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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
OR
[X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from January 1, 1991 to November 23, 1998
Commission File Number: 0-08962
KENILWORTH SYSTEMS CORPORATION
(Exact name of registrant as specified in its charter)
New York 13-2610105
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
54 Kenilworth Road, Mineola, New York 11501
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (516) 741-1352
Securities registered pursuant to section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None OTC Bulletin Board
Securities registered pursuant to section 12(g) of the Act:
Common Stock, par value $.01 per share
(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.Yes [ ] No [X] Initial Report after
emerging from bankruptcy proceedings
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of the registrant's knowledge,
in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. [X]
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Indicate by check mark whether the Registrant has filed all documents and
reports required to be filed by Section 12, 13 or 14(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by court. Yes [X] No [ ]
The number of shares outstanding of the company's common stock as of
November 23, 1998 totaled 60,477,352 shares.
The aggregate market value of the voting stock held by non-affiliates
(25,191,288 shares) of the Company on November 23, 1998 was $503,825.76. The
price at which the common stock sold on the aforesaid date was $.02.
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PART I
Item I - Description of Business
THE COMPANY:
Kenilworth Systems Corporation (hereinafter called the "Company" or
"Kenilworth" was incorporated on April 25, 1968 under the laws of the State of
New York.
RECENT EVENTS:
The Company emerged from Chapter 7 bankruptcy proceedings on September 23,
1998 when the Trustee for the Estate of Kenilworth paid, in cash, one hundred
percent (100%) of all approved creditors claims and administration fees and
expenses out of the $4,424,056 proceeds from the sale of substantially all of
the assets of the Kenilworth Estate recoveries of receivables and interest
income. Pursuant to the Asset Sale Agreement, the purchaser was entitled to
receive any cash funds remaining up to One Million Dollars ($1.0 million) after
all claims were paid in full. Accordingly, $123,652.62 was refunded.
By virtue of having paid all claims in full (one hundred cents of each
dollar claimed), the residual value consisting of approximately twenty-two
million dollars ($22,000,000.00) in unexpired net operating tax loss
carry-forward credits belong to the Company and, in turn, to the shareholders of
Kenilworth.
To make use of the tax credits, the Company must have income taxable
earnings from the same type of business as when the credits were earned.
Management plans to develop a casino wagering system, dubbed "Roulabette".
Earnings from Roulabette would qualify for the tax credits under the existing
tax code. The Company has no other assets and has no liabilities.
Business
Prior to February 5, 1991, when the Chapter 7 Trustee was appointed and
all Company operation ceased, the Company was engaged primarily in the
development, manufacturing and marketing of cashless casino wagering systems. In
a cashless system, coins, bills, and tokens are replaced by debit cards issued
by the casino operator to reduce cash handling and its associated security
costs. In addition, the system offers variable denomination play (25 cents, 50
cents, $1.00, $5.00, and $100.00) on each slot machine.
The Company currently will 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. The Roulabette
terminals are similar to slot machines. They have a television screen for
viewing the live action from the table games, and a separate touch screen to
place the wager. For the first time casino patrons will
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be able to play along and participate and wager as little as $.25 on an actual
in-progress casino table game - Roulette, Craps, Baccarat, and Blackjack. The
Roulabette terminals accept bills in all denominations, up to $100, and pay
winnings with bar code receipts that are cashed at the casino cage.
Ultimately the Company will propose to arrange to broadcast the closed
circuit casino table game action throughout the United States and the rest of
the industrialized world, via digital direct TV. This will permit individuals
all over the world to view the live action TV broadcast on their television
sets, and play along on their Personal Computers (PC's), any time, day or night.
To provide 24 hour live casino play, the broadcasts will originate, at different
times, from casinos located in Atlantic City, New Jersey, Las Vegas, Nevada, and
Monte Carlo, Monaco.
History of the Company:
In 1971 the Company discontinued its business of teaching the operation of
Key Punch and Key Verifier machines. Between 1972 and 1979, the Company engaged
in the research and development of a method to chemically encode and decode
invisible data into plastic cards, paper cards, tickets or tokens which cannot
be easily counterfeited or altered without destroying the encoded data. In 1979,
the Company commenced commercial operations.
The Company developed a basic system where predetermined bits of
information are chemically encoded between plastic laminates and can be decoded
by the Company's "reader/terminal". This is an alternate technology to the
magnetic character recognition system used for credit cards and other
applications. The Company sold the chemically encoded plastic cards, together
with card-reading systems, to power plants regulated by the Nuclear Regulatory
Commission. The cards were used both for security purposes and to control the
length of time employees spent in certain restricted areas. The Company
discontinued the sale of cards, cardreaders and services because of the general
reduction of operating nuclear power plants and events that prevented the
Company from continuing its operations in 1991 (see "Bankruptcy Conversion").
Throughout the 1980's the Company experienced working capital shortages
that climaxed on August 31, 1982, when the Company filed 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. When the Company's Plan of Reorganization was confirmed, debts for
employee withholding taxes totaling approximately $1.5 million were not
discharged and remained outstanding, plus interest and penalties. Although the
Company obtained a Final Decree on April 27, 1988, the Bankruptcy Court retained
jurisdiction in the matters relating to the unpaid taxes.
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On February 5, 1991 the Company's Chapter 11 case was converted to a
Chapter 7 proceeding and a Trustee was appointed.
The Company and two casino operators, Golden Nugget, Inc. (Mirage), and
Elsinore Corporation, sponsored legislation to permit cashless wagering in the
state of Nevada. The legislation, which is in the form of an amendment to
existing casino control statutes, permits the use of account cards (debit cards)
and was signed into law by Governor Richard H. Bryan on June 13, 1985. The
existing regulations for casino play in the state of New Jersey permit the use
of account cards in place of cash in their casinos.
In April 1988 the Company entered into a contract with the Totalizator
Agency Board (the "TAB"), a statutory agency of the State of Victoria,
Australia, to design and install computer hardware and software and supply
plastic wagering cards for high-tech cashless wagering facilities, called
"Tabarets", to be operated by the TAB within the State of Victoria. The first
Tabaret opened on November 27, 1990 with 124 Player Activated Terminals ("PATs")
which are similar to slot machines except they are played with debit cards
instead of coins or tokens, offer variable denomination play and selection of
five different games. There are now 13,000 PATs in play at 127 locations that
had revenue of Australian $3.75 billion in 1997.
From February 1991 through September 1998, Kenilworth was inactive, except
that Herbert Lindo, the President and Chairman of the Board of Directors of
Kenilworth when the Trustee was appointed, assisted the Trustee which resulted
in obtaining $4,424,056 for the Kenilworth Estate.
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, the Kenilworth Trustee made the cash distribution to the creditors and
paid in full all administration fees and expenses. With the Bankruptcy Court's
approval, all of the books and records since inception of Kenilworth have been
released to Herbert Lindo.
THE ROULABETTE TERMINAL
The Roulabette terminal is a self-contained device that consists of a
personal computer (PC) with two (2) monitors, one of which is outfitted with a
touch screen, a variable denomination bill acceptor, and a bar code ticket
dispenser, all housed within an attractive metal enclosure. Wagers are placed on
the touch screen which is the lower screen.
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How to Play Roulabette
After depositing money via the bill acceptor, the terminal displays the
amount deposited and prompts the player to select one of the four table games
that are available and broadcast live on closed circuit television to the
terminal. The player then is asked to select a denomination, from $.25 up to
$100, by touching the selected amount on the touch screen.
Roulette
When playing Roulette, the monitors display the table (without the wheel)
on the touch screen. The player, by touching the spot on the table, places his
or her own wager directly on the table, most often on top of a chip placed on
the table by the players of the televised games. The touch screen displays a
distinctive image of a chip (1,2,3, chips, etc.) placed by the Roulabette
player, for easy identification. There is a spot on the touch screen where the
last or all wagers can be canceled, and a spot where the wagers are confirmed.
Immediately after the wager is confirmed, the amount wagered is debited from the
last amount shown in the credit account.
When the television camera, over the Roulette wheel, spots the ball going
around in the wheel, the upper screen displays "No More Bets" and the terminal
is locked for betting.
The player now watches the ball go around on the wheel until the ball
comes to rest on one of the 38 numbers of the wheel. After a second the upper
screen shows the table, and after the marker is placed by the croupier at the
table on the winning number, all losing chips are removed from the table,
including the losing chips of the Roulabette terminal players. If the player has
chips on the winning number, the lower screen shows the amount won and after the
player confirms the pay-off by touching the winning number, the amount won is
credited to the account and displayed on the lower screen. After a short period
of time, the new wagering for the next game begins.
A player can wager on all positions available at the table game. The last
38 winning numbers are displayed on the upper screen to assist the player in
selecting new wagers. If a player has a problem with the terminal, or disagrees
with the winning payoff, there is a spot on the lower screen to call for an
attendant.
Craps
When the player selects Craps, half the table is displayed on the screens.
The wagers are placed in the same manner as if the player were playing at the
Crap table. All bets available on the table are available on the Roulabette
terminals. When the croupier pushes the dice from the center of the table toward
the table player, the terminal locks for removing bets only. Additional bets may
be placed during the game. After the dice are rolled and come to rest, the TV
camera zooms in on the dice separately and the
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Roulabette player can read the numbers on the dice. A laser beam locates the
dice and directs the cameras to them.
Baccarat
When playing Baccarat, the entire table is shown on the upper screen with
a wide-angle TV camera. The player either selects the bank (which holds back a
5% commission on all wins) or the player. Cards are confirmed by a laser reading
the bar code imprinted on the card.
Blackjack
When playing Blackjack, the camera shows up to seven hands being played at
the table and the house cards. The Roulabette player selects a player and bets
along with his or her hand. The Roulabette player MAKES NO DECISION whether to
hit or stay. Since there are seven (7) players, if dissatisfied with one
player's play, another player can be selected.
Instruction and Practice Play
After making a deposit in the Roulabette terminal, a player can select
instructions on how to play and may make up to 10 "make believe" bets for
practice. Playing along on a Roulabette terminal only a few yards away from the
actual table game may be more exciting than playing a slot machine, since the
player has a hand in the outcome of the game. Roulabette should be a welcome
addition to casino operators. It obviously may entice slot players to graduate
to table game players.
