**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

 

**FORM10-Q**

 

**(MarkOne)**

 
| **ý**                                                                                                                                                                     | **Quarterly  report pursuant to Section 13 OR 15(D) of the Securities Exchange Act of  1934**  |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------|
| ** **                                                                                                                                                                     |
| **For  the quarterly period ended September 30, 2004**                                                                                                                    |
| ** **                                                                                                                                                                     |
| **OR**                                                                                                                                                                         |
| ** **                                                                                                                                                                     |
| **o**                                                                                                                                                                          | **Transition  report pursuant to Section 13 or 15(D) of the Securities Exchange Act of  1934** |
|                                                                                                                                                                           |                                                                                                |   |
| **For  the transition period from              to             ** |
|                                                                                                                                                                           |                                                                                                |   |
| **Commission  File Number: 0-08962**                                                                                                                                           |

 

**KENILWORTHSYSTEMS CORPORATION**

(Exact name ofregistrant as specified in its charter)

 

| **New  York**                                              | ** ** | **84-1641415**                        |
|------------------------------------------------------------|------------|---------------------------------------|
| (State of  incorporation)                                  |       | (I.R.S. employer  identification no.) |
|                                                       |       |                                  |
| **185  Willis Avenue, Mineola, New York**                  | ** ** | **11501**                             |
| (Address of  principal executive offices)                  |       | (Zip Code)                            |
|                                                       |       |                                  |
| **(516)  741-1352**                                        |
| (Registrant’s  telephone number, including area code) |

 

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

 

Indicate by check mark whether the registrantis an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).  Yes o No ý

 

State the number of shares outstanding of each of theissuer’s classes of Common Stock as of the latest practical date

 

The number of shares of common stock, $.01 par valueof the Registrant outstanding as of September 30, 2004 was 131,577,921.

 

At the Annual Meeting of Shareholders held on May 28,2003, the Shareholders approved the issuance of 20,000,000 shares of RestrictedCommon Stock to Herbert Lindo, the President of the Company for having assignedto the Company the Patent that was granted on June 10, 2003.  Titled “System and Method For Remote Rouletteand Other Game Play Using Game Table at the a Casino”.  Upon Mr. Lindo’s request, the Shares have notbeen issued.

 

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PART IV —INTRODUCTORY NOTE

 

The financials arepresented as a Development Stage Corporation.

 
| PART I — FINANCIAL  INFORMATION |
|--------------------------------------|
|                                 |   |   |
| Item 1.                              |   | Financial Statements |
| Item  2.                             |   | Management’s  Discussion and Analysis of Financial Condition and Results of Operations |
| Item 3.                              |   | Controls and Procedures |
|                                 |   |   |
| PART II — OTHER INFORMATION     |
|                                 |   |   |
| Item 2.                              |   | Changes in Securities  and Use of Procedures |
| Item 6.                              |   | Exhibits and Reports on  Form 8-K |

 

SPECIAL NOTEREGARDING FORWARD-LOOKING STATEMENTS

 

To the extent that the information presented in thisQuarterly Report on Form 10-Q for the quarter ended September 30, 2004discusses financial needs and projections, information or expectations aboutour proposed products or markets, or otherwise makes statements about futureevents, such statements are forward-looking.  We are making theseforward-looking statements in reliance on the safe harbor provision of thePrivate Securities Litigation Reform Act of 1995.  Although we believethat the expectations reflected in these forward-looking statements are basedon reasonable assumptions, there are a number of risks and uncertainties thatcould cause actual results to differ materially from such forward-lookingstatements.  These risks and uncertainties are described, among otherplaces in this Quarterly Report, in “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations” and in the Form 10-K for thefiscal year ended December 31, 2003.

 

In addition, we disclaim any obligations to update anyforward-looking statements to reflect events or circumstances after the date ofthis Quarterly Report.  When considering such forward-looking statements,you should keep in mind the risks referenced above and the other cautionarystatements in this Quarterly Report.

 
| PART I — FINANCIAL  INFORMATION |
|--------------------------------------|
|                                 |   |
| Item 1.                              | FINANCIAL STATEMENTS |
|                                 |   |
|                                 | Consolidated  Balance Sheets as of September 30, 2004 and December 31, 2003 |
|                                 |   |
|                                 | Consolidated  Statements of Operations for the three (3) months period ended  September 30, 2004 and September 30, 2003 |
|                                 |   |
|                                 | Consolidated  Statements of Cash Flows for the nine (9) months ended September 30 ,  2004 and September 30, 2003 |
|                                 |   |
|                                 | Notes  to Consolidated Financial Statements |

 

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KENILWORTH SYSTEMSCORPORATION

INDEX TO FORM 10-Q

 

PART I.

