KENILWORTH SYSTEMS CORP - 10-K Annual Report

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]

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
December 31, 1998 totaled 60,477,352 shares.

The aggregate market value of the voting stock held by non-affiliates
(49,989,687 shares) of the Company on March 5, 1999 was $8,498,246. The price
at which the common stock sold on the aforesaid date was $.17.

The report includes financials for the period that is required to be
audited. The Audit Report is delayed. The Company does not expect any
significant change in the results of operation and balance sheets (See Item 9).

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
29, 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 had no other assets and no liabilities,
when it emerged from bankruptcy.

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 and $5.00) 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 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 by issuing 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.

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 consists of a personal computer (PC) with two
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 enclosure, about the size of a typical slot machine.
Each terminal is self-sufficient and managers wagers from $.25 to $100 or
the equivalent in most any currency.

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 a 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 36 winning numbers of the previous 20 games 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

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 each 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 rule out 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.

At the end of the play, all credits (winnings) are paid by the
Roulabette Terminal issuing a bar code receipt which states the amount of
credit and is cashed out at a casino cage or cashier located in hotels,
clubs, pubs, etc. A computer link between the Cashier Stations and each
Roulabette Terminal verifies that the bar code receipt specifying a certain
amount of money was issued by the designated Roulabette Terminal.

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.

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 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.

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 $2.0 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.

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 in order to promote digital
direct TV to the state's 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.

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)

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 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 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.

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 $40,000. 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 the shareholders of the
Company will be asked to ratify the following: (a) An amendment to the
Company's Certificate of Incorporation to increase the authorized number
of Common Shares from 61,000,000 shares to 100,000,000 shares, and to
permit the Company's Board of Directors, without further action by the
shareholders, to issue from time to time up to 1,000,000 authorized but
unissued shares of Preferred Stock, and to fix and determine the terms,
limitations, relative rights and preferences of the Preferred Stock, in
order to obtain financing, capital and/or acquire other businesses that
can improve the performance or growth of the Company. When any shares of
Preferred Stock are issued, certain rights of their holders may affect
the rights of the holders of Common Stock. In addition to any other
powers conferred on the Preferred Stock, holders of the Preferred Stock
would have, under New York General Corporation Law, the right to vote as
a separate class on any increased, decrease or change in the rights of
the Preferred Stock. The affirmative vote of a majority of the
outstanding shares of Preferred Stock would be required for approval of
any such increase, decrease, or change. The authority of the Board of
Directors to issue shares of Preferred Stock with characteristics it
determines (such as preferential voting, conversion redemption and
liquidation rights) may have a deterrent effect on persons who might wish
to make a takeover BID to purchase shares of the Company at a price which
might be attractive to its shareholders. However, the Board of Directors
must fulfill its fiduciary obligation to the Company and its shareholders
in evaluating any takeover BID; and (b) The creation of a stock option
and stock award plan (the "Plan") which will authorize the grant of
options to purchase common shares of the Company to key employees
(including directors who are

employees), which may be "incentive stock options" (ISO's) within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended,
or nonqualified options. The Plan also will provide for the grant of
stock appreciation rights and stock awards to eligible participants
subject to forfeiture restrictions; (c) The creation of a Directors
Stock Option Plan pursuant to which stock options are awarded to those
directors who are not officers or employees of the Company ("outside
directors"). Presently, there are no outside directors. The plan will
permit the Company to recruit and retain outside directors who will use
their best efforts to promote the success of the Company's business, (d)
The election of members to the Board of Directors; and (e) Ratify the
selection of Arthur Yorkes and Company as the independent public
accountant of the Company for the ensuing fiscal year.

Management at present does not know of any other matters that may be
presented to a vote at the Annual Meeting of Shareholders.

PART II
ITEM 5 - 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.

4th Quarter Low Bid High Bid
Through December 31, 1998 $.005 $.05

1st Quarter
Through March 5, 1999 $.08 $.20

(b) Holders. There were approximately 11,000 holders of record of Common
Stock of the Company as of December 31, 1999 and 1998, when the market
quotation was $.02 Bid and $.04 offered, as reported in the Over The
Counter Pink Sheets. The approximate number of record holders is based
upon the actual number of holders registered on the books of the Company
at the latter date and includes an estimate of beneficial holders of
shares in "street name" or persons, partnerships, associations,
corporations, or other entities identified in security position listings
maintained by depository trust companies. The calculation of the number
of shares of the Company's Common Stock held by non-affiliates shown on
the cover of this Form 10-K was made on the assumption that there were
no affiliates other than officers, directors, and holders of over five
percent (5%) of the Common Stock of the Company.