CASINO TEST PROGRAMS
In 1990, before the Company ceased operation (bankruptcy proceedings), the
Company had entered into contracts with three (3) Atlantic City, New Jersey
casino operators to test market the Company's cashless wagering system for a
minimum of six months. Each installation on the casino floor was to have a
minimum of 100 PAT's and 50 slot machines converted by the Company to be played
both with cash and cashless. The combination of cash and cashless on existing
slot machines was attractive to the casino operators to permit a gradual
transition period from cash to cashless play.
The Company was to furnish without expense to the casino, furnish all the
necessary equipment, including the central computer and communications hardware.
The casino operators would only have to provide for the installation of cables
required to interconnect the equipment and provide free accommodations for the
Company's personnel who would have operated the system during the test. Each of
the operators committed a substantial budget for the promotion of the systems.
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After the first system was to be in operation for a period of three (3)
months, and operated profitably, the New Jersey casino regulatory agencies had
agreed to commence examining the system for their approval process. The Company
expected this process to take at least three (3) months. When the Company had
obtained approval from the regulatory agencies for its system, the operators
would then purchase the system in quantities, for prices stated in the contract,
or ask the Company to remove the system.
None of the tests were conducted. The Company sold and installed only one
(1) cashless slot system, which was to the Australian agency which continues to
operate the system with 13,000 PAT's in 127 locations. The Company receives no
revenue from that operation.
The Company has not as yet contacted any casino operator or the New Jersey
Gaming Control Board for any test installation of Roulabette, nor has the
Company contacted anyone in connection with its proposed worldwide live action
television broadcast and play along scenario.
The PAT system became obsolete when the industry installed Dollar Bill
acceptors, credit meters, and slot play tracking systems with MVP (most valuable
player) cards.
To conduct the tests, the Company will require approximately $1.6 million
and until these funds are available to the Company, the test cannot take place.
Industry Background
The gaming industry is comprised of five service industries; (1)
traditional pari-mutuel wagering on horse and dog racing; (2) casino and
riverboat gambling, (3) lotteries, (4) charitable organization gambling (Bingo
and Las Vegas nights), and (5) sports book.
Currently, the Company operates primarily in the casino segment.
MARKETING STRATEGY/SALES PLAN
Direct Marketing to Casinos
Every casino in the world offers the same slot machines, the same table
games, with the same odds. The only difference between one casino and the other
casino is how well they treat their customers with complementaries. Even there,
they offer the same $20.00 in coins up front, and the same $5.00 discount for
the buffet lunch. Fortunately for the Company, once one casino adopts cashless
wagering, if history repeats itself, the rest will follow suit.
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The Company experienced this scenario in 1990 in Atlantic City, after one
casino agreed to undertake the testing of the Company's cashless wagering
system, two other casino operators surfaced immediately and offered to conduct
similar tests.
Similarly, Nevada casino operators will wish to test the system after the
first results from Atlantic City are available.
The Company will sell the Roulabette terminals and supporting system to
the casinos. The Company will supervise the installation and train casino
personnel in the operation of the system. During the test period, before the
casino operator purchases the system, the Company, at its own cost, will furnish
and install a minimum of forty (40) and up to one hundred (100) Roulabette
terminals, all the supporting computer and TV equipment, and will provide
personnel to trouble-shoot the system on a 24-hour basis. If the casino operator
fails to purchase the Roulabette system at the end of the test period, the
Company will be obliged to remove the system. Since the terminals and equipment
belong to the Company, the Company can use and sell the equipment to other
casino operators or other purchasers.
The sales price for a one hundred (100) terminal system will be
approximately $1.5 million, including installation, supervision, and one-year
backup service. Thereafter, the purchasers must pay for services.
MARKETING TO THE ROULABETTE PLAYER AT HOME
In the United States the Company will refrain from using the WWW Internet
to manage wagers from individuals outside of the casino confines. Legislators
have voiced strong objections to having their constituents' gamble one-on-one
against computers located on Caribbean islands, totally unregulated. In
Roulabette, the play-along broadcast emanates from casinos that are regulated by
strict and comprehensive rules and state regulations, enforced by gaming control
regulators and everybody plays along with the same live table game. There is a
world of difference between playing in a virtual make believe casino compared
with an actual casino.
For the reasons stated, the Company will ask state lotteries, Off-Track
Betting (OTB) corporations, pari-mutuel race tracks, and other state and federal
regulated agencies to manage the wagers from individuals playing along on their
PC's.
The individuals would have to pre-deposit funds into an account with the
wager management company and then place wagers with their credit balance. The
wagers and running balances will be transmitted to the Roulabette Player's PC on
telephone lines not crossing any state lines, similar in principle to telephone
accounts wagering offered by the New York State Off-Track Betting Corporation.
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Horse players in New York State watch the live horse races from all over
the country (simulcasts) on their home/office television sets and place wagers
on the horse races with their OTB telephone account.
After the Company obtains permission to play Roulabette in a given state
and engages a wager management organization to promote digital direct TV to the
state residents, the Company will install the 18 inch dish antenna and converter
box required to receive digital TV programming at its own cost, if the
subscriber opens a Roulabette wagering account for $300. In addition, the
Company will pay the monthly subscription fee to view all digital TV programming
offered if the customer wagers at least $100 each month - win, lose, or draw -
makes no difference.
Direct Marketing to State Lotteries
In states with approved lottery and/or other gambling legislation, the
Company plans to introduce Roulabette to hotels, clubs (similar to card clubs in
California) and resorts, to provide an upscale gathering place for tourists and
local residents. Charitable organizations that are permitted to conduct "Nevada
Nights" and Bingo games may wish to offer Roulabette gaming on a more permanent
basis. To receive the broadcast signal, all that is required is an 18" direct TV
antenna and distribution equipment. The Roulabette terminals are self sufficient
and accept dollar bills (or script, to control the amount an individual is
allowed to wager in one day or other time period). The Company plans to lease
all the equipment necessary to participants for a share of the profits.
To gain approval for the Company's Roulabette-style gambling in
jurisdictions that have not approved any gambling legislation, the Company
proposed to engage lobbyists to introduce, promote, and obtain legislative
approval to permit Roulabette-style gambling. The Company's strategy is to find
depressed resort areas and have the resort/hotel operators convince their local
politicians of the benefits to their business and the local economies and
request them to promote legislative approval, either state-wide or limited to
their areas. Riverboat gambling started to rehabilitate decaying waterfronts.
Roulabette can do the same in depressed economic areas.
Global Marketing
When the live casino TV broadcasts are beamed for global viewing, the
Company will seek out similar organizations, as proposed for the United States,
that can provide the servicing of individual accounts and placement of
Roulabette terminals in hotels, clubs, pubs, etc. In all instances, the Company
plans to offer only profit sharing arrangements to franchisees, which most
likely will require leasing all the equipment necessary to the franchisee, to
discourage competition.
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In overseas installations, wherever possible, the Company will make use of
the WWW Internet to manage the wagers.
Competition
Many segments of the gaming industry are characterized by intense
competition, with a large number of companies offering the same type of wagering
products and services. None of these companies at present offer the same or
similar equipment or systems as represented by Roulabette. The most likely
competition will come from slot machine manufacturers who could relatively
quickly adapt slot machines to play along with live casino table games. The
three major slot machine manufacturers in the United States are WMS Industries,
International Gaming Technology, and Anchor Gaming, all of which have vastly
greater resources than the Company and may have under development systems that
directly compete with Roulabette.
The Company plans only to broadcast the live casino table games from one
or two companies that own casinos. Other casino owners may start their own
broadcasts and have their own terminals manufactured and compete with the
Company after the Company did all the pioneering for play-along wagering.
Government Regulation
New Jersey
In order to sell its Roulabette wagering systems in New Jersey, the
Company must be licensed by the New Jersey Casino Control Commission (CCC) in
accordance with the New Jersey Casino Control Act as a manufacturer and
distributor of gaming equipment. The Company will have to make arrangements to
apply for licensing in New Jersey. The New Jersey Commission may require that
persons holding in excess of 5% of the publicly-traded equity securities of the
Company qualify under the Casino Control Act. Any beneficial holder of the
voting securities owned may be required to file an application, be investigated,
and have his qualifications determined if the CCC has reason to believe that
such ownership may be inconsistent with the declared policies of the Casino
Control Act. After the Company completes the proposed live field test at a New
Jersey casino for 90 days, a license in the State must be obtained within about
90 days thereafter.
Nevada
The manufacture and distribution of gaming devices in Nevada are subject
to the Nevada Gaming Control Act (the "Nevada Act"), and to licensing and
regulatory control by the State Gaming Control Board and various local, city and
county regulatory agencies (collectively, the "Nevada Gaming Regulators"). The
laws, regulations and supervisory procedures of the Nevada Gaming Regulators are
based upon declarations of public policy which are concerned with, among other
things, (i) the character of persons having any direct or indirect involvement
with gaming, (ii)
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application of appropriate accounting practices and procedures, (iii)
maintenance of internal fiscal affairs and the safeguarding of assets and
revenues, (iv) record keeping and reporting to the Nevada Gaming Regulators, (v)
fair operations of games, and (vi) the raising of revenues through taxation and
licensing fees.
No publicly traded corporation is eligible to apply for, or hold gaming
licenses in Nevada. A publicly traded corporation may be registered and found
suitable to acquire or to hold an interest in a corporate subsidiary which holds
such gaming licenses. Before the Company may do business in Nevada, it will have
to register with the Nevada Gaming Regulators as a publicly traded holding
company and found suitable to hold an interest in a licensed subsidiary. After
an investigation is completed, licensing may take approximately 90 days. No
proceeds from the public sale of securities by a registered holding company may
be used to acquire, construct, operate, or finance gaming facilities in Nevada
or to retire or extend obligations incurred for such purposes unless the public
offering of those securities has been approved by the Nevada Gaming Regulators.
The Nevada Gaming Regulators may require any individual who has a material
relationship with the Company to be investigated and licensed or found suitable.
Any person who acquired 5% or more of the Company's securities must report the
acquisition to the Nevada Gaming Regulators. Any person who becomes a beneficial
owner of 10% or more of the Company's securities must apply for a finding of
suitability. The Nevada Regulators have the power to investigate any security
holder of the Company. The applicant stockholder is required to pay all costs of
such investigation. The Company will pay such costs for its officers, directors,
or employees. The Company does not plan to impose any restrictions on the
acquisition of 5% or more of its stock since a person acquiring more than 5% is
likely to be aware of the regulatory requirements. However, the Company expects
to cooperate with any regulatory investigations and actions by government
authorities to enforce the restrictions.