FINANCIALINFORMATION

 

ITEM 1.  FINANCIAL STATEMENTS

 

KENILWORTH SYSTEMSCORPORATION

CONDENSED CONSOLIDATEDBALANCE SHEETS

(A DevelopmentStage Company)

 
| ** **                                                                                                                                                        | ** ** | **September 30  2004** | ** ** | **December 31  2003** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|----------------------------|------------|
| ** **                                                                                                                                                        | ** ** | **(unaudited)**             | ** ** | **(unaudited)**            | ** ** |
| ASSETS                                                                                                                                                            |       |                        |       |                       |       |
|                                                                                                                                                              |       |                        |       |                       |       |
| Cash                                                                                                                                                              |       | $                           | 58,151     |                       | $          | 7,136 |   |
| Due from Shareholders (subscriptions)                                                                                                                             |       | 0                           |       | 50,000                     |       |
| Secured Note Receivable                                                                                                                                           |       | 50,000                      |       |                       |       |
| Note Receivable                                                                                                                                                   |       | 79,000                      |       |                       |       |
| Prepaid Expenses (Directors)                                                                                                                                      |       | 0                           |       | 187,500                    |       |
| Security Deposits                                                                                                                                                 |       | 5,000                       |       |                       |       |
| Property, Plant and Equipment, Net                                                                                                                                |       | 45,118                      |       | 12,302                     |       |
| CURRENT ASSETS                                                                                                                                                    |       | $                           | 237,269    |                       | $          | 256,938 |   |
| Patent, Net                                                                                                                                                       |       | 335,967                     |       | 336,100                    |       |
| TOTAL ASSETS                                                                                                                                                      |       | $                           | 573,236    |                       | $          | 593,038 |   |
|                                                                                                                                                              |       |                        |       |                       |       |
| LIABILITIES AND  STOCKHOLDERS’ EQUITY (DEFICIT)                                                                                                              |       |                        |       |                       |       |
| Accounts Payable                                                                                                                                                  |       | $                           | 94,319     |                       | $          | 119,097 |   |
| Payroll Taxes Payable                                                                                                                                             |       | 6,087                       |       | 13,018                     |       |
| Notes Payable                                                                                                                                                     |       | 39,582                      |       | 142,231                    |       |
| Installment Payment (Auto)                                                                                                                                        |       | 7,546                       |       |                       |       |
| TOTAL LIABILITIES                                                                                                                                                 |       | $                           | 147,534    |                       | $          | 274,346 |   |
|                                                                                                                                                              |       |                        |       |                       |       |
| Common Stock, $.01 par value, authorized 200,000,000 shares; issued  and outstanding 104,412,753 in December 31, 2003 and 131,577,921 on  September 30, 2004 |       | $                           | 1,315,779  |                       | $          | 1,044,126 |   |
|                                                                                                                                                              |       |                        |       |                       |       |
| Capital in excess of par value                                                                                                                                    |       | 26,624,518                  |       | 25,723,963                 |       |
| Deficit                                                                                                                                                           |       | (27,514,595                 | )          | (26,449,397                | )          |
| TOTAL SHAREHOLDERS’ EQUITY                                                                                                                                   |       | $                           | 425,702    |                       | $          | 318,692 |   |
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY                                                                                                                   |       | $                           | 573,236    |                       | $          | 593,038 |   |

 

See accompanying notes.

 

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KENILWORTH SYSTEMSCORPORATION

CONDENSED CONSOLIDATEDSTATEMENTS

OF OPERATION,DEFICIT

(A DevelopmentStage Company)

 

