UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-K

 

 

 

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

 

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 ý No o

 

 

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. o

 

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 ý No o

 

The number of shares outstanding of the Company’s Common Stock as of December 31, 2003 totaled 100,412,753 Shares.

 

At the Annual Meeting of Shareholders the Shareholders approved the issuance of 20,000,000 Shares of Restricted Common Stock to Herbert Lindo, the President of the Company for having assigned to the Company the Patent that was granted on June 10, 2003.  Titled “System and Method For Remote Roulette and Other Game Play Using Game Table at a Casino”.  Upon Mr. Lindo’s request, the Shares have not been issued.  (See Part III Item 12 Beneficial Ownership (1).)

 

The aggregate market value of the voting stock held by non-affiliates 55,912,753 of the Company on March 22, 2004 was $23,674,454. The price at which the common stock sold on the aforesaid date was $0.26.

 

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TABLE OF CONTENTS

 

PART 1
ITEM 1 - Description of Business	4
ITEM 2 - Properties	16
ITEM 3 - Legal Proceedings	16
ITEM 4 - Submission of Matters to a Vote of Security Holders	17
PART II
ITEM 5 -  Market Prices of the Company’s Common Stock and Related Stock Holder Matters	17
ITEM 6 -  Selected Financial Data	18
ITEM 7 -  Management Discussions and Analysis of Financial Condition and Results of Operations (Contains Risk Factors)	19
ITEM 8 - Financial Statements and Supplementary Data	22
ITEM 9 - Changes and Disagreements with Accountants on Accounting and Financial Disclosure	22
ITEM 9A - Controls and Procedures	22
PART III
ITEM 10 – Directors and Executive Officers of the Registrant	23
ITEM 11 – Executive Compensation	25
ITEM 12 – Security Ownership of Certain Beneficial Owner and Management and Related Stockholders Matters	26
ITEM 13 – Certain Relationships and Related Transactions	27
ITEM 14 – Principal Accountant Fees and Services	27
PART IV
ITEM 15 – Exhibits, Financial Statement Schedules and Reports on Form 8-K	27

 

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FORWARD LOOKING STATEMENTS

 

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 the following: “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.

 

INTRODUCTORY NOTE TO PART IV

 

The Consolidated Financial Statements for this Annual Report on Form 10-K for the year ended December 31, 2003, as presented, have NOT BEEN AUDITED by Independent Auditors.  The report by Independent Auditors is expected to be completed by May 30, 2004 and will be filed as an Amendment to these Financial Statements.  The delay Is caused in part by the following prior year statements.

 

INTRODUCTORY NOTE

 

An Amendment No. 3 hereto for FORM 10-K/A to the Annual Report on FORM 10-K for the year ended December 31, 2002 was filed to restate certain amounts which were reported and revised in the presentation of the Company’s Consolidated Statements for the years ended December 31, 2002.

 

The items amended were as follows:

 

Part IV           The Company’s financial for 2002 were not audited.

 

The financials are presented as a Development Stage Corporation.

 

Throughout the Financial Reports all references to financial data now indicate that the Company sustained only Losses and Deficits since emerging from Bankruptcy Proceedings in September 1998.

 

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

 

Kenilworth’s business presently is solely in the planning stage. We plan to engage in the development, manufacturing and marketing of an operation entitled Roulabette™. Roulabette™ would allow casino patrons and other players to play along with live in-progress casino table games such as Roulette, Craps and Baccarat and more via digital satellite and digital cable television broadcasts (simulcasts) emanating from strictly regulated casinos located in the United States and other locations around the world, to self-sufficient computer terminals dubbed “Roulabette™” and digital satellite and cable TV set top boxes. The

 

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Roulabette™ terminal is a concept intended to be built and there can be no assurances that it will ever be built.  The microprocessor to be installed in the TV set top boxes have not been designed. We have as at December 31, 2003, no agreements, customers or proposals for any future business and there can be no assurances that we will ever have same.

 

Our present plans are to develop a wagering system that would allow patrons throughout the industrialized world to play and wager on live casino table games called “Roulabette”™ which can be viewed and wagered upon 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 and digital cable broadcasts emanating from strictly regulated casinos.

