**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

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**FORM 10-Q**

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| **(Mark One)**                                                                                                                                                                           |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **                                                                                                                                                                               |   |
| **x**                                                                                                                                                                                    | **Quarterly  report pursuant to Section 13 OR 15(D) of the Securities Exchange  Act of 1934** |
| ** **                                                                                                                                                                               | ** ** |
| **For the  quarterly period ended June 30, 2006**                                                                                                                                   |
| ** **                                                                                                                                                                               | ** ** |
| **OR**                                                                                                                                                                                   |
| ** **                                                                                                                                                                               |   |
| **o**                                                                                                                                                                                    | **Transition  report pursuant to Section 13 or 15(D) of the Securities Exchange  Act of 1934** |
| ** **                                                                                                                                                                               | ** ** |
| **For the  transition period from               to            ** |

 

**CommissionFile Number: 0-08962**

**KENILWORTH SYSTEMS CORPORATION**

(Exact name of registrantas 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’stelephone number, including area code)

Indicate by check markwhether the Registrant (1) has filed all reports required to be filed bysection 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. Yes  x    No  o

State the number ofshares outstanding of each of the issuer’s classes of common stock as of thelatest practical date

The number of shares ofcommon stock, $.01 par value of the Registrant outstanding as of June 30,200 was 245,726,579.

 

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**Tableof Contents**

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

**INDEX**

| **Part I.**  | **Financial Information**                                                                                                                                                                                                          |   |
|-------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|              |                                                                                                                                                                                                                               |   |
| Item 1.           | Financial Statements                                                                                                                                                                                                               |   |
|              |                                                                                                                                                                                                                               |   |
|              | Condensed Consolidated  Balance Sheets (unaudited) – June 30, 2006 and December 31, 2005                                                                                                                            |   |
|              |                                                                                                                                                                                                                               |   |
|              | Condensed Consolidated  Statements of Operation and Deficit (unaudited) – Six months ended June 30,  2006 and 2005, Three months ended June 30, 2006 and 2005, and the period  from inception to June 30, 2006 |   |
|              |                                                                                                                                                                                                                               |   |
|              | Condensed Consolidated  Statements of Cash Flows (unaudited) – Six months ended June 30, 2006  and 2005, and the period from inception to June 30, 2006                                                             |   |
|              |                                                                                                                                                                                                                               |   |
|              | Condensed  Notes to Consolidated Financial Statements (unaudited)                                                                                                                                                                  |   |
|              |                                                                                                                                                                                                                               |   |
| Item 2.           | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                                                                                                                                        |   |
|              |                                                                                                                                                                                                                               |   |
| Item 3.           | Quantitative and Qualitative Disclosures About  Market Risk                                                                                                                                                                        |   |
|              |                                                                                                                                                                                                                               |   |
| Item 4.           | Controls and Procedures                                                                                                                                                                                                            |   |
|              |                                                                                                                                                                                                                               |   |
| **Part II.** | **Other  Information**                                                                                                                                                                                                             |   |
|              |                                                                                                                                                                                                                               |   |
| Item 1.           | Legal Proceedings                                                                                                                                                                                                                  |   |
|              |                                                                                                                                                                                                                               |   |
| Item 6.           | Exhibits                                                                                                                                                                                                                           |   |
|              |                                                                                                                                                                                                                               |   |
| Signature         |                                                                                                                                                                                                                               |

 

FORWARD LOOKINGSTATMENTS

The information containedin this Form 10-Q and Kenilworth’s other filings with the SecuritiesExchange Commission may contain “forward-looking” statements within the meaningof section 27A of the Securities 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 onforward-looking statements in this Form 10-Q. This Form 10-Q containsforward-looking statements that involved risks and uncertainties. We use wordssuch as “anticipates”, “believes”, “plans”, “expects”, “future”, “intends” andsimilar expressions to identify such forward-looking statements. You should notplace undue reliance on these forward-looking statements, which apply only asof the date of this Form 10-Q. Our actual results could differ materiallyfrom those anticipated in these forward-

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looking statements formany reasons, including the risks faced by Kenilworth as described below andelsewhere in this Form 10-Q.

RISKS

Specific reference ismade to each of the risks described in Item 7 of the Form 10-K forDecember 31, 2005 under the discussion “Cautionary Statement For Purposesof the Safe Harbor Provisions of the Private Securities Litigation Reform Actof 1995 and Risk Factors”. Reference is also made to future filings under Forms10-Q and Forms 10-K and filings under the Securities Exchange Act of 1934 asamended and as may be applicable under the Securities Act of 1933 as amended.