(c) Dividends. The Company has not paid any dividends on its Common
Stock. The Company plans to apply any earnings it achieves to expansion
of the business and does not expect to pay any dividends in the
foreseeable future.

Description of the Company's Securities
Common Stock
The authorized capital stock of the Company consists of 100,000,000
Common Shares, $.01 par value ("Common Stock"), of which 60,477,332
shares are issued and outstanding as at December 31, 1998.

The holders of Common Stock are entitled to one vote for each share held
of record on all matters to be voted on by stockholders. There is no
cumulative voting with respect to the election of directors, with the
result that the holders of more than 50% of the shares voting for the
election of directors can elect all of the directors then up for
election. The holders of Common Stock are entitled to receive ratably
such dividends when, as, and if declared by the Board of Directors out
of funds legally available therefrom. In the event of liquidation,
dissolution or winding up of the Company, the holders of Common Stock
are entitled to share ratably in all assets remaining which are
available for distribution to them after payment of liabilities and
after provision has been made for each class of stock, if any, having
preference over the Common Stock. Holders of shares of Common Stock, as
such, have no conversion, preemptive or other subscription rights, and
there are no redemption provisions applicable to the Common Stock. All
of the outstanding shares of Common Stock are fully paid and non-
assessable.

ITEM 6 - SELECTED FINANCIAL DATA
Operations for the years ended December 31, 1998, 1990, 1989, 1988 and 1987.
[S] [C] [C] [C] [C] [C]
1998 1990 1989 1988 1987
Net sales
from operations $ -0- $3,316,040 $1,940,832 $1,745,486 $395,767
Other income 4,300,403
Payments of
liabilities ($8,767,921)
Earnings (loss) ($4,475,430) ($1,186,737) ($735,288) ($251,954) ($1,630,314)
Earnings (loss)
per common share ($.07) ($.02) ($.02) ($.005) ($.05)
Fully diluted ($.02) ($.02) ($.02) ($.005) ($.05)
CAPITAL RESOURCES
as of December 31,
Total assets -0- $7,846,169 $7,724,687 $8,551,288 $7,931,698
Current assets -0- $1,118,735 $ 842,959 $1,330,635 $763,606
Current liabilities $7,912 $3,670,901 $1,810,105 $2,901,418 $3,118,639
Current ratio -0- 3.3 3.0 2.2 4.6
Stockholders' equity -0- $4,175,268 $4,194,582 $5,649,870 $4,813,109

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
direct satellite TV broadcast around the world.

The first step will be to conduct a three (3) month test of the system at
the proposed Company facility and, after successfully completing the test,
to test a system at a casino preferably located in Atlantic City. Each
test will be with forty (40) Roulabette terminals.

To conduct these two tests will require $1,600,000 to; a) purchase
computers, digital television broadcast equipment and table games; and,
b) defray the cost of the facility and pay the salaries of six (6)
employees who are specialists in software design, TV broadcasts, and
mechanical design, for a period of eighteen (18) months, and from time to
time, consultants who will assist the design team.

Unless the Company is able to obtain these funds, none of the tests and
initial development work can commence.

The Company plans to obtain the necessary funding by offering in a
Private Placement, Senior Cumulative Convertible Preferred Shares and/or
by the sale of limited joint venture participations in future Roulabette
franchises.

When the tests are completed and the Company has obtained licenses from
the gaming control regulators for the sale of Roulabette systems to U.S.
casinos, the Company will obtain production financing from regular
banking sources to finance the manufacturing of the Roulabette terminals
leased or sold.

Results of Operations
During the short period since the Company emerged from bankruptcy
proceedings, September 23, 1998 to December 31, 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
proposed to be 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

For more than ten (10) years prior to the Company entering Chapter 7
Bankruptcy proceedings in February 1991, The Company's financials were
audited annually by Arthur Yorkes & Company. The Company had planned to
again engage Arthur Yorkes & Company to conduct an audit of its
financials for the December 31, 1998 Annual Report, when Arthur Yorkes &
Company informed the Company that they may have a conflict of interest
in conducting audits for the Company. Since an immediate determination
of the possible conflict of interest could not be made, The Company
engaged new Independent Auditors.

