KENILWORTH SYSTEMS CORP - 10-K Annual Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

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FORM 10-K

(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT
OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001

OR

/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER: 0-08962
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KENILWORTH SYSTEMS CORPORATION

(Exact name of registrant as specified in its charter)

NEW YORK 13-2610105
(State of Incorporation) (I.R.S. employer identification no.)

343 BEEBE ROAD, MINEOLA, NEW YORK 11501
(Address of principal executive offices) (Zip Code)

(516) 741-1352

(Registrant's telephone number, including area code)

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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:

(TITLE OF CLASS)

Common Stock, par value $.01 per share

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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 /X/ No / /

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. / /

Indicate by check mark whether the Registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(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, 2001 totaled 73,115,484 shares.

The aggregate market value of the voting stock held by non-affiliates
(62,545,484 shares) of the Company on March 22, 2002 was $8,752,167. The price
at which the common stock sold on the aforesaid date was $0.14.
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DOCUMENTS INCORPORATED BY REFERENCE

Part III which includes Item 10 (Directors and Executive Officers of the
Registrant), Item 11 (Executive Compensation), Item 12 (Security Ownership of
Certain Beneficial Owners and Management) and Item 13 (Certain Relationships and
Related Transactions) will be incorporated in the registrant's proxy statement
to be filed within one hundred twenty (120) days of December 31, 2001, and are
incorporated herein by reference thereto.

In addition to historical information, This Annual Report on Form 10-K
contains certain forward-looking statements and Risk Factors. We expressly
disclaim any obligations on undertaking to release publicly any updates or
revisions to any forward-looking statements contained herein to reflect any
change in our expectations with regard thereto or to reflect any change in
events, conditions or circumstances on which any such forward-looking statement
is based in whole or in part. Readers should amongst the other statements
contained herein and future filings with the Securities and Exchange Commission,
including the Quarterly Reports on Form 10-Q to be filed, carefully review in
Item 7 "Cautionary Statements for Purposes of the "Safe Harbor" Provisions of
the Private Securities Litigation Reform Act of 1995 and Risk Factors". All of
the Risk Factors contained therein should be carefully read.

PART I

ITEM 1--DESCRIPTION OF BUSINESS

THE COMPANY

Kenilworth Systems Corporation hereinafter referred to as "Kenilworth" or
"we" was incorporated on April 25, 1968 under the laws of the State of New York.

PLANNED BUSINESS

Our present plans are to develop a wagering system that would allow patrons
all over the industrialized world to play and wager on live casino table games
on terminals placed in hotels, resorts, bars and other public gathering places
and in homes and offices on personal computers (PC's) or television sets
connected to set top boxes for Interactive TV via digital satellite broadcasts
emanating from strictly regulated U.S. casinos.

On March 28, 2002, the Company entered into a contract with Archon
Corporation for a test to simulcast live in-progress roulette table game action,
that could allow players worldwide to wager along with table players at Archon's
Pioneer Casino in Laughlin, Nevada. The test, a world first, is to demonstrate
to the Nevada Gaming Control Board, and other U.S. and foreign Gaming Regulators
that have regulated gaming forums, such as lotteries, racing, OTB, etc., the
benefits of the Kenilworth "Play Along with Nevada Live" concept.

The Nevada Gaming Authorities must approve both the contract between
Kenilworth and Archon and the simulcast test proposal before any test can take
place.

When playing along with live table games from a highly regulated
jurisdiction, players are assured that the game results are exactly what they
see; and, playing along with casino table games such as roulette, craps and
baccarat provides interaction, fun and far more excitement than playing make
believe animated (virtual) games. It is the next best thing to actually being at
the table.

During the proposed thirty (30) day test, live table game play will only be
simulcast within the state of Nevada, and wagering will only be allowed at the
actual roulette table. Players around the world may eventually "Play Along with
Nevada Live" via several different wagering methods, including INTERACTIVE TV
services like AOLTV and Microsoft's MSNTV. Satellite broadcasters in the U.S.,

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Europe, and Asia would be subject to regulatory requirements in the various
jurisdictions in which the broadcasts are directed.

To conduct the tests Kenilworth believes it will require five million
dollars ($5,000,000). At present, the Company does not have available but
expects to obtain which, from investors, as soon as the test is approved by the
Nevada Gaming Regulatory Authorities.

Kenilworth completed a prototype system that allowed casino patrons to play
along with live in-progress casino table games only within the confines of a
casino, via closed circuit television. Also in 1990, we developed and delivered
for the TAB in Australia, a cashless slot machine system. (See "History of the
Company" in this Item one). Both systems required debit cards and central main
frame computers to manage the wagers. By making use of the expertise applied in
the development of the aforementioned systems we plan to develop a second
generation terminals that will manage the wagers. This as planned would allow a
player in an interactive manner, at a remote location (outside the casino
confines), to experience the actual play and excitement at the casino table game
and to make wagers on the various games, without having to be physically present
at the casino or casino table.

The proposed terminal dubbed "Roulabette" consists of a personal computer
(PC) with two (2) monitors. One monitor as proposed would display the live
in-progress casino game and the second would be outfitted with a touch screen
which allows a player to place wagers directly over the games displayed on the
first monitor, 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 proposed to be self-sufficient, manage
wagers from $0.25 to $100 or the equivalent in most any currency and receive the
table game play via simulcast satellite TV broadcasts.

