ITEM 2 - PROPERTIES - -------------------
The Company, until it can relocate into larger industrial space, operates out of an office located in the president's private residence at 54 Kenilworth Road, Mineola, NY 11501, rent free.
To conduct the initial phase of the Company's business and casino test program, the Company will have to lease approximately 10,000 square feet of industrial and office space preferably on Long Island, New York, for an annual rent of approximately $60,000. When orders for Roulabette terminals and systems are generated, the industrial space will have to be increased. In prior years, the Company occupied approximately 20,000 square feet of office and industrial space on Long Island.
ITEM 3
ITEM 3 - LEGAL PROCEEDINGS - --------------------------
Since emerging from Chapter 7 Bankruptcy Proceedings on September 23, 1998, the Company is not involved in any legal proceedings.
ITEM 4
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS - --------------------------------------------------------
The Company has not held a meeting of shareholders since 1988 because the cost of soliciting proxies and holding a meeting for the large number of persons (approximately 11,000) who own its shares is excessively costly. The directors and officers continue to serve under provisions of the By-Laws which allow them to continue in office until their successors are elected and take office.
At the next Annual Meeting of Shareholders the shareholders of the Company will be asked to ratify the following: (a) An amendment to the Company's Certificate of Incorporation to increase the authorized number of Common Shares from 61,000,000 shares to 100,000,000 shares, and to permit the Company's Board of Directors, without further action by the shareholders, to issue from time to time up to 1,000,000 authorized but unissued shares of Preferred Stock, and to fix and determine the terms, limitations, relative rights and preferences of the Preferred Stock, in order to obtain financing, capital and/or acquire other businesses that can improve the performance or growth of the Company. When any shares of Preferred Stock are issued, certain rights of their holders may affect the rights of the holders of Common Stock. In addition to any other powers conferred on the Preferred Stock, holders of the Preferred Stock would have, under New York General Corporation Law, the right to vote as
a separate class on any increased, decrease or change in the rights of the Preferred Stock. The affirmative vote of a majority of the outstanding shares of Preferred Stock would be required for approval of any such increase, decrease, or change. The authority of the Board of
Directors to issue shares of Preferred Stock with characteristics it determines (such as preferential voting, conversion redemption and liquidation rights) may have a deterrent effect on persons who might wish to make a takeover BID to purchase shares of the Company at a price which might be attractive to its shareholders. However, the Board of Directors must fulfill its fiduciary obligation to the Company and its shareholders in evaluating any takeover BID; and (b) The creation of a stock option and stock award plan (the "Plan") which will authorize the grant of options to purchase common shares of the Company to key employees (including directors who are employees), which may be "incentive stock options" (ISO's) within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended, or nonqualified options. The Plan also will provide for the grant of stock appreciation rights and stock awards to eligible participants subject to forfeiture restrictions; (c) The creation of a Directors Stock Option Plan pursuant to which stock options are awarded to those directors who are not officers or employees of the Company ("outside directors"). Presently, there are no outside directors. The plan will permit the Company to recruit and retain outside directors who will use their best efforts to promote the success of the Company's business, (d) The election of members to the Board of Directors; and (e) Ratify the selection of Arthur Yorkes and Company as the independent public accountant of the Company for the ensuing fiscal year.
Management at present does not know of any other matters that may be presented to a vote at the Annual Meeting of Shareholders.
PART II - -------
ITEM 5
ITEM 5 - MARKET PRICES OF THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS. - -----------------------------------------------------------------
(a) After the Company emerged from Bankruptcy Proceedings in September of 1998, its Common Stock resumed trading on the National Association of Security Dealers Automated Over the Counter Market (OTC) Bulletin Board, on October 5, 1998 under the old trading symbol "KENS". The following table sets forth high and low closing sales prices for the Company's Common Stock, as reported on the Bulletin Board and the OTC Pink Sheets.