INTRODUCTORY NOTE

This FORM 10-Q is beingfiled as a “Development Stage Company” from the period beginning November 24,1998 to the present at June 30, 2006, including a charge in the amount of$4,256,926, which was the amount the Company disbursed on September 28, 1998 tobe discharged from Chapter 7 Bankruptcy Proceedings.

d) The Company issued137,302,093 shares of its Restricted Common Stock since January 1, 2002. All of the shares may have the restrictions lifted pursuant to Rule 144 and144K within one (1) or two (2) years which may substantially depress thetrading price of the Company’s Stock in the future.

During the three (3)month period ended September 30, 2005, the Company expensed the 25,000,000shares to be issued to Herbert Lindo, the Chairman, CEO and Chief FinancialOfficer at the rate of $0.05 per share. At the Shareholders Meeting held on September 13, 2005, the Shareholdersapproved the issuance of 25,000,000 shares to Herbert Lindo.

At the ShareholdersMeeting held on May 28, 2003, the Shareholders approved the issuance of20,000,000 shares to be issued to Herbert Lindo the Chairman and President ofthe Company.  Unlike the 25,000,000shares issuable to Herbert Lindo, which were expensed, the 20,000,000 shareswere not expensed.

Herbert Lindo requestedto have the 45,000,000 shares issued during the period ended March 31,2006.  The Company expensed the20,000,000 shares during the period at the rate of $0.015 per share, whichamounted to a reduced capital adjustment of 53,652 instead of $303,652.

During the period endedMarch 31, 2006, the Company made certain adjustments to the number of sharesoutstanding which did not require capital changes.

During the quarter periodended June 30, 2006 the Company issued restricted common shares for conversionof Convertible Promissory Notes and to consultants in settlement of debt,19,199,900 shares for $438,493.

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KENILWORTH SYSTEMSCORPORATION(A DEVELOPMENT STAGE COMPANY)

CONDENSED CONSOLIDATED BALANCE SHEETS(Unaudited)

|                                                                                                                                                   | ** ** | **June 30, 2006** | ** ** | **December 31,  2005** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
|                                                                                                                                              |       |                        |       |                        |       |
| ASSETS                                                                                                                                            |       |                        |       |                        |       |
| CURRENT ASSETS                                                                                                                                    |       |                        |       |                        |       |
| Cash                                                                                                                                              |       | $                           | 9,611      |                        | $          | 5,495 |   |
| Prepaid expenses                                                                                                                                  |       | 40,000                      |       | 280,000                     |       |
| Loan receivable                                                                                                                                   |       | 26,300                      |       | 26,300                      |       |
| Receivable from  sale of stock subscriptions (Note 8)                                                                                             |       | 115,000                     |       |                        |       |
|                                                                                                                                              |       |                        |       |                        |       |
| Total current  assets                                                                                                                             |       | 190,911                     |       | 311,795                     |       |
|                                                                                                                                              |       |                        |       |                        |       |
| PROPERTY AND EQUIPMENT –  NET                                                                                                                |       | 49,010                      |       | 49,010                      |       |
|                                                                                                                                              |       |                        |       |                        |       |
| PATENT                                                                                                                                            |       | 78,552                      |       | 76,763                      |       |
| Acquisition of  Lighthouse (Note 7)                                                                                                               |       | 60,000                      |       |                        |       |
| SECURITY DEPOSIT                                                                                                                                  |       | 9,422                       |       | 9,422                       |       |
|                                                                                                                                              |       |                        |       |                        |       |
| Total assets                                                                                                                                      |       | $                           | 387,895    |                        | $          | 446,990 |   |
|                                                                                                                                              |       |                        |       |                        |       |
| LIABILITIES AND  STOCKHOLDERS’ EQUITY (DEFICIT)                                                                                              |       |                        |       |                        |       |
| CURRENT LIABILITIES                                                                                                                               |       |                        |       |                        |       |
| Accounts payable  and accrued expenses                                                                                                            |       | $                           | 155,228    |                        | $          | 224,842 |   |
| Payroll taxes  payable                                                                                                                            |       | 81,608                      |       | 43,878                      |       |
| Loans payable –  automobile                                                                                                                  |       | 705                         |       | 2,820                       |       |
|                                                                                                                                              |       |                        |       |                        |       |
| Total current  liabilities                                                                                                                        |       | 237,541                     |       | 271,540                     |       |
|                                                                                                                                              |       |                        |       |                        |       |
| 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  245,726,579 and 200,036,249 shares, respectively |       | 2,457,265                   |       | 2,000,362                   |       |
| Additional  paid-in capital                                                                                                                       |       | 30,209,412                  |       | 30,069,906                  |       |
| Less: stock  subscriptions receivable                                                                                                             |       |                        |       | —                      |       |
| Accumulated Deficit                                                                                                                               |       | (32,516,323                 | )          | (31,894,818                 | )          |
|                                                                                                                                              |       |                        |       |                        |       |
| Total  stockholders’ equity                                                                                                                  |       | 150,354                     |       | 175,450                     |       |
|                                                                                                                                              |       |                        |       |                        |       |
| Total liabilities and  stockholders’ equity                                                                                                  |       | $                           | 387,895    |                        | $          | 446,990 |   |