 

On March 28, 2002, the Company had entered into a contract with Archon Corporation for a thirty (30) day test to simulcast live in-progress roulette table game action that eventually could allow players worldwide to wager along with table players at Archon’s Pioneer Casino in Laughlin, Nevada. The test, a world first, was 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 any contracts between Kenilworth, a casino operator and the simulcast test proposal before any test can take place.

 

The proposed live test was cancelled by mutual consent.  It was determined that the proposed simulcasts of live in-progress casino table games, had first to be approved by the Nevada State Legislature in the form of a legislative bill, permitting the “Live Game Broadcasts” from Nevada.

 

The Nevada State Legislature meets for only ninety (90) days once every two (2) years.  The current session began on February 3, 2003.   We retained lobbyists and legislative advisors to introduce legislation that, if approved, will establish the regulatory framework for worldwide simulcasts, via digital satellite transmission of live, in-progress, casino table game play.  The Nevada Senate Committee on Judiciary comprised of seven (7) Senators met on April 8, 2003 and after hearing testimony from various interested parties, and the Company, failed to take any action on the bill to enact provisions governing live game broadcasts (BDR 41-1174) because of lack of time available for further hearings.

(The thirty-six [36] page minutes of the Nevada Senate Judiciary hearing are available on www.leg.state.nv.us/72nd/minutes/senate/jud/final/2562.html.)

 

If the proposed legislative bill had been passed and signed by the State of Nevada’s governor, Kenilworth would have initially broadcast Roulette, Craps and Baccarat games to jurisdictions around the industrialized world.  As the result of the failure to act upon the legislation, Kenilworth is in active negotiations with the owners of the seventy-five thousand (75,000) square foot Dynasty Hotel and Resort Casino located in Tinian, Commonwealth of the Northern Mariana Islands, a U.S. Commonwealth and the Authorities of the Northern Marians, the Tinian Casino Gaming Control Commission and the office of the Mayor of Tinian, all of which will share in the net revenue earned by Kenilworth from the live game broadcast primarily to the Asian market.  This market consists of an estimated one hundred seventy million (170,000,000) satellite and cable subscribers, all of whom are potential wagerers.

 

It may be that in order for hotels not to be required to obtain casino licenses in their jurisdictions to offer “Roulabette”™, they may have to limit the wagering to minimal amounts, so as to qualify the games as entertainment for registered hotel guests.  Resort gaming may establish a trend for the entire hotel industry worldwide.

 

In the event a substantial amount is won by a player, Kenilworth will make payment to the winner, via money wire transfer to the establishment which managed the wager within twenty-four (24) hours.  Kenilworth will establish a worldwide cage for winning payments; or, a guarantee of payment by a well-recognized international bank.

 

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

 

To conduct the initial broadcast Kenilworth believes it will require ten million dollars ($10,000,000) and there are no assurances we will ever be able to obtain any of such money. At present, the Company does not have the funds available but hopes to obtain same, from investors, as soon as Kenilworth can commence broadcasting from the Dynasty casino and other casinos throughout the world.

 

In prior years, 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 (Totalizator Agency Board) a quasy government agency of the State of Victoria, Australia, a cashless slot machine system. Both systems required debit cards and central mainframe 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 system that will manage the wagers by the microprocessor installed in TV Set Top boxes to receive satellite broadcasts. 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.  There are no assurances we will be able to successfully develop any system.

 

The proposed system dubbed “Roulabette”™ also will provide Roulabette™ terminals that may be placed in resorts, racetracks or other gathering places which consists of a personal computer (PC) with two (2) monitors.  One monitor will display the live in-progress casino table game play as well as advertising.  The second, which will be outfitted with a touch screen, allows a player to place wagers directly over the games displayed on the first monitor.  It will also have a variable denomination bill acceptor and a bar code ticket dispenser.  Both monitors will be housed in an attractive enclosure. The Roulabette™ terminal will be the size of a typical “low boy” slot machine (desk top height).  Each terminal would be self-sufficient, manages wagers from $0.25 to $100.00 or the equivalent in most any currency, and receives the table game play via simulcast digital satellite TV transmissions (with dish antennas) or local cable connection from legally operating casinos throughout the industrialized world.

 

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.

 

Kenilworth will seek to promote to state lotteries and foreign jurisdictions, 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.