4th Quarter Low Bid High Bid Through December 31, 1998 $.005 $.05
1st Quarter Through March 5, 1999 $.08 $.20
2nd Quarter Through June 30, 1999 $.05 $.08
3rd Quarter Through September 30, 1999 $.05 $.08
4th Quarter Through December 31, 1999 $.02.5 $.08
1st Quarter Through March 31, 2000 $.07 $.29
(b) Holders. There were approximately 11,000 holders of record of Common Stock of the Company as of December 31, 1999 and 1998, when the market quotation was $.02 Bid and $.04 offered, as reported in the Over The Counter Pink Sheets. The approximate number of record holders is based upon the actual number of holders registered on the books of the Company at the latter date and includes an estimate of beneficial holders of shares in "street name" or persons, partnerships, associations, corporations, or other entities identified in security position listings maintained by depository trust companies. The calculation of the number of shares of the Company's Common Stock held by non-affiliates shown on the cover of this Form 10-K was made on the assumption that there were no affiliates other than officers, directors, and holders of over five percent (5%) of the Common Stock of the Company.
(c) Dividends. The Company has not paid any dividends on its Common Stock. The Company plans to apply any earnings it achieves to expansion of the business and does not expect to pay any dividends in the foreseeable future.
Description of the Company's Securities
Common Stock
The authorized capital stock of the Company consists of 100,000,000 Common Shares, $.01 par value ("Common Stock"), of which 62,289,018 shares are issued and outstanding as at December 31, 1998.
The holders of Common Stock are entitled to one vote for each share held of record on all matters to be voted on by stockholders. There is no cumulative voting with respect to the election of directors, with the result that the holders of more than 50% of the shares voting for the election of directors can elect all of the directors then up for election. The holders of Common Stock are entitled to receive ratably such dividends when, as, and if declared by the Board of Directors out of funds legally available therefrom. In the event of liquidation, dissolution or winding up of the Company, the holders of Common Stock are entitled to share ratably in all assets remaining which are available for distribution to them after payment of liabilities and after provision has been made for each class of stock, if any, having preference over the Common Stock. Holders of shares of Common Stock, as such, have no conversion, preemptive or other subscription rights, and there are no redemption provisions applicable to the Common Stock. All of the outstanding shares of Common Stock are fully paid and non-assessable.
ITEM 6
ITEM 6 - SELECTED FINANCIAL DATA - --------------------------------
Operations for the years ended December 31, 1999, 1998, 1990, 1989 and 1988.
ITEM 7
ITEM 7 - MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. - ----------------------------------------------------------------------
(a) Liquidity and Capital Resources:
Between February 5, 1991, when the Trustee for the Estate of Kenilworth Systems Corporation was appointed, and September 23, 1998, when the Trustee paid in cash one hundred (100) cents on the dollar of all approved creditors' claims and administration fees and expenses, the Company did not conduct any business and operations.
In November 1991 the Trustee, on orders from the Bankruptcy Court, sold at public auction substantially all of the assets of the Kenilworth Estate, for $2,800,000 (two million eight hundred thousand dollars) and an additional $1,000,000 (one million dollars) escrow deposit to be available to add to the purchase price, in order to pay all creditors and other expenses one hundred (100) cents on the dollar. After the Trustee paid all claims, the Trustee refunded $123,652.62 of the $1.0 million escrow deposit to the purchaser.
Thus, the Company emerged from bankruptcy proceedings with no assets, no liabilities, and approximately $8,000,000 in available carry-forward income tax credits.
Present plans are to develop a wagering system, dubbed "Roulabette", that allows patrons visiting a casino and individuals at home, offices, clubs, or other gathering places all over the industrialized world, to play along on live casino table games, either via closed circuit television in the casino confines, or the broadcast of the same live action via digital direct satellite TV broadcast around the world.
The first step will be to conduct a three (3) month test of the system at the proposed Company facility and, after successfully completing the test, to test a system at a casino preferably located in Atlantic City. Each test will be with forty (40) Roulabette terminals.
To conduct these two tests will require $3,000,000 to; a) purchase computers, digital television broadcast equipment and table games; and, b) defray the cost of the facility and pay the salaries of six (6) employees who are specialists in software design, TV broadcasts, and mechanical design, for a period of eighteen (18) months, and from time to time, consultants who will assist the design team.
Unless the Company is able to obtain these funds, none of the tests and initial development work can commence.
The Company plans to obtain the necessary funding by offering in a Private Placement, Common Shares, Cumulative Convertible Preferred Shares and/or by the sale of limited joint venture participations in future Roulabette franchises.
