Pronouncements

 

The Company does notanticipate the adoption of recently issued accounting pronouncements will havea significant impact on its results of operations, financial position or cashflows.

 

NOTE 3 — BANKRUPTCY PROCEEDINGS

 

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

 

From February 1991through September 1998, the Company was inactive. In September 1998 aUnited States Bankruptcy Judge in the Eastern District of New York approved theFinal Report and Accounts submitted by the Chapter 7 Trustee of the Estate ofKenilworth and after obtaining approval from the U.S. Trustee, Kenilworth madea one hundred percent (100%) cash distribution to the creditors and paid infull all administrative fees and expenses. The Company exited from Bankruptcyon 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 ofmonitoring the payments by check to the creditors. No other activity occurredduring that period.  Effective, November 24, 1998, the Companycommenced its present plans.

 

NOTE 4 — PREPAID EXPENSES

 

Prepaid expenses consistof the unamortized value of stock issued to directors for the twelve-monthservice period ending September 30, 2008.  The balance will beamortized on a straight-line basis over the remaining term.

 

***Remainder of page intentionally left blank***

 

 

 

40

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**KENILWORTHSYSTEMS CORPORATION AND SUBSIDIARIES****(A DEVELOPMENT STAGE COMPANY)**

 

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)**

 

NOTE 5 — PROPERTY AND EQUIPMENT

 

Property and equipmentconsist of the following:

 
| ** **                          | ** ** | **2007** | ** ** | **2006** | ** ** |
|-------------------------------------|------------|----------|------------|----------|------------|
|                                |       |     |       |     |       |
| Office  equipment                   |       | $        | 18,800     |     | $          | 18,800 |   |
| Leasehold  improvements             |       | 21,000   |       | 21,000   |       |
| Furniture  and fixtures, automobile |       | 35,620   |       | 35,620   |       |
|                                |       |     |       |     |       |
|                                |       | 75,420   |       | 75,420   |       |
| Less:  Accumulated amortization     |       | 60,552   |       | 43,542   |       |
| Total  property and equipment, net  |       | $        | 14,868     |     | $          | 31,878 |   |

 

NOTE 6 — PATENT

 

The Company owns a patentand has pending, three (3) additional patents for technology that willenable it to provide real-time transmission of roulette and other game playfrom live tables at a casino facility.  Prior to December 31, 2006,the costs incurred in connection with the submission and approval of the patentapplications 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 acceptedaccounting principles (GAAP).  The $81,604 of accrued costs was chargedagainst capital.

 

NOTE 7 — ACCOUNTS PAYABLE AND ACCRUED EXPENSES

 
| ** **                                                     | ** ** | **2007** | ** ** | **2006** | ** ** |
|----------------------------------------------------------------|------------|----------|------------|----------|------------|
|                                                           |       |     |       |     |       |
| Legal  and other professional fees, including accrued payables |       | $        | 140,411    |     | $          | 46,152 |   |
| Payroll  Taxes (approximately, including penalties)            |       | 73,341   |       | 141,000  |       |
| Other                                                          |       | 89,435   |       | 299,743  |       |
|                                                           |       |     |       |     |       |
|                                                           |       | $        | 303,187    |     | $          | 486,895 |   |

 

 NOTE 8 —LOANS PAYABLE

 

2006:

 

During the year, theCompany borrowed from two (2) shareholders, $30,000 and $16,000 withannual interest payments of eight percent (8%) and twelve percent (12%),respectively.  The $30,000 loans were reduced on January 16, 2007 to$17,745, including interest, and the $16,000 loan the Company repaid togetherwith accrued interest to November 9, 2007.

 

NOTE 9 — CONVERTIBLE PROMISSORY NOTES

 

During 2007, 2006 and2005, respectively, the Company sold to various private investors $832,500,$765,400, $776,250 principal amount of Convertible Promissory Notes bearinginterest at rates ranging from 4.00% to 10.00% per annum.  The Notes had aone (1) year term and were immediately convertible at the option of thenote holder into shares of restricted common stock based on conversion pricesranging from $0.025 and $0.05 per share.  All Notes issued in 2007, 2006and 2005 were converted into a total of 49,733,259, 20,356,000 and 15,525,000 commonshares, respectively.  The issuance of the Notes gave rise to a beneficialconversion feature (BCF) in the amount of: none in 2006, $368,640 in 2005 and$188,191 in 