 
| ** **                                   | ** ** | **Three-Months Ended  Seqtember 30** | ** ** | **Nine-Months Ended  September  30** | ** ** |
|----------------------------------------------|------------|--------------------------------------|------------|-------------------------------------------|------------|
| ** **                                   | ** ** | **2004**                             | ** ** | **2003**                                  | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                                   | ** ** | **(unaudited)**                      | ** ** | **(unaudited)**                           | ** ** | **(unaudited)** | ** ** | **(unaudited)** | ** ** |
| Revenues:                                    |       |                                 |       |                                      |       |   |   |   |   |
| Sales                                        |       | 0                                    |       | 0                                         |       | 0 |   | 0 |   |
| Costs and Expenses:                          |       |                                 |       |                                      |       |   |   |   |   |
| Selling, general and administrative expenses |       | $                                    | 278,020    |                                      | $          | 89,451 |   | $ | 1,065,198 |   | $ | 781,910 |   |
|                                         |       |                                 |       |                                      |       |   |   |   |   |
| Total Costs and Expenses                     |       | 278,020                              |       | 89,451                                    |       | 1,065,198 |   | 781,910 |   |
| Net loss                                     |       | 278,020                              |       | 89,451                                    |       | 1,065,198 |   | 781,910 |   |
|                                         |       |                                 |       |                                      |       |   |   |   |   |
| Deficit-Beginning of period                  |       | (27,236,575                          | )          | (26,309,688                               | )          | (26,449,397 | ) | (25,617,229 | ) |
| Deficit-End of period                        |       | (27,514,595                          | )          | (26,399,139                               | )          | (27,514,595 | ) | (26,399,139 | ) |
|                                         |       |                                 |       |                                      |       |   |   |   |   |
| Loss per Share of common stock               |       | 0.002                                |       | 0.0007                                    |       | 0.008 |   | 0.006 |   |
| Average number of shares outstanding         |       | 131,577,921                          |       | 126,888,594                               |       | 131,577,595 |   | 124,388,139 |   |
|                                              |            |                                      |            |                                           |            |  |  |  |  |  |  |  |  |

 

See accompanying notes.

 

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KENILWORTH SYSTEMSCORPORATION

AND SUBSIDIARIES

CONDENSED CONSOLIDATEDSTATEMENTS OF CASH FLOWS

(A DevelopmentStage Company)

 
| ** **                                                                       | ** ** | **Nine-month ended  September 30** | ** ** |
|----------------------------------------------------------------------------------|------------|-----------------------------------------|------------|
| ** **                                                                       | ** ** | **2004**                                | ** ** | **2003** | ** ** |
| ** **                                                                       | ** ** | **(unaudited)**                         | ** ** | **(unaudited)** | ** ** |
| CASH FLOWS USED IN OPERATING ACTIVITIES                                          |       |                                    |       |   |   |
| Net Loss                                                                         |       | $                                       | 1,065,198  |   | $ | 692,459 |   |
| Adjustments to reconcile net income to net cash used in operating  activities    |       |                                    |       |   |   |
| Changes in Accounts Receivable and Prepaid Expense                               |       | 134,000                                 |       | 1,328 |   |
| Depreciation and Amortization                                                    |       | 6,454                                   |       | 0 |   |
| Increase (Decrease) in accrued liabilities                                       |       | 24,758                                  |       | 19,826 |   |
|                                                                             |       | (906,440)                               |       | (671,305 | ) |
| NET CASH USED IN OPERATING ACTIVITIES                                            |       |                                    |       |   |   |
| Cash flows from Investing Activities                                             |       |                                    |       |   |   |
| Purchase of Equipment                                                            |       | $                                       | 35,668     |   | $ | (13,461 | ) |
| Additional Patent Costs                                                          |       | 21,000                                  |       | (357,100 | ) |
| Lease hold improvements                                                          |       | 54,310                                  |       | — |   |
| Net cash in investing activities                                                 |       | $                                       | (831,130   | ) | $ | 558,483 |   |
| CASH FLOW FROM FINANCING ACTIVITIES                                              |       |                                    |       |   |   |
| Increase (decrease) in due to Affiliate                                          |       | 50,000                                  |       | 486,320 |   |
| Proceeds from issuance of Stock from Conversion of Convertible  Promissory Notes |       | 95,000                                  |       | 0 |   |
| Due from  Shareholder (Secured Note)                                        |       | 129,000                                 |       |   |   |
| Net cash provided by financing Activities                                        |       | $                                       | 594,887    |   | $ | 674,242 |   |
| Net Increase (Decrease) in cash                                                  |       | (37,757                                 | )          | 32,150 |   |
| CASH — BEGINNING OF PERIOD                                                  |       | 95,908                                  |       | 10,071 |   |
| CASH — END OF PERIOD                                                        |       | $                                       | 58,151     |   | $ | 42,221 |   |
|                                                                             |       |                                    |       |   |   |
| Supplemental Cash Flow Information                                               |       |                                    |       |   |   |
| NON CASH TRANSACTIONS                                                            |       |                                    |       |   |   |
| Stock issued in settlement of debt                                               |       | $                                       | 86,000     |   |   |   |
| Stock issued for consulting services including Director’s fees              |       | $                                       | 376,000    |   |   |   |

