**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

 

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**FORM 10-Q**

 

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**(Mark One)**

 
| ý                                                  | ** ** | **Quarterly  report pursuant to Section 13 OR 15(D) of the Securities Exchange  Act of 1934**  |
|---------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------|
|                                                    |
| **For the  quarterly period ended March 31, 2005** |
|                                                    |
| **OR**                                                  |
|                                                    |
| **o**                                                   | ** ** | **Transition  report pursuant to Section 13 or 15(D) of the Securities Exchange  Act of 1934** |
|                                                    |
| **For the  transition period from to**                  |
|                                                    |
| **Commission  File Number: 0-08962**                    |

 
| **KENILWORTH SYSTEMS CORPORATION**                      |
|---------------------------------------------------------|
| (Exact name of registrant  as specified in its charter) |

 
| **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) |

 

Indicateby check mark whether the Registrant (1) has filed all reports required tobe filed by section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days. Yes  ý   No  o

 

Statethe number of shares outstanding of each of the issuer’s classes of commonstock as of the latest practical date

 

Thenumber of shares of common stock, $.01 par value of the Registrant outstandingas of March 31, 2005 was 148,526,245.

 

 

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**Table ofContents**

 

**KENILWORTHSYSTEMS CORPORATION AND SUBSIDIARIES**

**(ADEVELOPMENT STAGE COMPANY)**

 

**INDEX**

 
| **Part I.**  | ** ** | **Financial Information**                                                                                                                                                         |   |
|-------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|              |       |                                                                                                                                                                              |   |
| Item  1.          |       | Financial  Statements                                                                                                                                                             |   |
|              |       |                                                                                                                                                                              |   |
|              |       | Condensed  Consolidated Balance Sheets (unaudited) - March 31, 2005 and  December 31, 2004                                                                              | 4      |
|              |       |                                                                                                                                                                              |   |
|              |       | Condensed  Consolidated Statements of Operation and Deficit (unaudited) - Three months  ended March 31, 2005 and 2004, and the period from inception to  March 31, 2005 | 5      |
|              |       |                                                                                                                                                                              |   |
|              |       | Condensed  Consolidated Statements of Cash Flows (unaudited) - Three months ended March 31,  2005 and 2004, and the period from inception to March 31, 2005             | 6      |
|              |       |                                                                                                                                                                              |   |
|              |       | Condensed  Notes to Consolidated Financial Statements (unaudited)                                                                                                                 | 7-10   |
|              |       |                                                                                                                                                                              |   |
| Item  2.          |       | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                                                                                       | 11-13  |
|              |       |                                                                                                                                                                              |   |
| Item  3.          |       | Quantitative  and Qualitative Disclosures About Market Risk                                                                                                                       | 2      |
|              |       |                                                                                                                                                                              |   |
| Item  4.          |       | Controls  and Procedures                                                                                                                                                          |   |
|              |       |                                                                                                                                                                              |   |
| **Part II.** | ** ** | **Other Information**                                                                                                                                                             |   |
|              |       |                                                                                                                                                                              |   |
| Item 1.           |       | Legal Proceedings                                                                                                                                                                 | 14     |
|              |       |                                                                                                                                                                              |   |
| Item 6.           |       | Exhibits                                                                                                                                                                          | 16     |
|              |       |                                                                                                                                                                              |   |
| Signature         | 15         |

 

CAUTIONARY STATEMENT FORPURPOSES OF THE “SAFE HARBOR” PROVISIONS OF THEPRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 AND RISK FACTORS

 

Theinformation contained in this Form 10-Q and Kenilworth’s otherfilings with the Securities Exchange Commission may contain “forward-looking”statements within the meaning of section 27A of the Securities Act of1933, as amended, and Section 21E of the Securities Exchange Act of 1934,as amended, and is subject to the safe harbors created thereby. Suchinformation involves important risks and uncertainties that could significantlyaffect results in the future and, accordingly, such results may differ fromthose expressed in any forward looking statements herein. Future operatingresults may be adversely affected as a result of a number of factors.

 

Youshould not rely on forward-looking statements in this Form 10-Q.This Form 10-Q contains forward-looking statements that involvedrisks 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.