 

The accompanyingnotes are an integral part of these financial statements.

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KENILWORTH SYSTEMSCORPORATION(A DEVELOPMENT STAGE COMPANY)

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONSAND DEFICIT ACCUMULATED DURING THE DEVELOPMENT STAGE(Unaudited)

| ** **                                    | ** ** | ** **                                                          | ** ** | ** **                                                        | ** ** | ** **                                       | ** ** | ** **  | ** ** | **Period from**        | ** ** |
|-----------------------------------------------|------------|---------------------------------------------------------------------|------------|-------------------------------------------------------------------|------------|--------------------------------------------------|------------|-------------|------------|-----------------------------|------------|
| ** **                                    | ** ** | **For the six months ended June 30,** | ** ** | **For the three months ended  June 30,** | ** ** | **November 24,  1998  (Inception) to** | ** ** |
| ** **                                    | ** ** | **2006**                                                            | ** ** | **2005**                                                          | ** ** | **2006**                                         | ** ** | **2005**    | ** ** | **June 30, 2006** | ** ** |
|                                          |       |                                                                |       |                                                              |       |                                             |       |        |       |                        |       |
| Revenues                                      |       |                                                                |       |                                                              |       |                                             |       |        |       |                        |       |
| Sales                                         |       | $                                                                   | 0          |                                                              | $          | 0                                                |       | $           | 0          |                        | $          | 0 |   |   |   |
|                                          |       |                                                                |       |                                                              |       |                                             |       |        |       |                        |       |
| Expenses                                      |       |                                                                |       |                                                              |       |                                             |       |        |       |                        |       |
| Selling, general  and administrative          |       | $                                                                   | 621,505    |                                                              | $          | 823,733                                          |       | $           | 272,417    |                        | $          | 662,430 |   | $ | 7,021,221 |   |
|                                          |       |                                                                |       |                                                              |       |                                             |       |        |       |                        |       |
| Other income (expenses)                       |       |                                                                |       |                                                              |       |                                             |       |        |       |                        |       |
| Interest income                               |       | —                                                              |       | —                                                            |       | —                                           |       | —      |       | 922                         |       |
| Interest expense                              |       | —                                                              |       | (567,108                                                          | )          | —                                           |       | (513,046    | )          | (1,324,358                  | )          |
|                                          |       |                                                                |       |                                                              |       |                                             |       |        |       |                        |       |
| Total other income  (expense)                 |       | —                                                              |       | (567,108                                                          | )          | —                                           |       | (513,046    | )          | (1,323,436                  | )          |
|                                          |       |                                                                |       |                                                              |       |                                             |       |        |       |                        |       |
| Net loss                                      |       | $                                                                   | (621,505   | )                                                                 | $          | (1,390,841                                       | )          | $           | (272,417   | )                           | $          | (1,175,476 | ) | $ | (7,996,754 | ) |
|                                          |       |                                                                |       |                                                              |       |                                             |       |        |       |                        |       |
| Basic and diluted loss  per share             |       | $                                                                   | (0.002     | )                                                                 | $          | (0.010                                           | )          | $           | (0.001     | )                           | $          | (0.008 | ) | $ | (0.057 | ) |
|                                          |       |                                                                |       |                                                              |       |                                             |       |        |       |                        |       |
| Weighted average number of shares outstanding |       | 229,524,020                                                         |       | 141,952,995                                                       |       | 229,524,020                                      |       | 150,929,745 |       | 86,811,567                  |       |

 

The accompanyingnotes are an integral part of these financial statements.