Any person who fails or refuses to apply for a finding of suitability or a
license within 30 days after being ordered to so do by the Nevada Gaming
Regulators may be found unsuitable. The same restrictions apply to a beneficial
owner if the record owner, after request, fails to identify the beneficial
owner. Any stockholder found unsuitable who holds, directly or indirectly, any
beneficial ownership of the Common Stock beyond such period of time as may be
prescribed by the Nevada Gaming Regulators may be guilty of a gross misdemeanor.
The Company and/or its subsidiary are subject to disciplinary action if, after
notice is received that a person is unsuitable to be a stockholder or to have
any other relationship with the Company or its subsidiary, the Company or its
subsidiary (i) pays that person any dividend or interest upon voting securities
of the Company, (ii) allows indirectly any voting right conferred through
securities held by that person, or (iii) gives remuneration in any form to that
person. If a security holder is found unsuitable, the Company may itself be
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found unsuitable if it fails to pursue all lawful efforts to require such
unsuitable person to relinquish his voting securities, including the purchase of
such securities by the Company for cash at fair market value.
If the Company registers as a publicly traded holding company, the Nevada
Gaming Regulators would have the power at any time to require the Company's
stock certificates to bear a legend indicating that the stock is subject to the
Nevada Gaming Control Act and the regulations of the Nevada Gaming Regulators.
The Nevada Gaming Regulators, through the power to regulate licensees and
otherwise under Nevada law, would have the power to impose additional
restrictions on the holders of the Company's securities at any time.
Federal
The Federal Gambling Devices Act of 1962 (the "Federal Act") makes it
unlawful for a person to manufacture, deliver, or receive gaming machines,
gaming machine-type devices and components thereof across interstate lines
unless that person has first registered with the Attorney General of the United
States. In addition, various record keeping and equipment identification
requirements are imposed by the Federal Act. Violations of the Federal Act may
result in seizure or forfeiture of equipment, as well as other penalties.
Other Regulations
The manufacture, distribution, sale, and use of slot machines is
controlled by state and federal law which also applied to the Company's
Roulabette gaming terminals. Certain foreign countries permit the importation,
sale, or operation of slot machines. Where importation is permitted, some
countries prohibit or restrict the payout feature of the traditional slot
machine or limit the operation of slot machines to a controlled number of
casinos or casino-like locations. Certain of these jurisdictions also require
the licensing of gaming devices. The Company's Roulabette terminals may be
considered similar to slot machines and may have to meet these regulations.
Fabrication/Assembly Operation
When the Company receives orders for the Roulabette Wagering System, it
plans to assemble/manufacture the initial orders for the tests at a proposed
6,000 square foot industrial facility on Long Island, New York, from standard or
specially manufactured (to Company specifications) electronic, TV, and other
components purchased from vendors or manufactured by subcontractors. Assembly
equipment and tools, benches, racks, and quality control testing equipment
required for the assembly operations are not extensive and are readily
available. When larger quantities for the system hardware are required, the
Company will engage subcontractors to perform the assembly work in the interest
of cost efficiency.
The Company is not materially dependent upon any single
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supplier for materials and parts. The Company, however, in the interest of
economy, will utilize only one set of molds in its cabinetry and is accordingly
dependent upon deliveries from a single source of supply for that component.
Employees
The Company at present does not employ anyone. After acquiring the
proposed leased industrial space, the Company expects to engage six (6)
employees and several consultants. One employee will be for administrative work,
and the others specialists in software design, television broadcasting,
component design and fabrication, and assembling. Former key employees of the
Company may be available for some of the positions. The Company did not
formerly, nor does it expect to in the future, have any collective bargaining
agreements with its employees. The Company may sign employment contracts with
key personnel.
Research and Development
The Company's product development work will be divided into two areas:
hardware and software. Current development efforts will be directed at using
off-the-shelf computer equipment, dollar bill acceptors, and bar code receipt
printers, in the design for the Roulabette terminals. Software efforts are aimed
at component integration with software features unique to the overall closed
circuit TV broadcast system and software required to manage the wagers from
home/office players.
The Company's research and development costs will be approximately
$1,600,000 (one million six hundred thousand dollars) over the next six (6) to
eight (8) months. Most of that amount will be expended for the salaries and fees
for the software programmers and consultants.
Backlog
The Company does not have any backlog.
Insurance
At present, the Company does not maintain any insurance. When employees
are hired the Company will maintain liability and Workers Compensation
insurance, which will cover injury to employees. In order to attract employees
with special skills, the Company may also have to implement a medical insurance
plan.
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.
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To conduct the initial phase of the Company's business and casino test
program, the Company will have to lease approximately 6,000 square feet of
industrial and office space on Long Island, New York, for an annual rent of
approximately $24,000. 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 - LEGAL PROCEEDINGS
Since emerging from Chapter 7 Bankruptcy Proceedings on September 29,
1998, the Company is not involved in any legal proceedings.
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, to be held on January 20,
1999, at the Holiday Inn - Westbury, Carle Place, New York, the shareholders of
the Company will be asked to approve 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
13
<PAGE> 16
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.
14
<PAGE> 17
PART II
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.
<TABLE>
<CAPTION>
October 1998 November 1998
--------------- --------------
High Low High Low
----- ----- ---- -----
<S> <C> <C> <C>
$0.08 $.005 $.05 $.015
</TABLE>
(b) Holders. There were approximately 11,000 holders of record of Common
Stock of the Company as of December 31, 1990 and November 23, 1998, when the
market quotation was $.08 Bid and $.12 offered and $.015 Bid and $.03 offered,
repectively,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.
15
<PAGE> 18
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 60,477,332 shares are issued
and outstanding as at November 23, 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 therefor. 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 - SELECTED FINANCIAL DATA
Operations for the period beginning January 1, 1991 and ending November 23, 1998
and for the years ended December 31, 1990, 1989 and 1988.
<TABLE>
<CAPTION>
1998 1990 1989 1988
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales
from operations -0- $ 3,316,040 $ 1,940,832 $ 1,745,486
Extraordinary sales or losses
Earnings (loss) -0- $(1,186,737) $ (735,288) $ (251,954)
Earnings (loss)
per common share -0- $ (.02) $ (.02) $ (.005)
Fully diluted -0- $ (.02) $ (.02) $ (.005)
CAPITAL RESOURCES -
as of November 31, and
November 23, 1998
Total assets -0- $ 7,846,169 $ 7,724,687 $ 8,551,288
Current assets -0- $ 1,118,735 $ 842,959 $ 1,330,635
Current liabilities -0- $ 3,670,901 $ 1,810,105 $ 2,901,418
Current ratio -0- 3.3 3.0 2.2
Stockholders' equity -0- $ 4,175,268 $ 4,194,582 $ 5,649,870
</TABLE>
16
<PAGE> 19
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 $22,000,000 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 satellite 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 located in Atlantic City. Each test will be with forty
(40) Roulabette terminals.
To conduct these two tests will require $1,600,000 to; a) purchase
computers, 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 broadcast, 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, Senior Cumulative Convertible Preferred Shares and/or by the sale of
limited joint venture participations in future Roulabette
franchises.
17
<PAGE> 20
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
During the short period since the Company emerged from bankruptcy
proceedings, September 23, 1998 to November 23, 1998, the Company had no sales
or operation. In fiscal year 1990, the last period the Company had sales from
operation, revenue increased by 74% from $1,940,832 in fiscal 1989, to
$3,316,040 in fiscal 1990. Net income in 1989 was a loss of $735,288 which loss
increased by 61% to $1,186,737 in 1990.
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
offered, franchised and sold.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is included in Part IV, Item (a)
(1).
ITEM 9 - CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
18
<PAGE> 21
PART III
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
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.
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 large private door and window
manufacturer. She has a degree in accounting and teaches an adult accounting
course at BOCES.
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.
19
<PAGE> 22
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 - 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 Board of Directors.
20
<PAGE> 23
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 February 23, 1998, 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.
<TABLE>
<CAPTION>
Number of Shares % of Class
Title, Name and Address of Owner Owned
- ----------------------- ---------------- ----------
<S> <C> <C>
Chairman and President
Herbert Lindo 17,338,132(a) 28.60
54 Kenilworth Road
Mineola, NY 11501
Vice President and Director
Joyce Clark 250,700(b) .04
115 Old Farmingdale Road
West Babylon, NY 11704
Vice President and Director
Betty Sue Svandrlik 54,200 .01
35 Greenhaven Drive
Port Jefferson, NY 11776
All officers and directors
as a group 17,643,032 29.10
</TABLE>
(a) Includes 7,005,000 shares owned by the wife and children of Herbert Lindo.
(b) Includes 150,700 shares owned by the daughter of Joyce Clark.
21
<PAGE> 24
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 /s/ 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 /s/ Herbert Lindo Date: December 2, 1998
----------------------- ----------------
Herbert Lindo, Director
By /s/ Joyce Clark Date: December 2, 1998
----------------------- ----------------
Joyce Clark, Director
22
<PAGE> 25
PART V
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K
(a) (1) Financial Statements
<TABLE>
<S> <C>
Consolidated balance sheets as of November 23,
1998 and December 31, 1990 F-1 - F-2
Consolidated statement of operation and deficit for the period ended
November 23, 1998 and year ended December 31, 1990 F-3
Consolidated statement of changes in financial position for the
period ended November 23, 1998 and year ended December 31, 1990
F-4
Consolidated statement of changes in working capital components for
the period ended November 23, 1998 and year ended December 31,
1990 F-5
Consolidated statement of changes in common stock and paid-in
capital for the period ended November 23, 1998 and year ended
December 31, 1990 F-6
(a) (2) Financial Statement Schedules
V - Property, plant and equipment F-7 - F-12
VI - Accumulated depreciation, depletion and amortization of
property, plant
and equipment F-14
VIII - Valuation and qualifying accounts and
reserves F-15
X - Supplemental income statement
information F-16
List of the Company's Subsidiaries F-17
</TABLE>
23
<PAGE> 26
(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).
2(3) Applications for Compensation for Trustee's Attorneys and
Accountants.
2(4) List of creditors paid by Trustee.
2(5) Order approving Trustee's Final Account.
2(6) Order directing Trustee to abandon books and records of Debtor to
the Debtor by the President, Herbert Lindo.