 

We believe there are powerful arguments for state legislatures to amend their Lottery Acts to include “Play Along with Roulabette™ 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 Roulabette™ Live”, there is interaction, excitement and fun. All which we believe may be at much better odds than may be offered by the lotteries. The lotteries can establish maximum wagers daily, weekly and monthly limits, and monitor compulsive gamblers, and limit their play by use of lottery terminals to make deposits in cash to wager along.

 

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Features Archive

This following feature has been prepared by the groupe of Sorbonne University’s DESS   Communication Audiovisuelle in Paris, France under the direction of Julien Favre.

 

FOCUS
Casino table game broadcast live on TV, and interactive!
by Julien Favre, Chief Editor, iTVi

 

Subscribers to digital satellite and cable programs will soon be able to bet as they watch live, in-progress casino table game action, thanks to a new (a patented) system developed by Kenilworth Systems Corporation that will involve States lotteries...

 

Bet As You Watch Casino

 

The “Bet As You Watch Casino” service will be deployed in conjunction with States Lotteries. Digital TV subscribers will go to their local lottery agents and buy an “admission ticket”. The ticket will allow them to access the interactive service.

The service will consist of television simulcast broadcasts of live in-progress casino table game action. Viewers will be able to bet exactly as they were in the casino playing at the table.

The program will include Hollywood entertainment and commentators (much like commentators of sporting events) in order to assist players with the rules and strategies of the games.

 

Distribution

 

The first viewers to access the service will probably be Asians. Kenilworth is presently actively exploring casino broadcast sites to the Asian market, which has twice as many digital satellite subscribers than the U.S. and U.K. combined.

A highly regulated initiative

 

Exclusively licensing lotteries and their operators for the cash deposits required for wagering on the programs will assist Kenilworth in its efforts to make sure the under aged won’t participate in the casino action. Lottery Terminal Operators must observe the minimum age laws under criminal penalty.

 

A special effort will also be made to identify compulsive gamblers. By monitoring all wagering action, the system will be able to identify problematic gamblers and limit or shut down their obsessive gambling habits.

 

Business model

 

Revenues from the admission tickets will be split between Kenilworth and the State lotteries, OTB offices and Race track owners.

 

Technology

 

Kenilworth has been granted a U.S. Patent for the interactive television wagering system in June 2003, which Patent has also been filed in forty-nine (49) countries including China and Russia.

 

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The Patent was assigned to the Company when it was pending in 2000 by its inventor Herbert Lindo.

 

Kenilworth’s technology involves a microprocessor that is incorporated in the TV Set Top Box used by the viewer to receive the digital satellite broadcasts. The microprocessor manages the wagers.

 

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 would be able to sign up with their respective lottery 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 throughout the world, 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.

 

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.

 

KENILWORTH MANIFEST

 

(The Manifest contains forward-looking statements

which is based upon our beliefs and expectations of which there can be no assurances.

See “Risk Factors” contained in Item 7)

 

Casino gambling throughout the world, in every form, is on the increase.  Most jurisdictions need the revenue from gambling to balance their budgets or increase their tax collection.  Recently a newspaper report published in the Wall Street Journal in March 2004 indicated that nineteen (19) states are exploring to use gambling to raise funding needed for schools and other tax relief.

 

Kenilworth Systems Corporation expects to be able to provide, of which there can be no assurances, simulcast gaming worldwide, giving everyone the opportunity of playing a casino table game as if they were on the floor of a major casinos.  This project would provide all of the benefits and actual excitement of playing in a casino as actually being at the casino.   Gaming enthusiasts will welcome the chance to place wagers on live in-progress casino table games, whether they are at a local tavern, hotel, resort, racetrack or other public gathering place, or at home.  Kenilworth hopes to be able to lead the industry in this area, and its Patent and Patent pending and its technology we believe would allow all of this to happen of which there can be no assurances.

 

Our proposed system has the potential to replace the existing one thousand (1,000) foreign virtual gambling websites now in play, which garnished more than five (5) billion dollars from U.S. citizens in 2003 violating the 1961 Wire Act without paying any U.S. taxes.  We expect that players will prefer to “Play Along with a Live Casino Game” versus a virtual make believe game, assisting the U.S. Attorney General’s Office curbing illegal wagering in the United States by foreign website operators and enticing the public into wagering illegally.