 

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RISKS

 

Specificreference is made to each of the risks described in Item 7 of the Form 10-Kfor December 31, 2004 under the discussion “Cautionary Statement ForPurposes of the Safe Harbor Provisions of the Private Securities LitigationReform Act of 1995 and Risk Factors”. Reference is also made to future filingsunder Forms 10-Q and Forms 10-K and filings under the SecuritiesExchange Act of 1934 as amended and as may be applicable under the SecuritiesAct of 1933 as amended.

 

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**KENILWORTH SYSTEMS CORPORATION**

**AND SUBSIDIARIES**

**(A DEVELOPMENT STAGE COMPANY)**

 

**CONDENSEDCONSOLIDATED BALANCE SHEETS**

**(UNAUDITED)**

 
| ** **                                                                                                                                                         | ** ** | **March 31  2005** | ** ** | **December 31  2004** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|----------------------------|------------|
|                                                                                                                                                               |       |                    |       |                       |       |
| ASSETS                                                                                                                                                             |       |                    |       |                       |       |
|                                                                                                                                                               |       |                    |       |                       |       |
| Cash                                                                                                                                                               |       | $                       | 25,300     |                       | $          | 19,158 |   |
| Due from Shareholders (subscriptions, see  subsequent events page 14)                                                                                         |       | 352,500                 |       | 142,000                    |       |
| Secured Note Receivable                                                                                                                                            |       | —                  |       | 50,000                     |       |
| Prepaid Expenses                                                                                                                                                   |       | 132,500                 |       | 198,300                    |       |
| Security Deposits                                                                                                                                                  |       | 9,000                   |       | 5,302                      |       |
| Loans Receivable                                                                                                                                                   |       | 17,100                  |       |                       |       |
| Property, Plant and Equipment, Net                                                                                                                                 |       | 42,862                  |       | 45,118                     |       |
| CURRENT  ASSETS                                                                                                                                                    |       | 579,262                 |       | $                          | 459,878    |   |
| Patent, Net                                                                                                                                                        |       | 337,125                 |       | 329,917                    |       |
| TOTAL ASSETS                                                                                                                                                       |       | $                       | 916,387    |                       | $          | 789,795 |   |
|                                                                                                                                                               |       |                    |       |                       |       |
| LIABILITIES  AND STOCKHOLDERS’ EQUITY (DEFICIT)                                                                                                               |       |                    |       |                       |       |
| Accounts Payable                                                                                                                                                   |       | $                       | 120,179    |                       | $          | 129,054 |   |
| Payroll Taxes Payable                                                                                                                                              |       | —                  |       | 21,939                     |       |
| Notes Payable                                                                                                                                                      |       | 22,282                  |       | 22,282                     |       |
| Installment Payment (Auto)                                                                                                                                         |       | 5,674                   |       | 6,382                      |       |
| TOTAL LIABILITIES                                                                                                                                                  |       | $                       | 148,135    |                       | $          | 180,107 |   |
|                                                                                                                                                               |       |                    |       |                       |       |
| Common Stock, $.01 par value, authorized  200,000,000 shares; issued and outstanding 136,751,245 in December 31,  2004 and 148,526,245 on March 31, 2005 |       | $                       | 1,485,262  |                       | $          | 1,412,262 |   |
|                                                                                                                                                               |       |                    |       |                       |       |
| Paid in capital                                                                                                                                                    |       | 27,450,242              |       | 27,081,184                 |       |
| Deficit                                                                                                                                                            |       | (28,167,252             | )          | (27,883,758                | )          |
| TOTAL STOCKHOLDERS’ EQUITY                                                                                                                                    |       | $                       | 768,252    |                       | $          | 609,688 |   |
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                                                    |       | $                       | 916,387    |                       | $          | 789,795 |   |

 

Seeaccompanying notes.