PART III
ITEM 10 - 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 private wholesale 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.

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
Compensation Committee of the Board of Directors.

ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
(a) Security Ownership of Certain Beneficial Owners
Other than as set forth in subparagraph (b) below, no
person is known to the Company as the beneficial owner of
more than 5% of its common stock.

(b) Security Ownership of Management
The table below reflects the beneficial ownership of the
shares of the Company's Common Shares as of December 31,
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.

Number of Shares % of Class
Title, Name and Address of Owner Owned
Chairman and President
Herbert Lindo 10,333,132 (a) 17.08
54 Kenilworth Road
Mineola, NY 11501
Vice President and Director
Joyce Clark 100,000 (b) .01
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
Jeffrey Lindo 5,331,000 (c) 8.81
162 Sycamore Circle
Stony Brook, NY 11790
All officers and directors
as a group 10,487,332 17.10
(a) Does not include 551,000 shares owned by the wife and children of
Herbert Lindo (the Lindos' are separated since January 1991).

(b) Does not include 150,700 shares owned by the daughter of Joyce Clark.

(c) Jeffrey Lindo is Herbert Lindo's son.

SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this
report to be signed in its behalf by the undersigned thereunto duly
authorized.

KENILWORTH SYSTEMS CORPORATION

By Herbert Lindo
Herbert Lindo, President and
Treasurer

Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on
behalf of the Registrant and in the capacities indicated on the dates
indicated.

By Herbert Lindo Date: April 20, 1999
Herbert Lindo, Director

By Joyce Clark Date: April 20, 1999
Joyce Clark, Director

PART V
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K
(a) (1) Financial Statements
Independent Auditor's Report F-1

Consolidated balance sheets as of December 31, 1998, November 23,
1998 and December 31, 1990 F-2 - F-3

Consolidated statement of operation and deficit for the periods
ended December 31, 1998, November 23, 1998 and year ended
December 31, 1990 F-4

Consolidated statement of changes in financial position for the
periods ended December 31, 1998, November 23, 1998 and year
ended December 31, 1990 F-5

Consolidated statement of changes in working capital components
for the periods ended December 31, 1998, November 23, 1998 and
year ended December 31, 1990 F-6

Consolidated statement of changes in common stock and paid-in
capital for the periods ended December 31, 1998, November 23,
1998 and year ended December 31, 1990 F-7

Notes to consolidated financial statements. F-8 F-13

(a) (2) Financial Statement Schedules
V - Property, plant and equipment F-14

VI - Accumulated depreciation, depletion and
amortization of property, plant and equipment F-15

VIII - Valuation and qualifying accounts and reserves F-16

X - Supplemental income statement information F-17

List of the Company's Subsidiaries F-18

(a) (3) Exhibits

Exhibit
No.
2(1) * Notice to shareholders dated September 21, 1998.
2(2) * Notice of filing Final Accounts of Trustee of Hearing on
Applications for Compensation (and of Hearing on abandonment of
property by the Trustee) 1998.
2(3) * Applications for Compensation for Trustee's Attorneys and
Accountants 1998.
2(4) * List of creditors paid by Trustee 1998.
2(5) * Order approving Trustee's Final Account 1998.
2(6) * Order directing Trustee to abandon books and records of Debtor
to the Debtor by the President, Herbert Lindo 1998.
2(7) Former Independent Auditors letter declining to continue to
audit the Company's financials because of a conflict of interest.

* Filed as an exhibit on Form 10-K, dated November 23, 1998 (File No.
0-08962) and incorporated herein by reference.

(b) Reports on Form 8-K
The Company filed Current reports on Form 8-K on December 20,
1990, February 15, 1992, December 9, 1998 and April 20, 1998.