When the tests are completed and the Company has obtained licenses from the gaming control regulators for the sale of Roulabette systems to U.S. casinos, the Company will obtain production financing from regular banking sources to finance the manufacturing of the Roulabette terminals leased or sold.
Results of Operations
Since the Company emerged from bankruptcy proceedings on September 23, 1998, the Company had no revenue from operations, and therefore sustained losses from general administration expenses amounting to $11,830 in 1999 and $7,912 in 1998.
Inflation
Inflation has not had in the past, nor does the Company expect it in the future to have a significant impact on the Company's business.
Forward Looking and Cautionary Statements
This report contains "forward looking statements," including without limitations; (a) statements of proposed financing, (b) assumptions that casinos will participate in a test of Roulabette, and later actually purchase, Roulabette systems; (c) granting of licenses from casino regulatory agencies permitting the sale of Roulabette systems, (d) proposed broadcasting of live casino games; (e) obtaining permission from state and foreign governmental agencies allowing their residents to watch on television and wager along with the live casino broadcast; (f) the feasibility to profitably operate such play along casino games, (g) changes in the competitive environment for Roulabette, and (h) general economic factors in markets where the Company's products are proposed to be offered, franchised and sold.
ITEM 8
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - ----------------------------------------------------
Our financial statements, the accompanying notes and the Report of Independent Accountants that are filed as part of this Report are listed under Item 14 "Exhibits, Financial Statements Schedules and Reports on Form 8-K" and are set forth on pages through immediately following the signature page of this Report.
ITEM 9
ITEM 9 - CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE - -----------------------------------------------------------------
For more than ten (10) years prior to the Company entering Chapter 7 Bankruptcy proceedings in February 1991, The Company's financials were audited annually by Arthur Yorkes & Company. The Company had planned to again engage Arthur Yorkes & Company to conduct an audit of its financials for the December 31, 1999 Annual Report, when Arthur Yorkes & Company informed the Company that they may have a conflict of interest in conducting audits for the Company. Since an immediate determination of the possible conflict of interest could not be made, The Company engaged new Independent Auditors.
PART III - --------
ITEM 10
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - ------------------------------------------------------------
The names, ages and positions held by each of the Company's directors and executive officers are as follows:
Name Herbert Lindo 73 Chairman of the Board, President and Treasurer. Joyce Clark 55 Director and Financial Officer Kit Wong 64 Director Betty Sue Svandrlik 53 Vice President and Secretary
All the directors are also members of the Executive Committee. The directors serve for a term of one year and until their successors are elected and assume office.
Herbert Lindo has held his present position since March 1972.
Joyce Clark became a director and the financial officer in October 1998.
Kit Wong was elected to the Board of Directors in October, 1999 as an "Outside Director".
Betty Sue Svandrlik became a vice president and secretary in October 1998. She has been in the employ of the Company since August 1978, as office manager and assistant secretary.
Family Relationship
Joyce Clark and Betty Sue Svandrlik are sisters.
Business Experience
Herbert Lindo is the founder of the Company.
Joyce Clark is the controller of a private wholesale door and window Manufacturer for more than five years. She has a degree in accounting.
Kit Wong is a member of the Board of Directors of Plastic Recycling Corp. (a public company). Before semi-retiring, he was an environmental engineer and consultant to the EPA (Environmental Protection Agency). He is the President and Chairman of the Board of XZL Corp. which operates restaurants primarily in the state of New Jersey.
Betty Sue Svandrlik received a diploma in business administration and has been promoted to office manager and assistant secretary since joining the Company.
Involvement in Legal Proceedings
Except for Herbert Lindo, to the best of the Company's knowledge and belief, other than in connection with the Chapter 7 or 11 reorganization of the Company and correspondence received from the SEC describing proposed enforcement proceedings for failure to file reports in 1990 which reports have since been filed, none of the Company's directors and officers has been involved in any proceedings during the last five years that are material to an evaluation of the ability of such persons to be directors or officers of the Company.