 

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**KENILWORTH SYSTEMS CORPORATION**

**AND SUBSIDIARIES**

**(A DEVELOPMENT STAGE COMPANY)**

 

**CONDENSEDCONSOLIDATED STATEMENTSOF OPERATION AND DEFICIT**

**(UNAUDITED)**

 
| ** **                                   | ** ** | **Three-month ended  March 31** | ** ** | **PERIOD FROM  SEPT. 28, 1998  (INCEPTION OF  DEVELOPMENT  STAGE  COMPANY) TO** | ** ** |
|----------------------------------------------|------------|--------------------------------------|------------|---------------------------------------------------------------------------------|------------|
| ** **                                   | ** ** | **2005**                             | ** ** | **2004**                                                                        | ** ** | **DEC. 31, 2004** | ** ** |
|                                         |       |                                 |       |                                                                            |       |   |   |
| Revenues:                                    |       | $                                    | 0          |                                                                            | $          | 0 |   | $ | 0 |   |
| Sales                                        |       |                                 |       |                                                                            |       |   |   |
| Costs and Expenses:                          |       |                                 |       |                                                                            |       |   |   |
| Selling, general and administrative expenses |       | $                                    | 283,494    |                                                                            | $          | 365,939 |   | 8,100,367 |   |
| Total Costs and Expenses                     |       | $                                    | 283,494    |                                                                            | 365,393    |   | 8,100,367 |   |
|                                         |       |                                 |       |                                                                            |       |   |   |
| Net loss before other income                 |       | $                                    | 283,494    |                                                                            | $          | 365,939 |   | 8,100,367 |   |
| Net loss                                     |       | $                                    | 283,494    |                                                                            | $          | 365,939 |   |   |   |
| Deficit — Beginning of period           |       | (27,883,758                          | )          | (26,449,396                                                                     |       |   |   |
| Deficit — End of period                 |       | (28,167,252                          | )          | (26,815,335                                                                     |       | (28,167,252 | ) |
|                                         |       |                                 |       |                                                                            |       |   |   |
| Loss per Share of common stock               |       | $                                    | 0.001      |                                                                            | 0.003      |   |   |   |
| Average number of shares outstanding         |       | 148,526,245                          |       | 121,295,121                                                                     |       |   |   |
|                                              |            |                                      |            |                                                                                 |            |  |  |  |  |  |

 

Seeaccompanying notes.

 

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**KENILWORTH SYSTEMS CORPORATION**

**AND SUBSIDIARIES**

**(A DEVELOPMENT STAGE COMPANY)**

 

**CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS**

**(UNAUDITED)**

 
| ** **                                                                    | ** ** | **Three-month ended  March 31** | ** ** | **PERIOD FROM  SEPT. 28, 1998  (INCEPTION OF  DEVELOPMENT  STAGE  COMPANY) TO** | ** ** |
|-------------------------------------------------------------------------------|------------|--------------------------------------|------------|---------------------------------------------------------------------------------|------------|
| ** **                                                                    | ** ** | **2005**                             | ** ** | **2004**                                                                        |       | **DEC. 31, 2004** |   |
|                                                                          |       |                                 |       |                                                                            |       |   |   |
| CASH FLOWS USED IN OPERATING ACTIVITIES                                       |       |                                 |       |                                                                            |       |   |   |
|                                                                          |       |                                 |       |                                                                            |       |   |   |
| Net Loss                                                                      |       | $                                    | 283,494    |                                                                            | $          | 365,939 |   | 8,100,367 |   |
| Adjustments to reconcile net income to net  cash used in operating activities |       |                                 |       |                                                                            |       |   |   |
| Changes in Accounts Receivable and Prepaid  Expense                           |       | (37,100                              | )          | 112,500                                                                         |       | 37,500 |   |
| Depreciation and amortization                                                 |       | (19,851                              | )          |                                                                            |       |   |   |
| Increase (decrease) in due to related party                                   |       | 65,527                               |       | (87,809                                                                         | )          |   |   |
| Increase (Decrease) in accrued liabilities                                    |       | 89,467                               |       | (58,668                                                                         | )          |   |   |
|                                                                          |       |                                 |       |                                                                            |       |   |   |
| NET CASH USED IN OPERATING ACTIVITIES                                         |       | 381,537                              |       | (399,916                                                                        | )          | 381,537 |   |
|                                                                          |       |                                 |       |                                                                            |       |   |   |
| Cash flows from Investing Activities                                          |       |                                 |       |                                                                            |       |   |   |
| Purchase of Equipment                                                         |       | $                                    | 0          |                                                                            | $          | 0 |   | 42,862 |   |
| Amortization of Patent                                                        |       | 7,208                                |       | 5,251                                                                           |       |   |   |
| CASH FLOWS FROM                                                               |       |                                 |       |                                                                            |       |   |   |
| Conversion of Promissory Notes                                                |       | 380,471                              |       | 513,800                                                                         |       | 4,334,070 |   |
|                                                                          |       |                                 |       |                                                                            |       |   |   |
| FINANCING ACTIVITIES                                                          |       |                                 |       |                                                                            |       |   |   |
| Increase (decrease) in due to Affiliate                                       |       | —                               |       | —                                                                          |       |   |   |
| Proceeds from issuance of Convertible  Promissory Note                        |       | —                               |       | —                                                                          |       |   |   |
| Net cash provided by financing Activities                                     |       | $                                    | 387,679    |                                                                            | $          | 513,800 |   |   |   |
| Net Increase (Decrease) in cash                                               |       | 6,142                                |       | 119,136                                                                         |       |   |   |
| CASH — BEGINNING OF PERIOD                                               |       | 19,158                               |       | 7,136                                                                           |       |   |   |
| CASH — END OF PERIOD                                                     |       | $                                    | 25,300     |                                                                            | $          | 126,272 |   |   |   |