 

Initially, the proposed broadcasts will be of Roulette, Craps and Baccarat games.

 

We may franchise the simulcast which may allow broadcasts to jurisdictions that have approved gaming regulations.

 

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Kenilworth will offer to share a percentage of its worldwide net winnings with the state, and other foreign jurisdictions, and the appropriate sponsoring casinos.

 

All franchisees will be required to make the broadcasts available to digital satellite and digital cable subscribers in their jurisdictions.   Kenilworth, as part of its marketing plan, will supply the appropriate TV, cable, and interactive equipment (for betting terminals) to the franchisee.

 

The various Regulatory Authorities will monitor all franchisees of the Kenilworth System.  A violation of their regulations by a franchisee may result in a termination of the franchise.

 

For “Play Along With Roulabette™, Live” a franchisee will be required to provide the at home player with the ability to deposit funds into their pre-paid gambling accounts anytime, and on the spur of the moment.

 

We hope to provide Licensed Betting Offices (bookmakers) in Europe, lottery operators and OTB offices in the U.S., to manage the wagering accounts for at home players.  They will be able to accept last minute deposits.  In jurisdictions, which have lottery terminals in place, arrangements will be made with the lottery to accept instant deposits and pay winners, using the lottery terminals as the managing device.

 

A player will simply mark a ticket with his/her Set Top Box and TV set Identification Number, together with the amount to be deposited.  From that point on, the procedure is the same as selecting lottery numbers.  A winner can be paid using the reverse procedure.

 

Betting offices and lottery terminal providers will either share in the net win managed by each, or be paid a fixed commission for the amount deposited.

 

Where authorized, hotels, resorts, clubs, pubs, racetracks and other public gathering places (the “site”) will be able to offer casino table game action in their establishments without incurring casino operating costs.  At our expense, we will place Roulabette™ terminals and/or advanced PDA’s at the site, enabling wagering via the site’s television sets.

 

It may be that in order for hotels not to be required to obtain casino licenses to offer “Roulabette”™, they may have to limit the wagering to minimal amounts, so as to qualify the games as entertainment for registered hotel guests.  Resort gaming we believe will establish a trend for the entire hotel industry.

 

In the event a substantial amount is won by a player, Kenilworth will make payment to the winner, via money wire transfer to the establishment within twenty-four (24) hours.  Kenilworth will establish a worldwide cash cage for winning payments; or, a guarantee of payment by a well-recognized international bank.

 

In August 2002, the Attorney General of the United States Office informed the Nevada Gaming Control Board (Chairman and Commissioner Dennis Neilander, Esq.) that Internet wagering is in violation of the 1961 Wire Act and, therefore, cannot be permitted in the United States or transmitted from the United States to other countries in the world.  Previously, the Nevada State Legislature had approved Internet gambling (February 2001) subject to the approval by the U.S. Attorney General’s office.  Nevada is the only state that approved Internet gambling.  Most states have outlawed Internet gambling. Others have taken no action.

 

Our proposed simulcast, via digital satellites, will not use a wire transmission and communication facility. We are not within the constraints of the Internet gambling interdiction.  Our broadcast is similar to horseracing and sporting events, where the simulcast is transmitted via satellites to the various satellite dish subscribers, and then downloaded to cable companies.  Licensed Betting Offices, OTB offices and racetracks that offer out of state horse racing would pick up the satellite broadcasts with their own dish antennas.  We believe broadcasting casino play action via satellite transmission within state boundaries does not violate the Federal 1961 Wire Act.  We further believe it will be permitted by the Interstate Horseracing Act of 1978, USC 300, Et. Seq.  There can be no assurances of the foregoing.

 

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Last September, the House of Representatives voted and passed the Internet Gambling Enforcement Act, which bans credit and debit cards, checks, “Western Union type” wire transmission and all other means of transferring money for use in connection with Internet Wagering. Since the Senate did not approve a companion Bill, the House and Senate must pass the legislation again in 2004.  We believe there appears to be an anti-Internet gambling sentiment in Congress and passage by both houses appears certain.  Our method is distinct, as players using our system, unlike the Internet, will be subject to state casino regulations and will not be permitted to use credit or debit cards. We believe are there no U.S. prohibitions to simulcast live action of casino games as long as the wagers are placed and wagered within the state.