Herbert Lindo, the president of the Company, was convicted in 1993 on three counts of having permitted three banks located in the Upper Peninsula of Michigan to sell unregistered, legended, restricted Kenilworth shares pursuant to SEC Rule 144 prior to the bank having held the securities as collateral for loans made by third parties for the then required two year holding period. The sales took place in 1987 and 1988. Mr. Lindo was found not guilty of conspiring to sell unregistered securities and on another count where the required time to sell unregistered securities was met pursuant to SEC Rule 144. The Securities and Exchange Commission did not enter into the case. The indictments were brought by the U.S. Attorney of the Western District of Michigan. Mr. Lindo was sentenced to 1000 hours of community service, 15 months house arrest, and fined $600,000.
In 1992, the holding period for exemption pursuant to Rule 144 was reduced to one year. The changed Rule did not apply to the 1987/8 sales. No one lost any money and the Company had received fair value for the pledged securities. The government never charged Mr. Lindo with fraud. Mr. Lindo claimed he had no knowledge of the sale by the banks.
Because of this conviction, Herbert Lindo will not be found suitable by any Casino Control Commission to hold licenses. When the time to apply for licensing Roulabette arrives, Mr. Lindo will resign totally from the Company and place his Kenilworth shares into a voting trust. Mr. Lindo believes that he is best suited to manage the post bankruptcy reorganization and to transform the Company into a viable business.
ITEM 11
ITEM 11 - EXECUTIVE COMPENSATION - --------------------------------
None of the present executives, until the Company is in full profitable operation, will receive any compensation. When the Company turns profitable, the executives will receive compensation approved by the Compensation Committee of the Board of Directors.
Directors are reimbursed for out-of-pocket expenses.
ITEM 12
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
(a) Security Ownership of Certain Beneficial Owners
Other than as set forth in subparagraph (b) below, no person is known to the Company as the beneficial owner of more than 5% of its common stock.
(b) Security Ownership of Management
The table below reflects the beneficial ownership of the shares of the Company's Common Shares as of December 31, 1999, owned by each director and all directors and officers of the Company as a group. The table also reflects the percentage of the common shares owned by the persons indicated.
Number of Shares Title, Name and Address of Owner Owned % of Class - -------------------------------- ---------------- ----------
Herbert Lindo 10,333,132 (a) 17.00 Chairman and President 54 Kenilworth Road Mineola, NY 11501
Joyce Clark 100,000 (b) .01 Vice President and Director 115 Old Farmingdale Road West Babylon, NY 11704
Betty Sue Svandrlik 54,200 .01 Vice President and Director 35 Greenhaven Drive Port Jefferson, NY 11776
Jeffrey Lindo (more than 5%) 5,331,000 (c) 8.81 162 Sycamore Circle Stony Brook, NY 11790
Kit Wong -0- -0- Director 6 Princeton Place Princeton Junction, NJ 08550
All officers and directors as a group 10,487,332 17.10
(a) Does not include 551,000 shares owned by the wife and children of Herbert Lindo (the Lindos' are separated since January 1991).
(b) Does not include 150,700 shares owned by the daughter of Joyce Clark.
(c) Jeffrey Lindo is Herbert Lindo's son.
SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed in its behalf by the undersigned thereunto duly authorized.
KENILWORTH SYSTEMS CORPORATION
By Herbert Lindo Herbert Lindo, President and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on the dates indicated.
By Herbert Lindo Date: March 28, 2000 Herbert Lindo, Director
By Joyce Clark Date: March 28, 2000 Joyce Clark, Director
By Kit Wong Date: March 28, 2000 Joyce Clark, Director
AMENDMENT TO 1998 FINACIALS:
The financials include amendments made to the financials filed for the period ended December 31, 1998 which consists of (a) a reduction of the NOL carry-forward to approximately $8,000,000, (b) the earlier recording of a $6,000,000 and $10,000 convertible notes, which were converted.
PART IV - -------
ITEM 14
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K - ------------------------------------------------------
(a) (1) Financial Statements Independent Auditor's Report
Consolidated balance sheets as of December 31, 1999 and 1998
Consolidated statement of operations and deficit for the periods beginning January 1, 1991 to November 23, 1998, November 24, 1998 to December 31, 1998,and for the year ended December 31, 1999 and 1998
Consolidated statement of cash flows for the periods Beginning January 1, 1991 to November 23, 1998, November 24, 1998 to December 31, 1998, and for the year ended December 31, 1999
Consolidated statement of changes in stockholders equity (deficit) for the periods beginning January 1, 1991 to November 23, 1998, November 24, 1998 to December 31, 1998, and for theyear ended December 31, 1999
Notes to consolidated financial statements. -
(a) (3) Exhibits
Exhibit No.