 

Seeaccompanying notes.

 

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**KENILWORTH SYSTEMSCORPORATION**

**AND SUBSIDIARIES**

 

**CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS**

**(UNAUDITED)**

 

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 1,2005 contain all adjustments (consisting of only normal accruals) necessary topresent fairly the consolidated balance sheets as of March 31, 2005 and December 31,2004 and the related statements of operations and cash flows for the three (3) monthperiods ended March 31, 2005 and 2004.

 

The results of operations for the three (3) monthperiod ended March 31, 2005 are not necessarily indicative of the resultsfor the 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 and havingterminals and other equipment manufactured and design systems that permitindividuals from remote locations, to play along with live in progress casinotable games via TV (simulcast) satellite and satellite cable broadcast aroundthe world.

 

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

 

NOTE 3 - PRINCIPLES OF CONSOLIDATION

 

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

 

NOTE 4 - EARNINGS PER SHARE

 

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

 

Basic loss per share is based on theweighted-average number of shares of common stock outstanding for the period,which were ($0.010), ($0.001), and ($0.003) respectively for the year ended December 31,2004, and the periods March 31, 2005 and March 31, 2004.

 

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

 

NOTE 5 - 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.

 

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The Company estimates that it has availableapproximately twelve million dollars ($12,000,000) in net operating loss carry-forwards,which expire at various dates through 2020. Utilization of the NOL carryforward may be limited under various sections of the Internal Revenue Codedepending on the nature of the Company’s operations.

 

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

 

NOTE 6 - USE OF ESTIMATES IN THE FINANCIAL STATEMENTS

 

The preparation of financial statements inconformity with generally accepted accounting principles 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 7 - 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 8 - 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         |       |
| Patents           |       | 17        |       |

 

Property and Equipment consist of the following asof March 31, 2005 and March 31, 2004:

 
| ** **                         | ** ** | **Three-month ended  March 31** | ** ** |
|------------------------------------|------------|--------------------------------------|------------|
| ** **                         | ** ** | **2005**                             | ** ** | **2004** | ** ** |
|                               |       |                                 |       |   |   |
| Office  Equipment                  |       | $                                    | 27,180     |   | $ | 3,351 |   |
| Leasehold  Improvements            |       | $                                    | 26,582     |   |   |   |
| Vehicles                           |       | 11,500                               |       | 11,500 |   |
|                               |       | $                                    | 65,262     |   | $ | 14,851 |   |
| Less-Accumulated  Amortization     |       | 22,400                               |       | 2,549 |   |
| Total  Property and Equipment, Net |       | $                                    | 42,862     |   | $ | 12,302 |   |

 

Depreciation expense for the quarters ended March 31,2005 and March 31, 2004 was $23,400 and $2,549 respectively.

 

NOTE 9 - 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 casino

 

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patrons and individuals outside the casino to play along remotely withlive in-progress casino table games. The Company plans to obtain the necessaryfunding by offering its Common Stock, Senior Cumulative Convertible PreferredShares and/or continue to sell Convertible Promissory Notes in privateplacements, or selling limited joint venture participations in future “playalong with casino game” franchises. There can be no assurances the Company canbe successful in obtaining such financing.