 

 

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 SUMMARYOF OPERATIONS

LOSSES FROMOPERATIONS SINCE EMERGING

FROM BANKRUPTCYPROCEEDINGS ON SEPTEMBER 29, 1998

 
| ** **                       | ** ** | **To September 30 2004** | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** | **2000** | ** ** | **1999** | ** ** | **1998** | ** ** |
|----------------------------------|------------|-------------------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|
| Net sales from operations        |       | $                             | 0          |     | $          | 0        |       | $        | 0          |     | $          | 0        |       | $        | 0          |   | $ | 0 |   | $ | 0 |   |
| Other income                     |       |                          |       |     |       |     |       |     |       |     |       |     |       |     |       |
| Net Loss                         |       | $                             | 1,065,198  |     | $          | 832,168  |       | $        | 660,289    |     | $          | 421,491  |       | $        | 136,589    |   | $ | 11,830 |   | $ | 4,300,403 |   |
| Loss per common share            |       | $                             | 0.008      |     | 0.008      |     | $          | .007     |       | $        | .005       |     | $          | .002     |       | $ | .01 |   | $ | .07 |   |
| Loss per common share-diluted    |       | $                             | 0.008      |     | $          | 0.008    |       | $        | .007       |     | $          | .005     |       | $        | .002       |   | $ | .01 |   | $ | .02 |   |
| Consolidated Balance Sheet Data: |       |                          |       |     |       |     |       |     |       |     |       |     |       |     |       |
| Total assets                     |       | $                             | 573,236    |     | $          | 593,038  |       | $        | 225,878    |     | $          | 120,811  |       | $        | 47,859     |   | $ | 9,034 |   | $ | 8,034 |   |
| Current liabilities              |       | $                             | 147,534    |     | $          | 274,346  |       | $        | 107,458    |     | $          | 100,730  |       | $        | 28,365     |   | $ | 242 |   | $ | 7,912 |   |
| Stockholders’ equity        |       | $                             | 425,702    |     | $          | 318,692  |       | $        | 148,420    |     | $          | 20,081   |       | $        | 19,494     |   | $ | 8,792, |   | $ | .112 |   |

 

See accompanying notes.

 

 

Cumulative losses since emerging from BankruptcyProceedings on September 29, 1998 as a Development Stage Corporation total$7,427,968.

 

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KENILWORTH SYSTEMSCORPORATION

NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 - BASIS OF PRESENTATION

 

In the opinion of management, the accompanyingunaudited condensed consolidated financial statements of Kenilworth SystemsCorporation and subsidiaries (“Kenilworth”) beginning as of January 1,2004 contain all adjustments (consisting of only normal accruals) necessary topresent fairly the consolidated balance sheets as of September 30, 2004and December 31, 2003 and the related statements of operations and cashflows for the nine (9) month periods ended September 30, 2004 and 2003.

 

The loss from operations for the nine (9) month periodended September 30, 2004 are not necessarily indicative of the losses forthe entire year.

 

NOTE 2 - THE COMPANY AND NATURE OF BUSINESS

 

Kenilworth Systems Corporation (the “Company”) wasincorporated in New York in April 1968 and since emerging from bankruptcyproceedings now plans to be engaged in the business of developing andmanufacturing terminals and design systems that permit individuals from remotelocations, to play along with live in progress casino table games via TV(simulcast) satellite and digital cable broadcast around the world.

 

The Company was in bankruptcy proceedings underChapter 7 and 11 of the Bankruptcy Code for the period from August 28,1982 through September 29, 1998. The Company ceased all operations,between February 2, 1991 through September 29, 1998.

 

NOTE 3 — PATENTS

 

In June 2003, Kenilworth was granted a U.S. Patent #6,575,834 B1 titled “System and Method for Remote Roulette and Other Game PlayUsing Game Table at a Casino” for its television wagering system. The Patenthas been filed in most countries throughout Asia, the Americas and Europe,including the Russian Republics.  Inaddition, Kenilworth has a Patent Pending for the transactions that take placeat the lottery terminals and other set-top box applications (Provisional #60/511/587 filed in June, 2003).  Darby& Darby are our Patent attorneys.