Blank Page for Auditor Report

KENILWORTH SYSTEMS CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS, for the periods beginning
November 24, 1998 to December 31, 1998,
January 1, 1991 to November 23, 1998 and
the year ended December 31, 1990

ASSETS: DEC. NOV.
1998 1998 1990

Current Assets:
Cash $ - $ - $ -0-
0- 0-
Accounts receivable, principally
trade -0- -0- 465,064
Inventory -0- -0- 518,671
Other Current Assets - - 135,000
0- 0-
TOTAL CURRENT ASSETS - $ - $1,118,735
0- 0-
Equipment, furniture and leasehold improvements at
cost -0- -0- 616,920
Less: Accumulated depreciation -
and amortization 0- - 497,131
0-
$ - $ - $ 119,789
0- 0-
Other Assets:
Goodwill -0- -0- 6,549,167
Deposits and other assets - - 58,478
0- 0-
TOTAL OTHER ASSETS - - 6,607,645
0- 0-
Total Assets $ - $ - $7,846,169
0- 0-

The accompanying notes are an integral part
of these consolidated financial statements.

KENILWORTH SYSTEMS CORPORATION and SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS, for the periods beginning
November 24, 1998 to December 31, 1998,
January 1, 1991 to November 23, 1998 and
the year ended December 31, 1990

LIABILITIES: DEC. NOV.
1998 1998 1990

Current Liabilities:
Cash overdraft $ -0- $ -0- $ 37,734
Notes payable - banks -0- -0- 209,000
Secured notes payable -0- -0- 323,522
Other loans payable -0- -0- 156,000
Accounts payable: Accrued
liabilities 7,912 -0- 917,812
Payroll withholding taxes -0- -0- 1,550,000
Due to officers and affiliates -0- -0- 476,833
TOTAL CURRENT LIABILITIES 7,912 -0- 3,670,901
STOCKHOLDERSS' EQUITY:
Common Stock, $.01 par value,
authorized 100,000,000 shares;
issued and outstanding:
60,477,352 in December 1990,
November 23, 1998 and
December 31, 1998 604,773 604,773 604,773
Paid-in capital 23,774,346 23,774,346 23,774,346
Deficit (24,387,031) (24,385,119) (19,911,601)
Treasury stock (167,000 shares) -0- -0- (292,250)
(7,912) -0- 4,175,268
Total Liabilities and
Stockholder's Equity $ -0- $ -0- $ -0-

The accompanying notes are an integral part
of these consolidated financial statements.

KENILWORTH SYSTEMS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS of OPERATION and DEFICIT
for the periods beginning November 24, 1998 to December 31, 1998,
January 1, 1991 to November 23, 1998 and the years ended
December 31, 1990 and 1989

DEC. 1998 NOV. 1998 1990 1989

Revenues:
Sales $ -0- $ -0- $3,367,155 $1,940,832
Less: Discount (51,115)
on sales
-0- -0- 3,316,040 1,940,832
Costs and Expenses:
Cost of sales -0- -0- 2,188,439 1,084,370
Selling, general
and 7,912 -0- 1,747,839 1,040,916
administrative
expenses
Research and -0- -0- 319,150 340,676
development
Amortization of -0- -0- 181,921 182,027
goodwill
Interest expense -0- -0- 65,428 28,131
(income)
Total Costs and 7,912 -0- 4,502,777 2,676,120
Expenses
Net income
(loss)
before other -0- -0- (1,186,737) (735,288)
income
and (losses)
OTHER INCOME AND
(LOSSES):
Sale of assets -0- $3,676,347
Other gains -0- 108,000
Interest income -0- 516,056
Total Other -0- 4,300,403
Income
(a) Payment of
liabilities
net of
eliminations
(b) bankruptcy
costs
(c) elimination of
assets
(d) cancellation
of -0- (8,767,921)
treasury stock
Other losses -0- (4,473,518)
Net income (7,912) (4,467,518) (1,186,737) (735,288)
(loss)
Deficit - Beginning (24,379,119) (19,911,601) (18,724,864) (17,989,576)
of year
Deficit - End of $(24,387,031) $(24,379,119) $(19,911,601) $(18,724,864)
year
Earnings (Loss) per
share $-0- ($.07) ($.02) ($.02)
of common stock
(Note 5)
Fully diluted
earnings $-0- ($.07) ($.02) ($.02)
(loss) per share
Average number of
shares 60,477,352 60,477,352 60,477,352 42,413,191
outstanding

The accompanying notes are an integral part
of these consolidated financial statements.