 

 

 

41

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2004, reflecting thebenefit of conversion prices that were below the market price of the Company’scommon stock.  The BCF was charged in full to operations on the respectiveissuance dates of the Notes with an offsetting credit to additional paid-incapital.  The Company accounts for BCF under the recognition andmeasurement principles of Emerging Issues Task Force (EITF) 98-5, “Accountingfor Convertible Securities with Beneficial Conversion Features or ContingentlyAdjustable Conversion Ratios to Certain Convertible Instruments” and EITF-00-27,“Application of EITF Issue 98-5.

 

NOTE 10 — INCOME TAXES

 

The provision for incometaxes consists of the following:

 
| ** **                  | ** ** | **Years ended December 31,** | ** ** |
|-----------------------------|------------|---------------------------------------------|------------|
| ** **                  | ** ** | **2007**                                    | ** ** | **2006** | ** ** | **2005** | ** ** |
|                        |       |                                        |       |   |   |   |   |
| Current:                    |       |                                        |       |   |   |   |   |
| Federal                     |       | $                                           | —     |   | $ | — |   | $ | — |   |
| State                       |       | —                                      |       | — |   | — |   |
|                        |       | —                                      |       | — |   | — |   |
|                        |       |                                        |       |   |   |   |   |
| Deferred:                   |       |                                        |       |   |   |   |   |
| Federal                     |       | —                                      |       | — |   | — |   |
| State                       |       | —                                      |       | — |   | — |   |
|                        |       | —                                      |       | — |   | — |   |
|                        |       |                                        |       |   |   |   |   |
| Provision  for income taxes |       | $                                           | —     |   | $ | — |   | $ | — |   |

 

The Company did not haveany revenue from operations since exiting Bankruptcy Proceedings in September 1998.

 

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

 
| ** **                                    | ** ** | **Years ended December 31,** | ** ** |
|-----------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                    | ** ** | **2007**                                    | ** ** | **2006** | ** ** | **2005** | ** ** |
|                                          |       |                                        |       |   |   |   |   |
| 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 difference betweenthe U. S. federal tax rate and the Company’s effective tax rate in 2007, 2006and 2005 is due primarily to changes in the valuation allowance related to thenet deferred tax asset, offset by certain nondeductible expenses.

 

***Remainder of page intentionally left blank***

 

 

 

 

42

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

 

Deferred tax assets:

 
| ** **                 | ** ** | **2007**   | ** ** | **2006**   | ** ** |
|----------------------------|------------|------------|------------|------------|------------|
| ** **                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net  operating losses      |       | $          | 1,093,538  |       | $          | 850,079 |   |
| Less:  Valuation allowance |       | —     |       | —     |       |
|                       |       |       |       |       |       |
| Net  deferred tax assets   |       | $          | 1,093,538  |       | $          | 850,079 |   |

 

The benefits of netoperating losses will not be recognized until management determines thatrealization is more likely than not to occur.  Accordingly, management hasestablished a valuation allowance to offset the tax benefits of net operatinglosses for all periods presented.  At December 31, 2007, the Companyhad net operating loss carry-forwards of approximately $33,838,435, expiringthrough 2024. Utilization of NOL carry-forwards may be limited under varioussections of the Internal Revenue Code depending on the nature of the Company’soperations.

 

NOTE 11 — COMMITMENT

 

Operating lease

 

The Company rentsapproximately 2,300 square feet of office space in Mineola, NY under a leaseexpiring in May 2009.  Annual rent is approximately $35,000, payablemonthly.  The lease also requires the Company to pay its share ofincreases in real estate taxes, operating costs and repairs over the base yearamounts.  Following is a schedule of minimum lease payments requiredunder the lease.

 
| **Year ending December 31,** | ** ** | ** ** | ** ** | ** ** |
|----------------------------------------|------------|------------|------------|------------|
|                                   |       |       |       |
| 2007                                   |       | $          | 35,000     |       |
| 2008                                   |       | 38,000     |       |
| 2009                                   |       | 40,000     |       |
| Total                                  |       | $          | 113,000    |       |

 

Rent expense for theyears ended December 31, 2007, 2006 and 2005 was $35,000, $33,000 and$31,000, respectively.