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

Terminals played in casinos would allow players to wager at table games in
progress, only a few feet away, with much lower minimum wagers. Potential table
game players can also experiment and learn the games before graduating to table
game play. In addition to developing the stand-alone terminals, we will also
seek to develop systems that will allow individuals at home and offices,
throughout the world, to place wagers along withh the live, in-progress casin
games, using personal computers or modalities as a television set connected to
the internet (interactive TV) with set top boxes as offered by AOLTV and
Microsoft's MSNTV and satellite broadcasters around the world.

Kenilworth will seek to promote to state lotteries, and other state
regulated entities, the ability to operate websites that will manage the wagers.
The program will ask state legislatures to amend their lottery horse/dog racing
and OTB legislation to include Roulabette wagering or promulgate new
legislation. There are no assurances that the necessary approvals will be
granted.

There are powerful arguments for state legislatures to amend their Lottery
Acts to include "Play Along with Nevada Live". Lottery revenue is gradually
decreasing in every state. Thirty-two (32) states and the District of Columbia
are pooling their lottery prizes with the "Power Ball" and "Big Game" national
lotteries. In most of these states, the state lottery finds it difficult to
obtain sufficient numbers of players to make up a minimum weekly lottery prize
of one million dollars ($1,000,000). In most states, the revenue from lottery
play benefits education. States need something more attractive to restore
revenue. With "Play Along with Nevada Live", there is interaction, excitement
and fun. All at much better odds than may be offered by the lotteries. The
lotteries can establish maximum wagers daily, weekly and monthly limits.

Once play along in homes and other public gathering places has started, we
intend to introduce casino games such as "limited tournament play". For
twenty-five dollars ($25.00), players can sign up

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with their respective website operators and make up to thirty (30) wagers on any
table game. The individual that wins the most money during a specific tournament
game period may win as much as a million dollars ($1,000,000) in addition to
their game play win. As more interactive play along with casino games develops,
the prizes can be increased and multiplied. The limited tournament play games
can be scheduled more than once a day, during specific hours of the day, on
specific days or nights of the week or once or twice a month. Actual live
experience will determine scheduling.

HISTORY OF KENILWORTH

Before entering the bankruptcy proceedings described below, Kenilworth for
the last eighteen (18) years was engaged in the development, manufacturing and
marketing of cashless casino wagering systems.

In April 1988, Kenilworth 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 one hundred twenty four (124) Player
Activated Terminals ("PATs") which are similar to slot machines except they are
played with debit cards instead of coins or tokens. The PAT's offer variable
denomination play and selection of five (5) different games.

In 1990, Kenilworth had entered into contracts with three (3) Atlantic City,
New Jersey casino operators to test market Kenilworth's cashless wagering system
for a minimum of six (6) months. Each installation on the casino floor was to
have a minimum of one hundred (100) PAT's and fifty (50) slot machines,
converted by Kenilworth to be played both with cash and cashless. The
combination of cash and cashless on existing slot machines was attractive to the
casino operators, as it permitted a gradual transition from cash to cashless
play.

Kenilworth was to furnish, without expense to the casino, all the necessary
equipment, including the central computer and communications hardware. The
casino operators would provide for the installation of cables required to
interconnect the equipment, as well as provide free accommodations for the
Kenilworth's personnel necessary to operate 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 if operating profitably, the New Jersey casino regulatory agency agreed it
would commence examining the system for their approval process. We expected this
process to take at least three (3) months. When we 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 Kenilworth to
remove the system.

Just prior to the start of the first test, Kenilworth ceased all operations
in February 1992. Thus, none of the tests were conducted. We sold and installed
only one (1) cashless slot system, which was to the Australian agency described
above.

Throughout the 1980's Kenilworth experienced working capital shortages that
resulted in our filing a voluntary petition for reorganization under Chapter 11
of the United States Bankruptcy Code. From August 28, 1982 to June 7, 1985 we
operated during reorganization proceedings. On June 7, 1985, a United States
Bankruptcy Judge confirmed our Plan of Reorganization. On April 27, 1988, the
Bankruptcy Court entered a final decree in the case. On October 27, 1988, the
case was re-opened on grounds the Debtor failed to consummate its plan of
reorganization and on February 25, 1991 the case was converted to a case under
Chapter 7 of the Bankruptcy Code. By order of the Court dated June 19, 1991 the
Chapter 7 was reconverted to a case under Chapter 11 of the Bankruptcy Code. A
second plan of reorganization was approved and a second order of confirmation
was entered in connection with the Chapter 11 case on October 2, 1991. However,
Kenilworth was unable to

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consummate its second plan of reorganization, and by order dated November 25,
1991, the case was reconverted to a case under Chapter 7 of the bankruptcy Code.

From February 5, 1991 through September 23, 1998, we were inactive. In
September 1998, a United States Bankruptcy Judge in the Eastern District of New
York approved the Final Report and Accounts submitted by the Chapter 7 Trustee
of the Estate of Kenilworth and after obtaining approval from the U.S. Trustee,
Kenilworth made a one hundred percent (100%) cash distribution to the creditors
and paid in full all administrative fees and expenses. We emerged from
Bankruptcy on September 23, 1998 with no assets and no liabilities and with the
Bankruptcy Court approval, all of the books and records since incorporation of
Kenilworth have been released us.