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KENILWORTH SYSTEMSCORPORATION(A DEVELOPMENT STAGE COMPANY)

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWSFOR THE SIX MONTHS ENDED JUNE 30,(Unaudited)

|                                                                                 | ** ** | ** ** | ** ** | ** ** | ** ** | **Period from**        | ** ** |
|---------------------------------------------------------------------------------|------------|------------|------------|------------|------------|-----------------------------|------------|
| ** **                                                                      | ** ** | ** ** | ** ** | ** ** | ** ** | **November 24,  1998** | ** ** |
| ** **                                                                      | ** ** | ** ** | ** ** | ** ** | ** ** | **to**                      | ** ** |
| ** **                                                                      | ** ** | **2006**   | ** ** | **2005**   | ** ** | **June 30, 2006** | ** ** |
| Cash flows from  operating activities                                           |       |       |       |       |       |                        |       |
| Net loss                                                                        |       | $          | (621,505   | )          | $          | (1,390,841                  | )          | $ | (5,573,218 | ) |
| Adjustments to  reconcile net loss to net cash provided by operating activities |       |       |       |       |       |                        |       |
| Depreciation                                                                    |       |       |       | 6,640      |       | 23,244                      |       |
| Amortization of  patent                                                         |       |       |       | 2,607      |       | 10,483                      |       |
| Accretion of  convertible debt discount                                         |       |       |       | —     |       | 72,656                      |       |
| Beneficial  conversion feature                                                  |       |       |       | 567,000    |       | 1,182,097                   |       |
| Common stock  issued for services                                               |       |       |       | 476,346    |       | 1,673,910                   |       |
| Common stock  issued to induce debt conversion                                  |       |       |       | —     |       | 63,276                      |       |
| Common stock  issued for interest due on notes payable                          |       |       |       | —     |       | 8,501                       |       |
| Accrued interest  transferred to capital                                        |       |       |       | 107        |       | 4,316                       |       |
| Other                                                                           |       |       |       | —     |       | 21,100                      |       |
| Increase  (decrease) in cash attributable to changes in assets and liabilities: |       |       |       |       |       |                        |       |
| Prepaid expenses                                                                |       | 240,000    |       | 62,500     |       | (31,250                     | )          |
| Loan receivable  - employee                                                     |       | —     |       | (4,800     | )          | (4,800                      | )          |
| Accounts payable  and accrued expenses                                          |       | (69,614    | )          | (117,685   | )          | 101,087                     |       |
| Payroll taxes  payable                                                          |       | 37,730     |       | (43,267    | )          | 16,255                      |       |
|                                                                            |       |       |       |       |       |                        |       |
| Net cash used in  operating activities                                          |       | (413,389   | )          | (441,393   | )          | (1,809,913                  | )          |
|                                                                            |       |       |       |       |       |                        |       |
| Cash flows from  investing activities                                           |       |       |       |       |       |                        |       |
| Payment of loan  receivable-stockholder                                         |       | —     |       | —     |       | (4,000                      | )          |
| Proceeds from  loan receivable - stockholder                                    |       | (115,000   | )          | —     |       | 4,000                       |       |
| Payment of  patent costs                                                        |       | (1,789     | )          | (387       | )          | (67,026                     | )          |
| Purchase of  property and equipment                                             |       | (60,000    | )          | —     |       | (58,567                     | )          |
| Security deposit                                                                |       | —     |       | —     |       | (4,250                      | )          |
|                                                                            |       |       |       |       |       |                        |       |
| Net cash used in  investing activities                                          |       | (176,789   | )          | (387       | )          | (129,843                    | )          |
|                                                                            |       |       |       |       |       |                        |       |
| Cash flows from  financing activities                                           |       |       |       |       |       |                        |       |
| Proceeds from  loans payable - stockholders                                     |       |       |       | 5,000      |       | 65,000                      |       |
| Payment of loans  payable - related parties                                     |       | (2,115     | )          | (1,950     | )          | (11,950                     | )          |
| Proceeds from  loans payable - related parties                                  |       |       |       | 13,000     |       | 154,137                     |       |
| Payment of loans  payable - related parties                                     |       |       |       | —     |       | (116,017                    | )          |
| Proceeds from  Paid in Capital                                                  |       | 139,506    |       |       |       |                        |       |
| Proceeds from  convertible notes payable                                        |       |       |       | 479,500    |       | 1,754,861                   |       |
| Proceeds from  sale of common stock                                             |       | 456,903    |       | 10,000     |       | 132,500                     |       |
| Proceeds from  stock subscriptions receivable                                   |       |       |       | 15,000     |       | 40,000                      |       |
|                                                                            |       |       |       |       |       |                        |       |
| Net cash  provided by financing activities                                      |       | 594,294    |       | 520,550    |       | 2,018,531                   |       |
|                                                                            |       |       |       |       |       |                        |       |
| Net change in cash                                                              |       | 4,116      |       | 78,770     |       | 78,775                      |       |
|                                                                            |       |       |       |       |       |                        |       |
| Cash - beginning of  period                                                     |       | 5,495      |       | 5          |       | —                      |       |
|                                                                            |       |       |       |       |       |                        |       |
| Cash - end of period                                                            |       | $          | 9,611      |       | $          | 78,775                      |       | $ | 78,775 |   |

 

The accompanyingnotes are an integral part of these financial statements.