 

Kenilworth’s RoulabetteTM plans received a vote of confidence on June14, 2004 when the English Gaming Commission enthusiastically endorsed “RemoteWagering of Fixed Odd Casino Games” in its plan to revise existing gamingregulations.  Kenilworth will apply earlynext year, either singularly or together with BSkyB, for a license forRoulabetteTM wagering in the U.K and Ireland. The RoulabetteTM system provides the safest and simplest method toprevent minors from participating in gambling activities with the various existingweb sites, which has been a major problem for the English authorities.  After the first reading of the Gambling Billin Parliament on October 27, 2004 some opposition was voiced by members ofParliament for the number of larger Las Vegas-style casinos that would beallowed, except that “remote gambling operations” has generally been wellsupported.

 

NOTE 4 - PRINCIPLES OF CONSOLIDATION

 

The consolidated financial statements include theaccounts of Kenilworth Systems Corporation and its wholly owned subsidiaries:Video Wagering Systems Corporation, RoulabetteTM Nevada Corporation, KenilworthSystems Nevada Corporation, Kenilworth Satellite Management Corporation, aDelaware Corporation and Kenilworth Systems (UK) Limited. None of thesesubsidiaries has any assets or liabilities.

 

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NOTE 5 - EARNINGS PER SHARE

 

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

 

Basic loss per share is based on the weighted-averagenumber of shares of common stock outstanding for the period, which were $0.008,$0.008, and $0.006 respectively for the year ended December 31, 2003, andthe periods September 30, 2004 and September 30, 2003.

 

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

 

NOTE 6 - INCOME TAXES

 

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

 

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

 

The Company estimates that it has availableapproximately $17,427,968 in net operating loss carry-forwards, which expire atvarious dates through 2020. Utilization of the NOL carry-forward may be limitedunder various sections of the Internal Revenue Code depending on the nature ofthe Company’s operations.

 

The Company has a deferred tax asset of approximatelytwo million eight hundred thousand dollars ($2,800,000) arising from its netoperating loss carry-forwards. The deferred tax asset has been fully reserveddue to the uncertainty of future realization.

 

NOTE 7 - USE OF ESTIMATES IN THE FINANCIALSTATEMENTS

 

The preparation of financial statements in conformitywith Generally Accepted Accounting Principles (GAAP) requires management tomake estimates and assumptions that affect the reported amounts of assets andliabilities and disclosure of contingent assets and liabilities at the date ofthe financial statements and the reported amounts of revenues and expensesduring the reporting period. Actual results could differ from these estimates.

 

NOTE 8 - FAIR VALUE OF FINANCIAL INSTRUMENTS

 

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

 

NOTE 9 - PROPERTY AND EQUIPMENT

 

Property and Equipment are stated at cost. Forfinancial reporting purposes, property and equipment are depreciated utilizingthe Straight-Line Method over the estimated useful lives of the related assetsas follows:

 
| ** **       | ** ** | **YEARS** | ** ** |
|------------------|------------|-----------|------------|
| Office Equipment |       | 5         |       |
| Vehicles         |       | 5         |       |

 

----

 

Property and Equipment consist of the following as ofSeptember 30, 2004 and September 30, 2003:

 
| ** **                        | ** ** | **Nine-month  ended September 30** | ** ** |
|-----------------------------------|------------|-----------------------------------------|------------|
| ** **                        | ** ** | **2004**                                | ** ** | **2003** | ** ** |
| Office Equipment                  |       | $                                       | 39,439     |   | $ | 3,939 |   |
| Vehicle                           |       | 13,641                                  |       | 13,641 |   |
|                              |       | $                                       | 53,080     |   | $ | 17,580 |   |
| Less-Accumulated  Amortization    |       | 7,962                                   |       | 1,508 |   |
| Total Property and Equipment, Net |       | $                                       | 45,118     |   | $ | 16,072 |   |
|                                   |            |                                         |            |  |  |  |  |  |

 

Depreciation expense for the quarters ended September30, 2004 and September 30, 2003 was $1,882 and $1,328 respectively.

 

NOTE 10 - CONVERTIBLE PROMISSORY NOTES

 

During the year 2003, the Company sold one (1) yearConvertible Promissory Notes totaling four hundred and six thousand($406,000).  At the option of the Note Holders, the Notes were convertibleinto Common Stock of the Company at the rate of between one (1) share for each$0.07 and $0.10 of face value of the indebtedness represented by the Notestogether with accrued interest at the annual rate of two percent (2%) above theprime rate quoted by Citibank of N.A. Management believed it was unable torepay the Notes when they become due.  Inorder to induce the Note Holders to convert the Notes by year end 2003 when thequoted price per Common Share, as traded on the Pink Sheet Market was between$0.035 and $0.06 per share, the Company offered to convert the Notes at therate of one (1) share for each $0.05 of indebtedness represented by each Note,together with accrued interest.  As the result of the Company’s offer, allNote Holders converted their Notes into 7,712,606 restricted shares ofauthorized but unissued Common Stock, including accrued interest, at an averageprice of $0.05 per share.