We 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 ($1,000,000) 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 eight million
dollars ($8,000,000.00) in unexpired net operating tax loss carry forward
credits belong to Kenilworth. See Note 5- Notes to the Consolidated Financial
Statements.

To make use of the tax credits Kenilworth must have income taxable earnings
from the same type of business as when the credits were earned. We believe that
earnings from Roulabette would qualify for the tax credits under the existing
tax code. We had no other assets and no liabilities, when we emerged from
bankruptcy.

NATURE OF PLANNED BUSINESS

The gaming industry is comprised primarily of five (5) service industries:
(1) traditional pari-mutuel wagering on horse and dog racing; (2) casino, Indian
Reservations, and riverboat gambling; (3) lotteries; (4) charitable organization
gambling (Bingo and Las Vegas Nights); and (5) Sports book.

Kenilworth intends to operate primarily in the casino segment.

THE ROULABETTE TERMINAL

The Roulabette terminal which is planned would consist of a personal
computer (PC) with two (2) monitors, one monitor displays the live in-progress
casino game and the second is outfitted with a touch screen which allows a
player to place wagers directly on the games, 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 proposed
to be self-sufficient and manages wagers from $0.25 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
(Roulette, Craps, Black Jack and Baccarat) that are available and broadcast live
via digital satellite broadcasts (simulcast) to the terminal. The player then is
asked to select a denomination, from $0.25 up to $100, by touching the selected
amount on the touch screen.

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ROULETTE

When playing Roulette, the monitors are planned to 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 simulcast 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 thirty-eight (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 winning
numbers of the previous twenty (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 proposed to be displayed on
the screen. 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.

BACCARAT

When playing Baccarat, the entire table is planned to be shown on the upper
screen with a wide-angle TV camera. The player either selects the bank (which
holds back a five percent [5%] commission on all wins) or the player. Cards are
confirmed by character recognition.

BLACKJACK

When playing Blackjack, the camera is proposed to show up to seven
(7) 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.

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 or by
credit to the wager's account at the website. 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.

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INSTRUCTION AND PRACTICE PLAY

After making a deposit in the Roulabette terminal, a player would select
instructions on how to play and may make up to ten (10) "make believe" bets for
practice. Playing along on a Roulabette terminal 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 may entice slot
players to graduate to table game players.

MARKETING STRATEGY/SALES PLAN

In the United States Kenilworth expects to refrain from using the Worldwide
Web (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, Kenilworth 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 and their television sets using interactive TV set top boxes that convert
regular television sets into minicomputers within their state.

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
and/or television sets with telephone lines not crossing any state lines,
similar in principle to telephone accounts wagering offered by the New York
State Off-Track Betting Corporation and the state of Nevada casino sports book.

After we obtain permission to play Roulabette in a given state and engages a
wager management organization in order to promote digital satellite and
interactive television to the state's residents, Kenilworth would install the
eighteen (18) inch dish antenna and converter box required to receive digital TV
programming and interactive TV at its own cost, if the subscriber opens a
Roulabette wagering account for three hundred dollars ($300). In addition,
Kenilworth would pay the monthly subscription fees to view all digital TV
programming offered and the internet service provider (ISP) subscription fee if
the customer wagers at least one hundred twenty dollars ($120) each month--win,
lose, or draw--makes no difference.

In states with approved lottery and/or other gambling legislation, we plan
to introduce Roulabette terminals to hotels, clubs (similar to card clubs in
California) and resorts, to provide upscale gathering places 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 would be required is an
eighteen (18) inch direct TV antenna and distribution equipment. The Roulabette
terminals are intended to be 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). We plan to lease all the equipment necessary to participants for a
share of the profits.

To gain approval for our Roulabette-style gambling in jurisdictions that
have not approved any gambling legislation, Kenilworth proposes to engage
lobbyists to introduce, promote, and obtain legislative approval to permit
Roulabette-style gambling. Our strategy is to find depressed resort areas an
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.

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When the live casino TV broadcasts are beamed for global viewing, Kenilworth
will seek out similar organizations, as proposed for the United States and
betting shops and slot route operators, that can provide the servicing of
individual accounts and placement of Roulabette terminals in hotels, clubs,
pubs, racetracks, etc. In all instances, we plan to offer only profit sharing
arrangements to franchisees, which will require leasing all the equipment
necessary to the franchisee, to discourage competition.

In overseas installations, wherever permitted, Kenilworth 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 are believed to offer
the same or similar equipment or systems as intended 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 (3) major slot machine manufacturers in the United States are
International Gaming Technology, Bally Gaming and Anchor Gaming, all of which
have vastly greater resources than the Company and may have under development
systems that directly compete with Roulabette.

We immediately plan only to broadcast the live casino table games from one
or two (1 or 2) companies that own casinos. Other casino owners may start their
own broadcasts and have their own terminals manufactured that compete with
Kenilworth after Kenilworth has done all its pioneering for play-along wagering.

PATENTS

We have filed a U.S. patent application for various aspects of wagering on
live in-progress table games, and has taken the steps to protect its interest in
other areas of the industrialized world. There can be no assurances that
Kenilworth will be issued any patents and if they are issued that they will
deter competition and/or benefit us financially.