 

In our proposed worldwide plans, wagers would be placed with Licensed Betting Offices and lottery terminal operators.  They would be only permitted to accept cash at their offices or lottery terminal locations.  Currently, they would be obliged to make sure that no one underage places or collects wagers on horseracing, sporting events or the lottery.  The same would apply when they accept wagers or pay winnings on our live simulcast broadcasts.  We believe, although there can be no assurances, that our system is simple and 100% foolproof.

 

Initially our proposed simulcast will be for entertainment purposes only and will start with broadcast emanating from casinos outside of the United States and delivered to foreign jurisdictions that permit our type of casino gambling until the anti-casino expansion sentiment subsides in the United States Congress. Our proposed broadcasts may actually contain live entertainment produced in Hollywood.  Thirty (30) minutes of gambling, then thirty (30) minutes of entertainment, then thirty (30) minutes of gambling and then back to entertainment.  The entertainment would be inserted the same as commercials are presented on TV shows.

 

We believe the proposed broadcast does not require any sophisticated electronics; only the acceptance by the satellite and cable operators and the approval of the Federal Communications Commission.  We have been unofficially advised that, for entertainment only (no wagering), our broadcasts will be classified the same as any program now being broadcast via the networks.  For gambling, we will require an FCC license, which we would have to obtain (simulcasting of horse racing requires an FCC license).

 

As the Justice Department has prevented the EchoStar and DirecTV merger, we would like, without assurances to be able to franchise these companies.  Initially, they might broadcast our simulcasts for advertising revenue.  Later, with live games, they would share in the net win, which is what we expect to negotiate in Europe and Asia.

 

BSkyB (NewsCorp.) and Vivendi (France) are both leaders in the betting business.  They presently control satellite broadcasts in Europe for turf and sport wagering (soccer) and we will without assurances attempt to reach a license with them.

 

LOGICAL QUESTIONS:

 

(The following is a series of some questions, and what we believe,

without assurances, are our answers to them.)

 

(1.)          Why aren’t major casinos in Nevada and Atlantic City that have substantial resources, and the casino table games, competing with us?

 

The answer is simple.  They are casino operators.  If they, even by accident, have a minor playing along with their broadcasts, or commit any other violation, they could lose their Nevada or Atlantic City and other state Casino or foreign licenses.  Establishing a subsidiary for their transmissions does not absolve them from the violation.  Kenilworth is not a licensed casino operator.  Kenilworth holds the U.S. Patent for remote casino wagering and they would be able to operate under our license.

 

Further, if we commence broadcasting from the gaming capital of the world, we plan to broadcast from five (5) strip casinos in rotation, in order that each casino will have the opportunity, on certain days, to broadcast during prime time.  When we manage the broadcast in their casino, we will have the same crew

 

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in the communication room (4 technicians, 24 hours a day, 7 days a week).  For example, on Monday at Caesar’s, Tuesday at the Venetian, Wednesday at MGM, and so on.  If another casino attempts to compete with us, we believe they will violate our patent.  They would also have to engage their own crews (24 hours a day, 7 days a week), hire the same satellite provider for their broadcast to Europe and Asia, and pay a percentage of their net win to other franchisees (at least the same percentage of our net win or more, as we all will compete to have them manage the wagering).

 

We believe that the Nevada casinos would fare better in accepting a percentage of our net win, which they would receive without any operating costs.  We believe they might be exempt from Nevada taxes, as we propose to share our revenue with states that permit our broadcasts.

 

Net win is determined before deduction of expenses.  It’s a term used to collect taxes on gambling revenue (table drop) before operating expenses.  In Europe, and now in some states in the U.S., this tax amounts to an average of twenty percent (20%), with minimum annual taxes of up to one hundred million dollars ($100,000,000).

 

We propose to offer a percentage of our net win to any state.  On a worldwide basis revenue could reach, in the not too distant future, in the three to five hundred billion dollar range ($300-500 billion).  That could earn billions of dollars annually to participating jurisdictions.  Law enforcement agencies estimate that Americans wagered $380 billion in 2001 on sporting events (mostly illegally).  Our proposed system can be regulated and controlled (unlike Internet sites).