(b) Reports on Form 8-K
The Company filed Current reports on Form 8-K on December 20, 1990,
February 15, 1992 and December 3, 1998.
24
<PAGE> 27
KENILWORTH SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, for the period beginning January 1,
1991 and ending November 23, 1998 and
the year ended December 31, 1990
<TABLE>
<CAPTION>
ASSETS: 1998 1990
---- ----
<S> <C> <C>
Current Assets:
Cash $-0- $ -0-
Accounts receivable, principally
trade -0- 465,064
Inventory -0- 518,671
Other Current Assets -0- 135,000
------ ----------
Total Current Assets $-0- $1,118,735
------ ----------
Equipment, furniture and leasehold
improvements at cost -0- 616,920
Less: Accumulated depreciation
and amortization -0- 497,131
$ -0- $ 119,789
===== ========
Other Assets:
Goodwill -0- 6,549,167
Deposits and other assets -0- 58,478
------ ----------
Total other assets -0- 6,607,645
Total Assets $ -0- $7,846,169
===== =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-1
<PAGE> 28
KENILWORTH SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, for the period beginning January 1,
1991 and ending November 23, 1998 and
the year ended December 31, 1990
<TABLE>
<CAPTION>
LIABILITIES: 1998 1990
---- ----
Current Liabilities:
<S> <C> <C>
Cash overdraft $ -0- $ 37,734
Notes payable - banks -0- 209,000
Secured notes payable -0- 323,522
Other loans payable -0- 156,000
Accounts payable: Accrued
liabilities -0- 917,812
Payroll withholding taxes -0- 1,550,000
Due to officers and affiliates -0- 476,833
---------- -----------
Total Current Liabilities -0- 3,670,901
STOCKHOLDERS' EQUITY:
Common Stock, $.01 par value,
authorized 100,000,000 shares;
issued and outstanding: 60,477,352
in December 1990 and November 23, 604,773 604,773
1998
Paid-in capital 23,774,346 23,774,346
Deficit (24,379,119) (19,911,601)
---------- -----------
Treasury stock (167,000 shares) -0- (292,250)
-0- 4,175,268
Total Liabilities and
Stockholder's Equity $ -0- $ 7,846,268
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-2
<PAGE> 29
KENILWORTH SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS of OPERATION and DEFICIT
for the period beginning January 1, 1991 and ending
November 23, 1998 and the years ended December 31, 1990 and 1989
<TABLE>
<CAPTION>
1998 1990 1989
---- ---- ----
<S> <C> <C> <C>
Revenues:
Sales $ -0- $3,367,155 $1,940,832
Less: Discount on sales (51,115)
---- -------- ----------
-0- 3,316,040 1,940,832
Costs and Expenses:
Cost of sales -0- 2,188,439 1,084,370
Selling, general and
administrative expenses -0- 1,747,839 1,040,916
Research and development -0- 319,150 340,676
Amortization of goodwill -0- 181,921 182,027
Interest expense (income) -0- 65,428 28,131
---- -------- ----------
Total Costs and Expenses -0- 4,502,777 2,676,120
----
Net income (loss)
before other income
and (losses) -0- (1,186,737) (735,288)
Other Income and (Losses):
Sale of assets $ 3,676,347
Other gains 108,000
Interest income 516,056
-------------
Total Other Income 4,300,403
(a) Payment of liabilities
net of eliminations
(b) bankruptcy costs
(c) elimination of assets
(d) cancellation of
treasury stock (8,767,921)
-------------
Other losses (4,467,518)
Net income (loss) (4,467,518) (1,186,737) (735,288)
Deficit - Beginning of year (19,911,601) (18,724,864) (17,989,576)
------------- ------------- -------------
Deficit - End of year $($24,379,119) $($19,911,601) $($18,724,864)
============= ============= =============
Earnings (Loss) per share
of common stock (Note 5) ($.07) ($.02) ($.02)
===== ===== ======
Fully diluted earnings
(loss) per share ($.07) ($.02) ($.02)
===== ===== ======
Average number of shares
outstanding 60,477,352 60,477,352 42,413,191
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
<PAGE> 30
KENILWORTH SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS of CHANGES in FINANCIAL POSITION
for the period beginning January 1, 1991 and ending
November 23, 1998 and the years ended December 31, 1990 and 1989
<TABLE>
<CAPTION>
1998 1990 1989
---- ---- ----
<S> <C> <C> <C>
Working capital provided (utilized) by:
Operations (Loss): $ -0- $(1,186,737) $ (735,288)
Less items not requiring
working capital:
Depreciation and amortization -0- 262,737 293,333
------ ----------- -----------
Total used by operations -0- (924,000) (441,955)
Issuance of common stock, net -0- 447,423
Decreases in fixed assets -0- 50,557
------ ----------- -----------
Total sources of
working capital -0- (476,577) (391,398)
Working capital applied to:
Increase in other assets -0- 11,140
Purchase of fixed assets, net -0- 97,303
Total uses of working capital -0- 108,443 4,965
------ ----------- -----------
Net increase (decrease) in Working
Capital $-0- $(1585,020) $ (396,363)
====== =========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
<PAGE> 31
KENILWORTH SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS of CHANGES in WORKING CAPITAL
for the period beginning January 1, 1991 and ending
November 23, 1998 and the years ended December 31, 1990 and 1989
<TABLE>
<CAPTION>
1998 1990 1989
---- ---- ----
<S> <C> <C> <C>
Analysis of changes in components of working capital:
Increase (decrease) in current assets:
Cash and cash equivalents $ -0- $(135,867) $ 135,867
Accounts receivable -0- 156,674 (260,377)
Inventory -0- 119,969 27,725
Due from officers
Other current assets -0- 135,000 (390,891)
------ --------- ---------
Total increase (decrease) in
current assets -0- 275,776 (487,676)
------ --------- ---------
Increase (decrease) in current liabilities:
Cash overdraft -0- 37,734 (17,868)
Secured notes payable -0- 141,881 (13,319)
Note payable bank -0- (54,319) 263,319
Other loans payable -0- 131,000 (404,929)
Accounts payable -0- 267,493 205,139
Payroll withholding taxes -0- 41,424 29,976
Deposits on private placements -0- (181,250) 46,250
Due to officers and employees -0- 476,833 (199,881)
------ --------- ---------
Total increase (decrease) in
current liabilities -0- 860,796 (91,313)
------ --------- ---------
Net increase (decrease) in Working
Capital $-0- $(585,020) $(396,363)
====== ========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
<PAGE> 32
KENILWORTH SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS of CHANGES in
COMMON STOCK and PAID-IN CAPITAL
for the period beginning January 1, 1991 and ending November 23,
1998 and the years ended December 31, 1990 and 1989
<TABLE>
<CAPTION>
Additional Treasury
Common Shares Paid-in Retained Shares
Shares Amount Capital Earnings Cost
------ ------ ------- -------- ----
<S> <C> <C> <C> <C> <C>
Balances,
January 1, 1988 38,717,669 $387,176 $22,455,715 $(17,709,429) $(292,250)
Shares issued in
payment of
salaries 1,115,000 11,150 263,850
Shares issued in
payment of debt 1,450,000 14,500 603,500
Shares issued in
payment of
operating costs 70,000 700 14,300
Shares sold 1,230,000 12,300 70,200
Shares cancelled (169,478) (1,695)
Balances,
December 31,
1988 $42,413,191 $424,131 $23,507,565 $(17,989,576) $(292,250)
No shares issued
Balances,
December 31,
1989 $42,413,191 $424,131 $23,507,565 $(18,724,864) $(292,250)
Shares sold 18,064,161 180,642 266,781 (19,911,601) (292,250)
Balances,
December 31,
1990 60,477,352 $604,773 $23,774,346 $(19,911,601) $(292,250)
Balances,
February 23,
1998 $60,477,352 $604,773 $23,774,346 $(24,379,119)
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
<PAGE> 33
KENILWORTH SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies:
A. Basis for Presentation
The consolidated financial statements include the accounts of the
Company and all its subsidiaries. All intercompany transactions
and accounts have been eliminated.
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 had been accounted for
under the purchase method of accounting, and accordingly, Video's
operations have been included in the consolidated statement of
operations from acquisition date. The excess of cost over net
assets acquired of $7,094,930 is reflected as goodwill. The
Company previously had an advance to Video of $4,600,000 and an
investment in its preferred stock of $4,200,000. This investment
resulted from the Company's sale in 1982 of its research and
development to Video. This sale resulted in a profit to the
Company of $4,700,000, which has been eliminated as a prior
period adjustment.
B. Property, Plant and Equipment
Depreciation is computed on the straight-line method over the
estimated useful lives of the related assets.
Leasehold improvements are amortized over the shorter of the lease
term or the estimated useful life of the assets.
The cost of maintenance, repairs and minor renewals is charged to
either expense or manufacturing overhead, major renewals and
betterments are capitalized.
When assets are sold or otherwise disposed of, gains or losses
thereon, computed on the basis of the difference between
depreciated costs and proceeds, are credited or charged to
income, and cost and accumulated depreciation are removed from
the accounts.
C. Inventories
Inventory is valued at the lower of cost (first-in, first-out basis)
or market.
F-7
<PAGE> 34
KENILWORTH SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
D. Goodwill
Goodwill arising from the acquisition of a wholly owned subsidiary
in 1986 was being amortized over 40 years and was eliminated
during the last period.
2. Business of the Company
Beginning in 1973, the Company started research and development of
data encoding and decoding systems. During 1977, some of the
applications of the technology were sufficiently developed by the
Company to be able to start marketing such products. On January
1, 1979, the Company considered itself an operating Company and
not a development stage enterprise.
3. Chapter XI, Confirmation of Plan of Reorganization
On June 7, 1985, The Company's Plan of Reorganization was confirmed
by a United States Bankruptcy Judge, Eastern District of New
York. Immediately thereafter, the Company discharged all debt,
other than governmental obligations, totaling $1,500,000, by
issuing 3,712,332 shares of authorized but unissued common stock,
par value $.01 per share, in payment for all unsecured debt, for
all Chapter XI legal and administrative fees, in settlement of
all lawsuits, to obtain $750,000 for unsecured creditors and
governmental obligations and sinking fund requirements.