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**KENILWORTHSYSTEMS CORPORATIONAND SUBSIDIARIES(A DEVELOPMENT STAGE COMPANY)**

**CONDENSED NOTES TOCONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)**

NOTE 1- BASIS OF PRESENTATION

In the opinion ofmanagement, the accompanying unaudited condensed consolidated financialstatements of Kenilworth Systems Corporation and subsidiaries (“Kenilworth”)beginning as of January 1, 2006 contain all adjustments (consisting ofonly normal accruals) necessary to present fairly the consolidated balancesheets as of June 30, 2006 and December 31, 2005 and the relatedstatements of operations and cash flows for the three (3) month periodsended June 30, 2006 and 2005.  These financial statements should be readin conjunction with the consolidated financial statements and notes theretoincluded in our Annual Report on FORM 10-K, restated as a DevelopmentStage Company, filed with the Securities and Exchange Commission on August 28,2006.

The results of operationsfor the three (3) month period ended June 30, 2006 are notnecessarily indicative of the results for the entire year endingDecember 31, 2006.

NOTE 2- THE COMPANY AND NATURE OF BUSINESS

Kenilworth SystemsCorporation (the “Company”) was incorporated in New York in April 1968 andsince emerging from bankruptcy proceedings now plans to be engaged in thebusiness of developing and having terminals and other equipment manufacturedand design systems that permit individuals from remote locations, to play alongwith live in progress casino table games via TV (simulcast) satellite andInternet cable broadcast around the world.

The Company was inbankruptcy proceedings under Chapter 7 and 11 of the Bankruptcy Code for theperiod from August 28, 1982 through September 28, 1998. The Companyceased all operations, between February 2, 1991 through September 28,1998.

NOTE 3- PRINCIPLES OF CONSOLIDATION

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 Systems(UK) Limited, Kenilworth Satellite Broadcasting Corporation (a DelawareCorporation) and Satellite Gaming Consultants, Inc. (a Delaware Corporation).None of these subsidiaries has any assets or liabilities, except SatelliteGaming Consultants, Inc.

NOTE 4- GOING CONCERN UNCERTAINTY

As indicated in Note 2,the Company emerged from Chapter 7 in September 1998 and has not yetcommenced revenue producing operations. These factors create uncertainty as tothe Company’s ability to operate as a going-concern and continue in business.Management plans to develop a wagering system that allows casino patrons andindividuals outside the casino to play along remotely with live in-progresscasino table games. The Company plans to obtain the necessary funding byoffering its Common Stock, Senior Cumulative Convertible Preferred Sharesand/or continue to sell Convertible Promissory Notes in private placements.There can be no assurances the Company can be successful in obtaining suchfinancing.

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.

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NOTE 5 –CONVERTIBLE PROMISSORY NOTES

During the quarters endedJune 30, 2006 and June 30, 2005 respectively, the Company sold to variousprivate investors $105,000 and $567,000 principal amount of ConvertiblePromissory Notes bearing interest at rates ranging from 4.00% to 8.00% perannum.  The Notes had a one-year term and were immediately convertible atthe option of the noteholder into shares of restricted common stock based onconversion prices ranging from $.05 to $.10 per share.  All Notes issued inthe quarters ended June 30, 2006 and June 30, 2005 were converted into atotal of 2,300,000 and 11,240,000 common shares, respectively.

NOTE 6-NON CASH TRANSACTIONS

Common shares issued forservices

2006:

The Company issued26,500,000 shares as compensation for services rendered during the firstquarter period ended March 31, 2006.  Theservices were valued at $403,662.

The Company issued13,700,000 shares as compensation for services rendered during the secondquarter period ended June 30, 2006.  Theservices were valued at $333,493.

NOTE 7 –INVESTMENT IN LIGHTHOUSE SUPPLIES & SERVICES, INC.