 

(2.)                               Why wouldn’t the U.S. Congress also prevent simulcasting of live casino table games, like it has with Internet gambling?

 

The Interstate Horse Racing Act of 1978 permits simulcasts of races via satellite transmission between states, which are then downloaded to cable systems.  Horse and sporting club owners are traditional and substantial contributors to House and Senate campaigns.  It is big business that we believe would have to be abolished if our proposed simulcasts are outlawed.  The probability of its abolition is remote.

 

(3.)                               What happens if the Nevada State Legislature does not, or cannot, authorize the live game broadcasts?

 

We will endeavor to proceed outside the U.S. similarly to the Dynasty casino on Tinian.  We will seek to introduce our proposed legislation to other states such as New Jersey, Michigan, New Orleans and Connecticut.

 

(4.)                               What will happen if non-casino or casino operators attempt to compete with us?

 

If they do, they run the risk of an injunction and incurring triple damages.  The U.S. Patent titled “System and Method For Remote Roulette and Other Game Play Using Game Table At A Casino” for remote live in-progress casino play was issued on June 10, 2003 to Kenilworth and has been filed for approval in forty-nine (49) industrialized countries including Russia and China.

 

(5.)                               Will there be opposition by Nevada casino operators?

 

The past has proven to the Nevada casino industry that as more casinos are built in the United States (we believe there are now seven hundred fifty [750] casinos outside of Nevada), more visitors come to Nevada. Our worldwide broadcasts would substantially enhance the overall demand to visit Las Vegas or any other state or jurisdiction that permits our broadcasts, and to other casinos from which we will broadcast.

 

SUMMARY:

 

(1.)  Kenilworth’s business presently is solely in the planning stage. We plan to engage in the development, manufacturing, marketing of an operation entitled Roulabette™. Roulabette™ would allow casino patrons and other players to play along with live in-progress casino table games such as Roulette, Craps and

 

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Baccarat and more via digital satellite and digital cable television broadcasts (simulcasts) emanating from strictly regulated casinos located in the United States and other locations around the world, to self-sufficient computer terminals dubbed “Roulabette™” and digital satellite and cable TV set top boxes. The Roulabette™ terminal is a proposal intended to be built and there can be no assurances that it will ever be built.  The microprocessor to be installed in the TV set top boxes have not been designed. We have as at December 31, 2003, no agreements, customers or proposals for any future business and there can be no assurances that we will ever have same. Reference is also made to each of the “Risk Factors” that are set forth in Item 7.

 

(2.)   In order not to endanger the viability of the their local casinos, we believe, without any assurances that the Nevada Legislature should allow our proposed simulcasts, as there are too many other prominent and well-regulated casinos in the U.S. from which our simulcasts can be transmitted around the world.  For example, Atlantic City, N.J., Connecticut, (Foxwood and Mohegan Sun, the two most profitable casinos in the world), Detroit, New Orleans, etc. Most casinos are owned by the very same casino operators we plan to solicit in Las Vegas.  Nevada is the world capital and leader of the casino industry.  As such, it cannot afford to pass up our new innovation.

 

(3.)    Our Roulabette™ terminals, wherever they would be placed in bars, resorts, hotels, racetracks, etc. will only be leased to the operators by the leasing company, which we will engage for that purpose.  If a terminal cannot meet the minimum revenue necessary to pay the monthly leasing charges, it will be moved to another location.  By placing Roulabette™ terminals at horse race tracks, which also offer slot machines, we will be transforming them into complete casinos, without the inherent start up and operating costs.

 

(4.)   If Nevada approves the simulcasts, of which there can be no assurances, we believe, it could spell the end of most of the existing one (1) thousand Internet Virtual casino websites around the world.  It will be likely that no one would wager with a make believe casino game when they know that they can play along with a live game from Las Vegas or other foreign jurisdiction.

 

We believe the thousand virtual casino websites via the Internet obtain sixty percent (60%) of their annual revenue from customers in the U.S.

 

Although Internet gambling is outlawed, we believe it is presently not very well enforced by the U.S. Justice Department.  Much of the opposition in Congress against Internet gambling stems from the fact that the websites are not legitimate, and may even be used for money laundering.  Further, the websites do not effectively prevent minors and underage college students from wagering.  Approximately one hundred (100) entities control the thousand websites. When one site experiences losses, it is shut down and another site is created.  We expect that a majority of these sites will shut down because of our simulcasts, thus directly reducing the number of sites, which need to be policed.