2(1)* Notice to shareholders dated September 21, 1998.
2(2)* Notice of filing Final Accounts of Trustee of Hearing on Applications for Compensation (and of Hearing on abandonment of property by the Trustee) 1998.
2(3)* Applications for Compensation for Trustee's Attorneys and Accountants 1998.
2(4)* List of creditors paid by Trustee 1998.
2(5)* Order approving Trustee's Final Account 1998.
2(6)* Order directing Trustee to abandon books and records of Debtor to the Debtor by the President, Herbert Lindo 1998.
2(7) Former Independent Auditors letter declining to continue to audit the Company's financials because of a conflict of interest.
2(8) Form of convertible Notes sold by the Company.
2(9) Minutes of Board of Directors Meetings held in October 12, 1999.
* Filed as an exhibit on Form 10-K, dated November 23, 1998 (File No. 0-08962) and incorporated herein by reference.
(b) Reports on Form 8-K
The Company filed Current reports on Form 8-K on December 9, 1998, April 20, 1998 and March 15, 2000.
CONVERTIBLE PROMISSORY NOTE
$0,000 Dated: 1999 Due: 2000
FOR VALUE RECEIVED, KENILWORTH SYSTEMS CORPORATION, a New York corporation (herein called the "Company"), Promises to pay to the order of _________________ ____________________________________________ (herein called the "Holder") or registered assigns, at the principal office of the Company (presently located at 54 Kenilworth Road, Mineola, New York 11501) in lawful monies of the United States of America, the principal sum of ______________________ DOLLARS (received by the Company in cash) with accrued and unpaid interest thereon, at the prevailing prime rate as quoted by Citibank, on or before June 14, 2000. The first quarterly interest accrual date on the unpaid principal amount shall be ___________________ and all other accrual dates every three months thereafter.
This note may be prepaid in whole or in part at any time and from time to time, without penalty, but with interest on the amount prepaid to the date of prepayment.
The Holder of this note has the right at any time through _____________ 2000, to convert all or any part of the indebtedness represented by this note, including the accrued interest, through the date of conversion, into fully paid and non-assessable common stock, par value $.01 per share, of the Company at the conversion price of one (1) share for the lower of (a) $.06 per share or (b) the bid price, at any time from date hereof to date of exercise, for the shares of the Company as traded in the public market, of unpaid principal and accrued interest. If the Holder shall elect to exercise such conversion right, then he/she shall notify the Company, in writing of such election, specifying the principal amount and interest to be converted, and shall, if the Note shall be converted in full, surrender the Note to the Company for cancellation and, if this Note be converted in part, shall surrender this Note to the Company so that there may be endorsed thereof the reduction of the principal and interest the same which has been converted, after which the Note shall be returned to the Holder.
Prior to due presentment for registration or transfer of this Note, the Company and its agents may deem and treat the person in whose name this Note shall be registered upon the books of the Company as the absolute owner of this Note (whether or not this Note shall be overdue and notwithstanding any notation of ownership or other writing thereon) for the purpose of receiving payment of or on account of the principal hereof and interest due hereon and for all other purposes, and neither the Company nor its agents shall be affected by any notice to the contrary.
Neither this Convertible Promissory Note nor the common shares issuable on conversion thereof (in whole or in part) have been registered under the Securities Act of 1933 (the "Act") and may not be sold, transferred, pledged, or offered for sale in the absence of an effective registration statement relating to these securities under said Act, or an opinion of counsel to the Company that such registration is not required, or an exemption from the Act is available.
If during the convertible period of this Note the Company shall (i) pay a stock dividend or make a distribution of its common stock into a greater number of shares, (ii) combine its outstanding stock into a smaller number of shares, or (iii) issue by reclassification of its common stock any shares of capital stock of the Company then the conversion right shall be adjusted so that the holder thereof, if he/she shall elect to convert the same, after the record date or the effective date of any such event as the case may be, shall be entitled to receive the number of shares of common stock or other capital stock of the Company which he/she would have owned or have been entitled to receive after any of the events described above, had the Note been converted at the record date in the case of a stock dividend or stock distribution or the effective date in the case of a sub-division, combination or reclassification.