 

During the quarter period ended March 31, 2004,the Company sold one (1) year Convertible Promissory Notes totaling$422,000.  At the option of the Note Holders, the Notes were convertibleinto Common Stock of the Company at the rate of $0.10 per share.  At therequest of the Company all Note Holders converted their Notes byJanuary 31, 2004 at the rate of one (1) share for each $0.05 per share ofthe principal amount of the Notes without any accrued interest.  TheCompany’s Common Stock was trading on the Pink Sheets at that time between$0.035 and $0.075 per share.  As the result of the Company’s offer allNote Holders converted their Notes into 9,114,699 restricted shares for the$422,000 face amount of Notes, thus avoiding to carry the Notes on the Company’sbalance sheet as indebtedness which could have made the Company insolvent withthe cost of traveling to the Asian markets by members of the Company.

 

During the quarter period ended June 30, 2004,the Company sold one (1) year Convertible Promissory Notes totaling$275,000.  At the option of the Note Holders, the Notes were convertibleinto Common Stock of the Company at the rate of ten cents ($0.10) pershare.  At the request of the Company all Note Holders converted theirNotes by June 30, 2004 at the rate of one (1) share for each five cents($0.05) per share of the principal amount of the Notes without any accruedinterest.  The Company’s Common Stock was trading on the Pink Sheets atthat time between $0.06 and $0.075 per share.  As the result of theCompany’s offer all Note Holders converted their Notes into 4,500,000restricted shares for the $275,000 face amount of Notes at an average price of$0.06 per share, thus avoiding to carry the Notes on the Company’s balancesheet as indebtedness which could have made the Company insolvent with thecontinuing cost of traveling to the Asian markets by members of the Company andthe costs associated engaging legal advisors in the various Asianjurisdictions.

 

During the quarter period ended September 30, 2004 thecompany sold one (1) year Convertible Promissory Notes totaling $60,000.  At the options of the Note Holders, the Noteswere convertible into Common Stock of the Company at the rate of ten cents($0.10) per share.  At the request of theCompany, all Note Holders converted their Notes by September 30, 2004 at therate of one (1) share for each five 

 

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cents ($0.05) per share of the principal amount of theNotes without any accrued interest.  TheCompany’s Common Stock was trading on the Pink Sheets at that time between$0.08 and $0.09 per share.  As the resultof the Company’s offer, all Note Holders converted their Notes into 1,200,000restricted shares for the $60,000 face amount of the Notes at an average priceof five cents ($0.05) per share, thus avoiding to carry the Notes on theCompany’s balance sheet as indebtedness which could have made the Company closeto be insolvent with the continuing cost of traveling to potential markets  and the participation as a guest speaker atthe World Lottery Association (“WLA”) meeting in Costa Rica on September 29through October 2, 2004.  The companydispatched five (5) members of its staff to meet one-on-one with eachparticipating WLA member.

 

NOTE 11 - GOING CONCERN UNCERTAINTY

 

As indicated in Note 2, the Company emerged fromChapter 7 in September 1998 and has not yet commenced operations. Thesefactors create uncertainty as to the Company’s ability to operate as agoing-concern and continue in business. Management plans to develop a wageringsystem that allows individuals outside the casino to play along with livein-progress casino table games in hotel/resort rooms, bars, other

public gathering places and at home. Among the firststeps in 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 plans to obtain the necessary funding by offering its Common Stock,Senior Cumulative Convertible Preferred Shares and/or continue to sellConvertible Promissory Notes in private placements, or selling limited jointventure participations in future “play along with casino game” franchises.There can be no assurances the Company can be successful in obtaining suchfinancing.

 

The accompanying financial statements have beenprepared assuming the Company is a going-concern and do not reflectadjustments, if any, that would be necessary if the Company were not agoing-concern.

 

NOTE 12 — NON CASH TRANSACTIONS

 

During the year ended December 31, 2003 theCompany issued 7,395,558 shares of restricted Common Stock in payment forservices rendered in the amount of $596,440 an average price of $0.08 pershare.  The amount did not include 2,500,000 shares for the servicesrendered by the Directors of the Company (See Note 14).

 

During the first quarter period ended March 31,2004 the Company issued 6,580,000 shares of restricted Common Stock in paymentsfor services rendered in the amount of $296,800, an average price of $0.05 pershare.