 

Simulcast broadcasts of digital satellite and digital cable transmissions around the world must meet, and will be supervised by, the regulations by the gaming authorities of the broadcasting casino and the jurisdiction, which receives the broadcast.  We believe the supervision will not be difficult to enforce, because all simulcast wagering is “cash only”, from regulated, supervised betting sites.  There are no wire money transfers with banks and no credit or debit cards permitted.  We believe this fact should ease any opposition from concerned citizens and anti-gambling groups, as regulation and enforcement responsibility will be vested in each individual state (or foreign jurisdiction).

 

We believe Kenilworth was the first to use color personal computers (PC’s) to replace electromechanical slot machines (1988).  We provided the software for the first Tabaret located at the Menzie at the Rialto in Melbourne, Australia, which opened in November 1990.  This consisted of cashless, variable denomination and multiple game virtual PAT’s (“Player Activated Terminals”).   Prior thereto Kenilworth sponsored, with the assistance of three Nevada casino operators, 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.

 

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Kenilworth has been a publicly traded Company since 1968. Prior to commencing its endeavors into its proposed business in 1988, it provided security systems to Nuclear Electric Generating Plants in the U.S. and foreign countries, as well as time/attendance systems at a major department store chain.

 

MARKETING STRATEGY/SALES PLAN

 

 In order to develop the Roulabette™ terminal and the Roulabette™ broadcasts, 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.

 

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) additional employees and several consultants and there can be no assurances of our being able to obtain any necessary personnel. There can be no assurances of the availability of any such employees and consultants.  The Company will outsource the development of Roulabette™ and the microprocessors for the TV set top boxes.

 

In the United States Kenilworth hopes 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 and jurisdiction 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 or jurisdiction. There can be no assurances that we will be able to obtain any arrangement with any of these entities or that they would be on suitable terms.

 

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™ of which there can be no assurances,  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 two hundred dollars ($200). 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

 

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the broadcast signal, all that would be required is an eighteen (18) inch dish 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.  No assurances can be given that we can obtain any such approvals.

 

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 only to manage the wagers, and only in jurisdictions that permit the data collection of the gambler not for the live broadcast.

 

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. We believe there are three (3) major slot machine manufacturers in the world, all of which have vastly greater capital resources and substantially more personnel than the Company and may have under development systems that directly compete with Roulabette™.

 

Our present plans are to broadcast the live casino table games from companies that own casinos throughout the industrialized world. 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

 

On June 10, 2003, our U.S. patent for the various aspects of wagering on live in-progress casino table games via digital satellite transmission and other means of transmission, was granted by the U.S. Patent Office and we have taken the steps to protect our interests in forty-nine (49) other countries of the industrialized world.  The Company recently submitted a disclosure for a Patent for accepting wagers for Roulabette™ by lottery terminal operators to the U.S. Patent Offices. There can be no assurances that foreign patents will be issued and that challenges will not be instituted against the validity or enforceability of our patent.

 

GOVERNMENT REGULATIONS

 

Kenilworth has no licenses from any casino regulating authorities and may not require any casino licenses 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 and there can be no assurances that it will be able to do so or obtain the

 

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necessary license in an applicable jurisdiction. The following discussion is not necessarily complete, or current regarding laws and regulations that may be applicable to us.  Any present laws are also subject to future change, amendment or cancellation.

 

New Jersey

 

In order to sell its Roulabette™ wagering systems from 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.

 

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 ninety (90) days or more. 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 it 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.

 

Tinian (Northern Mariana Group)

 

We believe the Tinian Casino Control Commission of the Northern Marianas Island Group mirrors the requirements of the New Jersey Regulations.  At the time of the issuance of this Annual Report on Form 10-K for the year ended December 31, 2003, we were unable to determine the exact outcome of the Tinian

 

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Casino Control Act of 1989 which has been amended several times by various court actions and to the best available information have not been finalized.   Since we are only seeking permission to broadcast live in-progress casino table games from the only casino in the Marianas Group we believe the New Jersey Casino Regulations will more than adequately describe the revised Tinian Regulations.

 

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

 

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