GOVERNMENT REGULATIONS

Kenilworth has no licenses from casino regulating authorities at the present
time and may never become able to obtain any licenses that we will require in
the future. Each state has its own regulations, and in states where Kenilworth
does business, Kenilworth will have to comply with these regulations. The
following discussion is not necessarily complete, or current regarding laws and
regulations that may be applicable to us.

NEW JERSEY

In order to sell its Roulabette wagering systems to casinos in New Jersey,
Kenilworth 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. We will have to make arrangements to apply for
licensing in New Jersey. The New Jersey Commission may require that persons
holding in excess of five percent (5%) of the publicly traded equity securities
of Kenilworth 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.

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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 Kenilworth 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 ninety
(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 us to be investigated and licensed or found suitable. Any
person who acquired five percent (5%) or more of Kenilworth's securities must
report the acquisition to the Nevada Gaming Regulators. Any person who becomes a
beneficial owner of ten percent (10%) or more of Kenilworth's securities must
apply for a finding of suitability. The Nevada Regulators have the power to
investigate any security holder of Kenilworth.

If Kenilworth 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 Kenilworth'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 may also apply to our 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 pay-out 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

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require the licensing of gaming devices. Our Roulabette terminals may be
considered similar to slot machines and may have to meet these regulations.

FABRICATION/ASSEMBLY OPERATION

When we start to market the Roulabette Wagering System, we plan to
assemble/manufacture the initial terminals required for the tests at a proposed
fifteen thousand (15,000) square foot industrial facility on Long Island, New
York, from standard or specially manufactured (to our 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, we will engage subcontractors to perform the assembly work in the
interest of cost efficiency.

EMPLOYEES

Kenilworth at present has two (2) employees. One performs administration
work and the other works on research related to casino wagering around the
world. The Company has engaged Consultants that will manage the proposed test
program which will be subcontracted to licensed gaming entities in the state of
Nevada.

BACKLOG

We do not have any backlog.

ITEM 2--PROPERTIES

Kenilworth, until it can relocate into larger industrial space, operates out
of an office located in the president's private residence at 343 Beebe Road,
Mineola, NY 11501, rent-free.

ITEM 3--LEGAL PROCEEDINGS

Since emerging from Chapter 7 Bankruptcy Proceedings on September 23, 1998,
Kenilworth has not been involved in any significant legal proceedings.

9

ITEM 4--SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not Applicable.

EXECUTIVE OFFICERS OF THE REGISTRANT

The names, ages and positions held by each of Kenilworth's directors and
executive officers are as follows:

All of the above executive officers and directors have been elected to serve
until the next Annual Meeting of Shareholders or until their respective
successors are elected and qualified. The Board presently anticipates that the
Shareholders Meeting will be held in late May or early June 2002.

PART II

ITEM 5-- MARKET PRICES OF THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS

(a) After Kenilworth 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". On January 19, 2000, our Common Stock
was removed from the NASDAQ system and started trading on the OTC Pink Sheets.
The following table sets forth high and low closing sales prices for our Common
Stock, as reported on the OTC Pink Sheets.

(b) Holders. There were approximately six thousand (6,000) holders of record
of Common Stock of Kenilworth as of December 31, 2001.

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

10

ITEM 6--SELECTED FINANCIAL DATA

The following table summarizes certain selected financial data and is
qualified by reference to, and should be read in conjunction with, the
Consolidated Financial Statements and related Notes thereto and with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere herein.

Selected Financial Data for the five (5) years ended December 31, 2001, are
as Follows:

SUMMARY OF OPERATIONS

ITEM 7-- MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

(A) RESULTS OF OPERATIONS

Since we emerged from bankruptcy proceedings on September 23, 1998, we had
no revenues from operations, and therefore sustained losses from general
administration expenses amounting to $421,491 in 2001 and $136,589 in 2000.
Kenilworth has had no revenues from operations during the past nine (9) years
and there can be no assurances that it will ever have revenue from present
planned operations.

(B) LIQUIDITY AND CAPITAL RESOURCES

Kenilworth has not conducted any business and operations since 1991. At
December 31, 2001 our working capital was $112,804. In Kenilworth's present
state of operation to formulate a viable business plan, Kenilworth requires very
little funding to continue this planning. We have been dependant upon the
resources of its President who receives no compensation and funds received in
2001 from private investors of two hundred and ten thousand
dollars($210,000.00).

Our present plans are to develop a wagering system dubbed "Roulabette" that
would allow patrons all over the industrialized world to play and wager on live
casino table games on terminals placed in hotels, resorts, bars and other public
gathering places and in homes and offices on personal computers (PC's) or
television sets connected to set top boxes for Interactive TV via digital
satellite broadcasts emanating from strictly regulated U.S. and foreign casinos.

The first step will be to conduct a one (1) month test of the system at a
casino site.

11

To conduct the tests Kenilworth believes it will require initially five
million dollars ($5,000,000) to a) purchase computers, digital television
broadcast equipment and table games; and, b) defray the cost of the facility and
pay the salaries of six (6) employees who are specialists in software design, TV
broadcasts, and mechanical design, for a period of eighteen (18) months, and
from time to time, consultants who will assist the design team. In order to
market Project Roulabette while the development of the terminals proceeds we
will require an additional five million dollars ($5,000,000) to hire management
and marketing people to secure future orders for the system.