 

During the quarter period ended June 30, 2004 theCompany issued 427,000 shares of restricted Common Stock in payments forservices rendered in the amount of $397,000, an average price of $0.93 pershare.

 

During the quarter period ended June 30, 2004 theCompany issued two million five hundred thousand (2,500,000) shares ofrestricted Common Stock in payment of consulting contracts for servicesrendered and to be rendered by Asian consultants in the amount of two hundredninety two thousand and one dollar ($292,001), an average price of twelve cents($0.12) per share.

 

During the quarter period ended September 30, 2004 theCompany issued 700,000 shares of restricted Common Stock in payment ofconsulting contracts for services rendered and to be rendered in the amount of$84,000 an average price of twelve cents ($0.12) per share.

 

In connection with the emergence from bankruptcy inSeptember 1998 the trustee distributed four million three hundred thousandfour hundred and three dollars ($4,300,403) to pay one hundred percent (100%)of all approved claims.  The distribution was in addition to $1,610,800 tothe IRS and the New York State Income Tax Authorities made in 1993 to avoidpenalties.

 

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NOTE 13 - COMMITMENTS AND CONTINGENCIES

 

OUTSTANDING PAYROLL TAXES

 

During the year 2000, the Internal Revenue Servicecontended that the Company owes payroll taxes including interest and penaltiestotaling almost $400,000 for various periods from 1985-1991. The Companycommenced negotiations with the IRS to resolve these issues. In management’sopinion, no accruals are necessary since these assessments are incorrect andwere discharged in its bankruptcy proceedings.  As the result of theInternal Revenue Service claim, similar claims were made by the New York StateIncome Tax Authorities which claims were negotiated and have been officiallycancelled by the New York State Taxing Authorities on July 1, 2002. The Company has not received a follow up claim from Internal Revenue Servicethrough September 30, 2004 since the original negotiations in 2000 and mustassume the matter is closed.

 

NOTE 14 — PREPAID ITEMS

 

At the Board of Directors Meeting held inSeptember 2003 the Board approved the issuance of two million five hundredthousand (2,500,000) shares of authorized but unissued Common Stock of theCorporation to the Directors in lieu of Director’s Compensation and Director’sLiability insurance for the ensuing year: Gino Scotto, Kit Wong, Patrick J.McDevitt, Joyce Clark and Maureen Plovnick each were issued five hundredthousand (500,000) shares of restricted Common Stock of the Company at a priceof ten cents ($0.10) per share, the equivalent of fifty thousand dollars($50,000) for each Director, a total of $250,000.  The $250,000 isrecorded for shares issued as paid in capital.  In the last quarter of2003 and the first, second and third quarters of 2004, the Company expensed theentire $250,000 of which $62,500 was expensed in the third quarter asadministrative expenses.

 

 

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

 

RESULTS OF OPERATIONS

 

Since we emerged from bankruptcy proceedings onSeptember 29, 1998 we have had no revenues from operations. We sustainedsubstantial losses from General and Administrative expenses amounting to$832,168 and $660,289 in year 2003 and 2002 and for the nine (9) months endedSeptember 30, 2004, $1,065,198 compared to a loss of $781,910 for the ninemonths ended September 30, 2003. Kenilworth has had no revenues fromoperations during the past fourteen (14) years and there can be no assurancesthat it will ever have revenues from present planned operations.

 

LIQUIDITY AND CAPITALRESOURCES

 

Our present plans are to develop a wagering systemdubbed “RoulabetteTM” that would allow patrons in the industrialized world to playand wager on live in-progress simulcast casino table games on RoulabetteTMterminals or television sets placed in hotels, resorts, bars and other publicgathering places and in homes and offices or on personal computers (PC’s) ortelevision sets connected to set-top boxes via digital satellite and digitalcable broadcasts emanating from strictly regulated casinos.

 

RoulabetteTM terminals are television sets that areconnected to private in-house televisions and movie networks as offered byhotels/resorts, horse and dog racetracks, off track betting (OTB) offices andpublic gathering places that use a single dish antenna and distribute thesimulcast live, in-progress casino table games to their network of televisionsets.

 

A first step will be to conduct a test of the systemat a casino site to prove the viability of broadcasting live in-progress tablegames around the world.  In previous years the company has tested theviability of its plans only in its laboratory.