 

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 10 – NON CASH TRANSACTIONS

 

During the year ended December 31, 2002 theCompany issued 10,411,355 shares of restricted Common Stock in payments forservices rendered in the amount of $498,627 an average price of $0.099 pershare.  The amount includes five million (5,000,000) shares for servicesrendered by Directors of the Company. (See Note 11)

 

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 includes two million five hundred thousand (2,500,000)shares for services rendered by the Directors of the Company. (See Note 11)

 

During the year ended December 31, 2004 theCompany issued 16,758,793 shares of restricted Common Stock in payment forservices rendered in the amount of $1,330,122 an average price of $0.086 pershare.  The amount did not include 2,500,000 shares for the servicesrendered by the Directors of the Company (See Note 13).

 

During the First Quarter period ended March 31,2005 the Company issued 750,000 shares of restricted Common Stock in paymentsfor services rendered in the amount of $72,500, an average price of $0.096 pershare.

 

In connection with the emergence from bankruptcy in September 1998the trustee distributed four million three hundred thousand four hundred andthree dollars ($4,300,403) to pay one hundred percent (100%) of all approvedclaims.

 

NOTE 11 - COMMITMENTS AND CONTINGENCIES

 

OUTSTANDING PAYROLL TAXES

 

NONE at March 31, 2005

 

NOTE 12 – CONVERTIBLE PROMISSORY NOTES

 

During the year 2002, the Company sold one (1) yearConvertible Promissory Notes totaling two hundred ninety thousand dollars($290,000).  At the option of the Note holders, the Notes were convertibleinto Common Stock of the Company at the rate of between one (1) share foreach $.10 to $.15 of face value of the indebtedness represented by the Notes,together with interest at the annual rate of two percent (2%) above the primerate quoted by Citibank of N.A. Management believed it was unable to repay theNotes when they became due.  In order to induce the Note Holders toconvert the Notes by year end 2002 when the quoted price per Common Share, as tradedon the Pink Sheet Market was between $.02 and $.08 per share, the Companyoffered to convert the Notes at the rate of one (1) share for each $.05 ofindebtedness represented by each Note, together with accrued interest.  Asa result of the Company’s offer, all Note Holders converted their Notes intofive million seven hundred seventy seven thousand seven hundred and fifty(5,777,750) shares of Common Stock, including accrued interest, at an averageprice of $0.05 share.

 

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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 restricted Common Stock of the Company at the rate of between one (1) sharefor each $0.07 and $0.10 of face value of the indebtedness represented by theNotes together with accrued interest at the annual rate of two percent (2%)above the prime rate quoted by Citibank of N.A. Management believed it wasunable to repay the Notes when they become due, in order to induce the NoteHolders to convert the Notes by year end 2003 when the quoted price per CommonShare, as traded on the Pink Sheet Market was between $0.035 and $0.06 pershare, the Company offered to convert the Notes at the rate of one (1) sharefor each $0.05 of indebtedness represented by each Note, together with accruedinterest.  As the result of the Company’s offer, all Note Holdersconverted their Notes into 7,712,606 restricted shares of authorized butunissued Common Stock, including accrued interest, at an average price of $0.05per share.

 

During the year 2004, the Company sold one (1) yearConvertible Promissory Notes totaling $1,049,500.  At the option of the Note Holders, the Noteswere convertible into restricted Common Stock of the Company at a rate ofbetween one (1) share for each $0.10 to $0.12 of face value of theindebtedness represented by the Notes together with accrued interest, if any,at the annual rate of two percent (2%) above the prime rate quoted by Citibankof N.A. Management believed it was unable to repay the Notes when they becomedue, in order to induce the Note Holders to convert the Notes by year end 2004when the quoted price per Common Share, as traded on the Pink Sheet Market wasbetween $0.07 and $0.08 per share, the Company offered to convert the Notes atthe rate of one (1) share for each $0.05 of indebtedness represented byeach Note, together with accrued interest.  As the result of the Company’soffer, all Note Holders converted their Notes into 20,054,699 restricted sharesof authorized but unissued Common Stock, including accrued interest, at anaverage price of $0.05 per share.

 

During the first quarter period ended March 31,2005, the Company sold one (1) year Convertible Promissory Notes totaling$317,500 which were converted.  At theoption of the Note Holders, the Notes were convertible into Restricted CommonStock of the rate of between one (1) share for each $0.08 to $0.10 of facevalue of the indebtedness represented by the Notes together with accruedinterest, if any, at the annual rate of two percent (2%) above the prime ratequoted by Citibank, N.A.  All NoteHolders converted their Notes into 6,350,000 restricted shares.