Unless we are able to obtain these funds, of which there are no assurances
none of the tests and initial development work can commence; and we will not be
able to commence our planned business.

Kenilworth plans to obtain the necessary funding by offering in a Private
Placement, Common Shares, Cumulative Convertible Preferred Shares and/or by the
sale of limited joint venture participations in future Roulabette franchises.
There can be no assurances that the Company will be able to secure any of these
funds.

When the tests are completed and we have obtained all required licenses from
the gaming control regulators and the state legislatures to broadcast the live
in-progress casino table games and has contracts with franchisees to place
terminals around the world, we expect to commence normal business. Kenilworth
will also seek to obtain production financing from regular banking sources to
finance the manufacturing of the Roulabette terminals. There can be no
assurances that any such financing will be available to us.

CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995 AND RISK FACTORS

The information contained in this Form 10-K and Kenilworth's other filings
with the Securities Exchange Commission may contain "forward-looking" statements
within the meaning of section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, and is subject
to the safe harbors created thereby. Such information involves important risks
and uncertainties that could significantly affect results in the future and,
accordingly, such results may differ from those expressed in any forward looking
statements herein. Future operating results may be adversely affected as a
result of a number of factors. Set forth below are certain important factors
that could cause actual results to differ materially from those in such
"forward-looking" statements that are directed to each shareholder and potential
shareholder of Kenilworth.

YOU SHOULD NOT RELY ON FORWARD-LOOKING STATEMENTS BECAUSE THEY ARE INHERENTLY
UNCERTAIN

You should not rely on forward-looking statements in this Form 10-K. This
Form 10-K contains forward-looking statements that involved risks and
uncertainties. We use words such as "anticipates", "believes", "plans",
"expects", "future", "intends" and similar expressions to identify such forward-
looking statements. You should not place undue reliance on these forward-looking
statements, which apply only as of the date of this Form 10-K. Our actual
results could differ materially from those anticipated in these forward-looking
statements for many reasons, including the risks faced by Kenilworth as
described below and elsewhere in this Form 10-K.

NO OPERATING HISTORY

We have had no revenues from operations since 1991. We emerged from our
bankruptcy proceedings in 1998 without assets. We have had no revenue from
operations since then and we may never have any revenues from operations in the
future.

12

WE HAVE NO WORKING CAPITAL

As of December 31, 2001 the working capital of Kenilworth is $75,304. This
will not enable Kenilworth to achieve any of its planned operations. There can
be no assurances that Kenilworth would ever have sufficient working capital to
engage in its planned operations.

OUR BUSINESS IS ONLY IN THE PLANNING STAGE

Kenilworth's business presently is solely in the planning stage. We plan to
engage in the development, manufacturing, marketing of an operation entitled
"Project Roulabette". Project Roulabette would allow casino patrons and other
players to play along with live in-progress casino table games such as Roulette,
Craps, Baccarat, and Blackjack via digital satellite television broadcasts
(simulcasts) emanating from strictly state regulated casinos located in the
United States and other locations around the world, to self-sufficient computer
terminals dubbed "Roulabette". The Roulabette terminal is a proposal intended to
be built and there can be no assurances that it will ever be built. We have no
agreements, customers or proposals for any future business.

WE NEED AT LEAST TEN MILLION DOLLARS ($10,000,000)

In order to develop the Roulabette terminal, we estimate at this time, that
we will need at least approximately ten million dollars ($10,000,000). We do not
have this money nor do we have any agreements or understanding to procure this
money. We may never get this money. If we do obtain this money, it may not be
sufficient. Further, should such monies be available it may not be available on
terms satisfactory to Kenilworth or it may be available on such terms that
substantially dilute the interest of existing shareholders. If we obtain this
money, we will need substantial additional funds for the proposed marketing plan
and there can be no assurances that such funds will ever be available to allow
Kenilworth to engage in business on a profitable basis.

OUR BUSINESS IS SUBJECT TO OUR ABILITY TO OBTAIN AND RETAIN KEY PERSONNEL

At the present time, we do not have any employees who will be able to
develop Roulabette. It will be necessary for us to obtain personnel qualified
and with the expertise to develop Roulabette. We believe at this time we would
require initially six (6) employees and several consultants. There can be no
assurances of the availability of any such employees and consultants.

WE ARE DEPENDANT UPON OUR PRESIDENT

Kenilworth has been dependant upon the services of its president Herbert
Lindo who is 76 years old. Herbert Lindo has performed his services during the
past recent years without compensation. Should Kenilworth procure working
capital, there can be no assurances that he will continue to work without
compensation. There also can be no assurances of Herbert Lindo's continued
availability.

RAPID CHANGES IN TECHNOLOGY

The technology and Project Roulabette in general is subject to rapid change.
Kenilworth will need to maintain an ongoing research and development effort of
which there can be no assurances of success or availability of funds.
Additionally, there can be no assurances that the development of technologies
and products by competitors will not render the Kenilworth's products or
technologies non-competitive or obsolete.