 

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To conduct the tests Kenilworth believes it willrequire initially five million dollars ($5,000,000) to (a) purchase specialcomputers, digital television broadcast equipment and table games; and, (b)defray the cost of the facility and pay the salaries of twelve (12) employeeswho are specialists in software design, TV broadcasts, and mechanical design,for a period of eighteen (18) months, and from time to time, consultants whowill assist the design team. In order to market Project RoulabetteTM while thedevelopment of the terminals proceeds we will require an additional fivemillion dollars ($5,000,000) to hire management and marketing people to securefuture orders for the system.

 

Unless we are able to obtain these funds, of whichthere are no assurances, none of the tests and the additional development workcan begin; and we will not be able to commence our planned business.

 

Kenilworth plans to obtain the necessary funding byoffering Private Placements, Common Shares, Convertible Promissory Notes, andCumulative Convertible Preferred Shares and/or by the sale of limited jointventure participations in future RoulabetteTM franchises. There can be noassurances that the Company will be able to secure any of these funds.

 

When the tests are completed and we have obtained allrequired licenses from the gaming control regulators and state legislatures orforeign jurisdictions to broadcast the live in-progress casino table games andhave contracts with franchisees to place RoulabetteTM terminals around the worldand franchise television broadcasters, we expect to commence normal businessoperations.  Kenilworth will also seek to obtain production financing fromregular banking sources to finance the manufacturing of the RoulabetteTM system.There can be no assurances that any such financing and approvals will beavailable to us.

 

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

 

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

 

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

 

RISKS

 

Specific reference is made to each of the risksdescribed in Item 7 of the Form 10-K for December 31, 2003 under thediscussion “Cautionary Statement For Purposes of the Safe Harbor Provisions ofthe Private Securities Litigation Reform Act of 1995 and Risk Factors”.Reference is also made to future filings under Forms 10-Q and Forms 10-K andfilings under the Securities Exchange Act of 1934 as amended and as may beapplicable under the Securities Act of 1933 as amended.

 

PART II.

OTHER INFORMATION

 
| Item 1. |   | LEGAL PROCEEDINGS:                                                                                                                                                                                                                           |
|---------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |   |                                                                                                                                                                                                                                         |
|    |   | The Company is a  defendant in an action brought by Northbridge Productions for seventy-five  thousand dollars ($75,000) which the Company claims was the result of  misrepresentation of their affiliation with certain news organizations. |

 

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| Item 2. |   | CHANGE IN SECURITIES:                                                                            |
|---------|--------|--------------------------------------------------------------------------------------------------|
|    |   |                                                                                             |
|    |   | None                                                                                             |
|    |   |                                                                                             |
| Item 3. |   | DEFAULT UPON SENIOR  SECURITIES:                                                                 |
|    |   |                                                                                             |
|    |   | None (No Senior Debt  outstanding)                                                               |
|    |   |                                                                                             |
| Item 4. |   | SUBMISSION OF A MATTER  TO A VOTE OF SECURITIES HOLDERS:                                         |
|    |   |                                                                                             |
|    |   | Increase the authorized  issuance of Common Stock from 200,000,000 shares to 300,000,000 shares. |
|    |   |                                                                                             |
| Item 5. |   | OTHER INFORMATION:                                                                               |

 

The Company plans to hold its Annual Meeting ofShareholders during the fourth quarter of 2004 or any adjournment thereof withproxy materials mailed to shareholders of record thirty (30) days prior to theproposed meeting date.

 
| Item 6. |   | EXHIBITS AND REPORTS ON  FORM 8-K:                                                                                                                                                     |
|---------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |   |                                                                                                                                                                                   |
|    |   | Ex 31.1 Certification  of Chief Financial Officer of the Company Required by Rule 13a-14(a) or Rule  15d-14(c) of the Exchange Act                                                     |
|    |   |                                                                                                                                                                                   |
|    |   | Ex 32.1 Certification  of Chief Financial Officer of the Company Pursuant to 18 U.S.C.  Section 1350, as Adopted Pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002. |

 
| Item 7. |   | SUBSEQUENT EVENT: |
|---------|--------|-------------------|

 

On October 12, 2004 the Company received a payment offifty thousand dollars ($50,000) in reduction of Notes Receivable.

 

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SIGNATURE

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the Registrant has duly caused this report to be signedin its behalf by the undersigned thereunto duly authorized.

 
|   | KENILWORTH SYSTEMS  CORPORATION        |
|--------|----------------------------------------|
|   |                                   |
| By:    | /s/ Herbert Lindo                      |
|   | Herbert Lindo,                         |
|   | President and Chief  Financial Officer |
|   | November 13, 2004                 |

 

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