On August 31, 1982, The Company entered Chapter XI proceedings,
United States bankruptcy Court for the Eastern District of New
York, Westbury L. I., Case #882-82273, in order to better handle
a flood of creditors' claims by suppliers who became concerned
when the Company's plant was temporarily seized by the Internal
Revenue Service. On May 20, 1982, The Internal Revenue Service
seized the only manufacturing plant the Company had for
non-payment of withholding taxes after the Company had made a
$150,000 payment on May 11, 1982. On July 1, 1982, after the
Company paid an additional $100,000, the plant was returned to
the Company, and normal manufacturing operations resumed.
F-8
<PAGE> 35
KENILWORTH SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
Under the Plan of Reorganization, the Company discharged all debt
other than secured debt and governmental obligations by issuing
to creditors one (1) share of authorized but unissued common
stock, par value $.01 per share, (the only class of securities of
the Company) for each $3.00 of debt, and simultaneously set up a
$500,000 sinking fund to redeem stock issued in settlement of
debt at $3.00 per share, on a pro-rata basis.
On June 7, 1985, The Company issued 2,094,034 shares in settlement
of $6,282,102 and on September 7, 1985, redeemed 167,000 of those
shares with the $500,000 from the sinking fund. The funds for the
sinking fund and for the secured creditors and governmental
obligations totaling $750,000 were obtained by issuing 753,892
shares to a small group of private investors. The Company also
issued 1,281,723 shares for legal and Chapter XI administrative
fees totaling $512,689. The price per share of $.40 for the legal
and administrative fees is the same price the Company fixed in
the private placement of restricted shares and convertible
debentures concluded for the new working capital after the
confirmation. For financial accounting purposes, the Company
credited to paid-in capital the shares issued, measured by the
quoted market value of the Company's traded shares on the
national Association of Securities Dealers Automated Quotation
System (NASDAQ) on the date the shares were issued. To the extent
the credits exceeded the amounts attributed to paid-in capital,
they were credited to non-recurring income as extraordinary
items. To the extent the credits were less than the amount
attributed to paid-in capital, they were recorded as
non-recurring losses as extraordinary items.
The Company's common shares issued in settlement of debt and in
connection with the sale of shares in the private placements for
the sinking fund and priority claims, including the legal and
administrative fees, were not restricted securities, (as defined
by the Securities Act of 1933), but may be resold by the
creditors and purchasers at any time by an exemption provided in
Section 5 of the Securities Act of 1933, as amended, and Section
1145 of the Federal Bankruptcy Code.
F-9
<PAGE> 36
KENILWORTH SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
As a result of the Reorganization plan, the Company charged general
and administrative expenses as extraordinary items.
All accounts payable and other liabilities of the company that were
outstanding at the date the Company entered into chapter XI
proceedings were settled in the Plan of Reorganization.
Chapter 7 Proceedings
On October 27, 1988, the Bankruptcy Court reopened the Chapter XI
case for failure by the Company to pay the government
obligations. On February 5, 1991 the Company's Chapter XI case
was converted to a Chapter 7 procedure for failure to pay the
government obligations, and a Trustee was appointed.
Analysis of Common Stock Issued, Paid-In Capital
and Gains and Losses as the Result of Stock issued
in Plan of Reorganization
<TABLE>
<CAPTION>
Average
Market price Credited to Extra-
Amount of Common Of stock Paid-in Ordinary
Debt or Stock On Date of Capital and Gain or
obligation Issued Issuance Common stock (loss)
<S> <C> <C> <C> <C> <C>
Class IV Creditors $2,228,349 887,252 $1.5148 $1,471,067 $752,069
Settlement of
lawsuits previously
not recorded 1,163,012 $1.7238 $2,004,748 ($2,004,748)
Legal and
Administrative Fees
1,169,298 $.2268 $1,434,455 ($1,434,455)
---------- --------- ------- ---------- -----------
$2,228,349 3,219,562 $4,910,270 ($2,687,134)
Less stock redeemed (167,000) $1.7500 (292,250) ($207,750)
---------- --------- ------- ---------- -----------
$2,228,349 3,052,562 $4,618,020 ($2,894,884)
=========== =========== ========== ===========
</TABLE>
F-10
<PAGE> 37
KENILWORTH SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
4. Equipment, Furniture and Leasehold Improvements
<TABLE>
<CAPTION>
Dec. 31, Dec. 31,
1990 1989 Useful Life
---- ---- -----------
<S> <C> <C> <C>
Automobiles $ 60,503 3 - 4 years
Furniture and Equipment 467,566 $431,066 4 - 8 years
Leasehold Improvements 88,551 88,551 Life of Lease
------- --------
Total 616,920 519,617
Less: Accumulated
Depreciation and
Amortization 497,131 415,315
$119,789 $103,302
======== ========
</TABLE>
The unamortized portion was eliminated in 1998.
5. (Loss) Per Share:
(Loss) per share is based on the weighted average number of
outstanding shares during each year.
6. Treasury Stock:
Under the Plan of Reorganization, during 1985 the company was
required to redeem 167,000 share issued to Class IV creditors
with the proceeds of the $500,000 sinking fund previously
established. For financial accounting purposes, the company
ascribed a cost of $292,250, the market value of the shares on
the date of issue ($1.75 per share). The difference of $207,750
was recorded as costs in connection with settlement in
bankruptcy. The treasury stock was eliminated in 1998.
7. Commitments and Contingencies:
In April 1989, the Company moved its entire operations into 22,700
square feet of office, manufacturing and warehouse space at 80
Ruland Road, Melville, New York 11747, pursuant to a lease which
first expires in April 1999 and provides for consecutive five
year options. The lease provides for an annual rent in 1991 of
$204,000 and is subject to certain annual increases each tear
thereafter.
F-11
<PAGE> 38
KENILWORTH SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
In connection with the acquisition of Video Wagering Systems
Corporation ("Video") (Note 1), the Company is obligated to issue
46,600 shares of common stock to former shareholders of Video in
he event Video has cumulative net earnings of $2,000,000 from the
date of acquisition.
Payroll withholding taxes represents unpaid withholding taxes in
arrears including interest and penalties from the Chapter XI
proceedings. The Company had an agreement with the Internal
Revenue Service and the New York State Department of Taxation to
pay these taxes in increments of $50,000 quarter annually, with
the unpaid balance due in December 1990, when the Company was to
receive the final payment from its contract with the Totalizator
Agency Board ("TAB") of Victoria, Australia. The payment did not
materialize at that time because of a monetary dispute with the
TAB. As a result, the Company was converted to a Chapter 7
liquidation proceeding on February 5, 1991.
F-12
<PAGE> 39
KENILWORTH SYSTEMS CORPORATION AND SUBSIDIARIES
SCHEDULE V - PROPERTY, PLANT and EQUIPMENT
for the period beginning January 1, 1991 and ending November 23,
1998 and the years ended December 31, 1990 and 1989
<TABLE>
<CAPTION>
Col. A Col. B Col. C Col. D Col. E
------ ------ ------ ------ ------
Balance at Balance at
Beginning Additions End of
Classification of Period At Cost Retirements Period
<S> <C> <C> <C> <C>
Period ended
November 23, 1998 $-0- $-0- $-0- $-0-
--- --- --- ---
-0- -0- -0- -0-
=== === === ===
Year ended December 31, 1990:
Automobiles $60,503 $60,503
Furniture and
equipment $431,066 36,800 467,866
Leasehold
improvements $ 88,551 $88,551
-------- ------- -------
Year ended December 31, 1989:
Automobiles $ 60,503 $60,503
Furniture and
equipment 421,120 $9,946 $431,066
Leasehold
improvements 88,551 88,551
-------- ------- --------
$570,174 $9,946 $60,503 $519,617
======== ======= ======= ========
</TABLE>
F-13
<PAGE> 40
KENILWORTH SYSTEMS CORPORATION AND SUBSIDIARIES
SCHEDULE VI - ACCUMULATED DEPRECIATION, DEPLETION and AMORTIZATION of
PROPERTY, PLANT and EQUIPMENT
for the period beginning January 1, 1991 and ending November 23,
1998 and the years ended December 31, 1990 and 1989
<TABLE>
<CAPTION>
Col. A Col. B Col. C Col. D Col. E
------ ------ ------ ------ ------
Balance at Additions Balance at
Beginning To costs End of
Classification of Period And Expenses Retirements Period
<S> <C> <C> <C> <C>
Period ended
November 23, 1998 $-0- $-0- $-0- $-0-
--- --- --- ---
-0- -0- -0- -0-
=== === === ===
Year ended December 31, 1990:
Automobiles $ 60,503 $ 60,053
Furniture and
equipment $267,261 $80,816 348,077
Leasehold
improvements 88,551 88,551
====== ======= ========
Year ended December 31, 1989:
Automobiles $ 57,087 $ 3,416 $ 60,503
Furniture and
equipment 204,746 62,515 $267,261
Leasehold
improvements 88,551 88,551
-------- ------- --------
$350,384 $65,931 $416,315
======== ======= ========
</TABLE>
F-14
<PAGE> 41
KENILWORTH SYSTEMS CORPORATION AND SUBSIDIARIES
SCHEDULE VIII - VALUATION and QUALIFYING ACCOUNTS and RESERVES
for the period beginning January 1, 1991 and ending November 23,
1998 and the years ended December 31, 1990 and 1989
<TABLE>
<CAPTION>
Balance at Charged Balance at
Beginning To Costs End of
Description of Period And Expenses Deductions Period
- ----------- --------- ------------ ---------- ------
<S> <C> <C> <C> <C>
Period ended
November 23, 1998 $-0- $-0-
--- ---
-0- -0- -0- -0-
=== === === ===
Year ended
December 31, 1990:
Allowance for doubtful
accounts $-0- $-0-
Year ended December 31, 1989:
Allowance for doubtful $-0- $-0-
accounts
</TABLE>
F-15
<PAGE> 42
KENILWORTH SYSTEMS CORPORATION AND SUBSIDIARIES
SCHEDULE X - SUPPLEMENTAL INCOME STATEMENT INFORMATION
for the period beginning January 1, 1991 and ending November 23,
1998 and the years ended December 31, 1990 and 1989
<TABLE>
<CAPTION>
Col. A Col. B
------ --------------------------------------
Item Charged to Costs and Expenses
---- --------------------------------------
1998 1990 1989
---- ---- ----
<S> <C> <C> <C>
Maintenance and Repairs $ -0- $ 90,372 $110,186
Depreciation and amortization
of equipment, furniture and
leasehold improvements
$ -0- $ 80,816 $ 65,931
Taxes other than
income taxes $ -0- $192,341 $147,732
Rents $ -0- $204,000 $168,000
Advertising costs $ -0- $-0- $-0-
</TABLE>
F-16
<PAGE> 43
KENILWORTH SYSTEMS CORPORATION AND SUBSIDIARIES
LIST OF SUBSIDIARIES
(a) Video Wagering Systems Corporation a Delaware corporation.