WE ARE ENGAGED IN A HIGHLY COMPETITIVE INDUSTRY

Our business is subject to significant competition. Competition exists from
larger companies that possess substantially greater technical, financial, sales
and marketing resources that Kenilworth

13

presently possesses. Such competition is expected to increase. Such increased
competition may have a material adverse effect on Kenilworth's ability to
successfully market its products.

WE HAVE FILED A PATENT APPLICATION FOR THE VARIOUS ASPECTS OF SIMULCAST
WAAGERING BUT THERE CAN BE NO ASSURANCE A PATENT WILL BE ISSUED

We have filed a U.S. patent application for various aspects of wagering on
live in-progress casino table games and have taken the steps to protect our
interests in other areas of the industrialized world. There can be no assurances
that a patent will be issued, the challenges will not be instituted against the
validity or enforceability of such patent.

OUR ROULABETTE TERMINAL IS SUBJECT TO VARIOUS FEDERAL, STATE AND LOCAL LAWS AND
REGULATIONS

The use of Roulabette is subject to various federal, state and local laws
and regulations both in the United States and over seas countries. There can be
no assurances that we will ever be able to obtain licenses or permits necessary
to conduct our business or that we will be able to comply with these applicable
laws and regulations.

PRIOR CONVICTION OF HERBERT LINDO

Herbert Lindo, the president of Kenilworth, was convicted in 1993 on three
(3) counts of having permitted three (3) 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 the then required two (2) year holding
period. The sales took place in 1987 and 1988. Mr. Lindo was found not guilty of
conspiring to sell unregistered securities which was not 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 one thousand (1,000) hours of community
service, fifteen (15) months house arrest, and fined six hundred thousand
dollars ($600,000).

In 1992, the holding period for exemption pursuant to Rule 144 was reduced
to one (1) year. The changed Rule did not apply to the 1987-88 sales. No one
lost any money and Kenilworth 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 sales by the banks.

Because of this conviction, Herbert Lindo is likely not be found suitable by
any Casino Control Commission or other regulatory body to hold licenses. When
the time to apply for licensing Roulabette arrives, Mr. Lindo will resign
totally from Kenilworth and place his Kenilworth shares into a voting trust.
Until that time, Herbert Lindo believes that he is best suited to manage the
post bankruptcy reorganization and to transform Kenilworth into a viable
business.

THERE CAN BE NO ASSURANCES THAT CASINO OPERATIONS WILL PARTICIPATE IN THE
ROULABETTE BUSINESS

The Roulabette system is planned to allow casino patrons and other players
to play along with live in progress casino table games such as Roulette, Craps,
Baccarat and Blackjack via digital satellite television programming emanating
from state regulated casinos. There can be no assurances that casino operators,
other than Archon Corporation, will ever participate in Kenilworth's business.

14

OUR OFFICERS AND DIRECTORS WILL HAVE SIGNIFICANT CONTROL OVER US AND MAY APPROVE
OR REJECT MATTERS CONTRARY TO A VOTE OF OUR SHAREHOLDERS

Our executive officers and directors together with their affiliates
beneficially own a significant percentage of our outstanding common stock. These
stockholders, if acting together, will be able to significantly influence all
matters requiring approval by our stockholders including the election of
directors and the approval of mergers or similar transactions even if the
stockholders disagree.

SHARES ELIGIBLE FOR FUTURE SALE COULD CAUSE OUR STOCK PRICE TO FALL

If our stockholders sell substantial amounts of our common stock in the
public market, the market price of our common stock could fall. As of
December 31, 2001 we had 73,115,484 shares of common stock outstanding.

WE DO NOT INTEND TO PAY DIVIDENDS

We are not able to pay any dividends because we have no funds available to
do so. Even if we had funds available, we do not intend or declare to pay any
dividends on our common stock.

ITEM 8--FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements, the accompanying notes and the Report of
Independent Accountants that are filed as part of this Report are annexed at the
end of this report.

15

ITEM 9-- CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE

NONE

PART III

Item 10, Item 11, Item 12, and Item 13 (DIRECTORS AND EXECUTIVE OFFICERS OF
THE REGISTRANT, EXECUTIVE COMPENSATION, SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT, and CERTAIN RELATIONSHIPS AND RELATED TRANACTIONS,
respectively), will be incorporated in the registrant's Proxy Statement to be
filed within one hundred twenty (120) days of December 31, 2001, and will be
incorporated herein by reference.

PART IV

OTHER EVENTS

At the Annual Meeting of the Shareholders of Kenilworth on August 13, 2001,
the existing Board of Directors, Herbert Lindo, Joyce Clark and Kit Wong were
re-elected. The following special proposals were unanimously adopted at the
meeting of shareholders:

a.) Amendment to Kenilworth's Certificate of Incorporation to increase
the authorized number of shares of Common Stock to 200,000,000

b.) To authorize 2,000,000 shares of Preferred Stock

c.) Approved the Company's Stock Option and Equity Performance Plan

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, 2001 and
2000...................................................... F-2

Consolidated statement of operations and deficit for the
periods ended December 31, 1999, 2000 and 2001............ F-3

Consolidated statement of cash flows for the periods ended
December 31, 2001, 2000 and 1999.......................... F-4

Consolidated statement of changes in stockholders equity For
the periods beginning December 31, 1998, and for the years
ended December 31, 2001, 2000 and 1999.................... F-5