 

NOTE 12 — RELATED PARTY TRANSACTIONS

 

On November 27, 2006Herbert Lindo, the Chairman and Chief Executive Officer exercised a fivemillion (5,000,000) share option for seven hundred fifty thousand dollars($750,000) at fifteen cents ($0.15) per share pursuant to the Company’sPerformance and Equity Plan.  The price per share was the price for theOption which would have expired on the following date.  The average marketprice of the Common Stock for the thirty (30) days prior to November 27,2006 was high: $0.05, low: $0.03.

 

NOTE 13 — STOCKHOLDERS’ DEFICIT

 

Authorized shares

 

The Company is authorizedto issue up to 500,000,000 shares of Common Stock and up to 2,000,000 shares ofPreferred Stock.  Both classes have a par value of $.01 per share. The rights and preferences of the preferred shares will be designated by theBoard of Directors.

 

 

 

 

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Sales of unregisteredcommon stock

 

In fiscal 2007, theCompany raised $832,500 from the sale of 49,733,259 shares of common stock to agroup of private investors at an average price of $0.017 per share.

 

Loan receivable

 

At December 31,2007, shareholders owed $4,000 and $1,500, respectively, on balances due forthe purchase of common stock and loans and a consultant owes $14,300 on aPromissory Note guaranteed by Herbert Lindo, the Chairman and Chief Executiveof the Company.

 

Common shares issued forservices

 

2007: The Company issued10,240,000 restricted shares to investors and for services rendered with astated value of $307,200.

 

2006: The Company issuedapproximately 58,116,044 restricted shares to investors and for servicesrendered for $1,829,000.

 

Conversion of Notes andrelated transactions

 

During 2007, 2006 and2005, the Company issued 49,733,259, 17,646,000 and 1,172,001 shares,respectively, upon conversion of the Notes.

 

Equity plan

 

In December 2000,the Company adopted and in August 2001, stockholders approved thePerformance and Equity Incentive Plan (the Plan).  The Board of Directorshas reserved up to 10,000,000 shares of common stock for issuance under theplan as incentive stock options (ISOs), nonqualified stock options (NQSOs),restricted stock grants, and stock appreciation rights.  The terms andconditions of each grant are determined by a committee composed of two or morenon-employee directors.  Grants to non-employee directors are subject toapproval of the entire board.  All employees, directors and non-employeeconsultants are eligible to receive grants under the Plan.  ISOs may notbe granted to any owner of 10% or more of the combined voting power of theCompany, unless the exercise price is at least 110% of the fair market value ofthe common stock on the grant date and the option term does not exceed fiveyears.

 

In August 2001,administrators of the Plan granted 5,000,000 NQSOs to Herbert Lindo, theCompany’s Chairman and Chief Executive Officer, and 500,000 NQSOs to MaureenPlovnick, an employee.  The options have a five-year term, an exerciseprice of $.15 per share and immediate vesting.  There have been no otherPlan transactions since these grants.  Mr. Lindo exercised his5,000,000 share option on November 27, 2006.  A remaining option for500,000 shares expired.  No new options have been granted.

 

NOTE 14 — RESTATEMENT

 

There were certain transactionsthat were entered into in fiscal years 2001 through 2004 that were accountedfor improperly.  The transactions involved the beneficial conversionfeatures accompanying the issuance of the convertible notes, as well asadditional shares issued in connection with the convertible notes as discountsand inducements to convert.

 

In addition, there were anumber of transactions involving the day to day operations of the Company thatwere accounted for improperly.  These included the recognition of deferredand accrued expenses, the recording of loans to and from the Company and therecording of the patent related costs and other capitalized expenses.

 

The cumulative impact ofthese restatements increases the deficit accumulated during the developmentstage by $55,308, and increases the total stockholders’ deficit by $719,471.