The Company agrees that in the event it shall hereafter file a registration statement under the Act which includes shares on behalf of any shareholders, that it will give notice in writing of said registration to the Holder thereof. In the event the Holder shall in writing addressed and delivered to the Company elect to exercise such conversion right hereinbefore granted within the time period specified in said notice, then the Company agrees to include so much of said stock as the Holder shall be entitled to receive as a result of said conversion proportionately to the other shareholders included in the registration statement and to file same with the Securities and Exchange Commission and agrees to use its best efforts to cause the same to become effective under the said Act as promptly as possible, so that the stock may be publicly offered and sold by the Holder after such effectiveness in compliance with the requirements of said Act and other applicable provisions of federal and state securities laws.
If this Note is not paid when due, whether at maturity or by acceleration by other events, the Company agrees to pay reasonable costs of collection and such costs shall include without limitation all costs, attorney's fees and expenses incurred by the Holder hereof in connection with any insolvency, bankruptcy, reorganization, arrangement or similar proceedings involving the Company, or involving any endorser or guarantor hereof, which in any way affect the exercise by the Holder hereof of his/her rights and remedies under this Note.
Presentment, demand, protest, notices of protest, dishonor and non-payment of this Note and all notices of every kind are waived.
The issuance and execution of this Note has been authorized and approved by the Board of Directors of the Company.
The terms "Company" and "Holder" used herein shall be construed to include their respective heirs, personal representatives, successors, subsequent holders, and assigns.
This Convertible Promissory Note shall be enforced in accordance with the laws of the State of New York, U.S.A., and shall be construed in accordance thereof.
IN WITNESS WHEREOF, the undersigned has executed this Convertible Promissory Note as of the day and year first above written.
KENILWORTH SYSTEMS CORPORATION
By: Herbert Lindo ---------------------------------- Herbert Lindo, President
ATTEST:
* * * * * * * * * * - --------------------
In the event of conversion, the Holder agrees to accept any shares for investment and consents to the endorsement on said shares of an appropriate legend
* * * * * * * * * * - -------------------
Minutes of the Board of Directors Meeting of Kenilworth Systems Corporation
A meeting of the Board of Directors of Kenilworth Systems Corporation was held at the Company's offices at 54 Kenilworth Road, Mineola, NY 11501, on the 12th day October 1999 at 7:00PM.
The following individuals were present: Herbert Lindo, Director Joyce Clark, Director
which constitutes all of the Directors. In addition, Mrs. Betty Sue Svandrlik, the Company's Secretary attended the meeting. Mr. Lindo acted as Chairman and Mrs. Svandrlik served as Recording Secretary.
The Chairman opened the meeting and asked the Secretary of the Company to read the minutes of the last Board of Directors Meeting held on December 11, 1998. Upon motion duly made and seconded and unanimously approved, the minutes were accepted by the Board as read.
The Chairman then advised members of the Board that this meeting was called to nominate and elect Mr. Kit Wong as an outside Director to the Board of Directors of this Company. He explained to the members that the Securities and Exchange Commission ("SEC") now requires public companies to have so called "Outside Directors", who are not officers of the Company, to vote on officers salaries and stock options. At present the Company does not have any salaried officers nor a stock option plan. He explained that when he interviewed members of law firms to represent the Company in SEC matters, he discovered that insurance companies that insure SEC law firms require that their clients have Outside Directors on their boards. To meet this requirement Mr. Wong has agreed to serve in that position on the Board.
After a brief discussion, Mr. Lindo nominated Mr. Wong to become a member of this Company's Board of Directors. Upon motion duly made and seconded, Mr. Wong was elected to the board of Directors of the company. There being no further business upon motion duly made, seconded and unanimously carried, the meeting was adjourned at 7:30PM.