Notes to consolidated financial statements.................. F-6--F-9

(b) None

(c) Exhibits

3(1) Certificate of Incorporation and Amendments

3(2) By-Laws

10 Kenilworth Performance and Equity Incentive Plan

21 Subsidiaries of the Registrant

16

INDEPENDENT AUDITORS' REPORT

To the Board of Directors of
Kenilworth Systems Corporation

We have audited the accompanying consolidated balance sheets of Kenilworth
Systems Corporation and subsidiaries as of December 31, 2001 and 2000 and the
related consolidated statements of operations and deficit stockholders' equity
(deficit) and cash flows for the years ended December 31, 2001 and 2000. These
financial statements are the responsibility of the Company's management. Out
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principals used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Kenilworth Systems Corporation as of December 31, 2001 and 2000 and the results
of its operations and its cash flows for the years then ended in conformity with
generally accepted accounting principals.

The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in
Note 8 to the consolidated financial statements, the Company has recently
emerged from bankruptcy and has not yet commenced operations. Future operations
are contingent on obtaining funding. These conditions raise substantial doubt
about its ability to continue as a going concern. Management's plans regarding
those matters are also described in Note 8. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.

Peter C. Cosmas Co., CPAs

New York, New York
April 15, 2002

F-1

KENILWORTH SYSTEMS CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS,

AS OF DECEMBER 31, 2001 AND 2000

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

F-2

KENILWORTH SYSTEMS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATION AND DEFICIT

FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999

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

F-3

KENILWORTH SYSTEMS CORPORATION AND SUBSIDIARIES

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999

NON-CASH TRANSACTIONS

During the year ended December 31, 2001 the Company issued shares of Common
Stock for conversion of Convertible Promissory Notes totaling two hundred ten
thousand dollars ($210,000.00).

The Company issued common stock in lieu of payment for services rendered in
the amounts of $60,000 and $16,995 during the years ended December 31, 2001 and
December 31, 2000 respectively.

During the period ending December 31, 1999, 200,000 shares of Common Stock
were issued at par value.

In connection with the emergence from bankruptcy the trustee distributed
four million three hundred thousand four hundred and three dollars ($4,300,403).

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

F-4

KENILWORTH SYSTEMS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999

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

F-5

KENILWORTH SYSTEMS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

THE COMPANY AND NATURE OF BUSINESS

Kenilworth Systems Corporation (the "Company") was incorporated in New York
in April 1968 and now plans to be engaged in the business of developing and
manufacturing terminals that permit individuals from remote locations, to play
along with live in progress casino table games located inside and outside the
casino confines via TV (simulcast) satellite broadcast around the world.

The Company was in bankruptcy proceedings under Chapter 7 and 11 of the
Bankruptcy Code for the period from August 28, 1982 through September 23, 1998
the Company ceased all operations.

The Company emerged from Chapter 7 bankruptcy on September 23, 1998 and
plans to be engaged in the development, manufacturing, marketing and operation
of a systems that allows casino patrons to play along with live table games in
progress via TV satellite broadcasts on terminals located within the casino
confines and outside the casino confines.

ADVERTISING COSTS

Advertising costs are expensed as incurred.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of Kenilworth
Systems Corporation and its wholly owned subsidiaries: Video Wagering Systems
Corporation, Roulabette Nevada Corporation and Kenilworth Systems Nevada
Corporation. None of the subsidiary has any assets or liabilities.

EARNINGS PER SHARE

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

Basic loss per share is based on the weighted-average number of shares of
common stock outstanding for the period, which were ($.00), ($.00), and ($.00)
for the year ended December 31, 2000, and 1999, and the period November 24, 1998
to December 31, 1998, respectively.

Diluted earnings per share has not been presented in the accompanying
financial statements because the effect of assumed conversion of convertible
promissory notes was anti-dilutive.

INCOME TAXES

The Company uses the liability method to account for income taxes in
accordance with requirements of SFAS No. 109.

USE OF ESTIMATES IN THE FINANCIAL STATEMENTS

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.

F-6

KENILWORTH SYSTEMS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company's financial statements include cash, receivables and accounts
payable. Due to the short-term nature of these instruments, the fair value of
these instruments approximates their recorded values.

PROPERTY AND EQUIPMENT

Property and Equipment are stated at cost. For financial reporting purposes,
property and equipment are depreciated utilizing the Straight-Line Method over
the estimated useful lives of the related assets as follows:

NOTE 2--DUE FROM RELATED PARTIES AT DECEMBER 31, 2001

Due from related parties at December 31, 2001 represents advances made to a
stockholder of the Company in the normal course of business. Such amounts are
non-interest bearing and have no definite repayment terms.

NOTE 3--PROPERTY AND EQUIPMENT

Property and Equipment consist of the following as of December 31, 2001 and
December 31, 2000.

Depreciation expense for the years ended December 31, 2001 and December 31,
2000 was $3,342 and $1,144, respectively.