 

The Company accepted the orders for the ConvertiblePromissory Notes conditioned upon the Board of Directors of the Company wouldapprove the sale of the Notes.  Theentire Board was unable to meet until Sunday, May 8, 2005, when the Boardunanimously voted to accept the purchase of the Notes.  In order to reflect the Note purchase duringthe first quarter period ended March 31, 2005, the Company reported thepurchase of the $282,500 in Notes as paid starting on May 11, 2005 whenthe Company processed the previously issued checks totaling $282,500.  All checks cleared and are reported as SubsequentEvents.  $20,000 of subscription of Notesunrelated to the before mentioned transactions have been extended to the end ofthe second quarter period ended June 30, 2005.

 

NOTE 13 – PREPAID ITEMS

 

At the Board of Directors Meeting held on December 1,2004 the Board approved the issuance of two million five hundred thousand(2,500,000) shares of authorized but unissued Common Stock of the Corporationto the Directors in lieu of Director’s Compensation and Director’s Liabilityinsurance for the ensuing year: Gino Scotto, Kit Wong, Patrick J. McDevitt,Joyce Clark and Maureen Plovnick each were issued five hundred thousand(500,000) shares of restricted Common Stock of the Company at a price of tencents ($0.10) per share, the equivalent of fifty thousand dollars ($50,000) foreach Director, a total of $250,000.  The $250,000 is recorded for sharesissued as paid in capital in the fourth quarter period in 2004.

 

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

 

RESULTS OF OPERATIONS

 

Since we emerged from bankruptcy proceedings on September 23,1998 we have had no revenues from operations. We sustained substantial lossesfrom general administrative expenses amounting of $1,434,361 and $832,168 inyear 2004 and 2003 and for the three-months ended March 31, 2005 wesustained losses from general administrative expenses amounting to $283,494 comparedto a loss of $365,939 for the quarter ending March 31, 2004. Kenilworthhas had no revenues from operations during the past twelve (12) years and therecan be no assurances that it will ever have revenues from present plannedoperations.

 

LIQUIDITY AND CAPITAL RESOURCES

 

Our present plans are to develop a wagering systemdubbed “RoulabetteTM” that would allow patrons in the industrialized world toplay and wager on live in-progress simulcast casino table games on terminalsplaced in hotels, resorts, bars and other public gathering places and in homesand offices on personal computers (PC’s) or television sets connected to settop boxes for Interactive TV via digital satellite and digital cable broadcastsemanating from strictly regulated casinos.

 

GENERAL

 

Sinceearly in the year 2000 we have been solely engaged in developing patents,markets and investigating how best to obtain Governmental approvals, byengaging lobbyists and consultants that would allow television satellite andcable subscribers throughout the industrialized world to play and wager alongwith live, in-progress casino table games (Roulette, Craps, Baccarat and more)from strictly regulated casinos located in the United States and otherlocations around the world.

 

Employingthe latest encrypted satellite and cable technology and placing televisioncameras in strategic locations above the casino table games, without disruptingthe normal game-monitoring activities, (a separate control room would directthe various camera angles), and transmitting the table games over the digitalsatellite and digital cable networks to television sets (“TV’s”), which becomea platform for playing along with the casino games wherever TV’s are located.

 

Kenilworthtitled the overall proposed project “RoulabetteTM”.  There are 120 million TV subscribers in theUnited States and more than 300 million subscribers throughout the rest of theworld (“The Market”).  On average,households in the U.S. have 2 1⁄2 TV’s. (It is important since the satellite and cable companies will charge aseparate fee for transmitting the table games). Public gathering places can accommodate (be able to network) up to 200TV sets with a simple satellite receiving dish or direct cableconnections.  With wagering possible inhomes, hotel rooms, resort rooms, pubs, restaurants, race tracks and otherpublic gathering places the Company believes will become a more than $500billion net win****Market within five (5) yearsthroughout the industrialized world.

 

Tobest market the casino games, the Company is selecting lotteries throughout theworld to manage and operate the distribution and cash handling (deposits toplay and paying winnings) using the lotteries’ existing databases for the saleof lottery tickets, and paying winnings at regular lottery licensed terminallocations.