KENILWORTH SYSTEMS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS of CHANGES in FINANCIAL POSITION
for the periods beginning November 23, 1998 to December 31, 1998, January
1, 1991 to November 24, 1998 and the years ending
December 31, 1990 and 1989

DEC. NOV.
1998 1998 1990 1989

Working capital provided
(utilized) by:
Operations (Loss): $(7,912) $ - $(1,186,737) $(735,288)
0-
Less items not requiring
working capital:
Depreciation and amortization -0- -0- 262,737 293,333
Total used by operations
(7,912) -0- (924,000) (441,955)
Issuance of common stock, net -0- -0- 447,423
Decreases in fixed assets -0- -0- 50,557
Total sources of
working capital 7,912 -0- (476,577) (391,398)
Working capital applied to:
Increase in other assets -0- -0- 11,140
Purchase of fixed assets, net -0- -0- 97,303
TOTAL USES OF WORKING CAPITAL
-0- -0- 108,443 4,965
Net increase (decrease) in Working
Capital $-0- $-0- $(1585,020) $(396,363)

The accompanying notes are an integral part
of these consolidated financial statements.

KENILWORTH SYSTEMS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS of CHANGES in WORKING CAPITAL
for the periods beginning November 23, 1998 to December 31, 1998, January
1, 1991 to November 24, 1998 and the years ended
December 31, 1990 and 1989

DEC NOV.
1998 1998 1990 1989

Analysis of changes in components of
working capital:
Increase (decrease) in current assets:
Cash and cash equivalents $ -0- $ - $(135,867) $ 135,867
0-
Accounts receivable -0- -0- 156,674 (260,377)
Inventory -0- -0- 119,969 27,725
Due from officers
Other current assets -0- -0- 135,000 (390,891)
Total increase (decrease) in current
assets -0- -0- 275,776 (487,676)
Increase (decrease) in current
liabilities:
Cash overdraft -0- -0- 37,734 (17,868)
Secured notes payable -0- -0- 141,881 (13,319)
NOTE PAYABLE BANK -0- -0- (54,319) 263,319
OTHER LOANS PAYABLE -0- -0- 131,000 (404,929)
Accounts payable 7,912 -0- 267,493 205,139
Payroll withholding taxes -0- -0- 41,424 29,976
Deposits on private placements -0- -0- (181,250) 46,250
Due to officers and employees -0- -0- 476,833 (199,881)
Total increase (decrease) in current
liabilities 7,912 -0- 860,796 (91,313)
Net increase (decrease) in Working Capital
$-0- $-0- $(585,020) $(396,363)

The accompanying notes are an integral part
of these consolidated financial statements.

KENILWORTH SYSTEMS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS of CHANGES in
COMMON STOCK and PAID-IN CAPITAL
for the periods beginning November 24, 1998 to December 31, 1998, January
1, 1991 to November 23, 1998 and the years ended
December 31, 1990, 1989 and 1988

Additional Treasury
Common Shares Paid-in Retained Shares
SHARES AMOUNT CAPITAL EARNINGS COST

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)
Balances,
December 31,
1998 $60,477,352 $604,773 $23,774,346 $(24,379,119)

The accompanying notes are an integral part
of these consolidated financial statements.

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.

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 prior period.

2. Business of the Company
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 and $5.00) 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 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 by issuing 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.

KENILWORTH SYSTEMS CORPORATION and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3. 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 and no longer considered itself a Development
Stage Enterprise.
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.

On February 5, 1991 the Company's Chapter 11 case was converted to a
Chapter 7 proceeding and a Trustee was appointed.

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
from the sale of substantially all of the estate's assets..

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 one
hundred percent (100%) 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 and the Company emerged from bankruptcy
with no assets and no liabilities.

KENILWORTH SYSTEMS CORPORATION and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Management of the Company plans to obtain approximately four million
dollars ($4,000,000) of new working capital by offering in a private
placement, Senior Cumulative Convertible Preferred Shares and/or by the
sale of limited joint venture participation's in future Roulabette
franchises.
Under the Chapter 11 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.

KENILWORTH SYSTEMS CORPORATION and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

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.