Date: December 10, 1999
Betty Sue Svandrlik - -------------------------------- Betty Sue Svandrlik, Secretary
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of Kenilworth Systems Corporation
We have audited the accompanying consolidated balance sheets of Kenilworth Systems Corporation as of December 31, 1999 and 1998 and the related statement of operations and deficit, stockholders' equity (deficit) and cash flows for the period from November 24, 1998, December 31, 1998 and the year ended December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Kenilworth Systems Corporation as of December 31, 1999 and 1998 and the results of operations and its cash flows for the period from November 24, 1998 to December 31, 1998 and the year ended December 31, 1999 in conformity with generally accepted accounting principals.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 5 to the financial statements, the Company has recently emerged from bankruptcy and has not yet commenced operations. Future operations are contingent on obtaining funding. These conditions raise substantial doubt about its ability to continue as a going concern. Management's plans regarding those matters are also described in Note 5. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Peter C. Cosmas Co., CPA's
New York, New York March 30, 2000
KENILWORTH SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, as of December 31, 1999 and 1998
The accompanying notes are an integral part of these consolidated financial statements.
KENILWORTH SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS of OPERATION and DEFICIT For the periods January 1, 1991 to November 23, 1998, November 24, 1998 to December 31, 1998 and the year ended December 31, 1999
The accompanying notes are an integral part of these consolidated financial statements.
KENILWORTH SYSTEMS CORPORATION AND SUBSIDIARIES
STATEMENTS of CASH FLOWS for the periods ending November 23, 1998, December 31, 1998 and December 31, 1999
Non-cash transactions:
The Company issued convertible promissory notes on November 13, 1998 and December 29, 1998 in exchange for receivable from a related party in the amounts of $6,000 and $10,000 respectively. These notes were later converted to 400,000 and 477,666 shares of common stock during the period November 24, 1998 and December 31, 1998, respectively.
The Company issued common stock in lieu of payment for services rendered in the amount of $7,340, during the year ended December 31, 1999.
During the period ending December 31, 1999, 200,000 shares of Common Stock were issued for no consideration.
In connection with the emergence from bankruptcy the trustee distributed $4,300,403 for the payment of priority liabilities and bankruptcy costs.
The accompanying notes are an integral part of these consolidated financial statements.
KENILWORTH SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS of STOCKHOLDERS' EQUITY (DEFICIT) for the year ended December 31, 1999, the periods beginning November 24, 1998 to December 31, 1998, January 1, 1991 to November 23, 1998 and the years ended December 31, 1990 and 1989
The accompanying notes are an integral part of these consolidated financial statements.
KENILWORTH SYSTEMS CORPORATION and SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - Summary of Significant Accounting Policies
The Company and Nature of Business
Kenilworth Systems Corporation (the "Company") was incorporated in New York in April 1968 and is now engaged in the business of developing, manufacturing, and operating of casino machines, named Roulabette" terminals.
The Company was in bankruptcy proceedings under Chapter 7 and 11 of the Bankruptcy Code for the period from August 27, 1982 through September 23, 1998. (See Note 2). For the period of February 5, 1991 through September 23, 1998 the Company ceased all operations. The Company emerged from Chapter 7 bankruptcy on September 23, 1998 and plans to be engaged in the development, manufacturing, marketing and operation of "Roulabette", a system that allows casino patrons to play along with live table games in progress, via closed circuit television, on "Roulabette" terminals located within the casino confines.
Principals of Consolidation
The consolidated financial statements include the accounts of Kenilworth Systems Corporation and its wholly owned subsidiaries: Video Wagering Systems Corporation and Roulabette Corporation. Neither subsidiary has any assets or liabilities.
In September 1986 the Company exchanged 466,000 shares of its common stock for all of the outstanding common stock of Video Wagering Corporation ("Video"). This transaction was accounted for under the purchase method of accounting.
Earnings Per Share
The Company computes and presents earnings (loss) per share in accordance with the requirements of Statement of Financial Accounting Standards ("SFAS") No. 128 "Earnings Per Share".
Basic loss per share is based on the weighted-average number of shares of common stock outstanding for the period, which were ($.00), ($.00) and ($.07) for the year ended December 31, 1999, the period November 24, 1998 to December 31, 1998 and the period January 1, 1991 to November 23, 1998, respectively.
Diluted earnings per share has not been presented in the accompanying financial statements because the effect of assumed conversion of convertible promissory notes was anti-dilutive.
Income Taxes
The Company uses the liability method to account for income taxes in accordance with requirements of SFAS No. 109.
Use of Estimates in the Financial Statements
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.