NOTE 4--BANKRUPTCY PROCEEDINGS

Throughout the 1980's the Company experienced working capital shortages that
resulted in the Company filing a voluntary petition for reorganization under
Chapter 11 of the United States bankruptcy Code. From August 28, 1982 to
June 7, 1985 the Company operated during reorganization proceedings. On June 7,
1985, a United States Bankruptcy Judge confirmed the Company's Plan of
Reorganization. On April 27, 1988, the Bankruptcy Court entered a final decree
in the case. On October 27, 1988, the case was re-opened on grounds the Debtor
failed to consummate its plan of reorganization and on February 25, 1991 the
case was converted to a case under Chapter 7 of the Bankruptcy Code. By order of
the Court dated June 19, 1991 the Chapter 7 was reconverted to a case under
Chapter 11 of the Bankruptcy Code. A second plan of reorganization was approved
and a

F-7

KENILWORTH SYSTEMS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 4--BANKRUPTCY PROCEEDINGS (CONTINUED)
second order of confirmation was entered in connection with the Chapter 11 case
on October 2, 1991. However, the Debtor was unable to consummate its second plan
of reorganization, and by order dated November 25, 1991, the case was
reconverted to a case under Chapter 7 of the bankruptcy Code.

From February 1991 through September 1998, the Company was inactive. In
September 1998 a United States Bankruptcy Judge in the Eastern District of New
York approved the Final Report and Accounts submitted by the Chapter 7 Trustee
of the Estate of Kenilworth and after obtaining approval from the U.S. Trustee,
Kenilworth made a one hundred percent (100%) cash distribution to the creditors
and paid in full all administrative fees and expenses. The Company emerged from
Bankruptcy on September 23, 1998 with no assets and no liabilities. For the
period September 24, 1998 through November 23, 1998 the Company was in the
process of monitoring the payments by check to the creditors. No other activity
occurred during that period.

NOTE 5--INCOME TAXES

The Company is a "C" Corporation for tax purposes.

The Company estimates that it has available approximately eight million
three hundred thousand dollars ($8,300,000) in net operating loss
carry-forwards, which expire at various dates 2020. Utilization of the NOL
carry-forward may be limited under various sections of the Internal Revenue Code
depending on the nature of the Company's operations.

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

NOTE 6--CONVERTIBLE PROMISSORY NOTES

In November and December 2001 Convertible Promissory Notes totaling two
hundred and ten thousand dollars ($210,000) issued during the second quarter of
2001 were converted into 4,861,111 shares of Common Stock which included accrued
interest.

In August 2000, the Company sold a one (1) year one hundred thousand dollar
($100,000.00) Convertible Promissory Note to a single, non-affiliated party. The
Note was converted in December 2000 into six hundred eighty seven thousand seven
hundred seventy two (687,772) shares of which included twenty one thousand one
hundred six (21,106) shares for the accrued interest. All Notes were converted
into restricted common stock of the Company as the term is defined under the
Securities Act of 1933. All proceeds either have been used to defray current
expenses.

NOTE 7--GOING CONCERN UNCERTAINTY

As indicated in Note 2, the Company emerged from Chapter 7 in
September 1998 and has not yet commenced operations. These factors create
uncertainty as to the Company's ability to operate as a going-concern.
Management plans to develop a wagering system that allows casino patrons and
individuals outside the casino to play along with live casino table games. The
first step in the plan is to conduct testing. Unless the Company is able to
obtain sufficient funds, none of the tests and initial development work can
commence. The Company plans to obtain the necessary funding by offering its
common stock, or Senior Cumulative Convertible Preferred Shares in a private
placement, or selling limited joint venture participations in future "play along
with casino game" franchises.

F-8

KENILWORTH SYSTEMS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 7--GOING CONCERN UNCERTAINTY (CONTINUED)
If initial testing is successful, the second step is to obtain the proper
licenses from the gaming control regulators in the various venues the Company
intends to offer its system. Upon successful licensing, the Company plans to
obtain financing from regular banking sources to finance the manufacturing of
the computer terminals that allow the worldwide play along.

The accompanying financial statements have been prepared assuming the
Company is a going-concern and do not reflect adjustments, if any, that would be
necessary if the Company were not a going-concern.

NOTE 8--COMMITMENTS AND CONTINGENCIES

OUTSTANDING PAYROLL TAXES

As of year-end, the Internal Revenue Service is contending that the Company
owes payroll taxes including interest and penalties totaling almost $400,000 for
various periods from 1985-1991. The Company is currently in negotiations with
the IRS to resolve these issues. In management's opinion, no accruals are
necessary since it believes that these assessments are incorrect and were
discharged in its bankruptcy proceedings.

NOTE 9--QUARTERLY FINANCIAL INFORMATION--UNAUDITED

The following table sets forth certain unaudited condensed quarterly
financial data for the fiscal years ended December 31, 2001 and 2000. This
information has been prepared on the same basis as the consolidated financial
statements and all necessary adjustments have been included in the amounts
stated below to present fairly the selected quarterly information when read in
conjunction with its consolidated financial statements and notes thereto.
Historical quarterly financial results and trends may not be indicative of
future results.

KENILWORTH SYSTEMS CORPORATION
QUARTERLY DATA
2000 AND 2001

F-9

SIGNATURES

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

KENILWORTH SYSTEMS CORPORATION

By: /s/ HERBERT LINDO
-----------------------------------------
Herbert Lindo
PRESIDENT, CHIEF EXECUTIVE AND CHIEF
FINANCIAL OFFICER

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