(b) Roulabette Corporation a Nevada corporation.
F-17
<PAGE> 1
EXHIBIT 2(1)
Important Announcement to all
Kenilworth Systems Corporation
Shareholders
September 21, 1998
In August 1998 a United States Bankruptcy Judge in the Eastern District of
New York approved the Final Reports and Accounts submitted by the Chapter 7
Trustee of the Estate of Kenilworth Systems Corporation ("Kenilworth").
The approval finalizes the Kenilworth bankruptcy proceedings and the
Trustee paid one hundred percent (100%) of all approved claims and
administration fees and expenses out of the proceeds ($4,424,056) from the sale
of substantially all of the assets of the Kenilworth Estate. Pursuant to the
Asset Sale Agreement,, the purchaser is entitled to receive any funds remaining
from the sale after all claims are paid in full. Accordingly, approximately
$128,000 was refunded.
Kenilworth presently has NO ASSETS and NO LIABILITIES. Paid-in Capital of
$24,379,119 which is eliminated by the deficit of $24,379,119 of which
approximately $22,000,000 is available as unexpired Net Operating Loss
Carry-Forward credits. There are 60,477,352 Common Shares issued and outstanding
owned by approximately 8,000 shareholders.
With the Bankruptcy Court's approval all of the books and records, since
inception of Kenilworth, have been released to the undersigned, who was the
Chairman of the Board of Directors and President of Kenilworth when the Chapter
7 Trustee was appointed.
I will shortly cause to be filed current financial reports on Form 10-K
and 10-Q with the Securities and Exchange Commission.
I will keep you informed.
Sincerely,
Herbert Lindo
Tel: (516) 741-1352
Fax: (516) 741-7194
54 Kenilworth Road
Mineola, NY 11501
<PAGE> 1
EXHIBIT 2(2)
[ILLEGIBLE]
Eastern District of New York
1635 Privado Road
Westbury, NY 11590
- --------------------------------------------------------------------------------
IN RE: CASE NO: 882-82273-346
Kenilworth Systems Corporation
SSN/TAX ID: CHAPTER: 7
13-2610105
DEBTOR(s)
- --------------------------------------------------------------------------------
NOTICE OF FILING OF FINAL ACCOUNT(S) OF TRUSTEE,
OF HEARING ON APPLICATIONS FOR COMPENSATION
(AND OF HEARING ON ABANDONMENT OF PROPERTY BY THE TRUSTEE)
TO THE CREDITORS AND PARTIES IN INTEREST:
THE FINAL REPORT(S) AND ACCOUNT(S) OF THE TRUSTEE IN THIS CASE HAVING BEEN
FILED, NOTICE IS HEREBY GIVEN THAT THERE WILL BE A HEARING HELD ON:
DATE/TIME/LOCATION OF HEARING
July 22, 1998 at 09:30 am
United States Bankruptcy Court
1635 Privado Road
Room 200
Westbury, NY 11590
FOR THE PURPOSE (AS APPROPRIATE) OF EXAMINING AND PASSING ON THE REPORT(S) AND
ACCOUNT(S), ACTING ON APPLICATIONS FOR COMPENSATION AND TRANSACTING SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE COURT. ATTENDANCE BY CREDITORS IS
WELCOMED BUT NOT REQUIRED.
THE ACCOUNT OF THE TRUSTEE SHOWS:
TOTAL RECEIPTS TOTAL DISBURSEMENTS BALANCE ON HAND
$4,424,056.01 $2,930,723.36 $1,493,332.65
IN ADDITION TO EXPENSE OF ADMINISTRATION AS MAY BE ALLOWED BY THE COURT, CLAIMS
SECURED BY LIENS AND CLAIMS ENTITLED TO PRIORITY MUST BE PAID IN ADVANCE OF ANY
DIVIDEND TO GENERAL CREDITORS. CLAIMS HAVE BEEN ALLOWED AND CLASSIFIED AS
FOLLOWS:
SECURED CLAIMS PRIORITY CLAIMS UNSECURED CLAIMS
$0.00 $7,248.22 $1,045,700.70
THE FOLLOWING APPLICATIONS FOR COMPENSATION HAVE BEEN FILED
(CREDITORS MAY BE HEARD BEFORE THE APPLICATIONS ARE DETERMINED)
APPLICANT COMMISSION OR FEES EXPENSES
Andrew M. Thaler, Trustee $68,227.32 $728.18
Pryor & Mandelup, Atty [ILLEGIBLE] $211,373.25 $5,266.04
Margolin Winer & Evens, Acc $0.00
THE DEBTOR BEEN DISCHARGED.
<PAGE> 2
That the Trustee shall issue all distribution checks that bear the notation
"VOID IF NOT CASHED WITHIN NINETY (90) DAYS". That subsequent to the 91st day
after the checks are disbursed to the claimants the Trustee shall stop payment
and void any check not negotiated and issue a replacement check (Payable to:
Clerk, United States Bankruptcy Court) for the benefit of such claimant and
forward said replacement check to the Clerk of the Court, together with the
name, address and amount owed to the claimant.
NOTICE: ANY CREDITOR OR PARTY IN INTEREST WHO HAS AN OBJECTION TO THE
ABOVE-PROPOSED DISTRIBUTION MUST FILE SUCH OBJECTION WITH THE UNITED STATES
BANKRUPTCY COURT AND SERVE A COPY OF THE SAME TO THE UNDERSIGNED TRUSTEE AND ON
THE OFFICE OF THE UNITED STATES TRUSTEE, 825 EAST GATE BOULEVARD, SUITE 304,
GARDEN CITY, NY 11530 AND REQUEST A HEARING WITHIN TEN (10) DAYS OF THE DATE OF
THE FILING OF THIS NOTICE WITH THE CLERK OF THE UNITED STATES BANKRUPTCY COURT,
1635 PRIVADO ROAD, WESTBURY, NY 11590.
Dated: August 12, 1998 Prepared and Presented
/s/ Andrew M. Thaler
-------------------------------
Andrew M. Thaler, Trustee
900 Merchants Concourse
Suite 414
Westbury, New York 11590
(516) 228-3553
- --------------------------------------------------------------------------------
REVIEWED BY UNITED STATES TRUSTEE
I have reviewed the Trustee's Notice of Distribution
Carolyn S. Schwartz
United States Trustee
Dated: August 27, 1998 By: /s/ Marilyn J. Cairns
---------------------------------------
(U.S. Trustee Staff Member)
<PAGE> 1
EXHIBIT 2(3)
UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF NEW YORK
- ---------------------------------------------x
In re Chapter 7
KENILWORTH SYSTEMS CORPORATION, a/k/a Case No. 882-82273-346
KENILWORTH RESEARCH &
DEVELOPMENT CORPORATION, Judge Francis G. Conrad
Debtor(s). Notice of Distribution
- ---------------------------------------------x
AT THE HEARING before the Court held on the 22nd day of July, 1998, the
Court reviewed and considered the Application for Compensation and any other
applicants' requests for compensation. The Trustee's Final Report and Account,
dated April 29, 1998, reflects gross receipts in the amount of $4,424,056.01,
plus interest earned since the filing of the Trustee's Final Report and Account
in the amount of $16,289.23, administration expenses previously disbursed in the
amount of $2,930,723.36 leaving a balance on hand of $1,509,621.88. The Trustee
has certified that the claims have been examined and has recommended that the
claims be paid pursuant to the distributive provisions of Title 11, United
States Code. The office of the United States Trustee previously reviewed and
approved the Trustees's Final Report and based on the foregoing, the Trustee
proposes to disburse the balance on hand as follows:
Liens Attached to Proceeds $ 0.00
Super-Priority [11 U.S.C.364(c)(1)] $ 0.00
Trustee Commissions [1l U.S.C.326(a)]
Andrew M. Thaler [ILLEGIBLE] $ 68,227.32*
[ILLEGIBLE] -------------
Chapter 7 Professional Fees (as approved by entry of order(s) of the
Court)
Attorney for Trustee Compensation
[11 U.S.C. 330 (a) (1)]
Pryor & Mandelup, L.L.P. $215,533.25*
Attorney for Trustee Expenses $ 6,366.09*
Bonus awarded per Order dated 7/30/98 $ 20,000.00*
Margolin, Winer & Evens, LLP $ 20,390.75*
Accountant for Trustee $ 262,290.09*
-------------
U.S. Trustee Fees [28 U.S.C. 1930 (b)(6)] $ 0.00
-------------
U.S. Bankruptcy Clerk Fees [28 U.S.C. 1930(b)] $ 1,774.75
Administration Tax Claims, Other Expenses or -------------
- ----------
*Said fees. commissions and expenses previously paid per Court Order.
<PAGE> 2
Professional Fee Allowances [11 U.S.C. 503(b)]
Chapter 7 Administrative Expenses
Trustee Expenses $ 728.18*
-----------
Total Chapter 7 Administrative Expenses $ 333,020.34
-------------
Chapter 11 Administrative Expenses
(including Chapter 11 professional fees)
Shaw Licitra Parente et al. $ 7,248.22
-----------
Total Chapter 11 Administrative Expenses $ 7,248.22
-----------
Total Administrative Expenses $ 340,268.56
-------------
That the balance on hand (after the payment of administrative expenses and
any super-priority) in the amount of $1,169,353.32 shall be distributed by the
Trustee as follow:
Subordinated First Priority [11 U.S.C. 726(b)]
(Per attached Itemized Continuation Sheet)
*______% pro rata distribution* $ 0.00
-------------
Total Priority Dividends [11 U.S.C. 507(a)]
(Per attached Itemized Continuation Sheet)
*______% pro rata distribution* $ 0.00
-------------
Secured Tax Claims [11 U.S.C. 724(b)]
(Per attached Itemized Continuation Sheet)
*_______% pro rata distribution* $ 0.00
-------------
General Unsecured Dividend [11 U.S.C. 726(a)]
(Per attached Itemized Continuation Sheet)
[ILLEGIBLE] [ILLEGIBLE]
-------------
Late Filed General Unsecured Dividend
[11 U.S.C. 726(a)(3)]
*______% pro rata distribution* $ 0.00
-------------
Legal Rate of Interest [11 U.S.C. 726(a)(5)]
*______% interest, if applicable, to be paid
subsequent to distribution to 11 U.S.C. 726(a)(l),
(2), (3) and (4) claimants. $ 0.00
-------------
TOTAL DISTRIBUTION $1,169,353.32
=============
That the Trustee shall issue all distribution checks that bear the notation
"VOID IF NOT CASHED"
<PAGE> 3
That the Trustee shall issue all distribution checks tat bear the notation "VOID
IF NOT CASHED WITHIN NINETY (90) DAYS". That subsequent to the 91st day after
the checks are disbursed to the claimants the Trustee shall stop payment and
void any check not negotiated and issue a replacement check (Payable to: Clerk,
United States Bankruptcy Court) for the benefit of such claimant and forward
said replacement check to the Clerk of the Court, together with the name,
address and amount owed to the claimant.