In order tooperate a business in the Philippines and engage in a business relationshipwith the Philippine Amusement and Gaming Corporation (PAGCOR), we purchasedLighthouse Supplies & Services, Inc (Lighthouse) for US$60,000.  The previous owners, all citizens of theRepublic of the Philippines, agreed to continue to serve as directorsrepresenting fifty-one percent (51%) with Kenilworth directors representing forty-ninepercent (49%) of the Board.

NOTE 8 –SUBSEQUENT EVENTS

Subsequent to June 30,2006, the Company received $115,000 from the sale of stock subscriptions.

In April 2006, theCompany entered into a consulting agreement for a one-year term.  Asadditional compensation, the consultants received 2,000,000 shares ofrestricted common stock upon signing.

ITEM2.      MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

Since we emerged frombankruptcy proceedings on September 23, 1998 we have had no revenues fromoperations. We sustained substantial losses from general administrativeexpenses amounting of $3,815,302 and $768,229 in year 2005 and 2004 and for thesix-months ended June 30, 2006 we sustained a loss amounting to $621,505compared to a loss of $662,430 for the quarter ending June 30, 2005. Kenilworth

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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 todevelop a wagering system dubbed “RoulabetteTM” that would allow patrons in theindustrialized world to play and wager on live in-progress simulcast casinotable games on TV’s placed in hotels, resorts, bars and other public gatheringplaces and in homes and offices or on personal computers (PC’s) or televisionsets connected to set top boxes for Interactive TV via digital satellite,digital cable and Internet broadcasts emanating from strictly regulatedcasinos.

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 subscribersthroughout the industrialized world to play and wager along with live,in-progress casino table games (Roulette, Craps, Baccarat and more) fromstrictly regulated casinos located in the United States and other locations aroundthe world.

Employing the latestencrypted satellite and cable technology and placing television cameras instrategic locations above the casino table games, without disrupting the normalgame-monitoring activities, (a separate control room would direct the variouscamera angles), and transmitting the table games over the digital satellite,digital cable and Internet networks to television sets (“TV’s”), which become aplatform for playing along with the casino games wherever TV’s are located.

Kenilworth titled theoverall project “RoulabetteTM”.  There are 120 million TV subscribers inthe United States and more than 300 million subscribers throughout the rest ofthe industrialized world (“The Market”).  On average, households in theU.S. have 2 1⁄2 TV’s.  (It is important since the satellite and cablecompanies will charge a separate fee for transmitting the table games). Public gathering places can accommodate (be able to network) up to 200 TV setswith a simple satellite receiving dish or direct cable connections.  With wageringpossible in homes, hotel rooms, resort rooms, pubs, restaurants, race tracksand other public gathering places the Company believes will become a more than$500 billion net win****Market withinfive (5) years (2011) throughout the industrialized world.

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 one (41)lotteries in the United States are owned and operated by County and Stateagencies.  Throughout the rest of the world lotteries are owned bygovernment agencies or non profit charitable agencies that distribute the netearnings to benefit social and charitable programs, or by private entities thatpay a percentage of their net win to designated government agencies.

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 technology is readily available.  Whatis needed is to get through the maze of Local, County, State and Federalregulations in each U.S. State and foreign jurisdictions.  When the firstState in the United States grants the Company permission to transmit thebroadcast from one of its casinos to their residents and to States that do nothave any casinos, (the entire East coast of the United States), the other forty(40) States with lotteries will join expeditiously.

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Kenilworth will share the**net win** revenue with all participatingentities that provide RoulabetteTM gaming without **costs of anykind**. Lotteries 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 school and theirteachers it is a welcome contribution. It also will help close budget gaps.

In addition, throughoutthe United States there are five hundred (500) facilities that simulcast livein-progress horse/dog races.  At all facilities there are several large TVscreens that show the races from the different tracks with general theater typeseating for patrons and at private cubicles with television sets outfitted withtouch screens.  The cubicles rent for additional fees.  After playersopen an account and select pin numbers, they can watch each race offered on thedifferent tracks on the TV and place wagers on the different races by simplychanging channels.  The players may also watch sporting events, the news,the Stock market reports, and in the near future RoulabetteTM, live, in-progresscasino table games.  The simulcast centers have their own databases tomanage the cash deposit and pay winnings on the horse/dog races and will beable to manage the casino games, on the same methods as the lotteries willmanage RoulabetteTM.  With fifty to one hundred fifty (50-150) privateTV’s, available in simulcast centers, especially at night, when fewer tracksare 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 will provideinteraction, fun and far more excitement than playing make believe animated(virtual) games. It is the next best thing, we believe, to actually being atthe table in the casino.