 

 

 

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The following tablesummarizes the annual consolidated statements of operations and balance sheetdata for the periods indicated, giving effect to the restatement describedabove:

 
| ** **                           | ** ** | **Year Ended December 31,** | ** ** |
|--------------------------------------|------------|--------------------------------------------|------------|
| ** **                           | ** ** | **2004**                                   | ** ** | **2003** | ** ** | **2002** | ** ** |
| ** **                           | ** ** | **Previously  Reported**                   | ** ** | **Restated** | ** ** | **Previously  Reported** | ** ** | **Restated** | ** ** | **Previously  Reported** | ** ** | **Restated** | ** ** |
| **STATEMENT OF OPERATIONS DATA**     |       |                                       |       |   |   |   |   |   |   |   |   |   |   |
| Selling,  general and administrative |       | $                                          | 1,434,361  |   | $ | 1,488,716 |   | $ | 832,168 |   | $ | 474,193 |   | $ | 660,289 |   | $ | 361,400 |   |
| Interest  income                     |       | —                                     |       | 121 |   | — |   | 113 |   | — |   | 81 |   |
| Interest  expense                    |       | —                                     |       | (371,701 | ) | — |   | (294,149 | ) | — |   | (23,570 | ) |
| Net  loss                            |       | (1,434,361                                 | )          | (1,860,296 | ) | (832,168 | ) | (768,229 | ) | (660,289 | ) | (384,889 | ) |
| Basic  and diluted loss per share    |       | $                                          | (0.01      | ) | $ | (0.01 | ) | $ | (0.008 | ) | $ | (0.01 | ) | $ | (0.007 | ) | $ | (0.01 | ) |

 
| ** **                                        | ** ** | **Year Ended December 31,** | ** ** |         |
|---------------------------------------------------|------------|--------------------------------------------|------------|--------------|
| ** **                                        | ** ** | **2004**                                   | ** ** | **2003**     | ** ** | **2002** | ** ** |
| ** **                                        | ** ** | **Previously  Reported**                   | ** ** | **Restated** | ** ** | **Previously  Reported** | ** ** | **Restated** | ** ** | **Previously  Reported** | ** ** | **Restated** | ** ** |
| **BALANCE SHEET DATA**                            |       |                                       |       |         |   |   |   |   |   |   |   |   |   |
| Prepaid  expenses                                 |       | $                                          | 198,300    |         | $ | 93,750  |   |   | $ | 187,500 |   |   | $ | — |   | $ | 232,544 |   | $ | — |   |
| Loan  receivable — stockholders              |       | 142,000                                    |       | —       |   | 50,000 |   | 4,000 |   | — |   | — |   |
| Total  current assets                             |       | 409,458                                    |       | 93,755       |   | 244,636 |   | 4,005 |   | 242,615 |   | — |   |
| Patent  — net                                |       | 329,917                                    |       | 68,763       |   | 336,100 |   | 56,905 |   | — |   | 16,547 |   |
| Total  assets                                     |       | 789,795                                    |       | 203,631      |   | 593,038 |   | 65,292 |   | 255,878 |   | 22,517 |   |
| Loans  payable — related parties             |       | —                                     |       | 25,120       |   | — |   | 137,137 |   | — |   | 66,161 |   |
| Total  current liabilities                        |       | 180,107                                    |       | 313,414      |   | 274,346 |   | 328,916 |   | 107,458 |   | 231,029 |   |
| Deficit  accumulated during the development stage |       | (27,883,758                                | )          | (27,939,066  | ) | (26,449,397 | ) | (26,078,770 | ) | (25,617,229 | ) | (25,310,541 |   |
| Total  stockholders’ equity (deficit)        |       | 609,688                                    |       | (109,783     | ) | 318,692 |   | (263,624 | ) | 148,420 |   | (208,512 |   |
|                                                   |            |                                            |            |              |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

NOTE 15 — SUBSEQUENT EVENTS

 

The Company, through March 14,2008 has issued 12,967,334 shares for conversion of Notes and issuance of servicesrendered.

 

The Company, through March 14,2007 has issued 66,652,983 Restricted Shares for conversion of Notes andissuance of services rendered.  The total includes the issuance of5,000,000 shares to Herbert Lindo, the Chairman and Chief Executive Officer, inconnection with exercising his stock option on November 27, 2006.

 

The Company through June 30,2005 has issued 73,182,000 Restricted Shares for the conversion of Notes andissuance of shares for services rendered.  The total includes the issuanceof 45,000,000 shares owed to Herbert Lindo, the Chairman and Chief ExecutiveOfficer.

 

On February 14,2007, the Company issued 2,500,000 shares to a consultant for services renderedthrough the year from February 14, 2006 to February 14, 2007.