KENILWORTH SYSTEMS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Analysis of Common Stock Issued, Paid-In Capital
and Gains and Losses as the Result of Stock issued
in Plan of Reorganization

Average
Market Credited Extra-
price to
Amount of Common Of stock Paid-in Ordinary
Debt or Stock On Date of Capital and Gain or
OBLIGATION ISSUED ISSUANCE COMMON (LOSS)
STOCK

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)

(a) Equipment, Furniture and Leasehold Improvements

Dec. 31, Dec. 31, Dec. 31,

1998 1990 1989 USEFUL LIFE
Automobiles $ -0- $ 60,503 3 - 4 years
Furniture and Equipment -0- 467,566 $431,066 4 - 8 years
Leasehold Improvements -0- 88,551 88,551 Life of Lease
Total -0- 616,920 519,617
Less: Accumulated
Depreciation and
Amortization -0- 497,131 415,315
$ -0- $119,789 $103,302

The unamortized portion was eliminated in 1998.

KENILWORTH SYSTEMS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(b) (Loss) Per Share:

(Loss) per share is based on the weighted average number of
outstanding shares during each year.

(c) 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.

(d) 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. The lease was not
assumed by the Bankruptcy Trustee and accordingly terminated.

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. Video has not been in
operation since October 1988.

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
annuaaally, 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

KENILWORTH SYSTEMS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

("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. All taxes were paid in full
when the Company emerged from Chapter 7 proceedings on
September 29, 1998.

(e) Income Taxes:

The Company has not filed Federal and State Income Tax returns
since the year 1987.

The Company has approximately twenty-two million dollars
($22,000,000) in unexpired net operating tax loss carry-
forward credits available from prior years operations which
are sufficient to off-set income taxes payable, if any.

KENILWORTH SYSTEMS CORPORATION AND SUBSIDIARIES

SCHEDULE V {-} PROPERTY, PLANT and EQUIPMENT

for the period beginning November 24, 1998 to December 31, 1998, January 1,
1991 to November 23, 1998 and the years ended
December 31, 1990 and 1989

COL. A COL. B COL. C COL. D COL. E

Balance Balance
at at
Beginning Additions End of
CLASSIFICATION OF PERIOD AT COST RETIREMENTS PERIOD
Period ended
December 31, 1998 $-0- $-0- $-0- $-0-
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

KENILWORTH SYSTEMS CORPORATION AND SUBSIDIARIES

SCHEDULE VI {-} ACCUMULATED DEPRECIATION, DEPLETION and AMORTIZATION of
PROPERTY, PLANT and EQUIPMANT

for the periods beginning November 24, 1998 to December 31, 1998, January
1, 1991 to December 31, 1998 to November 23, 1998
and the years ended December 31, 1990 and 1989

COL. A COL. B COL. C COL. D COL. E

Balance Additions Balance
at at
Beginning To costs End of
CLASSIFICATION OF PERIOD AND RETIREMENTS PERIOD
EXPENSES
Period ended
December 31, 1998 $-0- $-0- $-0- $-0-
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

KENILWORTH SYSTEMS CORPORATION AND SUBSIDIARIES

SCHEDULE VIII {-} VALUATION and QUALIFYING ACCOUNTS and RESERVES

for the periods beginning November 24, 1998 to December 31, 1998, January
1, 1991 to November 23, 1998 and the years ended
December 31, 1990 and 1989

Balance Charged Balance
at at
Beginning To Costs End of
DESCRIPTION OF PERIOD AND DEDUCTIONS PERIOD
EXPENSE

Period ended
December 31, 1998 $-0- $-0-
-0- -0- -0- -0-
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 accounts $-0- $-0-

KENILWORTH SYSTEMS CORPORATION AND SUBSIDIARIES

SCHEDULE X {-} SUPPLEMENTAL INCOME STATEMENT INFORMATION

for the periods beginning November 24, 1998 to December 31, 1998, January
1, 1991 to November 23, 1998 and the years ended
December 31, 1990 and 1989

COL. A COL. B

ITEM CHARGED TO COSTS AND EXPENSES

DEC. NOV.
1998 1998 1990 1989

Maintenance and Repairs $ - $ - $ 90,372 $110,186
0- 0-
Depreciation and amortization of equipment,
furniture and leasehold improvements

$ - $ - $ 80,816 $ 65,931
0- 0-
Taxes other than
income taxes $ - $ - $192,341 $147,732
0- 0-
Rents $ - $ - $204,000 $168,000
0- 0-
Advertising costs $ - $ - $ -0- $ 0-
0- 0-

KENILWORTH SYSTEMS CORPORATION and SUBSIDIARIES
LIST OF SUBSIDIARIES
(a) Video Wagering Systems Corporation a Delaware corporation.
(b) Roulabette Corporation a Nevada corporation.