 

Allforty one (41) lotteries in the United States are owned and operated by Countyand State agencies.  Throughout the restof the world lotteries are owned by government agencies or non profitcharitable agencies that distribute the net earnings to benefit social andcharitable programs, or by private entities that pay a percentage of their netwin to designated government agencies.

 

Theseforeign lotteries also have the same databases as lotteries in the UnitedStates, except most lotteries throughout Europe pool their lotteries betweencountries, not unlike Mega Millions and PowerBall in the

 

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United States, which makes the distribution simpler and very costeffective for both Kenilworth and the lotteries.

 

Thereare no technical breakthroughs required. The technology is readily available. What is needed is to get through the maze of Local, County, State andFederal regulations in each U.S. State and foreign countries.  When the first State in the United Statesgrants the Company permission to transmit the broadcast from one of its casinosto their residents and to States that do not have any casinos, (the entire Eastcoast of the United States), the other forty (40) States with lotteries willjoin expeditiously.

 

Thelotteries will receive forty percent (40%) of the net win without costs of any kind. In addition, theStates’ general fund will receive five percent (5%) of the net win, alsowithout costs of any kind.

 

InStates that designate exclusively lottery proceeds to schools and theirteachers it is a welcome contribution. In other States it will close budget gaps.

 

Inaddition, throughout the United States there are five hundred (500) facilitiesthat simulcast live in-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 foradditional fees.  After players open anaccount 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 alsowatch sporting events, the news, the Stock market reports, and in the nearfuture RoulabetteTM, live, in-progress casino table games.  The simulcast centers have their owndatabases to manage the cash deposit and pay winnings on the horse/dog racesand will be able to manage the casino games, on the same methods as thelotteries will manage RoulabetteTM.  Withfifty to one hundred (50-100) private TV’s, available in simulcast centers,especially at night, when fewer tracks are operating.

 

When playing along with live table games from ahighly regulated jurisdiction, players will be assured that the game resultsare exactly what they see; and, playing along with live casino table games suchas Roulette, Craps and Baccarat we believe will provide interaction, fun andfar more excitement than playing make believe animated (virtual) games. It isthe next best thing, we believe, to actually being at the table in the casino.

 

To conduct the initial broadcast Kenilworth believesit will require ten million dollars ($10,000,000) and there are no assuranceswe will ever be able to obtain any of such money. At present, the Company doesnot have the funds readily available but hopes to obtain same, from investors,as soon as Kenilworth can commence broadcasting from a casino in the UnitedStates or other casinos throughout the world.

 

In prior years, Kenilworth completed a prototypesystem that allowed casino patrons to play along with live in-progress casinotable games only within the confines of a casino, via closed circuittelevision. Also in 1990, we developed and delivered for the TAB (TotalizatorAgency Board) a quasy government agency of the State of Victoria, Australia, acashless slot machine system. Both systems required debit cards and centralmainframe computers to manage the wagers. By making use of the expertiseapplied in the development of the aforementioned systems we plan to develop asecond-generation system that will manage the wagers by the microprocessorinstalled in TV set-top boxes to receive satellite broadcasts. This as plannedwould allow a player in an interactive manner, at a remote location (outsidethe casino confines), to experience the actual play and excitement at thecasino table game and to make wagers on the various games, without having to bephysically present at the casino or casino table.  There are no assuranceswe will be able to successfully develop any system.

 

The proposed “RoulabetteTM” system also will provideRoulabetteTM terminals that may be placed in resorts, racetracks or othergathering places which consists of a personal computer (PC) with two (2) monitors. One (1) monitor will display the live in-progress casino table game playas well as advertising.  The second, which will be outfitted with a touchscreen, allows a player to place wagers directly over the games displayed onthe first monitor.  It will also have a variable denomination billacceptor and a bar code ticket dispenser.  Both monitors will be housed inan attractive enclosure. The RoulabetteTM terminal will

 

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be the size of a typical “low boy” slot machine (desk topheight).  Each terminal would be self-sufficient, manages wagers from$0.25 to $100.00 or the equivalent in most any currency, and receives the tablegame play via simulcast digital satellite TV transmissions (with dish antennas)or local digital cable connection from legally operating casinos throughout theindustrialized world.