Fair Value of Financial Instruments
The Company's financial statements include cash, receivables and accounts payable. Due to the short-term nature of these instruments, the fair value of these instruments approximates their recorded values. Convertible promissory notes at December 31, 1998, are stated at fair market value, which management believes equal to their cost.
NOTE 2 - Bankruptcy Proceedings
Throughout the 1980's the Company experienced working capital shortages that resulted in the Company filing a voluntary petition for reorganization under Chapter 11 of the United States bankruptcy Code. From August 31, 1982 to June 7, 1985 the Company operated during reorganization proceedings. On June 7, 1985, a United States Bankruptcy Judge confirmed the Company's Plan of Reorganization. On April 27, 1988, the Bankruptcy Court entered a final decree in the case. On October 27, 1988, the case was re-opened on grounds the Debtor failed to consummate its plan of reorganization and on February 25, 1991 the case was converted to a case under Chapter 7 of the Bankruptcy Code. By order of the Court dated June 19, 1991 the Chapter 7 was reconverted to a case under Chapter 11 of the Bankruptcy Code. A second plan of reorganization was approved and a second order of confirmation was entered in connection with the Chapter 11 case on October 2, 1991. However, the Debtor was unable to consummate its second plan of reorganization, and by order dated November 25, 1991, the case was reconverted to a case under Chapter 7 of the bankruptcy Code.
From February 1991 through September 1998, the Company was inactive. In September 1998 a United States Bankruptcy Judge in the Eastern District of New York approved the Final Report and Accounts submitted by the Chapter 7 Trustee of the Estate of Kenilworth and after obtaining approval from the U.S. Trustee, Kenilworth made a 100% cash distribution to the creditors and paid in full all administrative fees and expenses. The Company emerged from Bankruptcy on September 23, 1998 with no assets and no liabilities. For the period September 24, 1998 through November 23, 1998 the Company was in the process of monitoring the payments by check t o the creditors. No other activity occurred during that period.
NOTE 3 - Convertible Promissory Notes
At November 23, 1998, the Company had outstanding a convertible promissory note for $6,000 bearing interest at prime and maturing on November 13, 1999. The holder of the note had the right to convert all or part of the note into fully paid non-assessable common stock at various stated conversion prices. The note was converted by the holder into 400,0000 shares of common stock on December 29, 1998.
At December 31, 1998, the Company had outstanding a convertible promissory note in the amount of $10,000, bearing interest at prime and maturing on December 29, 1999. The holder of the note had the right to convert all or part of the note into fully paid non-assessable common stock at various stated conversion prices. The note was converted by the holder into 333,334 shares of common stock on January 7, 1999.
NOTE 4 - Income Taxes
The Company is a "C" Corporation for tax purposes.
The Company estimates that it has available approximately $8,000,000 in net operating loss carryforwards, of which approximately $4,000,000 will expire at various dates through 2005 with the remaining amount expiring at various dates through 2018. Utilization of the NOL carryforward may be limited under various sections of the Internal Revenue Code depending on the nature of the Company's operations.
The Company has a deferred tax asset of approximately $2,800,000 arising from its net operating loss carryforwards. The deferred tax asset has been fully reserved due to the uncertainty of future realization.
NOTE 5 - Going Concern Uncertainty
As indicated in Note 2, the Company emerged from Chapter 7 in September 1998 and has not yet commenced operations. These factors create uncertainty as to the Company's ability to operate as a going-concern. Management plans to develop a wagering system, called "Roulabette", that allows patrons to play along with live casino table games. The first step in the plan is to conduct testing. Unless the Company is able to obtain sufficient funds, none of the tests and initial development work can commence. The Company plans to obtain the necessary funding by offerings its common stock, or private placement, Senior Cumulative Convertible Preferred Shares, or selling limited joint venture participants in future Roulabette franchises.
If initial testing is successful, the second step is to obtain the proper licenses from the gaming control regulators. Upon successful licensing, the Company plans to obtain financing from regular banking sources to finance the manufacturing of the Roulabette terminals.
The accompanying financial statements have been prepared assuming the Company is a going-concern and do not reflect adjustments, if any, that would be necessary if the Company were not a going-concern.
NOTE 6 - Related Party Transactions
Due from related party at November 23, 1998 and December 31, 1998 represents a receivable from a stockholder of the Company in connection with the issuance of convertible promissory notes.