To conduct the initialbroadcast Kenilworth believes it will require ten million dollars ($10,000,000)and there are no assurances we will ever be able to obtain any of such money.At present, the Company does not have the funds readily available but hopes toobtain same, from investors, as soon as Kenilworth can commence broadcastingfrom a casino in the United States or other casinos throughout the world.

In prior years,Kenilworth completed a prototype system that allowed casino patrons to playalong with live in-progress casino table games only within the confines of acasino, via closed circuit television. Also in 1990, we developed and deliveredfor the TAB (Totalizator Agency Board) a quasy government agency of the Stateof Victoria, Australia, a cashless slot machine system. Both systems requireddebit cards and central mainframe computers to manage the wagers. By making useof the expertise applied in the development of the aforementioned systems weplan to develop a second-generation system that will manage the wagers by themicroprocessor installed in TV set-top boxes to receive satellite broadcasts.This as planned would allow a player in an interactive manner, at a remotelocation (outside the casino confines), to experience the actual play andexcitement at the casino table game and to make wagers on the various games,without having to be physically present at the casino or casino table. There are no assurances we will be able to successfully develop any system.

We also propose for slotmachine manufacturers to develop “RoulabetteTM Slot Machines”.  The RoulabetteTM Slot will offer the regularslot or video lottery games and by the touch of a button, the live in-progresscasino table games.  Slot player areoffered a change of pace at the cost of a slot handle pull.  The games are transmitted to the RoulabetteTMSlot via satellite or the Internet (all broadcasts are encrypted to preventunauthorized use of the broadcasts).

 Where authorized,hotels, resorts clubs and other public gathering places will be able to offercasino table game action in their establishments without incurring the costs tooperate a casino. The RoulabetteTM Slot is expected to offer an alternative toslot machine players. There are now believed to be more than ten(10) million slot machines played throughout the world.

Kenilworth will seek topromote to state lotteries and foreign jurisdictions, and other state regulatedentities, the ability to operate websites that will manage the wagers.  There are no assurances that the necessaryapprovals will be granted.

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We believe there arepowerful arguments for state legislatures to amend their Lottery Acts toinclude “Play Along with RoulabetteTM Live”. Lottery revenue is graduallydecreasing in every state. Thirty-two (32) states and the District of Columbiaare pooling their lottery prizes with the “PowerBall” and “Big Game” nationallotteries. In most of these states, the state lottery finds it difficult toobtain sufficient numbers of players to make up a minimum weekly lottery prizeof one million dollars ($1,000,000). In most states, the revenue from lotteryplay benefits education. States need something more attractive to restorerevenue. With “Play Along with RoulabetteTM Live”, there is interaction,excitement and fun. All which we believe may be at much better odds than may beoffered by the lotteries. The lotteries can establish maximum wagers daily,weekly and monthly limits, and monitor compulsive gamblers, and almost prevent100% of the underaged from wagering on RoulabetteTM by use of lottery terminalsto make deposits in cash to wager along.

Project RoulabetteTM is aconcept intended to be developed and there can be no assurances that it will everbe developed successfully.  The Patented microprocessors to be installedin the TV set top boxes or the Television set directly have not beendesigned.  We have as at March 31, 2006, no firm developed agreement,customers except our agreement with the Philippines Amusement and GamingCorporation (PAGCOR) for proposals submitted for future business and there canbe no assurances that we will ever have same.

Kenilworth plans toobtain the necessary funding by offering in Private Placements, Common Shares,Convertible Promissory Notes, and Cumulative Convertible Preferred Sharesand/or by the sale of limited joint venture participations in futureRoulabetteTM franchises. There can be no assurances that the Company will beable to secure any of these funds.

 THE STATUS WITHPAGCOR

During January2006, 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 theRepublic of the Philippines chartered government gaming monopoly.  PAGCOR partially owns and exclusivelyoperates all fourteen (14) Filipino casinos, some of which are located inexclusive resort facilities frequented by Asian patrons (tourists).

In March 2006, Kenilworthconducted a live, in-progress casino table game test to demonstrate the abilityto broadcast the table games, for around the world viewing, without disruptingthe normal security monitoring and protecting the privacy of players atadjoining table games.  The film clip ofthe test broadcast which was made at a roulette table located in the new HyattHotel and Casino, Manila, is available for viewing on our websitewww.kenilworthsys.com (see Press Release: Monday, March 6, 2006).

In April 2006,Kenilworth guaranteed to pay PAGCOR monthly payments, for hosting thebroadcasts when they commence, for a contract period of ten (10) years; US $1million for year one (1); US $2 million for years two (2) and three (3); US $5million for years four (4) through seven (7) and US $10 million for every yearthereafter, totaling US $636,000,000 over the ten (10) year period.