NOTICE: ANY CREDITOR OR PARTY IN INTEREST WHO HAS AN OBJECTION TO THE
ABOVE-PROPOSED DISTRIBUTION MUST FILE SUCH OBJECTION WITH THE UNITED STATES
BANKRUPTCY COURT AND SERVE A COPY OF THE SAME TO THE UNDERSIGNED TRUSTEE AND ON
THE OFFICE OF THE UNITED STATES TRUSTEE, 825 EAST GATE BOULEVARD, SUITE 304,
GARDEN CITY, NY 11530 AND REQUEST A HEARING WITHIN TEN (10) DAYS OF THE DATE OF
THE FILING OF THIS NOTICE WITH THE CLERK OF THE UNITED STATES BANKRUPTCY COURT,
1635 PRIVADO ROAD, WESTBURY, NY 11590.
Dated: August 12, 1998 Prepared and Presented
/s/ Andrew M. Thaler
-------------------------------
Andrew M. Thaler, Trustee
900 Merchants Concourse
Suite 414
Westbury, New York 11590
(516) 228-3553
- --------------------------------------------------------------------------------
REVIEWED BY UNITED STATES TRUSTEE
I have reviewed the Trustee's Notice of Distribution
Carolyn S. Schwartz
United States Trustee
Dated: August 27, 1998 By: /s/ Marilyn J. Cairns
---------------------------------------
(U.S. Trustee Staff Member)
<PAGE> 1
EXHIBIT 2(4)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Case Number: 8-82-82273 Page 1 Date: August 12, 1998
Debtor Name: KENILWORTH SYSTEMS CORPORATION
====================================================================================================================================
Claim # Payee Name Class Priority Amount Paid to Date Claim Balance Proposed Pymt
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
Beginning Balance
PRYOR & MANDELUP, LLP Admin 025 $215,533.25 $215,533.25 $0.00 $0.00
PRYOR & MANDELUP, LLP Admin 025 $6,366.09 $6,366.09 $0.00 $0.00
MORGOLIN, WINER & EVENS, LLP Admin 025 $20,390.75 $20,390.75 $0.00 $0.00
CLERK, U.S. BANKRUPTCY COURT Admin 025 $1,744.75 $0.00 $1,744.75 $1,744.75
PRYOR & MANDELUP, L.L.P. Admin 025 $20,000.00 $20,000.00 $0.00 $0.00
ANDREW M. THALER, TRUSTEE Admin 025 $68,227.32 $68,227.32 $0.00 $0.00
ANDREW M. THALER, TRUSTEE Admin 025 $728.18 $728.18 $0.00 $0.00
326 SHAW LICITRA PARENT ET. AL Admin 028 $7,248.22 $0.00 $7,248.22 $7,248.22
------------------------------------------------------------
Subtotals For Class Administrative 100.0000% $340,268.56 $331,245.59 $9,022.97 $9,022.97
FLEET BANK Unsec 070 $50,000.00 $0.00 $50,000.00 $50,000.00
JEFFREY LINDO Unsec 070 $21,000.00 $0.00 $21,000.00 $21,000.00
120 THE INDEPENDENT ELECTION CORP Unsec 070 $2,143.85 $0.00 $2,143.85 $2,143.85
126 ALL WEATHER TEMPERATURE CONTROL INC Unsec 070 $906.34 $0.00 $906.34 $906.34
127 MICHAEL J. ROCK Unsec 070 $1,200.82 $0.00 $1,200.82 $1,200.82
128 PROGRAMMING CONCEPTS INC. Unsec 070 $36,172.50 $0.00 $36,172.50 $36,172.50
131 DP SEARCH ASSOCIATES INC. Unsec 070 $3,333.33 $0.00 $3,333.33 $3,333.33
133 DATA CARD CORP. Unsec 070 $662.90 $0.00 $662.90 $662.90
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
=====================================================================
Claim # Payee Name Funds Remaining
=====================================================================
<S> <C> <C>
Beginning Balance
PRYOR & MANDELUP, LLP $1,178,376.29
PRYOR & MANDELUP, LLP $1,178,376.29
MORGOLIN, WINER & EVENS, LLP $1,178,376.29
CLERK, U.S. BANKRUPTCY COURT $1,178,376.29
PRYOR & MANDELUP, L.L.P. $1,176,601.54
ANDREW M. THALER, TRUSTEE $1,176,601.54
ANDREW M. THALER, TRUSTEE $1,176,601.54
326 SHAW LICITRA PARENT ET. AL $1,169,353.32
Subtotals For Class Administrative 100.0000%
FLEET BANK $1,119,353.32
JEFFREY LINDO $1,098,353.32
120 THE INDEPENDENT ELECTION CORP $1,096,209.47
126 ALL WEATHER TEMPERATURE CONTROL INC $1,095,303.13
127 MICHAEL J. ROCK $1,094,102.31
128 PROGRAMMING CONCEPTS INC. $1,057,929.81
131 DP SEARCH ASSOCIATES INC. $1,054,596.48
133 DATA CARD CORP. $1,053,933.58
- ---------------------------------------------------------------------
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
FINAL DISTRIBUTION
- ------------------------------------------------------------------------------------------------------------------------------------
Case Number: 8-82-82273 Page 2 Date: August 12, 1998
Debtor Name: KENILWORTH SYSTEMS CORPORATION
====================================================================================================================================
Claim # Payee Name Class Priority Amount Paid to Date Claim Balance Proposed Pymt
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
134 ANN MARIE McPARTLAND Unsec 070 $721.10 $0.00 $721.10 $721.10
135 ARTHUR ROBINSON & HEDDERWICKS Unsec 070 $45,012.15 $0.00 $45,012.15 $45,012.15
136 LILCO Unsec 070 $6,368.07 $0.00 $6,368.07 $6,368.07
137 GENERAL INDUSTRIAL TECHNOLOGIES INC Unsec 070 $23,261.36 $0.00 $23,261.36 $23,261.36
141 TECHNILEASE CORP. Unsec 070 $6,285.00 $0.00 $6,285.00 $6,285.00
159 ISLAND VIDEO INC. Unsec 070 $835.78 $0.00 $835.78 $835.78
190 ZURICH INSURANCE CO. Unsec 070 $7,107.67 $0.00 $7,107.67 $7,107.67
193 NIKOLAS L. MASTRANGELO, ESQ. LTD. Unsec 070 $10,352.00 $0.00 $10,352.00 $10,352.00
195 FUTURE ELECTRONICS CORP Unsec 070 $4,964.41 $0.00 $4,964.41 $4,964.41
199 ATLANTIC CITY COIN & SLOT SERVICE Unsec 070 $8,500.00 $0.00 $8,500.00 $8,500.00
206 FIRST TRANSCAPITAL CORP. Unsec 070 $25,000.00 $0.00 $25,000.00 $25,000.00
207 FUNDEX CAPITAL CORP Unsec 070 $190,397.96 $0.00 $190,397.96 $190,397.96
208 HORN KAPLAN GOLDBERG GORNY & DANIELS Unsec 070 $4,127.07 $0.00 $4,127.07 $4,127.07
210 SHEPHARD LANE Unsec 070 $35,000.00 $0.00 $35,000.00 $35,000.00
211 VAN SEPLOW Unsec 070 $32,500.00 $0.00 $32,500.00 $32,500.00
212 ARLAND PRINTING CO. INC. Unsec 070 $5,527.50 $0.00 $5,527.50 $5,527.50
222 OLIVETTI OFFICE, USA INC. Unsec 070 $22,562.28 $0.00 $22,562.28 $22,562.28
233 ARTHUR YORKES & COMPANY CPA'S Unsec 070 $75,262.09 $0.00 $75,262.09 $75,262.09
241 CRYSTEK CRYSTALS CORP. Unsec 070 $779.20 $0.00 $779.20 $779.20
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
=====================================================================
Claim # Payee Name Funds Remaining
=====================================================================
<S> <C> <C>
134 ANN MARIE McPARTLAND $1,053,212.48
135 ARTHUR ROBINSON & HEDDERWICKS $1,008,200.33
136 LILCO $1,001,832.26
137 GENERAL INDUSTRIAL TECHNOLOGIES INC $978,570.90
141 TECHNILEASE CORP. $972,285.90
159 ISLAND VIDEO INC. $971,450.12
190 ZURICH INSURANCE CO. $964,342.45
193 NIKOLAS L. MASTRANGELO, ESQ. LTD. $953,990.45
195 FUTURE ELECTRONICS CORP $949,026.04
199 ATLANTIC CITY COIN & SLOT SERVICE $940,526.04
206 FIRST TRANSCAPITAL CORP. $915,526.04
207 FUNDEX CAPITAL CORP $725,128.08
208 HORN KAPLAN GOLDBERG GORNY & DANIELS $721,001.01
210 SHEPHARD LANE $686,001.01
211 VAN SEPLOW $653,501.01
212 ARLAND PRINTING CO. INC. $647,973.51
222 OLIVETTI OFFICE, USA INC. $625,411.23
233 ARTHUR YORKES & COMPANY CPA'S $550,149.14
241 CRYSTEK CRYSTALS CORP. $549,369.94
- ---------------------------------------------------------------------
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Case Number: 8-82-82273 Page 3 Date: August 12, 1998
Debtor Name: KENILWORTH SYSTEMS CORPORATION
====================================================================================================================================
Claim # Payee Name Class Priority Amount Paid to Date Claim Balance Proposed Pymt
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
247 SEVEN ELEVEN TOURS INC Unsec 070 $6,806.00 $0.00 $6,806.00 $6,806.00
250 RON COMO & ASSOCIATES, INC. Unsec 070 $37,178.80 $0.00 $37,178.80 $37,178.80
258 BARBARA ROSENTHAL Unsec 070 $61,550.00 $0.00 $61,550.00 $61,550.00
263 FRANK VENTRELLO Unsec 070 $6,709.36 $0.00 $6,709.36 $6,709.36
274 GREENBERG GLUSKER FIELDS ET. AL. Unsec 070 $2,701.90 $0.00 $2,701.90 $2,701.90
310 ELAINE T. BERMAS Unsec 070 $809.98 $0.00 $809.98 $809.98
311 ELAINE T. BERMAS Unsec 070 $1,365.40 $0.00 $1,365.40 $1,365.40
317 ERIC W. GREENSPAN Unsec 070 $6,804.23 $0.00 $6,804.23 $6,804.23
324 SAEGER COMPUTERS INC. Unsec 070 $4,356.82 $0.00 $4,356.82 $4,356.82
329 WINDELS MARX DAVIES & IVES Unsec 070 $68,823.24 $0.00 $68,823.24 $68,823.24
330 JUNE SHERMAN Unsec 070 $75,000.00 $0.00 $75,000.00 $75,000.00
336 BETTY SUE SVANDRLIK Unsec 070 $2,381.75 $0.00 $2,381.75 $2,381.75