 

Where authorized, hotels, resorts clubs and otherpublic gathering places will be able to offer casino table game action in theirestablishments without incurring the costs to operate a casino. The RoulabetteTMterminal is expected to offer an alternative to slot machine players. There arenow believed to be more than ten (10) million slot machines playedthroughout the world.

 

Kenilworth will seek to promote to state lotteriesand foreign jurisdictions, and other state regulated entities, the ability tooperate websites that will manage the wagers. The program will ask statelegislatures to amend their lottery horse/dog racing and OTB legislation toinclude RoulabetteTM wagering or promulgate new legislation. There are noassurances that the necessary approvals will be granted.

 

We believe there are powerful arguments for statelegislatures to amend their Lottery Acts to include “Play Along withRoulabetteTM Live”. Lottery revenue is gradually decreasing in every state.Thirty-two (32) states and the District of Columbia are pooling their lotteryprizes with the “PowerBall” and “Big Game” national lotteries. In most of thesestates, the state lottery finds it difficult to obtain sufficient numbers ofplayers to make up a minimum weekly lottery prize of one million dollars ($1,000,000).In most states, the revenue from lottery play benefits education. States needsomething more attractive to restore revenue. With “Play Along with RoulabetteTMLive”, there is interaction, excitement and fun. All which we believe may be atmuch better odds than may be offered by the lotteries. The lotteries canestablish maximum wagers daily, weekly and monthly limits, and monitor compulsivegamblers, and almost prevent 100% of the underaged from wagering on RoulabetteTMby use of lottery terminals to make deposits in cash to wager along.

 

Project RoulabetteTM is a concept intended to bedeveloped and there can be no assurances that it will ever be developedsuccessfully.  The Patentedmicroprocessors to be installed in the TV set top boxes or the Television setdirectly have not been designed.  We haveas at March 31, 2005, no firm developed agreement, customers except forproposals submitted for future business and there can be no assurances that wewill ever have same.

 

Kenilworth plans to obtain the necessary funding byoffering in Private Placements, Common Shares, Convertible Promissory Notes,and Cumulative 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.

 

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PART II.OTHER INFORMATION

 
| Item  1. |   | LEGAL PROCEEDINGS:                                       |
|----------|--------|----------------------------------------------------------|
|     |   |                                                     |
|     |   | None                                                     |
|     |   |                                                     |
| Item  2. |   | CHANGE IN SECURITIES:                                    |
|     |   |                                                     |
|     |   | None                                                     |
|     |   |                                                     |
| Item  3. |   | DEFAULT UPON SENIOR SECURITIES:                          |
|     |   |                                                     |
|     |   | None                                                     |
|     |   |                                                     |
| Item  4. |   | SUBMISSION OF A MATTER TO A VOTE OF SECURITIES  HOLDERS: |
|     |   |                                                     |
|     |   | None                                                     |
|     |   |                                                     |
| Item  5. |   | OTHER INFORMATION:                                       |

 

The Company plans to hold its Annual Meeting ofShareholders on or about June 14, 2005 or any adjournment thereof withproxy materials mailed to shareholders of record on May 24, 2005 prior tothe proposed meeting dates.

 
|   |   | SUBSEQUENT EVENTS |
|--------|--------|-------------------|

 

The Company received $282,500 from the sale andconversion of the Notes dated February 7, 2005.  $20,000 of previous Notes Payable has beenextended into the second quarter.

 
| 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 |

 

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**FORM 10-Q**

 

**Section 1350Certifications**

 

**Quarterended March 31, 2005**

 

I, Herbert Lindo, Chairman, President and PrincipalFinancial Officer of Kenilworth Systems Corporation (the “Company”), certify,pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350,that to the best of my knowledge:

 

(1)     theQuarterly Report on Form 10-Q of the Company for the first quarter ended March 31,2005 (the “Report”) fully complies with the requirements of Section 13(a) or15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d));and

(2)     theinformation contained in the Report fairly presents, in all material respects,the financial condition and results of operations of the Company.

 

Dated:   May 16, 2005

 

 
|   | /s/ Herbert Lindo                                    |   |
|--------|------------------------------------------------------|--------|
|   | Herbert Lindo                                        |
|   | Chairman, President and Principal  Financial Officer |

 

 

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 |
|   | May 16, 2005                |

 

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