The payments haveto be made regardless from where we broadcast. Kenilworth requires the flexibility to broadcast from other casinosbesides the Philippines.

In July 2006,PAGCOR granted us to commence the first live, in-progress casino table gamebroadcasts to emanate from the new (August 2005) Hyatt Hotel & Casino inManila, Philippines.

**We haveacquired the broadcast site for RoulabetteTM. Now we have to obtain agreements from jurisdictions that will permit toreceive the broadcasts.  We are in anactive search in Europe, including Eastern Europe, South America, China, Indiaand the Pacific Rim nations.**

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Virtual casino gambling,using the Internet, has flourished not only in the United States, but alsothroughout the industrialized world.

In England and Ireland,horseracing and football wagering has been permitted on gaming platforms foryears.  Now, in advance of new proposedUnited Kingdom gaming legislation, virtual casino gaming is taking place.

Illegal gambling isthriving in the most populated markets in Asia, China, India and the PacificRim Nations.

China may be the firstcountry to accept RoulabetteTM.  TheChinese Government does not wish their constituents to visit Macau.  Macau represents all that Las Vegas has tooffer and is entirely American.  Chinacontrols and restricts (censors) all news services, foreign newspapers,magazines and all publications that do not meet their ideology.  China’s economy is advancing at an astonishingpace but remains a Communist oriented society and remains obstructive to therest of the industrialized world, despite joining the World Trade Organization(WTO).  The Chinese Government viewsMacau as a “stop over” for tourists that visit China, as yet, a virgindestination and for other affluent Asian gamblers.

We believe RoulabetteTMwagering may receive early acceptance in China. The Government can control theamount of the wagering and more importantly, can determine the source of thefunds (wagers).  The same scenario may besaid of India.

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 of our patents, filedin the forty-nine (49) industrialized countries in the world, provide fortransmitting remote, live in-progress casino table games via telephone lines,Internet and satellite (satellite primarily for the U.S. market).  Using broadband, Internet is simpler and moreeconomical to operate than using satellite transmission.

RoulabetteTM offers **content** to the broadcasting industry and a **medium for local and international advertisers.**

According to WangXuehong, head of the China Center for Lottery Studies of Beijing University,revenue form legal lotteries in China in 2005 reached 70 billion Yuan ($87.5billion US dollars).

We have two (2) U.S.patents pending using lottery terminals to manage the wagering.  The patents have been published and filedwith our other patents throughout the forty-nine (49) countries.  It may become the incentive needed for theChinese Government to permit our live, in-progress table games from thePhilippines **or from a casino in Macau**.

In order to gain a breakthrough the maze of regulations we just need to demonstrate the viability ofRoulabetteTM by broadcasting the live games from the Hyatt Casino in Manila forviewing by cable and satellite subscribers, initially without participating inactual gambling.  Similar to pokertournaments that are offered for viewing only.

**If governments cannot controlillegal gambling, why not make it legal and allow the various governmentagencies share in the net win revenue.**

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PART II.OTHER INFORMATION

Item1.            LEGAL PROCEEDINGS:

None

Item 2.            CHANGEIN SECURITIES:

None

Item 3.            DEFAULTUPON SENIOR SECURITIES:

None

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

None

Item 5.         OTHERINFORMATION:

The Company plans to holdits Annual Meeting of Shareholders in September/October 2006 or any adjournmentthereof with proxy materials mailed to shareholders of record inSeptember/October 2006 prior to the proposed meeting dates.

Item6.            EXHIBITS AND REPORTSON FORM 8-K:

Ex 31.1Certification of Chief Financial Officer of the Company Required byRule 13a-14(a) or Rule 15d-14(c) of the Exchange Act

 

Ex 32.1 Chairmanand Chief Executive Officer Certification pursuant to 18 U.S.C. Section 1350,as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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SIGNATURE

Pursuant to therequirements of the Securities Exchange Act of 1934, the Registrant has dulycaused this report to be signed in its behalf by the undersigned thereunto dulyauthorized.

 
|        |   | KENILWORTH SYSTEMS CORPORATION                                 |
|--------|--------|----------------------------------------------------------------|
|   |   |                                                           |
| By:    |   | /s/ Herbert Lindo                                              |   |
|   |   | Herbert Lindo,                                                 |
|   |   | Chairman, Chief Executive Officer and Chief  Financial Officer |
|   |   | September 8, 2006                                         |

 

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