337 KENNETH COOPERSTEIN Unsec 070 $20,000.00 $0.00 $20,000.00 $20,000.00
337 U.S. JUSTICE DEPARTMENT Unsec 070 $100,000.00 $0.00 $100,000.00 $100,000.00
342 JOYCE CLARK Unsec 070 $26,500.00 $0.00 $26,500.00 $26,500.00
348 GARY W. LANGE Unsec 070 $2,500.00 $0.00 $2,500.00 $2,500.00
354 MICHAEL SCHNEIDER Unsec 070 $2,229.84 $0.00 $2,229.84 $2,229.84
CASHTEK CORP. Unsec 080 $0.00 $0.00 $0.00 $0.00
------------------------------------------------------------
Subtotals For Class Unsecured 100.0000% $1,045,700.70 $0.00 $1,045,700.70 $1,045,700.70
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
====================================================================
Claim # Payee Name Funds Remaining
====================================================================
<S> <C> <C>
247 SEVEN ELEVEN TOURS INC $542,563.94
250 RON COMO & ASSOCIATES, INC. $505,385.14
258 BARBARA ROSENTHAL $443,835.14
263 FRANK VENTRELLO $437,125.78
274 GREENBERG GLUSKER FIELDS ET. AL. $434,423.88
310 ELAINE T. BERMAS $433,613.90
311 ELAINE T. BERMAS $432,248.50
317 ERIC W. GREENSPAN $425,444.27
324 SAEGER COMPUTERS INC. $421,087.45
329 WINDELS MARX DAVIES & IVES $352,264.21
330 JUNE SHERMAN $277,264.21
336 BETTY SUE SVANDRLIK $274,882.46
337 KENNETH COOPERSTEIN $254,882.46
337 U.S. JUSTICE DEPARTMENT $154,882.46
342 JOYCE CLARK $128,382.46
348 GARY W. LANGE $125,882.46
354 MICHAEL SCHNEIDER $123,652.62
CASHTEK CORP. $123,652.62
Subtotals For Class Unsecured 100.0000%
- --------------------------------------------------------------------
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Case Number: 8-82-82273 Page 4 Date: August 12, 1998
Debtor Name: KENILWORTH SYSTEMS CORPORATION
====================================================================================================================================
Claim # Payee Name Class Priority Amount Paid to Date Claim Balance Proposed Pymt
====================================================================================================================================
<S> <C> <C> <C> <C>
<<Totals>> $1,385,969.26 $331,245.59 $1,054,723.67 $1,054,723.67
====================================================================================================================================
<CAPTION>
===================================================================
Claim # Payee Name Funds Remaining
===================================================================
<S> <C>
<<Totals>> $123,652.62
===================================================================
</TABLE>
Proposed distribution is dependent on the Court's rulings on administrative
expenses, contest of claims, and/or objections made to this proposed
distribution.
<PAGE> 1
EXHIBIT 2(5)
UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF NEW YORK
- ---------------------------------------------x
In re Chapter 7
KENILWORTH SYSTEMS CORPORATION, a/k/a Case No. 882-32273-346
KENILWORTH RESEARCH &
DEVELOPMENT CORPORATION, Judge Francis G. Conrad
ORDER APPROVING TRUSTEE'S
FINAL REPORT AND APPLICATION FOR
COMPENSATION AND REIMBURSEMENT
OF EXPENSES
Debtor.
- ---------------------------------------------x
Upon the Trustee's Final Report and Account dated April 29, 1998,
the Trustee's Request Final Compensation and Expenses dated April 29, 1998, the
Application Of Pryor & Mandelup, L.L.P Counsel To The Trustee For Final
Allowance Of Compensation and Reimbursement Of Expenses dated A[ILLEGIBLE] 16,
1998, the Supplemental Application of Pryor & Mandelup, L.L.P. As Counsel To The
Trustee For [ILLEGIBLE] Allowance of Compensation and Reimbursement of Expenses
dated July 17, 1998, and the Application [ILLEGIBLE] Margolin, Winer & Evens
LLP, Accountants To The Trustee For Allowance Of Final Compensation For Period
September 30, 1992-March 16, 1998 dated March 17, 1998; the Objection of the
United S[ILLEGIBLE] Trustee to Applications For Final Commissions and
Compensation dated July 20, 1998; and the Trus[ILLEGIBLE] Response to Objection
of U.S. Trustee dated July 21, 1998; and a hearing having been conducted on
[ILLEGIBLE] 22, 1998 before the Honorable Francis 0. Conrad to consider the
Applications for Compensation; an[ILLEGIBLE] Attorneys for the Trustee, Pryor &
Mandelup, L.L.P., having appeared by A. Scott Mandelup, Esq.; a[ILLEGIBLE]
Accountants for the Trustee, Margolin, Winer & Evens, LLP, having appeared by
Howard M. Fielstein [ILLEGIBLE] the Trustee, Andrew M. Thaler, having appeared
in support of the applications; and the United [ILLEGIBLE] Trustee, by Hillary
F. Schultz, Esq. having appeared; and Andrew M. Thaler, Trustee having
prev[ILLEGIBLE]
<PAGE> 2
previously paid of $348,829.60 pursuant to prior Orders of the Court; and
Marsolin, Winer & Evens, LLP having previously been paid $80,827.92 in fees and
expenses pursuant to Orders of the Court; and notice being deemed good and
sufficient; and due deliberation having been had; and sufficient cause appearing
therefor, now, it is hereby
ORDERED, that the "Trustee's Final Report and Account" dated April
29, 1998 and "Trustee's Request for Final Compensation and Expenses" dated April
29, 1998, be and they hereby are approved in their entirety consistent with this
Order; and it is further
ORDERED, that Commissions be and are hereby granted to Andrew M.
Thaler in the amount of $132,901.68 together with expenses of $728.18; and it is
further
ORDERED, that Compensation be and is hereby granted to Pryor &
Mandelup, L.L.P., Attorneys for the Trustee, in the amount of $555,108.50 plus
expenses of $15,620.44; it is further
ORDERED, that Compensation be and is hereby granted to Margolin,
Winer & Evens, LLP, accountants for the Trustee, in the amount of $101,218.67;
and it is further
ORDERED, that after raking into account prior payments to
professionals, the Trustee be and hereby is authorized to pay said fees,
commissions and expenses upon entry of this Order as follows:
Andrew M. Thaler, Trustee $ 68,227.32 (commissions)
Andrew M. Thaler, Trustee $ 728.18 (expenses)
Pryor & Mandelup, L.L.P. $215,533.25 (fees)
Pryor & Mandelup, L.L.P. $ 6,366.09 (expenses)
Margolin, Winer & Evens, LLP $ 20,390.75 (fees)
Dated: [ILLEGIBLE]
30 day of July, 1998.
/s/ Francis G. Conrad
----------------------------------
FRANCIS G. CONRAD
UNITED STATES BANKRUPTCY JUDGE
[ILLEGIBLE]
<PAGE> 1
EXHIBIT 2(6)
UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF NEW YORK
- ----------------------------------------------X
In re:
Chapter 7
KENIL WORTH SYSTEMS CORPORATION,
Case No.: 882-82273-346
Debtor.
- ----------------------------------------------X ORDER
UPON the Notice of Presentment, dated March 19, 1998, by Andrew M.
Thaler, Chapter 7 Trustee of the bankruptcy estate of Kenilworth Systems
Corporation (the "Debtor") in the above-captioned Chapter 7 case, by his
attorneys Pryor & Mandelup, L.L.P., of this Order, pursuant to 11 U.S.C.
ss.554(a) and Rule 6007(a) of the Federal Rules of Bankruptcy Procedure,
authorizing the Trustee to abandon the books and records of the Debtor to the
Debtor, by its President, Herbert Lindo, or in the alternative to abandon same
as refuse, on the grounds that the Trustee has no further use of said books and
records in the administration of the Debtor's estate and said books and records
are of inconsequential value to the estate and the further maintenance of said
books and records, including the cost of storage thereof, is burdensome to the
Debtor's estate; and
UPON the affidavit of service of the Notice of Presentment and Order
on all creditors of the Debtor holding allowed claims and on CashTek
Corporation, and said service being deemed sufficient; and no objections or
request for a hearing on the proposed Order having been timely flied; and for
good cause shown; it is hereby
<PAGE> 2
ORDERED, that pursuant to 11 U.S.C. ss.554(a), the Trustee hereby is
authorized to abandon to the Debtor, by its President, Herbert Lindo, or in the
alternative, to abandon as refuse, all books and records of the Debtor.
Dated: Westbury, New York
April 21, 1998
/s/ FRANCIS G. CONRAD
--------------------------------------
HONORABLE FRANCIS G. CONRAD
UNITED STATES BANKRUPTCY JUDGE