 

In October 2006, theCompany entered into two (2) consulting agreements for a two (2) yearterm as compensation, the consultants each received 2,000,000 shares ofrestricted common stock upon signing.

 

 

 

45

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In April 2005, theCompany entered into a consulting agreement for a one-year term.  Ascompensation, the consultants received 2,000,000 shares of restricted commonstock upon signing.

 

In June 2005, theCompany agreed to issue 770,588 shares of restricted common stock in settlementof an employment contract dispute.  The shares were valued by managementat approximately $38,500.  The liability was accrued in 2004.  On March 14, 2008 the Company settledthe dispute in Federal Court by issuing the 770,588 shares, absent of anyrestrictions.

 

PRIOR CONVICTION OFHERBERT LINDO

 

Herbert Lindo, theChairman and CEO of Kenilworth, was convicted in 1993 on three (3) countsof having permitted three (3) banks located in the Upper Peninsula ofMichigan to sell unregistered, legended, restricted Kenilworth shares pursuantto SEC Rule 144 prior to the bank having the then required two (2) yearholding period. The sales took place in 1987 and 1988. Mr. Lindo was foundnot guilty of conspiring to sell unregistered securities which was not met,pursuant to SEC Rule 144. The Securities and Exchange Commission did notenter into the case. The indictments were brought by the U.S. Attorney of theWestern District of Michigan. Mr. Lindo was sentenced to one thousand(1,000) hours of community service, fifteen (15) months house arrest, and finedsix hundred thousand dollars ($600,000).

 

In 1992, the holdingperiod for exemption pursuant to Rule 144 was reduced to one (1) year.The changed Rule did not apply to the 1987-88 sales. No one lost any moneyand Kenilworth had received fair value for the pledged securities. Thegovernment never charged Mr. Lindo with fraud. Mr. Lindo claimed hehad no knowledge of the sales by the banks.

 

Because of thisconviction, Herbert Lindo is likely not to be found suitable by any CasinoControl Commission or other regulatory body to hold licenses. When the time toapply for licensing RoulabetteTM arrives, Mr. Lindo will resign totallyfrom Kenilworth and place his Kenilworth shares into a voting trust. Until thattime, Herbert Lindo believes that he is best suited to manage the postbankruptcy reorganization and to transform Kenilworth into a viable business.

 

***Remainder of page intentionally left blank***

 

 

 

46

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**SIGNATURES**

 

Pursuant to therequirements of Section 13 or 15(d) of the Securities Exchange Act of1934, the Registrant has duly caused this report to be signed on its behalf bythe undersigned, thereunto duly authorized.

 
| KENILWORTH SYSTEMS                    |              |
|---------------------------------------|-------------------|
| CORPORATION                           |              |
|                                  |              |
| By:                                   | /s/ HERBERT LINDO |   |
|                                  | Herbert Lindo     |   |
|                                  |              |
| CHAIRMAN AND CHIEF  FINANCIAL OFFICER |              |
|                                  |              |   |   |
|                                       |                   |  |  |  |  |

 

Pursuant to therequirements of Securities Exchange Act of 1934, this report has been signedbelow by the following persons on behalf of the Registrant and in thecapacities and on the dates indicated.

 
| **NAME**                | ** ** | **TITLE** | ** ** | **DATE**            |
|-------------------------|------------|-----------|------------|---------------------|
|                    |       |      |       |                |
| /s/ HERBERT LINDO       |       | Director  |       | March 19, 2008 |
| Herbert Lindo           |       |      |       |                |
|                    |       |      |       |                |
| /s/ JOYCE CLARK         |       | Director  |       | March 19, 2008 |
| Joyce Clark             |       |      |       |                |
|                    |       |      |       |                |
| /s/ KIT WONG            |       | Director  |       | March 19, 2008 |
| Kit Wong                |       |      |       |                |
|                    |       |      |       |                |
| /s/ PATRICK J. MCDEVITT |       | Director  |       | March 19, 2008 |
| Patrick J. McDevitt     |       |      |       |                |
|                    |       |      |       |                |
| /s/ EDWARD VIETMEIER    |       | Director  |       | March 19, 2008 |
| Edward Vietmeier        |       |      |       |                |

 

 

 

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